Source: EURLEX
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![european flag](./../../../images/eclogo.jpg)EUROPEAN COMMISSION

Brussels, 5.6.2013

COM(2013) 334 final

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

Synthesis of the Commission’s management achievements in 2012

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

Synthesis of the Commission’s management achievements in 2012

1Introduction

Article 317 of the Treaty on the Functioning of the European Union (TFEU) gives the European Commission responsibility for implementing the EU budget, within the limits of the appropriations available and having regard to the principles of sound financial management. It provides for Member States to cooperate with the Commission to ensure that the appropriations are used in accordance with these principles.

By adopting this Synthesis Report, on the basis of the assurances and reservations made by its Directors-General and Heads of Service in their Annual Activity Reports (AARs), the Commission takes overall political responsibility for management of the EU budget. In this Synthesis Report, the Commission also identifies the key management issues to be addressed as a matter of priority and the actions to be taken to address identified weaknesses.

The College delegates the operational implementation of political and management objectives to the Directors-General and Heads of Service, who, as ‘Authorising Officers by Delegation’ (AODs) receive the means to act. This decentralised management organisation is characterised by a clear definition of the responsibilities of the different actors. The AOD’s are fully empowered to define the most appropriate and effective control system for ensuring sound and efficient management of the resources for which they are responsible. The AARs are the main means by which the AODs account for their stewardship of the human and financial resources for which they are responsible. The AODs report on the performance of their duties in the AARs
[1](#footnote2)
 and document any issues arising from their management which need to be brought to the attention of the College. These AARs include a signed declaration of assurance covering, amongst other things, the legality and regularity of financial transactions. Each AAR explicitly confirms that the responsible Commissioner(s) has(ve) been informed of the main aspects of the AAR, including any reservations the AOD intended to make, before the final signature of the declaration of assurance.

This Synthesis Report was adopted after discussion by the College on 5 June 2013.

2Strengthening performance measurement

2.1Performance measurement

The AARs are an important source of information, in particular for the Court of Auditors and for the Discharge Authority. Since 2011, with the support of the Parliament, the Council and the Court of Auditors, the Commission has been working to demonstrate the importance of the quality of spending and the added value of the EU budget. For example, it has presented a comprehensive report on the added value of EU spending in support of its proposals for the new generation of programmes under the next Multiannual Financial Framework
[2](#footnote3)
.

The standing instructions for the 2012 AAR require AODs to deepen their reporting on how they have used the financial and human resources allocated to them to achieve the policy objectives set by the College, and on how these policies have generated added value for EU society. In this way the Commission is progressively developing a performance culture that will take several years to come to full effect, partly because new statistical and other tools need to be developed. Thus, the debate on the eligibility and regularity of payments, while remaining central, will be complemented by one on the performance of policies and the Commission has to be prepared to respond appropriately to this new development.

The Commission instructs its services to deepen the performance framework that should underpin all future AARs. Such a framework consists of a performance-driven culture throughout the organisation, ex-ante setting of objectives, regular monitoring, ex-post measurement and reporting of achievements. It instructs the Secretariat General and the Directorate-General for Budget to include the elements of performance reporting in the standing instructions for the 2013 AARs and 2014 MPs.

Performance reporting should focus on the real needs of stakeholders and strengthen the declaration of assurance with information on 'economy, 'effectiveness and 'efficiency' of financial and non-financial activities. The requirements should be sufficiently flexible to reflect the different nature of activities of the services.

In its proposals for the new generation of programmes under the next multi-annual financial framework (MFF), the Commission has included several elements to enhance the performance framework and simplify the rules and processes in order to reduce the risk of errors affecting payments. This should focus more on efficiency and effectiveness in attaining the overall objectives of the various policy areas while bearing in mind the necessity of ensuring that the level of error on financial transactions does not exceed a reasonable level.

The Commission is concerned that several of the proposals it has made as part of the new MFF to ensure a simpler, stronger framework are not being taken up by the co-legislators
[3](#footnote4)
. It calls on the Parliament and the Council to take greater account of these aspects in the on-going negotiations.

2.2The evaluation report (Article 318 TFEU)

In November 2012, the Commission reported
[4](#footnote5)
 for the second time on its evaluation of the EU’s finances based on the results achieved. This report, required by Article 318 TFEU, seeks to provide an overview of the objectives of EU programmes, and of the impacts and results achieved. The Commission is working to continuously improve this reporting, for example by streamlining it with the existing Strategic Planning Programming-process. This streamlining means that the performance indicators and targets are defined in the MPs, reporting on these is done in the AARs and complemented by Commission-wide evaluations in the Evaluation Report adopted in parallel with this Synthesis Report.

The Commission instructs the Secretariat General to continue to develop the content and coverage of the evaluation report, for example by using more performance information and by ensuring consistency between the evaluation report and the AARs. Examples of performance information include the performance audits carried out by internal and external auditors.

2.3Revision of the Financial Regulation

The Financial Regulation contains the common financial rules and principles applicable to all policy areas. The Financial Regulation has been revised in 2012, reinforcing the need to align control systems with the identified risks and the cost-effectiveness of controls. It sets out a clear general implementation framework, covering all modes of management (including a common framework for shared management which accounts for the main part of the EU budget) and establishing dedicated rules for innovative financial instruments and prizes. For grants directly managed by the Commission, the revision specifically promotes the use of simplified methods to calculate eligible costs (such as lump sums, flat rates and standard scales of unit costs), facilitates the acceptance of costs declared according to the beneficiary’s ‘usual accounting practices’, and introduces lighter procedures for small grants. The same approach has been proposed by the Commission in the sectorial legislation for shared management.

The new Financial Regulation includes provisions requiring services to provide information on their internal control systems as well as those of the Member States where shared management applies, an estimation of the costs and benefits of the controls implied by such a system and an assessment of the expected level of risk of error, when new or revised spending proposals are presented to the legislative authority. Furthermore, the Financial Regulation requires the AODs to take account of risks and cost-effectiveness when setting up control systems and to provide an overall assessment of the costs and benefits of controls in the AAR and, if the level of error is persistently high, to identify the weaknesses, analyse the costs and benefits of possible corrective measures and take or propose appropriate action.

The Commission instructs its Central Services to develop specific guidelines so that these new information requirements are reflected in the 2013 AARs in a timely and cost-efficient manner. For the costs of control beyond the boundaries of the Commission, the necessary preparation should be undertaken with a view of reflecting this information in the 2015 AARs.

3Improving the quality of the Annual Activity Reports

3.1The assessment by the Court of Auditors

In its 2011 Annual Report, the Court of Auditors assessed the quality of several 2011 AARs. It took the line that for six AAR's, the scope or scale of a reservation should have been wider. At the same time, it acknowledged that the new guidance for calculating the residual error rate had led to an improvement, in particular for the AARs for the cohesion policy Directorates-General as well as for the Directorate-General for Research and Innovations.

The 2012 AARs explain the steps taken to address the issues highlighted by the Court of Auditors. The Commission is satisfied that all its Services have addressed the observations made by the Court of Auditors on the 2011 'management representations', and also contributing to address the concerns on the reliability of the AARs expressed in the discharge resolution
[5](#footnote6)
.

3.2A strengthened peer-review process 

In a constant quest for continuous further improvements, the central services of the Commission work from an early stage to support Services in drafting the AARs. They discuss key issues with them and provide guidance when needed. Peer-reviews have proven to be an effective platform for sharing opinions on formulating crosscutting issues and tackling weaknesses.

Following an audit by the Internal Audit Service of the AAR process in the Commission, further improvements have been made to this process. First, the working arrangements for the peer review meetings have been formalised in a 'mutual expectations' paper. Second, Directorates-General are invited to report on how they will reflect the conclusions from the peer reviews in their final AAR, or to provide explanations if they do not agree with these recommendations ('comply or explain' principle). Third, more attention has been given to the conclusions in the AARs underpinning the assurance, including the reasons for making a reservation or not. This process, based on systematic scrutiny of the quality of the AARs has led to improved clarity, consistency and compliance with the standing instructions.

The Commission instructs the Secretariat-General and the Directorate-General for Budget to continue providing guidance to Directorates-General and Services, through a regular review of standing instructions, guidance notes, quality review of draft AARs, peer-review meetings and by providing appropriate training. The 2013 update of the standing instructions should help services by providing reporting templates and at the same time ensure services are compliant with the new Financial Regulation.

