Source: EURLEX
Language: en
Format: md

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| 16.12.2014 | EN | Official Journal of the European Union | C 452/44 |

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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 2013, together with the Joint Undertaking’s replies

(2014/C 452/06)

CONTENTS

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|  | Paragraph | Page |
| Introduction | 1-3 | 45 |
| Information in support of the statement of assurance | 4 | 45 |
| Statement of assurance | 5-15 | 45 |
| Opinion on the reliability of the accounts | 10 | 46 |
| Opinion on the legality and regularity of the transactions underlying the accounts | 11 | 46 |
| Emphasis of Matter | 12-14 | 46 |
| Comments on budgetary and financial management | 16-17 | 47 |
| Presentation of the accounts | 16 | 47 |
| Implementation of the budget | 17 | 47 |
| Comments on key controls of the joint undertaking’s supervisory and control systems | 18-22 | 47 |
| Operational procurement and grants | 19-20 | 48 |
| Overall control and monitoring of operational procurement contracts and grants | 21-22 | 49 |
| Other matters | 23-32 | 49 |
| Late payment of membership contributions | 23 | 49 |
| Legal framework | 24 | 49 |
| Intellectual property rights and industrial policy | 25-27 | 49 |
| Conflicts of interest | 28 | 50 |
| Annual activity report | 29-30 | 50 |
| Follow-up of previous observations | 31-32 | 50 |
| Host State agreement | 31 | 50 |
| Rules implementing the Staff Regulations | 32 | 50 |

INTRODUCTION

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|  | 1. | The European Joint Undertaking for ITER[(1)](#ntr1-C_2014452EN.01004401-E0001) and the Development of Fusion Energy (F4E) was set up in March 2007[(2)](#ntr2-C_2014452EN.01004401-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_2014452EN.01004401-E0003):   |  |  | | --- | --- | | (a) | to provide the contribution of Euratom to the ITER International Fusion Energy Organisation[(4)](#ntr4-C_2014452EN.01004401-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 and have expressed their wish to become members (as at 31 December 2013: 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, which comprise the financial statements[(5)](#ntr5-C_2014452EN.01004401-E0005) and the reports on the implementation of the budget[(6)](#ntr6-C_2014452EN.01004401-E0006) for the financial year ended 31 December 2013; 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_2014452EN.01004401-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_2014452EN.01004401-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_2014452EN.01004401-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 2013 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 2013 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_2014452EN.01004401-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 an amount of 663 million euro proposed by the European Commission in 2010 to cover potential contingencies[(11)](#ntr11-C_2014452EN.01004401-E0011). |  |  |  |  | | --- | --- | --- | |  | 13. | The amount of the Joint Undertaking contribution to the construction phase of the ITER project is exposed to significant risks of increase, mainly resulting from changes in the scope of the project deliverables and due to the current schedule which is considered unrealistic[(12)](#ntr12-C_2014452EN.01004401-E0012). In November 2013, the Joint Undertaking estimated the shortfall (‘negative contingency’) until the finalisation of the construction phase of the project to be 290 million euro[(13)](#ntr13-C_2014452EN.01004401-E0013). The slippage for the construction phase of the project was estimated by the Joint Undertaking at the time of the audit (April 2014) to be at least 30 months. |  |  |  |  | | --- | --- | --- | |  | 14. | In relation to these risks, the Joint Undertaking has not yet implemented a system at contract level to regularly monitor the cost deviations, and has not updated the valuation of the Joint Undertaking contribution to the ITER project beyond the finalisation of the construction phase[(14)](#ntr14-C_2014452EN.01004401-E0014). | |

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| 15. | The comments which follow do not call the Court’s opinions into question. |

COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT

Presentation of the accounts

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|  | 16. | In the notes to the financial statements, the table and the information included under Heading 4.3.1.1. ‘ITER Procurement Arrangement (ITER IO)’, reflect 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 it only contains a limited estimate of the advancement of the work in progress. This information is essential to reflect the status of the activities carried out so far by the Joint Undertaking as regards the procurement arrangements signed with the ITER International Organisation. |

