Source: EURLEX
Language: en
Format: md

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| 17.12.2015 | EN | Official Journal of the European Union | C 422/33 |

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REPORT

on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2014 together with the Joint Undertaking’s reply

(2015/C 422/05)

CONTENTS

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|  | Paragraph | Page |
| Introduction | 1-3 | 34 |
| Information in support of the statement of assurance | 4 | 34 |
| Statement of assurance | 5-17 | 34 |
| Opinion on the reliability of the accounts | 10 | 35 |
| Opinion on the legality and regularity of the transactions underlying the accounts | 11 | 35 |
| Emphasis of Matter | 12-16 | 36 |
| Comments on budgetary and financial management | 18-19 | 37 |
| Financial statements | 18 | 37 |
| Implementation of the budget | 19 | 37 |
| Comments on key controls of the Joint Undertaking’s supervisor and control systems | 20-25 | 37 |
| Operational procurement and grants | 21-22 | 38 |
| Overall control and monitoring of operational procurement contracts and grants | 23-25 | 39 |
| Other matters | 26-27 | 39 |
| Legal framework | 26 | 39 |
| Annual activity report | 27 | 39 |
| Follow-up of previous observations | 28-34 | 39 |
| Intellectual property rights and industrial policy | 28-31 | 39 |
| Conflicts of interest | 32 | 40 |
| Host State agreement | 33 | 40 |
| Rules implementing the Staff Regulations | 34 | 40 |

INTRODUCTION

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|  | 1. | The European Joint Undertaking for ITER[(1)](#ntr1-C_2015422EN.01003301-E0001) and the Development of Fusion Energy (F4E) was set up in March 2007[(2)](#ntr2-C_2015422EN.01003301-E0002) for a period of 35 years. While the main fusion facilities are to be developed at Cadarache in France, the Joint Undertaking is located in Barcelona. |

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|  | 2. | The tasks of the Joint Undertaking are[(3)](#ntr3-C_2015422EN.01003301-E0003):   |  |  | | --- | --- | | (a) | to provide the contribution of Euratom to the ITER International Fusion Energy Organisation[(4)](#ntr4-C_2015422EN.01003301-E0004); |  |  |  | | --- | --- | | (b) | to provide the contribution of Euratom to ‘Broader Approach’ (complementary joint fusion research) activities with Japan for the rapid development of fusion energy; |  |  |  | | --- | --- | | (c) | to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities, including the International Fusion Materials Irradiation Facility. | |

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|  | 3. | The members of the Joint Undertaking are Euratom, represented by the European Commission, the Member States of Euratom and other countries which have concluded cooperation agreements with Euratom in the field of controlled nuclear fusion (as of 31 December 2014: Switzerland). |

INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE

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|  | 4. | The audit approach taken by the Court comprises analytical audit procedures, testing of transactions at the level of the Joint Undertaking and an assessment of key controls of the supervisory and control systems. This is supplemented by evidence provided by the work of other auditors (where relevant) and an analysis of management representations. |