3.3Harmonisation of the quantification of procurement procedure errors

In November 2012, the central services updated their guidance on the determination of error rates and the criteria used to qualify the declaration of assurance with a reservation in the case of errors linked to public procurement procedures under direct management. This guidance, which took into account the wider approach by the Court, was aimed at ensuring transparency and comparability as well as producing a realistic calculation of actual financial exposure, while taking into account the possible reputational impact of serious procedural errors.

The Directorate-General for Regional and Urban Policy is leading a process to update the quantification principles used by the cohesion policy services. The Commission will build on this exercise to adopt a decision by end 2013 to harmonize the approach for all shared management services. It will also apply to the activities of certain other services to which public procurement is a significant part of their budgets.

3.4Harmonisation of the materiality criteria

Directors-General and Directors of Executive Agencies include reservations in their declarations of assurance based upon their assessment of the materiality of weaknesses and/or observations regarding the building blocks of their AARs.

As instructed in the Synthesis Report 2011, the shared management DGs have worked to harmonise further the approach for determining materiality based on a) an assessment of the national management and control systems; b) using the error-rates projected in the Annual Control Reports from the national authorities; and c) calculating a cumulative residual error rate.

In its 2012 AAR, the Director General for Agriculture and Rural Development followed a more integrated approach, by disclosing the results of the Commission’s assessment of all operational programmes control systems, taking into account the various levels of assurance obtained from the certification bodies, the Court of Auditors and its own audit findings. The results are mainly visible for the principal systems within pillar one ('direct support'). This approach will be adapted as necessary and extended to the rest of the first pillar
[6](#footnote7)
 and to the second pillar (“rural development”). This will lead to increased precision of the amounts at risk.

The Commission considers that efforts to harmonise the materiality criteria improve the coherence, readability and transparency of the AARs. It instructs the Director-General for Agriculture and Rural Development to continue its efforts and extend the harmonisation of materiality criteria in line with the guidelines for shared management. The Commission instructs the Director-General for Agriculture and Rural Development to examine the situation of Member States where the error rate is above 2 % in particular by examining national audit opinions and statistics provided concerning error rates.

The Commission instructs the Directorate-General for Budget to use the implementation of the new Financial Regulation, and the discussion on the regulatory framework for the spending programmes under the next MFF, to provide advice to the services ensuring that the materiality criteria remain adapted to the level of complexity, the cost-effectiveness of the necessary controls and the risk environment in which the Commission is required to manage the funds.

The standing instructions require DGs to report on the analysis of errors, their root causes and the actions taken to correct and prevent them. A clear link is required between the reported multi-annual residual error rate and the information on recoveries/financial corrections presented in the notes to the accounts in order to show the residual financial risk and the impact on materiality after all measures to protect the EU budget have been applied.

The Commission instructs the Directorate-General for Budget to bring forward advice on how to present the information on the recoveries and financial corrections in a manner that valid conclusions can be drawn as regards the actual exposure of the EU budget.

Due to the lifecycle time span of the programmes, there is inevitably a time lag between the payment, the detection of an error and its correction – hence the advantages of adopting a cumulative approach to reporting. Financial corrections normally address systems weaknesses and cannot be directly linked to specific errors at the level of final beneficiaries. Multi-annual residual error rates and the information on cumulative recoveries/financial corrections reported in the AARs of a specific reporting year are key indicators allowing for an assessment of how the Commission protects the EU budget.

4Assurance gathered through the AARs and reservations made by the Directors-General

Having examined the AARs, in particular the declarations signed by each Authorising Officer by Delegation (AOD) and the reservations they have made, the Commission notes that they all give reasonable assurance regarding the use of resources for the intended purpose, the observance of the principles of sound financial management and the fact that the control procedures used give the necessary guarantees of the legality and regularity of the underlying transactions.

Fifteen Directors-General and two Directors of Executive Agencies issued a total of twenty-nine reservations in their 2012 AARs. Reservations have been made in seventeen services which together account for 85% of the Commission financial operations in expenditure and for 12% in revenue. These included twenty-five of the twenty-seven reservations made in 2011 on which action was still on-going at the end of 2012, plus four new reservations. Two previous reservations could be lifted.

The total volume of operations affected by reservations rose due to a new reservation by the Director General of DEVCO
[7](#footnote8)
, the better scope calculation by DG REGIO, and the financial quantification of the DG AGRI reservation related to decoupled direct payments within pillar one of the CAP which resulted in a quantified financial reservation for three Member States this year, while it was reputational last year and therefore not quantified.

The Commission calls on the Directorates General to review their internal control strategy to ensure that the controls they implement are efficient and cost-effective, and that they adjust the control intensity to the risks they confront while having due regard to their impact on the achievement of policy objectives. The Commission calls on the Directorate-General for Budget to provide guidance and to support this process.

To ensure consistency and comparability, the Commission instructs the Central Services to review the different approaches followed to evaluate the amounts estimated to be at risk.

In their AAR, the AODs estimate amounts at risk between EUR 2.6 billion and EUR 3.5 billion. This corresponds to 1.9% and 2.6% of all executed payments in the Commission budget and the EDF in 2012. With regard to the two largest spending areas (agriculture, natural resources and health, and cohesion) those amounts do not include future financial corrections and recoveries which may correct irregularities related to payments made in 2012. Based on the experience of the last four years (2009-2012), financial corrections and recoveries amounted to EUR 2.4 billion (confirmed/decided) and EUR 2.2 billion (implemented) on average each year in these two policy areas alone. Assuming similar levels will apply to 2012, financial corrections and recoveries protect adequately the EU budget as a whole.

The financial corrections and recoveries implemented across all policy areas amounted to EUR 4.5 billion for 2012 (EUR 1.8 billion in 2011). A detailed breakdown is presented in note 6 to the consolidated financial accounts. The significant increase compared to the previous year is mainly explained by the closure exercise of the ERDF programme for the 2000-2006 period and the resulting financial corrections.

It is noted that the residual error rates reported by the services, which are used to estimate the financial exposure, are not directly reconcilable with the error rates reported by the European Court of Auditors for each chapter in its Annual Report. This is due to a number of reasons, the main one being that the residual error rate is calculated taking account of the effect of the various multi-annual corrective mechanisms. The reported error rate of the Court of Auditors is based on transactions of a specific year. It should therefore be put into context by taking into consideration amount of financial corrections and recoveries effectively implemented.

Each Director General and Head of Service has identified the main reasons for his/her reservation(s) and set out remedial actions to address it/them. Generally, the most common concerns stem from the complex eligibility rules for beneficiaries and from the incorrect application of public procurement rules by beneficiaries (a frequent cause of errors for shared and indirectly managed funds). The Commission has drawn operational conclusions from these experiences and has made proposals for major simplifications in the next generation of programmes. To date, however, the co-legislators do not appear to be responding adequately to these aspects of the Commission's proposals.

After assessment of the control results, two reservations carried over from previous years were lifted. To lift a reservation, AODs were asked to present the measures put in place to address the weaknesses identified, to show that the measures were effective and to demonstrate that the weaknesses had been effectively addressed.

4.1Revenue

The Commission continued its actions to increase the effectiveness and efficiency of the collection of customs duties and VAT in the Member States, to identify the channels and schemes allowing tax evasion and tax avoidance and to promote appropriate countermeasures. The full application of the Modernised Customs Code (МСС), which was replaced by the Union Customs Code (UCC), has been postponed to 2020 since, in the current economic and financial context, Member States could not commit to the timely development of the necessary IT systems.

The Commission will publish updated information on the VAT gap in all Member States. The same approach will be used as in 2009, by comparing accrued VAT receipts with the theoretical net VAT liability for the economy as a whole.

Traditional own resources (TOR) represent EUR 16 453
[8](#footnote9)
 million of total revenue for the 2012 EU budget. They are established and collected by the Member States. Three quarters are paid to the EU budget, the remaining quarter being retained by the Member States to cover collection costs. Given its geographical position, Belgium is a major contributor of TOR, accounting for 9.7% of total TOR in 2012. Inspections carried out by the Commission and audits performed by the Court have highlighted a reconciliation issue between the amounts transferred and underlying records. Mitigating actions have been taken, including the enhancement of internal controls. However, the final financial impact cannot be measured yet pending the outcome of an on-going external audit. The Director-General for the Budget has therefore maintained the reservation concerning insufficient assurance of the reliability of the Belgian clearance and accounting systems.