Implementation of the budget

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|  | 17. | The final 2013 budget available for implementation included commitment appropriations of 1  297 million euro and payment appropriations of 432,4 million euro. The utilisation rates for commitment and payment appropriations were 100 % and 89,8 % respectively. However, the implementation rate for the payment appropriations with respect to the 2013 initial budget was only 57,8 %[(15)](#ntr15-C_2014452EN.01004401-E0015). Regarding commitment appropriations, of the 1  254 million euro available for operational activities, 61,7 % were implemented through direct individual commitments while the remaining 38,3 % were implemented through global commitments. |

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

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|  | 18. | The Court of Auditors has previously reported that the Joint Undertaking’s internal control systems had not been fully established. Although significant progress was achieved during 2013, a number of actions still need to be implemented:   |  |  | | --- | --- | | — | as a result of the exercise carried out in 2013 to update the cost estimate of the EU contribution for the construction phase of the project, the process for managing the cost estimate at system level is now in place. However, the process for managing the cost estimate at contract level requires further development work[(16)](#ntr16-C_2014452EN.01004401-E0016); |  |  |  | | --- | --- | | — | the audit results arising from the implementation of the F4E overall control and monitoring strategy for grants and operational contracts[(17)](#ntr17-C_2014452EN.01004401-E0017) were not available at the time of the audit; |  |  |  | | --- | --- | | — | except for the action plan in response to the internal audit on management of experts’ contracts, the other action plans adopted by the Joint Undertaking in response to internal audits[(18)](#ntr18-C_2014452EN.01004401-E0018) had not been fully implemented at the time of the audit. The European Commission Internal Audit Service review of the competitive dialogue procedure for the procurement of tender batch 03 (Tokamak Buildings) concluded that progress had been made towards the application of the basic principles of public procurement but pointed out that the contract tender batch audited included considerable cost uncertainties, mainly associated with the possible evolution of ITER project design and planning. It also mentioned that a substantial part of the requested input data from the ITER Organisation, to be used by the Joint Undertaking for drafting the technical tender specifications, was not available in due time; |  |  |  | | --- | --- | | — | the corporate risk management system did not identify new risks in 2013. As regards the actions adopted in response to the main risks identified previously[(19)](#ntr19-C_2014452EN.01004401-E0019), 12 were implemented, 19 were in progress and 6 had not started by November 2013[(20)](#ntr20-C_2014452EN.01004401-E0020). | |

Operational procurement and grants

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|  | 19. | Negotiated procedures constituted 44 % of the 41 operational tendering procedures launched in 2013 (40 % in 2012). The Joint Undertaking needs to increase the competitiveness of procurement procedures and reduce the use of negotiated procedures. Regarding grants, the average number of proposals received was only one per call. |

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|  | 20. | Five operational procurement procedures were audited. The following weaknesses were identified:   |  |  | | --- | --- | | — | in one procurement procedure the Joint Undertaking did not advertise the contract by means of a pre-information notice in order to increase visibility and competition, |  |  |  | | --- | --- | | — | in one procurement procedure there was an increase of 32 % with respect to the initial cost estimate. In two other procurement procedures the reconciliation of the difference between the final contract value with the initial estimated value was complicated given the nature of the information available in the files[(21)](#ntr21-C_2014452EN.01004401-E0021), |  |  |  | | --- | --- | | — | in one procurement procedure the Joint Undertaking did not have specific guidelines and procedures to ensure that the deliverables from the third parties used as input documents for the tendering procedures were uniformly and systematically reviewed and formally accepted by the Joint Undertaking[(22)](#ntr22-C_2014452EN.01004401-E0022), |  |  |  | | --- | --- | | — | in one procurement procedure the amendments to the original contracts increased the value of the contract by 15 % compared with the initial amount. The information available in the file was not sufficient to conclude that the assessment of the materiality of the amendments was performed as required by the Joint Undertaking’s internal procedures[(23)](#ntr23-C_2014452EN.01004401-E0023), |  |  |  | | --- | --- | | — | the Joint Undertaking has not developed a procedure for the members of staff involved in the tendering procedures; in two procurement procedures the Joint Undertaking staff members providing technical advice during the evaluation of the offers upon request of the evaluation committee had not therefore been formally nominated by the Appointing Authority, either as members of the evaluation committee or as experts providing technical advice to the committee[(24)](#ntr24-C_2014452EN.01004401-E0024), |  |  |  | | --- | --- | | — | in one tendering procedure, the Authorising Officer appointed a team to conduct a dialogue with the candidates selected following the call for expressions of interest. However, there was no formal mandate for this team setting out the dialogue strategy, the objectives to be achieved and the technical, financial and contractual parameters for the negotiations[(25)](#ntr25-C_2014452EN.01004401-E0025), |  |  |  | | --- | --- | | — | in another procedure, the dialogue phase finished four months later than planned and the final conditions of the contract and the updated technical version of the tender specifications were only sent in February 2013. The deadline to send the final tenders was April 2013 (whereas October 2012 was initially planned). The contract was signed four months after the target date. | |