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| STATEMENT OF ASSURANCE   |  |  |  |  |  |  |  | | --- | --- | --- | --- | --- | --- | --- | |  | 5. | 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 Joint Undertaking for ITER and the Development of Fusion Energy[(5)](#ntr5-C_2015422EN.01003301-E0005), which comprise the financial statements and the reports on the implementation of the budget[(6)](#ntr6-C_2015422EN.01003301-E0006) for the financial year ended 31 December 2014; and |  |  |  | | --- | --- | | (b) | the legality and regularity of the transactions underlying those accounts. | |   The management’s responsibility   |  |  |  |  |  |  |  | | --- | --- | --- | --- | --- | --- | --- | |  | 6. | In accordance with Articles 39 and 50 of Commission Delegated Regulation (EU) No 1271/2013[(7)](#ntr7-C_2015422EN.01003301-E0007), the management is responsible for the preparation and fair presentation of the annual accounts of the Joint Undertaking and the legality and regularity of the underlying transactions.   |  |  | | --- | --- | | (a) | The management’s responsibilities in respect of the Joint Undertaking’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[(8)](#ntr8-C_2015422EN.01003301-E0008), and making accounting estimates that are reasonable in the circumstances. The Director approves the annual accounts of the Joint Undertaking 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 Joint Undertaking 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   |  |  |  | | --- | --- | --- | |  | 7. | The Court’s responsibility is, on the basis of its audit, to provide the European Parliament and the Council[(9)](#ntr9-C_2015422EN.01003301-E0009) 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 Joint Undertaking are free from material misstatement and the underlying transactions are legal and regular. |  |  |  |  | | --- | --- | --- | |  | 8. | 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. |  |  |  |  | | --- | --- | --- | |  | 9. | The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for the opinions set out below. |   Opinion on the reliability of the accounts   |  |  |  | | --- | --- | --- | |  | 10. | In the Court’s opinion, the Joint Undertaking’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 rules and the accounting rules adopted by the Commission’s accounting officer. |   Opinion on the legality and regularity of the transactions underlying the accounts   |  |  |  | | --- | --- | --- | |  | 11. | In the Court’s opinion, the transactions underlying the annual accounts of the Joint Undertaking for the year ended 31 December 2014 are, in all material respects, legal and regular. |   Emphasis of Matter   |  |  |  | | --- | --- | --- | |  | 12. | Without calling into question the opinions expressed in paragraphs 10 and 11, the Court draws attention to the following. The Council conclusions adopted on 7 July 2010[(10)](#ntr10-C_2015422EN.01003301-E0010) approved 6,6 billion euro (in 2008 values) for the Joint Undertaking contribution to the ITER construction phase of the project. This figure, which doubled the initial budgeted costs for this phase of the project, did not include 663 million euro proposed by the European Commission in 2010 to cover potential contingencies[(11)](#ntr11-C_2015422EN.01003301-E0011). |  |  |  |  | | --- | --- | --- | |  | 13. | The complexity of F4E activities[(12)](#ntr12-C_2015422EN.01003301-E0012) implies that the amount of the Joint Undertaking contribution to the construction phase of the project is exposed to significant risks of increase[(13)](#ntr13-C_2015422EN.01003301-E0013). These risks mainly result from changes in the scope[(14)](#ntr14-C_2015422EN.01003301-E0014) of the project deliverables and delays in the current schedule which is considered unrealistic[(15)](#ntr15-C_2015422EN.01003301-E0015). The release of a new ITER project baseline (scope, schedule and costs) by ITER IO Council[(16)](#ntr16-C_2015422EN.01003301-E0016), planned for June 2015, has been postponed until November 2015. The slippage for the construction phase of the project was estimated by the Joint Undertaking at the time of the audit (March 2015) to be at least 43 months. |  |  |  |  | | --- | --- | --- | |  | 14. | The latest estimate of the shortfall (‘negative contingency’) until the finalisation of the construction phase, calculated by the Joint Undertaking in November 2014, was 428 million euro (2008 values)[(17)](#ntr17-C_2015422EN.01003301-E0017). F4E is currently working on a more accurate and updated estimate. |  |  |  |  | | --- | --- | --- | |  | 15. | The Joint Undertaking is still developing a central and uniform system to integrate all the operational data and to allow regular monitoring and controlling of estimates, costs and deviations[(18)](#ntr18-C_2015422EN.01003301-E0018). Moreover, it has not updated the valuation of the Joint Undertaking contribution to the ITER project beyond the finalisation of the construction phase. |  |  |  |  | | --- | --- | --- | |  | 16. | As a result of the challenges currently faced by the ITER project, the new Director General of ITER IO presented to the ITER Council an action plan with specific measures to address the main constraints that are currently affecting the development of the project[(19)](#ntr19-C_2015422EN.01003301-E0019). As regards F4E Joint Undertaking, the new Acting Director[(20)](#ntr20-C_2015422EN.01003301-E0020) presented to the Governing Board a F4E action plan which largely supports the ITER IO action plan[(21)](#ntr21-C_2015422EN.01003301-E0021). At the time of the audit, the practical measures for the implementation of both action plans were still being defined. | |

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| 17. | The comments which follow do not call the Court’s opinions into question. |

COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT

Financial statements

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|  | 18. | In the notes to the financial statements, the table and the information included under heading 4.3.1.1 ‘ITER Procurement Arrangement (ITER IO)’, reflects the Procurement Arrangements signed (Column 3) and the Procurement Arrangements credited so far (Column 4). However, the table does not show the degree of advancement of the works in-progress and the text contains limited information. This is essential to reflect the status and value of the activities carried out so far by the Joint Undertaking. |

Implementation of the budget

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|  | 19. | The final 2014 budget available for implementation included commitment appropriations of 1  168,8 million euro and payment appropriations of 567,6 million euro. The utilisation rates for commitment and payment appropriations were 100 % and 88,5 % respectively. However, the implementation rate for payment appropriations with respect to the 2014 initial budget was 73 %[(22)](#ntr22-C_2015422EN.01003301-E0022). Regarding commitment appropriations of 1  125,2 million euro available for operational activities, 23 % were implemented through direct individual commitments while the remaining 77 % were implemented through global commitments. The low rate of implementation by individual commitment is explained by the overall slippage of the ITER project and the multiple change requests coming from ITER IO. |