4.2Agriculture: market and direct support

In his 2012 AAR, the Director General for Agriculture and Rural Development made three reservations. One of these reservations relates to direct support. Based on the more comprehensive approach described in chapter 3.4, the residual error rate for decoupled direct aid amounted to 2.4%. This new financial reservation accounts for the largest part of the increase in the Commission total scope of operations under reservation. Excluding the very high rates of error found in three specific Member States (Bulgaria, Portugal and France), the residual error rate would be at 1.68%, so below the materiality threshold. The Director General for Agriculture and Rural Development considers that action plans are needed for these countries and has made a reservation for them. The Directorate General will also examine the situation of the other Member States where the error-rate lies above 2%. For these Member States, on-going conformity clearance procedures cover the financial risk for the EU-budget. Furthermore, a general action plan is being developed in order to reinforce the assurance that can be taken from Member States' control system.

4.3Rural development, environment, fisheries and health

The reservation made by the Director General for Agriculture and Rural Development made on expenditure for rural development measures was maintained despite the fact that the control statistics reported by the Member States indicated an error rate below materiality. However, given the concerns regarding the usability of the controls in some Member States, as well as the error rate reported by the European Court of Auditors, the error rate deriving from the Member States' statistics needed to be reconsidered. In order to achieve specific policy objectives, rural development is subject to a large number of complex conditions. This increases the risk of errors by beneficiaries and makes controls by the national authorities more difficult and costly.

The Commission is actively working together with all Member States' administrations to identify the root causes of systemic sources of error and to determine possible corrective actions. An information note to the responsible Ministers was the basis of a discussion in the Council on 29 November 2012. The European Network for Rural Development is being used to raise awareness among experts. Some Member States (Portugal, Spain, Bulgaria and Italy) have already amended their rural development programmes to reduce the risk of errors in implementation. The Parliament and the Council will be informed of the main results of this review. Through the Rural Development Committee, the Commission will continue to provide guidance to the Member States as they develop future rural development programmes.

The reputational reservation for deficiencies in the supervision and control of organic production was also maintained as the action plan in not yet fully implemented. Future improvements includes the EU supervision of the control systems in Member States and those of third countries, including supervision of the control bodies recognised for certifying imports of organic products into the EU.

The Director General for Maritime Affairs and Fisheries maintained her reservation concerning the Financial Instrument for Fisheries Guidance (FIFG) with regard to one programme in Germany, currently under closure procedure (no payments were made since 2009) but where the remaining correction has been assessed at EUR 5.3 million. She also issued a reservation concerning European Fisheries Fund management and control systems in nine Member States
[9](#footnote10)
, with regard to the ineligibility of declared expenditure. The payments for the programmes concerned have been interrupted.

The Director General for Climate Action maintained his previous reservation on the reputational damage to the Commission resulting from a significant security breach in the national registries of the EU Emissions Trading System (ETS). In the meantime, the national registries have been superseded by a single Union Registry since June 2012. An action plan to further enhance security has been engaged by the Directors General for Climate Action, Informatics and by the Security Directorate. There were no serious security incidents in 2012 but the security challenges are evolving constantly. For this reason, an updated in-depth risk assessment is planned for 2013.

The Director General for Health and Consumers maintained her reservation concerning the accuracy of Member States’ cost claims under the animal disease eradication and monitoring programmes in the food and feed policy area. The main sources of the detected errors are cost claims from Member States that do not correctly apply the eligibility rules set out in the legislation. With a view to reducing the error rate in the feed and food area, the Director General for Health and Consumers had already taken a number of steps, but the legislative changes will only have an impact on the residual error rate starting as from 2014.

4.4Regional policy, Energy and Transport

The Director-General for Regional and Urban Policy issued two reservations: one financial/reputational reservation for the period 2000-2006 on management and control systems for nine operational programmes in three Member States
[10](#footnote11)
 and for two Cohesion fund sectors
[11](#footnote12)
 . Another reservation for the period 2007-2013 covers ERDF/Cohesion Fund management and control systems for identified operational programmes in sixteen Member States
[12](#footnote13)
, eleven cross-border programmes and the European Territorial Cooperation programmes, and the Adriatic program for Pre-Accession Assistance (IPA). The deficiencies concern, for instance, certification activities, high error rates, compliance with public procurement rules, and procedures for selecting operations. The amount at risk is estimated to be EUR 320 million corresponding to 0.9 % of interim payments for the year.

The Commission notes that the number of ERDF/cohesion operational programmes under reservation decreased from 123 to 86, following corrective measures taken in particular in some Member States (France, Latvia and the Netherlands and in some programmes in Italy) and by its services.

The AAR of the Director General for Regional and Urban Policy spells out the efforts made to speed up the internal procedures for interruptions and suspensions as a result of all available audit results.

The Director General for Energy entered a reputational reservation on account of beneficiaries of grants under the European Energy Programme for Recovery (EEPR) not respecting public procurement rules when subcontracting. 

The Commission welcomes DG ENER's approach to audit 100% of the final payments under the EEPR programme, as well as many first interim payments, ensuring that (by the end of the programme) all possible overpayments have been identified and the appropriate follow-up actions taken.

The Directors General for Energy and for Mobility and Transport are also concerned by the reservations on the Sixth and Seventh Framework Research Programme (FP6 and FP7), covered in the below chapter 4.7 on Research and other internal policies.

4.5Employment and social affairs

The Director General for Employment, Social Affairs and Inclusion made two reservations: one concerning management and control systems for identified operational programmes in four
[13](#footnote14)
 Member States under ESF 2000-2006, and the other for identified operational programmes in eleven
[14](#footnote15)
 Member States under ESF 2007-2013 and for the IPA programmes for both Turkey and the former Yugoslav Republic of Macedonia. Both reservations were made following serious deficiencies in key aspects of the management and control systems of the identified operational programmes.

The overall amount at risk is estimated to be EUR 68.9 million, including EUR 68 million for the ESF, corresponding to 0.63 % of interim payments for the year and EUR 0.9 million for the IPA corresponding to 1.5 % of the interim payments for the year.

In its proposals for the cohesion policy for 2014-2020, the Commission proposed to further improve the financial management and regularity of budget expenditure through retention of 10 % of payments to Member States during the year and annual clearance of accounts once Member States provide certified annual accounts for each programme.

4.6External relations, development aid and enlargement

The budget for external relations, development aid and enlargement is spent in more than 150 countries and the implementing organisations vary greatly in size and experience. Most of the budget is implemented in a devolved manner through a network of 140+ EU Delegations; the Heads of Delegations (who belong to the EEAS), in their capacity of Authorising Officers by Sub-Delegation for the Commission, provide a statement of assurance and regular reporting to the headquarters through the External Assistance Management Reports (EAMR).

In 2012, the Directorate General for Development and Cooperation – EuropeAid commissioned a measurement study on the residual error rate on closed transactions in order to estimate the financial impact of residual errors once all ex-ante and ex-post controls have been implemented. On this basis, the Director General for Development and Cooperation – EuropeAid made one new reservation related to the estimated error rate of 3.6% derived from the study, as well as the error rate identified by the Court of Auditors in the framework of its Annual Report for 2011. The estimated amount at risk for this reservation is about EUR 259.5 million. The main causes were weaknesses and errors made by international organisations implementing EU funded projects, amounts not recovered following audits or expenditure verification missions, various errors regarding EU funds managed indirectly and lack of documentation in tender procedures.

The Commission instructs the Directorate General for Development and Cooperation – EuropeAid to implement promptly the recommendations by the IAS for improving the assurance building process within the Directorate General, in particular the need for reinforced reporting by the EU Delegations as these are key to its AAR.

The director for the Service for Foreign Policy Instruments (FPI), made a reservation concerning the legality and regularity of Election Observation Missions for which the legal basis of a number of disbursements need to be clarified.

4.7Research and other internal policies

The Research DGs’ common audit strategy (including an intensive audit campaign with extrapolation of systemic errors) for the Sixth Framework Programme (FP6) (2002-2006) has proved successful in terms of audit coverage and audit results achieved. At the end of the programme’s lifecycle period, the multiannual residual error rate
[15](#footnote16)
 had fallen substantially, reaching a level very close to the 2% target. While the FP6 reservations have been maintained by the Directors General concerned (ENTR, RTD, MOVE and ENER), the cost of additional controls would be disproportionate to the potential benefit of getting below 2 %. As the amount of payments is also falling, it is expected that this reservation will not be maintained beyond 2012.