Overall control and monitoring of operational procurement contracts and grants

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|  | 21. | The Joint Undertaking has a system for performing audits[(26)](#ntr26-C_2014452EN.01004401-E0026) at the level of contractors with the aim of checking compliance with the quality assurance requirements[(27)](#ntr27-C_2014452EN.01004401-E0027). |

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|  | 22. | The results of ex post audits on grants and of financial and compliance verifications on contract implementation arising from the implementation of the overall monitoring and control strategy were not available at the time of the Court's audit (April 2014). |

OTHER MATTERS

Late payment of membership contributions

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|  | 23. | The payment of the 2013 annual membership contributions[(28)](#ntr28-C_2014452EN.01004401-E0028) by seven members, totalling 2,2 million euro, was subject to delays ranging from three to forty-eight days. |

Legal framework

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|  | 24. | The new Financial Regulation applicable to the general budget of the Union[(29)](#ntr29-C_2014452EN.01004401-E0029) was adopted on 25 October 2012 and took effect on 1 January 2013[(30)](#ntr30-C_2014452EN.01004401-E0030). However, the framework financial regulation for the bodies referred to in Article 208 of the new Financial Regulation entered into force on 8 December 2013[(31)](#ntr31-C_2014452EN.01004401-E0031). The financial rules of the Joint Undertaking have not yet been amended to reflect these changes. |

Intellectual property rights and industrial policy

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|  | 25. | 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. However, the Joint Undertaking still has to adopt and implement specific measures to mitigate certain risks related to the protection of the Intellectual Property Rights and the dissemination of research results. |

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|  | 26. | The Joint Undertaking is offering the 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. This may expose the Joint Undertaking to a risk as regards 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, if needed. |

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|  | 27. | The Joint Undertaking should monitor the application of the clause of the contracts obliging the contractors to refrain from carrying out any dissemination of research results until a decision about their possible protection is made. . |

Conflicts of interest

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|  | 28. | The Joint Undertaking has adopted specific rules preventing potential conflicts of interest of the members of its Governing Board, Executive Committee, Audit Committee and experts. However, it still has to adopt rules regarding staff members and to set up a database for the general declarations of interest. |

Annual activity report

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|  | 29. | The Chair of the Governing Board of the Joint Undertaking refers in the 2013 annual activity report to the project delays and to the need to seek cost savings; in this report, the Executive Director refers to the risks associated with a potential budget shortfall by 2020, mainly related to the increased scope in relation to the ITER buildings, and to the current schedule, which is under revision (see emphasis of matter in paragraphs 12-14). |

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|  | 30. | The Executive Director’s declaration of assurance makes reference to the progress achieved in 2013 at the level of the overall control environment of the Joint Undertaking, although it acknowledges that some parts still have to reach full maturity (see paragraph 18). |

Follow-up of previous observations

Host state agreement

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|  | 31. | 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. At the time of the audit (April 2014), this was still not the case. |

Rules implementing the staff regulations

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|  | 32. | The Joint Undertaking has not yet adopted all the rules implementing[(32)](#ntr32-C_2014452EN.01004401-E0032) the Staff Regulations. |

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 21 October 2014.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President

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