COMMENTS ON KEY CONTROLS OF THE JOINT UNDERTAKING’S SUPERVISORY AND CONTROL SYSTEMS

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|  | 20. | The Court of Auditors notes that significant progress has been achieved in many areas. At the time of the audit (March 2015), F4E was still addressing a number of key actions for the management of the Joint Undertaking:   |  |  | | --- | --- | | — | F4E is still developing a central and uniform system to integrate all the operational data and to allow for estimates and cost deviations to be regularly monitored and controlled, including the system to estimate the value of each work item at contract level. At the time of the audit, F4E had completed an update of its cost baseline[(23)](#ntr23-C_2015422EN.01003301-E0023) at level 4 of the Working Base Structure (WBS) but not at contract level (level 6). In addition, the system to provide information on the degree of implementation of the activities (Earn Value Management) still has to be developed. |  |  |  | | --- | --- | | — | The action plans adopted by the Joint Undertaking, in response to the internal audits on the financial circuits, grant management and expert contracts, were fully or mostly implemented at the time of the audit (March 2015). As regards the overall status of all the actions plans adopted by F4E in response to the internal audits carried out so far[(24)](#ntr24-C_2015422EN.01003301-E0024), at the date of the audit, out of 46 recommendations still in progress, the deadline for implementation of 29 recommendations was overdue. |  |  |  | | --- | --- | | — | In 2014 the Joint Undertaking Internal Audit Capability (IAC) performed a review of the monitoring of contract implementation in the area of the ITER buildings[(25)](#ntr25-C_2015422EN.01003301-E0025) and outlined the existence of important risk factors such as the immature design of some of the ITER activities, the large number of project change requests, the unrealistic project schedule and the current delay in the implementation of the activities. It is difficult for F4E to mitigate some of these risks effectively, as their ownership belongs to ITER IO. The review also identified that stronger controls and changes to processes are needed, in particular in management and change control, financial management of contracts and the management of non-conformities. |  |  |  | | --- | --- | | — | The European Commission’s Internal Audit Service (IAS) carried out a limited review on the contract management[(26)](#ntr26-C_2015422EN.01003301-E0026) and outlined that F4E is moving from an organisation which is mainly procurement-oriented to an organisation which mainly manages contracts. While the review concluded that F4E is progressing in establishing entity-wide controls to address the risks related to the implementation of the contracts, it also identified a certain number of areas where the controls in place are not yet mature enough, in particular as regards the management of contract amendments and contingencies. |  |  |  | | --- | --- | | — | The F4E internal corporate risk management system identified 10 new risks in 2014. Of the 32 actions identified as at October 2014 to address the 6 very high risks, 13 actions were implemented, 9 actions were in progress, 1 action was cancelled as obsolete and 9 actions had not started. | |

Operational procurement and grants

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|  | 21. | Negotiated procedures constituted 58 % of the 67 operational tendering procedures launched in 2014 (44 % in 2013). Although the Joint Undertaking operates in a very specialised technical field, it still needs to increase the competitiveness of procurement procedures. Regarding grants, the average number of proposals received was only 1 per call. |

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|  | 22. | Five operational procurement procedures were audited. The following weaknesses were identified:   |  |  | | --- | --- | | — | With one exception, F4E failed to provide the amount allocated to the different contracts from the 6,6 billion euro capped budget at the time of launching the procedure. In addition, nor did it provide the value for the estimate at completion (EAC)[(27)](#ntr27-C_2015422EN.01003301-E0027) of these activities. This information is essential to calculate the cost deviations from the capped budget. |  |  |  | | --- | --- | | — | In one case, the deviation of the awarded value of the contract over the cost baseline was 29 % (12,4 million euro in 2008 values). This deviation was not reported in the evaluation committee report. |  |  |  | | --- | --- | | — | Deficiencies were found in the assessment of the financial offers by the evaluation committee. In one case, neither the contract options (amounting to 32 million euro) nor the additional costs to be incurred were taken into consideration in the assessment. In another case, the offers were not compared against the allocated value from the capped budget or against the cost baseline. In none of the procedures reviewed did the evaluation committee reports state the EAC for these contracts. |  |  |  | | --- | --- | | — | The performance of 1 procurement procedure was affected by a 21 month delay beyond the target date for completion. In 2 other procurement procedures, the contracts were awarded 10 and 5 months after the target date. |  |  |  | | --- | --- | | — | In 1 procurement procedure, the Joint Undertaking had to include an unforeseen and unbudgeted activity in the 2014 work programme[(28)](#ntr28-C_2015422EN.01003301-E0028). The value of the additional contract was 2,88 million euro. |  |  |  | | --- | --- | | — | In 1 procurement procedure, the assessment of the technical award criteria provided by the evaluation committee in the evaluation report was too generic and the comments recorded were not sufficiently detailed to support the scores awarded. |  |  |  | | --- | --- | | — | In 3 procurement procedures, although the Joint Undertaking published the corresponding contract notices and carried out a number of pre-procurement activities, it did not advertise the contracts by means of a pre information notice in order to increase visibility and competition, as advised by the Commission Vademecum on public procurement. | |