As the detected and residual error-rates from the representative audit sample in the Seventh Framework Research Programme (FP7) (2007-2013) exceed the 2% materiality threshold, the Research Directors General (ENTR, RTD, MOVE, ENER, CNECT) have maintained their reservation on FP7, as has the Director of the Research Executive Agency (for the ‘Space and Security’ and as from 2012 the ‘SMEs’ sub-activities).

Action is being taken to reduce errors furthermore, in particular through the following: improving guidance and feedback to participants and auditors on the most common errors; improvement of the ex-ante control strategy; and carrying out an appropriate number of ex-post audits to reduce, together with recovery actions, the residual error rate over a multiannual perspective. Due to prohibitive costs, even with these measures, the FP7 controls strategy will probably lead to a residual error rate of between 2% and 5% at the end of the FP7 lifecycle.

Under the current procedures, eight AODs are responsible for the management of the Research budget. In the past, each aimed to establish a representative error rate for his/her part of the budget. This led to considerable planning constraints and multiple audits of the same beneficiaries by different services. For that reason, as of 2012, a Common Representative Audit Sample (CRAS) was introduced across the Research family. This reduces the audit burden on beneficiaries by reducing the number of multiple audits and facilitates coordination.

The Commission is currently preparing a report analysing the results of the simplification measures and the actions taken to ensure harmonised implementation of FP7 across the Research family. It will detail the improvements to the audit strategy in particular as regards the measures taken to reduce the audit burden and to the guidance given to beneficiaries and auditors. This report will be presented to the European Parliament in June 2013.

The Commission welcomes the low residual error rate at the end of the Research FP6 lifecycle. It takes note of and supports the view of the DGs that a further reduction in the residual error rate could not be achieved without unreasonably high costs for the Commission and for the beneficiaries, which would damage the attractiveness of the Union's Research programme, thereby negatively affecting the achievement of the Union’s research and innovation objectives.

The Director General for Communication lifted his reputational reservation, on potential non-compliance with applicable legislation on intellectual property rights by Commission services. This was possible thanks to efforts to raise awareness and put in place the necessary legal and contractual safeguards.

The Commission welcomes the work undertaken to address the issue of respect for intellectual property rights by all its services and is satisfied that this reservation could be lifted after four years of detailed work.

The Director of the Education, Audio-visual and Culture Executive Agency reported progress in the implementation of action plan to improve the control systems for the management of grants but maintained his reservation for the Life-Long Learning programme (LLP). Steps have been taken to reduce the errors in the LLP projects in the remaining years of the current programme (2007-2013), but only the simplifications embedded in the next LLP generation (2014-2020) will provide a possibility for a significantly lower residual error rate.

The Commission notes the reservation for the LLP programme managed by the EAC Executive Agency, despite work done to better inform beneficiaries of the requirements. It calls on the Agency to step up its efforts for the next generation of the programme.

The Director General for Home Affairs lifted his reservation concerning the financial risk resulting from the non-audited population of grants in the financial programmes ‘Prevention, preparedness and consequence management of terrorism and other security-related risks’ (CIPS) and ‘Prevention of and fight against crime’ (ISEC). An increased number of audits combined with more and better information to beneficiaries successfully helped to reduce the error rate. However, he maintained the reputational reservation concerning delays in implementing the SIS II project. For this project, the detailed action plan was fully implemented, but the problems in Finland in timely carrying out the comprehensive testing and the changes to the transition of the operations towards eu-LISA have put strong pressure on the overall time-table for the project.

The Commission recognises that developing and managing large-scale IT systems such as SIS II presents particular challenges. It has put in place strong governance mechanisms and given top priority to maintaining close cooperation with stakeholders as far as SIS II is concerned. These measures allowed for a successful entry into operation of the system on 9 April 2013.

The Director-General for Enterprise and Industry maintained his reservation relating to the reliability of financial reporting by the European Space Agency (ESA) for another year. During 2012, the Commission continued implementing and further strengthening its monitoring and control strategy towards ESA and continuously supports ESA in implementing the action plan developed to address the recommendations made by ESA’s external Audit Commission and to improve the quality of financial reporting to the Commission.

5Assurance gathered through the work of the Internal Audit Service

The Audit Progress Committee (APC) continued to inform the College on audit issues, including issues with a corporate dimension. The APC also informed the College on the progress achieved in implementing the IAS's audit recommendations by the end of 2012. 78% of all recommendations accepted in the period 2008-2012 had been implemented. Out of 120 very important recommendations outstanding at the end of 2012, only 29 were overdue by more than 6 months compared to the initially planned target date.

In April 2013, the Commission’s Internal Auditor submitted an Overall Opinion accompanied by the Annual Internal Audit Report for the year 2012 as stipulated under Article 99(3) of the revised Financial Regulation. In accordance with Article 99(5) of the revised Financial Regulation, a summary report of the work of the Internal Auditor will be forwarded to the Discharge Authority. The overall opinion is based on work carried out by the Internal Audit Capabilities and the Internal Audit Service during the period 2010 to 2012 as part of the coordinated strategic audit plan. It focuses on financial management.

The Commission’s Internal Auditor considers that, in 2012, with the exception of those areas of financial management where Directors General have expressed reservations, the Commission has put into place governance, risk management and internal control procedures which are adequate to give reasonable assurance over the achievement of its financial objectives. The Internal Auditor also considered the combined input of the amounts estimated to be at risk as disclosed in the AARs and concluded that financial reservations and recoveries are of a sufficient magnitude to protect the budget as a whole, even if the amounts at risk in a number of areas, in particular Rural Development, are likely to be underestimated due to reliability problems detected by the IAS.

The Commission notes that, in the Emphasis of Matter attached to the Overall Opinion, the Internal Audit Service highlights three issues that require particular attention:

First, as regards the AARs, the overall opinion underlines the need for reinforced reporting by the EU Head of Delegations (by making more effective use of the External Assistance Management Report (EAMR) and through improved support, coordination and supervision arrangements) and for harmonising further the different approaches followed on the cost-effectiveness of controls and for ensuring consistency in the way the overall amount at risk for the Commission is presented.

Second, all services are invited to improve efficiency and effectiveness of the control strategies, in particular as regards the risk assessment process and the setting of appropriate targets for audit coverage and for monitoring control activities through better quantitative and qualitative indicators.

Finally, based on the outcome of the review undertaken in a number of key spending Directorates General (AGRI, RTD and DEVCO), the Overall Opinion emphasises the importance of reliable error rates to the assurance process and the knock-on implications for management reservations and addresses specific recommendations to the audited services.

6Crosscutting issues and solutions

6.1Complexity of eligibility rules set out at national level

As in previous years, the incorrect application of eligibility criteria and failures to comply with public procurement rules were the most common errors identified by the Court of Auditors in its 2011 annual report. Some of these eligibility rules have been defined at national level to allow Member States to use the same national, regional and local rules for national schemes and EU-funded projects. The Commission will continue to focus on detecting errors and correcting all errors detected, as well as to provide guidance to relevant national authorities, stressing at all occasions that compliance with applicable rules requires Member States to provide further guidance to implementing bodies.

The Commission takes the necessary actions when it finds that national eligibility rules are either too complex or not compliant with EU regulations. For instance, as regards the ESF, progress is being made on extending the use of simplified cost options with a view to replacing detailed and sometimes burdensome national eligibility rules. Experience shows that the use of these options reduces administrative burden for beneficiaries and the cost of implementation, and helps to reduce error rates. These simplified cost options are also recommended for ERDF co-funded programmes where appropriate.

In 2013, the Directorate General for Regional and Urban Policy will revise its guidelines for determining financial corrections for non-compliance with the rules on public procurement, taking into account the experience obtained and providing more clarity to the managing and audit authorities (see paragraph 3.3 above).

6.2Internal control standards

The Commission took note of the Overview of the State of Internal Control as prepared by the Director General for the Budget and is satisfied with the positive trend as regards the effectiveness of control systems and regarding standards being embedded in day-to-day operational procedures.

The Commission instructs the Directorate-General for Budget to pursue its efforts to simplify internal control standards, making them more focussed on effectiveness and efficiency, and to revise them accordingly.

6.3Impact of delegated bodies on the chain of assurance

The new Financial Regulation provides for the potential creation of new types of delegated bodies (e.g. Joint Undertakings), and different forms of externalised management are now already up and running. Such bodies are increasingly exposed to assurance related concerns and reservations (cf. REA, EACEA, Artemis, ENIAC, financial reporting concerns with ESA, etc.). The Commission concludes that supervision by the parent services needs to be strengthened.

The Commission instructs the Directorate-General for Budget to develop specific guidance on the most relevant internal controls strategies for externalised management and on best practices for the supervisory controls by parent DGs and their documentation.

Directorates General implementing budgets through Joint Undertakings should take into account any negative control results (high error rates) or control systems weaknesses (missing ex-post controls), even if those entities are subject to a separate discharge procedure.

The Commission confirms that the declaration of assurance covers all resources assigned to its Directorates General, irrespective of the management mode used. The AODs should ensure that the declaration of assurance covers resources managed through delegated bodies and should make reservations where necessary.

6.4Protecting the EU-budget through interruptions and suspension of payments, financial corrections and recoveries

The Commission rigorously exercises its supervisory role by calling on Member States to immediately address any deficiencies detected in their management and control systems. It also interrupts or suspends payments and makes financial corrections whenever necessary. According to the European Court of Auditors' annual report for 2011, around two thirds of the errors could have been identified and corrected by the national authorities.

The Commission calls on the Member States to demonstrate their commitment to improving accountability and transparency by reinforcing control measures, where necessary, for the remainder of the current programming period, in particular as regards first-level management checks, before certifying expenditure to the Commission.

The Commission has encouraged its services to interrupt payments and to propose suspension procedures as soon as the legal conditions are met. Regarding shared management, the Commission interrupts or suspends payment procedures as soon as there is sufficient evidence suggesting a significant deficiency in the management and control systems of Member States. The AARs of Directorate General for Regional and Urban Policy and the Directorate General for Employment, Social Affairs and Inclusion show clear improvement in this regard.

The Commission confirms that AOD's should systematically interrupt payment procedures and propose to the College that payment procedures be suspended as soon as the applicable conditions are met and until the necessary corrective measures have been implemented by the relevant national authorities.

The Commission's actions in this regard were also further harmonised in 2012, in particular in the area of cohesion policy where both the Director General for Regional and Urban Policy and the Director General for Employment, Social Affairs and Inclusion now apply the same approach. As regards interruptions and suspensions in agriculture, the Commission will look into amending the relevant Commission rules to allow for more targeted intervention. For the new programming period 2014-2020, the Commission's proposal for common provisions for the European Funds under shared management provides for further harmonisation of the interruption of payments for all these funds, including rural development, and the possibility for net corrections in some cases.

The Commission welcomes, and calls on the Council to endorse, the European Parliament's proposal for amending article 43 of the Commission proposal for a new regulation on the financing, management and monitoring of the Common Agricultural Policy for the new programming period 2014-2020 which would broaden the possibility for the Commission to suspend payments when serious deficiencies are detected and would allow for a further harmonisation of the legislation on suspension across policies.

6.4.1Information on interruption and suspension of payments by the Commission

The services carrying out transactions in shared management mode have reported all interruption/suspension decisions in their AARs. This information includes the operational programmes concerned, the Member States affected, the type of weaknesses, the main facts triggering each decision and the budgetary impact of the decision. This information constitutes an important dimension of reasonable assurance and accountability.

Following the introduction of the new interruption instrument for the 2007-2013 programming period, the Directorates General operating in shared management took, in 2012, formal decisions to interrupt payment deadlines to 140 cases totalling EUR 4.8 billion. The College also adopted seven
[16](#footnote17)
 decisions suspending payments to 2007-2013 programmes (during 2012 and first quarter of 2013). Payments will not be resumed until Authorising Officers by Delegation (AOD's) obtain clear audit evidence that reasons for interruptions and/or suspensions have been remedied the necessary financial corrections have been carried out and there are no further risks for future expenditure to be certified to the Commission.

6.4.2Financial corrections imposed by the Commission on Member States

Financial corrections are imposed by the Commission on Member States that fail to implement sound systems.

Overall the Commission was very active in 2012 in recovering undue amounts and making financial corrections. Financial corrections and recoveries implemented in 2012 across all policy areas amount to about EUR 4.3 billion (EUR 1.8 billion in 2011). The significant increase compared to the previous year is mainly explained by the closure exercise of the ERDF programme for the 2000-2006 period and the resulting financial corrections.

The Directorate-General for Regional and Urban Policies reported an amount of financial corrections resulting from EU audits implemented in 2012 of EUR 2.6 billion concerning the programming periods 1994-99, 2000-06 and 2007-13. On the same basis, the Directorate-General for Employment, Social Affairs and Inclusion reported EUR 430 million and the Directorate-General for Agriculture and Rural Development reported EUR 610 million.

Starting in September this year, the Commission will prepare a user-friendly presentation of the amounts recovered through financial corrections and recoveries in the course of the preceding year. This communication will respond to a request from the European Parliament. It will cover preventive and corrective actions and, wherever possible, their impact in ensuring a lasting improvement to management and control systems as reflected in the error rates.

6.4.3Information from Member States on financial corrections and recoveries

Correcting amounts unduly paid is an important aspect of sound financial management. In 2012, continued efforts were made to make financial corrections when necessary, improve the quality of Member States data on financial corrections and recoveries, and promote the use of best practices so as to improve recovery mechanisms at Member State and EU levels.

Regarding shared management, the AARs provide detailed information on the financial corrections implemented and reported by Member States to the Commission and an assessment of the national control systems. In the area of cohesion policy, Member States implement financial corrections resulting from their own audit work and from EU audits. These are reported cumulatively for the programming period 2007-2013 with a one-year delay by 31 March, so in 2012 they reported on their 2011 corrections. In addition to corrections resulting from EU audits, Member states reported corrections following their own audits for an amount of EUR 938 million. Nevertheless, the AOD's reported the latest figures known at the time of signing their AARs
[17](#footnote18)
.

6.5Annual summaries and national declarations

The provision of reliable and complete financial information and audit data by the Member States is one area where improvements are necessary. This is why the Commission will continue to transmit a copy of the annual summaries of the Member States to the discharge authority in accordance with Article 319 of the Treaty on the Functioning of the European Union and of annex II of the Framework Agreement on relations between the European Parliament and the European Commission.

The Commission also calls on the Member States to follow its guidance on the treatment of errors and annual control reports, as well as on annual summaries, to make them a valuable additional source of assurance for the Commission and a useful source of information for the discharge authority. The Commission encourages all Member States to follow the example of the Member States that have included assurance statements in their annual summaries and to take other measures to demonstrate their commitment to the sound financial management of EU funds and transparency. For 2012, 18 Member States have followed the Commission's recommendations and have provided a voluntary overall analysis and 11
[18](#footnote19)
 provided a declaration on the overall level of assurance in their annual summaries.

The Commission considers that the overall assurance process relies on effective and reliable assurance statements from all actors, at both European and national levels and therefore encourages the issuing of national declarations. In its discharge resolution of 17 April 2013, the European Parliament requested to establish a template for national management declarations to be issued by Member States at the appropriate political level. The Commission is prepared to examine this request and is willing to invite the European Parliament and the Council to participate in a working group with the view to issue by the end of this year recommendations for the use of national declarations. For Agriculture, a declaration of assurance of the heads of the paying agencies, covering completeness, accuracy and veracity of accounts as well as legality and regularity of the underlying transactions is required.

The Commission is pleased that, as part of the revision of the Financial Regulation, annual management declarations by the bodies designated by the Member States to be responsible for the management and control of union funds are being introduced for all funds managed under shared management. The new provision on shared management introduces reinforced mandatory reporting, including the submission of compulsory management declarations, the accounts, annual summaries of audits and controls and audit opinions, as well as the possibility for the Member state to provide declarations at the appropriate political level based on the above information.

The Commission considers that the reinforced mandatory reporting should provide it with substantial additional assurance on the use of EU funds by Member States and contribute to more effective reporting by the Member States. Moreover, the Commission will continue to encourage Member States to use national declarations.

6.6Commission Anti-Fraud Strategy (CAFS)

Following the adoption of the new Commission Anti-Fraud Strategy,
[19](#footnote20)
 all Directorates-General are required to develop an anti-fraud strategy by 2013. Measures in this area (such as specific risk analysis of beneficiaries, close monitoring of selected projects or contracts, or any other measures to mitigate fraud risks) are already outlined in some of the AARs, together with the specific results of anti-fraud actions taken during the reporting year and any elements of assurance that can be drawn from them. This will be generalised in the 2013 AARs.

The Commission welcomes the fact that most DG's are already well advanced in the development and implementation of an anti-fraud strategy. All services are instructed to do this by the end of 2013. The Commission instructs its services to continue to include information on fraud prevention as part of their assessment of their internal control systems.