Overall control and monitoring of operational procurement contracts and grants

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|  | 23. | The Joint Undertaking has a system for performing audits[(29)](#ntr29-C_2015422EN.01003301-E0029) at the level of contractors with the aim of checking compliance with quality assurance requirements[(30)](#ntr30-C_2015422EN.01003301-E0030). |

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|  | 24. | As regards the overall control and monitoring of operational contracts (including financial and compliance verification), the Internal Audit Capability and the European Commission’s Internal Audit Service covered this area in their 2014 audit plans[(31)](#ntr31-C_2015422EN.01003301-E0031). |

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|  | 25. | As regards ex-post audits on grants (as part of the F4E overall control and monitoring strategy), the exercise was not concluded at the time of the Court’s audit. |

OTHER MATTERS

Legal framework

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|  | 26. | The new Financial Regulation applicable to the general budget of the Union[(32)](#ntr32-C_2015422EN.01003301-E0032) was adopted on 25 October 2012 and took effect on 1 January 2013[(33)](#ntr33-C_2015422EN.01003301-E0033). The framework financial regulation for the bodies[(34)](#ntr34-C_2015422EN.01003301-E0034) referred to in Article 208 of the new Financial Regulation entered into force on 8 December 2013. At the time of the audit, the financial rules of the Joint Undertaking have not yet been amended to reflect these changes. |

Annual activity report

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|  | 27. | The Chair of F4E Governing Board refers in the 2014 annual activity report to the need to pursue all cost containment actions, while the Executive Director refers to the system of internal control being further enhanced and improved in order to appropriately mitigate the risks observed by the European Court of Auditors in the ‘Emphasis of Matter’ section of their 2013 annual report[(35)](#ntr35-C_2015422EN.01003301-E0035). |

FOLLOW-UP OF PREVIOUS OBSERVATIONS

Intellectual property rights and industrial policy

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|  | 28. | The Decision on the implementation of the Fusion for Energy Industrial Policy and the Policy on Intellectual Property Rights and dissemination of information was adopted by the Joint Undertaking’s Governing Board on 27 June 2013. |

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|  | 29. | Several actions in relation to the implementation of intellectual property rights and industrial policy were finalised in 2014[(36)](#ntr36-C_2015422EN.01003301-E0036) while some others are still being implemented[(37)](#ntr37-C_2015422EN.01003301-E0037), and three were pending further developments[(38)](#ntr38-C_2015422EN.01003301-E0038). Once the actions are implemented, F4E plans to carry out an impact assessment exercise in order to measure the impact of the different measures on the achievement of industrial policy objectives. |

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|  | 30. | One of the measures adopted by F4E in 2013, in order to attract the interest of the industry in the ITER project and to increase competition, is to offer contractors exclusive rights to the exploitation of the Intellectual Property they produce in fields outside fusion and non-exclusive rights in the field of fusion. |

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|  | 31. | To mitigate the risks related to the obligation for the Joint Undertaking to retain the right to access the full Intellectual Property Rights (background and foreground) involved in the European in-kind contributions and to be able to transfer this access right to the ITER organisation when required, the Joint Undertaking has adopted specific contractual clauses applicable to F4E activities. |

Conflicts of interest

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|  | 32. | The Rules on the management of conflicts of interest regarding staff members were adopted by F4E Governing Board and entered into force on 1 July 2014[(39)](#ntr39-C_2015422EN.01003301-E0039). In accordance with Article 6 of the Conflict of Interest Rule, a register has been established to monitor the main cases, with information on the staff member concerned, the type of conflict of interest and the situation giving rise to the conflict of interest. It has also set up the database for the general declaration of interest forms, referred to in Article 7 of the Conflict of Interest Rules |

Host State agreement

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|  | 33. | According to the Host State Agreement signed with the Kingdom of Spain on 28 June 2007, permanent premises should have been made available to the Joint Undertaking by June 2010. Following contacts between F4E and the Spanish Government, a formal offer was presented to the Joint Undertaking on 10 March 2015. The offer was presented to the Governing Board on 19 March 2015 and discussions with the Spanish authorities are currently taking place. |

Rules implementing the Staff Regulations

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|  | 34. | During 2014, the Joint Undertaking adopted several EC rules implementing the Staff Regulations[(40)](#ntr40-C_2015422EN.01003301-E0040). At the time of the audit (March 2015), some specific EC rules were still to be adopted[(41)](#ntr41-C_2015422EN.01003301-E0041). |

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 20 October 2015.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President

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