On 6 December 2012, the Commission adopted a comprehensive and ambitious action plan on fighting tax fraud and tax evasion. A series of measures are proposed to better combat tax fraud and evasion, including VAT fraud. The plan includes the Quick Reaction Mechanism against VAT fraud that the Commission proposed in July 2012. It enables Member States to apply where necessary a 'reverse charge mechanism' making the recipient of the goods or services liable for VAT. This would significantly improve the Member States' capacity to effectively tackle complex fraud schemes, such as carousel fraud. In order to deal with possible new forms of fraud in the future, other anti-fraud measures can also be authorised and established under the Quick Reaction Mechanism. Moreover, the action plan was accompanied by two recommendations to Member States promoting specific countermeasures to deal with aggressive tax planning and to treat the issue of tax havens. As regards customs duties, the Commission is thoroughly following up the recommendations made by the European Court of Auditors in past and recent audits.

The Commission has also put forward an ambitious proposal for a Directive on combating fraud detrimental to the EU's financial interests by means of criminal law. The new rules, when adopted, would harmonise and strengthen the protection of EU revenue.

This priority action also raises the issue of the impact of uncollected revenues on the availability of the EU own resources. The Commission would like to reassure all concerned that, wherever relevant, it will reiterate the general imperative of effective revenue collection.

:   [(1)](#footnoteref2)

     
       Article 66 of the Financial Regulation
:   [(2)](#footnoteref3)

     
       Report on the added value of EU spending, (SEC(2011)867)
:   [(3)](#footnoteref4)

     
       Communication from the Commission "Second Simplification Scoreboard for the MFF 2014-2020" (COM(2013) 98 final)
:   [(4)](#footnoteref5)

     
       COM(2012) 675 final
:   [(5)](#footnoteref6)

     
       European Parliament resolution of 17 April 2013, 2012/2167(DEC), § 56 to 72
:   [(6)](#footnoteref7)

     
       This approach may however prove difficult to apply for market measures within the first pillar due to the large number and heterogeneous nature of the market support schemes
:   [(7)](#footnoteref8)

     
       DEVCO reservation cover all their operational activities which counts for EUR 7.5 billion (EDF included) with an amount at risk of EUR 295 million.
:   [(8)](#footnoteref9)

     
       Provisional net amount after deduction of 25% collection fee
:   [(9)](#footnoteref10)

     
       Belgium, the Czech Republic, Estonia, Spain, France, Italy, Romania, Sweden and the United Kingdom
:   [(10)](#footnoteref11)

     
       Ireland, Italy and Spain
:   [(11)](#footnoteref12)

     
       Transport in Poland and Transport in Romania
:   [(12)](#footnoteref13)

     
       Austria, Belgium, the Czech Republic, Estonia, France, Germany, Greece, Hungary, Italy, Poland, Romania, Slovenia, Slovakia, Spain, Sweden and the UK.
:   [(13)](#footnoteref14)

     
       Germany, France, Italy and Spain
:   [(14)](#footnoteref15)

     
       Belgium, the Czech Republic, France, Germany, Ireland, Italy, Poland, Romania, Slovakia, Spain and the United Kingdom
:   [(15)](#footnoteref16)

     
       The multiannual residual error rate gives the real impact of errors on the EU budget, taking into account corrections and recoveries over the entire lifecycle period of the framework programme.
:   [(16)](#footnoteref17)

     
       Two suspension decisions concerning the ERDF (a programme in Calabria (Italy) and in Saarland (Germany)), and five suspension decisions concerning the ESF (in the Czech Republic and Slovakia (in 2012), in France, Germany and the United Kingdom (in the first quarter 2013))
:   [(17)](#footnoteref18)

     
       For Agriculture, the information on financial corrections and recoveries relates to the year of the report.
:   [(18)](#footnoteref19)

       For the ERDF and ESF, 11 Member States provided a voluntary ‘Overall level of assurance statement’ in their Annual Summary: Bulgaria, Cyprus, Denmark, Estonia, Finland, Malta, Portugal, Romania, Slovakia, Spain and the United Kingdom.
:   [(19)](#footnoteref20)

     
       COM(2011) 376 final.

[Top](#document1)

![european flag](./../../../images/eclogo.jpg)EUROPEAN COMMISSION

Brussels, 5.6.2013

COM(2013) 334 final

Annexes to the  
  
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS

Synthesis of the Commission’s management achievements in 2012

Annex 1:Reservations 2008 – 2012
[1](#footnote2)

Chapter — Revenue

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| DG |  | Reservations 2012 |  | Reservations 2011 |  | Reservations 2010 |  | Reservations 2009 |  | Reservations 2008 |
| BUDG | 1 | 1. Reliability of the Belgian clearance and accounting systems for processing custom declarations. | 1 | 1. Reliability of the Belgian clearance and accounting systems for processing custom declarations |  |  |  |  |  |  |

Chapter — Agriculture: market and direct support

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| DG |  | Reservations 2012 |  | Reservations 2011 |  | Reservations 2010 |  | Reservations 2009 |  | Reservations 2008 |
| AGRI | 1 | 1. Serious deficiencies in direct payments in Portugal, Bulgaria and France | 1 | 1. Serious deficiencies in the IACS in Portugal and Bulgaria. | 1 | 1. Serious deficiencies in the IACS in Portugal, Bulgaria and Romania. | 1 | 1. Serious deficiencies in the IACS in Bulgaria and Romania. | 1 | 1. Management and control system for SAPARD in Bulgaria and Romania. |

Chapter — Rural development, environment and health

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| DG |  | Reservations 2012 |  | Reservations 2011 |  | Reservations 2010 |  | Reservations 2009 |  | Reservations 2008 |
| AGRI | 2 | 1. Rural development expenditure.    2. Deficiencies in the supervision and control of organic production. | 2 | 1. Rural development expenditure.    2. Deficiencies in the supervision and control of organic production. | 0 |  | 1 | 1. Expenditure for rural development measures under Axis 2 (improving the environment and the countryside) of the 2007-2013 programming period | 2 | 1. Expenditure for rural development measures under Axis 2 (improving the environment and the countryside) of the 2007-2013 programming period. |
| CLIMA | 1 | 1. Significant security weakness identified in the national registries of the EU Emissions Trading System (ETS). | 1 | 1. Significant security weakness identified in the national registries of the EU Emissions Trading System (ETS). | 1 | 1. Significant security weakness identified in the national registries of the EU Emissions Trading System (ETS). |  |  |  |  |
| MARE  (former  FISH) | 2 | 1. Management and control systems for one FIFG operational programme in Germany.    2. Ineligibility of declarared expendidure concerning European Fisheries Fund in in Belgium, the Czech Republic, Estonia, France, Italy, Romania, Sweden, Spain and the UK. | 2 | 1. Management and control systems for one FIFG operational programme in Germany.    2. European Fisheries Fund management and control systems and investments on board: eligibility of expenditure. | 1 | 1. Management and control systems for one FIFG operational programme in Germany. | 2 | 1. Management and control systems for FIFG operational programmes in two Member States and specific measures in another three Member States.    2. Eligibility of payments made to Member States to compensate additional costs in the marketing of certain fishery products from the Outermost Regions. | 1 | Reservation on direct centralised management concerning the eligibility of costs reimbursed for expenditure in the area of control and enforcement of the Common Fisheries Policy, where the annual error rate detected by ex-post controls is higher than the 2% of the annual payments made for the MS programmes and on a multiannual basis represents more than 2% of sample payments. |
| SANCO | 1 | 1. Inaccuracies in cost claims under the animal disease eradiction and monitoring programmes in the Food and Feed activity. | 1 | 1. High error-rate (10,4%) detected during on-the-spot controls of the Food and Feed activity. | 0 |  |  |  |  |  |
| ENV | 0 |  | 0 |  | 0 |  | 1 | Eligibility of expenditures declared by beneficiaries of grants | 0 |  |

   

Chapter — Regional policy, Energy and transport

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| DG |  | Reservations 2012 |  | Reservations 2011 |  | Reservations 2010 |  | Reservations 2009 |  | Reservations 2008 |
| MOVE (former TREN) | 2 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%) | 2 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%) | 1 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%) | 1 | Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%) | 1 | Rate of residual errors with regards to the accuracy of cost claims in FP6. |
| ENER  (former TREN) | 3 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%)          3. Beneficiaries of grants under the European Energy Programme for Recovery (EEPR) not respecting public procurement rules when subcontracting. | 2 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%) | 1 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%) |  |  |  |  |
| REGIO | 2 | 1. Reservation on ERDF/Cohesion Fund management and control systems for several programmes in the period 2007-2013 in Austra, Belgium, the Czech Republic, Estonia, France, Germany, Greece, Hungary, Italy, Polan,d Romania, Slovakia, Spain and the UK; for eleven cross-border programmes and the European Territorial Cooperation programmes; and the Adriatic program for Pre-Accesion Assitance (IPA)    2. Reservation on ERDF/Cohesion Fund management and control systems for some programmes in the period 2000-2006 in Ireland, Italy and Spain and for Transport in Poland and Transport in Romania. | 2 | 1. Reservation on ERDF/Cohesion Fund management and control systems for several programmes in the period 2007-2013 in Austria, Bulgaria, the Czech Republic, Estonia, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, the Netherlands, Poland, Romania, Slovenia, Slovakia, Spain and the UK; for IPA management and control systems in the former Yugoslav Republic of Macedonia and European Territorial Copporation programmes and a programme for IPA/cross-border cooperation.    2. Reservation on ERDF/Cohesion Fund management and control systems for some programmes in the period 2000-2006 in Germany, Hungary, Ireland, Italy, Spain and for cross-border programmes. | 2 | 1. Reservation on ERDF management and control systems for certain programmes in the period 2007-2013 in Bulgaria, Czech Republic, Germany, Greece, Italy, Latvia, Lithuania, Spain, Romania, United Kingdom, 13 European Territorial Cooperation programmes) and 6 IPA-Cross-borders programmes).    2. Reservation on ERDF management and control systems for certain programmes in the period 2000-2006 in Bulgaria, Germany, Hungary, Italy, Latvia, Lithuania, The Netherlands and concerning 9 Interreg programmes | 2 | 1. Reservation on ERDF management and control systems for certain programmes in the period 2007-2013 in Germany, Italy, Spain, Bulgaria, 15 European Territorial Cooperation programmes    2. Reservation on ERDF management and control systems for certain programmes in the period 2000-2006 in Bulgaria, Italy, Germany, and UK and concerning 15 Interreg programmes | 2 | 1. Reservation on ERDF management and control systems for the period 2000-2006 in certain programmes in: Belgium, Germany, Italy Spain and 21 Interreg programmes    2. Management and control system for the road sector in Bulgaria in 2008. |

Chapter — Employment and Social Affairs

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| DG |  | Reservations 2012 |  | Reservations 2011 |  | Reservations 2010 |  | Reservations 2009 |  | Reservations 2008 |
| EMPL | 2 | 1. Management and control systems for identified operational programmes under ESF 2000-2006 in Germany, France, Italy and Spain.    2. Management and control systems in ESF in Belgium, the Czech Republic, France, Germany, Ireland, Italy, Poland, Roumania, Slovakia, Spain and the United Kingdom for certain programmes in the period 2007-2013 as well as the IPA programmes for the former Yugoslav Republic of Macedonia and for Turkey. | 2 | 1. Management and control systems for identified operational programmes under ESF 2000-2006 in Germany, France, Italy and Spain.    2. Management and control systems in ESF in Belgium, the Czech Republic, Germany, Italy, Lavia, Lithuania, Roumania, Slovakia, Spain and the United Kingdom for certain programmes in the period 2007-2013 as well as for the former Yugoslav Republic of Macedonia IPA programme. | 2 | 1. Management and control systems for identified operational programmes under ESF 2000-2006 in Germany, France, Italy and Spain.    2. Management and control systems in ESF in Austria, Belgium, Bulgaria, Germany, Finland, Hungary, Ireland, Italy, Sweden, Slovakia, Spain and the United Kingdom for certain programmes in the period 2007-2013 | 2 | 1. Management and control systems for identified operational programmes under ESF 2000-2006 in Belgium, Germany, France, Italy and Spain.    2. Management and control systems in ESF in Belgium, Germany, Italy, Luxembourg, Romania and Spain; for certain programmes in the period 2007-2013 | 1 | Management and control systems for identified ESF Operational Programmes in Spain, United Kingdom, France, Italy, Poland, Belgium and Luxembourg (quantification: 41 million EUR, 0.6%) |

Chapter — External relations, Development and Enlargement

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| DG |  | Reservations 2012 |  | Reservations 2011 |  | Reservations 2010 |  | Reservations 2009 |  | Reservations 2008 |
| DEVCO | 1 | High (estimated) residual error rate in closed transactions. | 0 |  | 0 |  | 0 |  | 0 |  |
| ELARG | 0 |  | 0 |  | 0 |  | 0 |  | 1 | Potential irregularities in the management of PHARE funds under extended decentralised management by two Bulgarian Implementing Agencies (named). |
| FPI | 1 | Legal clarification required concerning a number of disbursmeents for Election  Observation Missions. | 0 |  | 0 |  | 0 |  | 0 |  |
| RELEX | 0 |  | 0 |  | 0 |  | 1 | Lack of capacity to carry out adequate ex-post controls for CFSP and Stability Instrument | 0 |  |

Chapter — Research and other internal policies

|  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| DG |  | Reservations 2012 |  | | Reservations 2011 |  | | Reservations 2010 |  | Reservations 2009 |  | Reservations 2008 |
| RTD | 2 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%) | 2 | | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%) | 1 | | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%) | 1 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%) | 1 | 1. Rate of residual errors with regards to the accuracy of cost claims in FP6 |
| CNECT  (former INFSO) | 1 | 1. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%) | 1 | | 1. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%) | 0 | |  | 1 | Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%) | 1 | Rate of residual errors with regards to the accuracy of cost claims in FP6 |
| ENTR | 3 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%)    3. Reservation concerning the reliability of the financial reporting by the delegated body about the implementation of actions under joint and centralised indirect management. | 3 | | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Accuracy of cost claims under FP7 (error rates above materiality threshold of 2%)    3. Reservation concerning the reliability of the financial reporting by the delegated body about the implementation of actions under joint and centralised indirect management. | 2 | | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Reservation concerning the reliability of the financial reporting by the delegated body about the implementation of actions under joint and centralised indirect management. | 2 | 1. Accuracy of cost claims under FP6 (error rates above materiality threshold of 2%)    2. Reservation concerning the reliability of the financial reporting by the delegated body about the implementation of the joint programme. | 1 | Rate of residual errors with regards to the accuracy of cost claims in FP6 |
| REA | 2 | 1. Accuracy of cost claims for funding Research for "Space and Security" sub-activities  financed under FP7 (error rates above materiality threshold of 2%)    2. Accuracy of cost claims for funding Research for "SMEs" sub-activities  financed under FP7 (error rates above materiality threshold of 2%) | 1 | | 1. Accuracy of cost claims for funding Research for "Space and Security" sub-activities financed under FP7 (error rates above materiality threshold of 2%) |  | |  |  |  |  |  |
| EAC | 0 |  | 0 |  | | 1 | Too high error rate in centralised direct management, due to lack of justifying documents for cost claims, concerning projects from the previous generation of programmes | | 1 | Too high error rate in centralised direct management, due to lack of justifying documents for cost claims, concerning projects from the previous generation of programmes | 0 |  |
| EACEA | 1 | Accuracy of cost claims under Life Long Learning (LLP) programme (error rates above materiality threshold of 2%). | 1 | Accuracy of cost claims under Life Long Learning (LLP) programme (error rates above materiality threshold of 2%). | | 1 | Accuracy of cost claims under Culture and Youth programmes (error rates above materiality threshold of 2%). | | 0 |  | 0 |  |
| HOME  (former JLS) | 1 | 1. Reputational damage due to new risks likely to further delay the completion of the Schengen Information System II (SIS II) project. | 2 | 1. Reputational damage due to new risks likely to further delay the completion of the Schengen Information System II (SIS II) project.    2. Financial risk corresponding to the residual error rate of 2,33% in the non audited population of grants in the programmes for Security and safeguarding liberties | | 2 | 1. Reputational damage due to new risks likely to further delay the completion of the Schengen Information System II (SIS II) project.    2. Reputational damage due to delays in the entry into operations of the VIS project. | | 2 | 1. Reputational damage due to delays in the completion of the Schengen Information System II (SIS II) project.    2. Reputational damage due to a delay in the completion of the VIS project. | 1 | Delays in the implementation of the Schengen Information System II (SIS II), |
| JUSTICE  (former JLS) | 0 |  | 0 |  | | 0 |  | | 1 | Residual error rate in non-audited population of grants under programmes for fundamental rights and citizenship. | 0 |  |
| COMM | 0 |  | 1 | Potential non-compliance with applicable legislation on Intellectual Property Rights. | | 1 | Potential non-compliance with applicable legislation on Intellectual Property Rights. | | 1 | potential non-compliance with applicable legislation on Intellectual Property Rights. | 2 | 1. Reservation on the quality failings revealed by the controls.    2. Possible infringement of Intellectual Rroperty Rights by Commission departments. |

Chapter — Economic and Financial Affairs

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| DG |  | Reservations 2012 |  | Reservations 2011 |  | Reservations 2010 |  | Reservations 2009 |  | Reservations 2008 |
| ECFIN | 0 |  | 0 |  | 0 |  | 0 |  | 1 | Possibility that new mitigating controls put in place following an ex-post control report on funds managed by an external body entrusted with indirect centralized management are not effective. |

   

Total

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Reservations 2012 |  | Reservations 2011 |  | Reservations 2010 |  | Reservations 2009 |  | Reservations 2008 |
| TOTAL | 29 |  | 27 |  | 17 |  | 20 |  | 16 |  |

  

Annex 2:Executive Agencies, Regulatory Agencies, and Joint Undertakings

In line with practices in most Member States, using agencies to implement predetermined key tasks
[2](#footnote3)
 has become an established part of the way the European Union works. While the Executive Agencies are an integral part of the Commission’s overall Discharge procedure, the Regulatory Agencies as well as the Joint Undertakings are currently subject to separate and individual discharge proceedings according to Article 185 of the old FR 
[3](#footnote4)
.

Executive Agencies

Executive agencies (EAs) operate within a clear institutional framework, governed by a single legal basis
[4](#footnote5)
. Their tasks relate to the management of Union programmes or actions, they are set up for a limited period and they are always located at the place where the Commission and its services are located. The Commission's responsibility for executive agencies is clear: the Commission creates them (after prior information to the budgetary authority, including a cost-benefit-analysis, and based on a decision taken by the Committee for the executive agencies
[5](#footnote6)
), maintains a degree of control over their activity, and appoints the Director. Their Annual Activity Reports (AARs) are annexed to the AAR(s) of their parent Directorate(s) General
[6](#footnote7)
. Thus, the annual discharge in respect of implementation of operational (i.e. programmes) appropriations is covered by the general discharge given to the Commission
[7](#footnote8)
. Together with this, the Director of the executive agency receives discharge from Parliament, acting on a recommendation of the Council, in respect of the executive agency's operating (i.e. administrative) budget. All executive agencies are subject to a standard Financial Regulation adopted by the Commission, governing the establishment and implementation of the operating budget of an executive agency. A revision of the working arrangements was agreed in October 2007 with the European Parliament, with the aim to further facilitate inter-institutional cooperation in this field.

Six executive agencies exist and they were all operational in 2012. No new executive agencies were created during the year:

–the Executive Agency for Competitiveness and Innovation (EACI – formerly known as IEEA);

–the Executive Agency for Health and Consumers (EAHC – formerly known as PHEA) , which is the only one located in Luxembourg;

–the Education, Audiovisual and Culture Executive Agency (EACEA);

–the European Research Council Executive Agency (ERCEA);

–the Research Executive Agency (REA);

–the Trans-European Transport Network Executive Agency (TEN-T EA).

The AARs of the executive agencies report also on the assessment on the functioning of the Internal Control System which the Head of Service has put in place to ensure sound management of his/her service with all control aspects, financial and non-financial. The 2012 AAR Standing Instructions were simplified. For the first time, services did not report on compliance with the internal control standards but only on the effectiveness of their control systems. Three executive agencies (EACEA, EACI, EAHC) reported that the standards were not yet fully implemented. Four standards were cited: ICS 3 (staff allocation and mobility), ICS 8 (Processes and Procedures); ICS 11 (Document Management) and ICS 12 (Information and Communication).

Given the importance executive agencies have gained over time in the implementation of EU programmes, their supervision by the Commission must be effective. This is ensured by the conclusion of Memoranda of Understanding between the Commission and the agencies, the Commission's presence in Steering Committees, monitoring of the set-up of agencies' internal control systems, the follow-up of audits, periodic coordination meetings between the agencies and their parent DGs as well as other measures. Parent DGs have to report in their own AAR Parts 2 on these supervision methods and in Part 3 on the assessment of whether any serious control issue within the Executive Agency would affect their own assurance building process, which was not the case for the 2012 AAR reporting.

The breakdown of staff employed on 31/12/2012 by the executive agencies was as follows:

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | Temporary agents (officials seconded by the Commission and agents recruited by the agency) | Contract agents | Total | Total Authorised under the EU budget |
| EACI | 37 | 119 | 156 | 158 |
| EAHC | 11 | 39 | 50 | 50 |
| EACEA | 99 | 307 | 406 | 416 |
| ERCEA | 97 | 284  [8](#footnote9) | 381 | 389 |
| REA | 122 | 374 | 496 | 513 |
| TEN-TEA | 33 | 66 | 99 | 99 |
| Total | 399 | 1189 | 1588 | 1625 |

The executive agencies' high occupation rate of the authorised posts was maintained in 2012 at 98 %. Following a Commission report of April 2007
[9](#footnote10)
 that covered also the human resources, the Commission issued a global self-commitment not to create new executive agencies beyond those foreseen to cope with a doubling of the research budget and some limited extensions of existing mandates. Accordingly, no new executive agencies were created in 2012, although the mandates of two agencies, EACEA and EAHC, were extended and as from 2013 they will be dealing with additional activities
[10](#footnote11)
 (see also below as regards the study serving as a basis for extension of the mandates of all agencies).

Following a 2009 special report by the European Court of Auditors
[11](#footnote12)
 examining the executive agencies and the efforts of a Commission-internal working group on executive agencies, in 2010, the central services issued a note
[12](#footnote13)
 containing specific guidelines on the structure and content of the executive agencies' work programmes, including a template for the work programme and suggestions for some standard key performance indicators. This is followed up as part of the assessment of the draft agency work programmes.

In the 2014-2020 Multiannual Financial Framework,
[13](#footnote14)
 the Commission proposes to make more extensive use of existing executive agencies, in view of their capacity to deliver services effectively and to be visible in the management of EU programmes. The individual Commission proposals include detailed information about this intention.

To prepare for this additional delegation of programme management and in accordance with the requirements laid down in Regulation 58/2003, in June 2012, the Commission carried out a cost-benefit analysis of different scenarios for delegating the management of EU spending programmes to executive agencies. This study which covers all six executive agencies and all programmes proposed for delegation, will serve as basis for the upcoming Commission proposal for the extension of the mandates of all six executive agencies.

Regulatory Agencies

There are currently 37
[14](#footnote15)
 decentralised agencies in different EU countries. The recently created agency is the EU Agency for large-scale IT systems that started operations on 1st December 2012.

All these agencies play an important role in implementing EU-policies, especially tasks of a technical, scientific, operational and/or regulatory nature. This enables the EU institutions, especially the Commission, to focus on policy-making. They also support cooperation between the EU and national governments in important policy areas, by pooling technical and specialist expertise from both the EU institutions and national authorities.

The decentralised agencies are independent legal entities under European public law, distinct from the EU institutions (Council, European Parliament, Commission).

Because the agencies were set up on a case-by-case basis over the years, to respond to emerging and specific needs, they operate in somewhat diverse conditions. In 2012 the European Parliament, the Council and the Commission issued a Joint Statement endorsing a Common Approach on EU decentralised agencies. In July 2012, they issued a comprehensive set of guiding principles to make the agencies more coherent, effective and accountable
[15](#footnote16)
. This new framework was the result of analysis by an EU working group of the agencies' governance, functioning and supervision, based on a number of reports and studies
[16](#footnote17)
, including a comprehensive external evaluation.

The main objectives for the implementation of the Common Approach is the achievement of more balanced governance, improved efficiency and accountability and greater coherence.

The Commission implements the Common Approach through the following mechanisms:

-a roadmap
[17](#footnote18)
, serving as an inventory of all the initiatives to be taken by the Commission, as well as the agencies, the Council, Member States and the European Parliament,- modification of the agencies' constituent acts

-the adoption of legal proposals which will directly affect the agencies (for instance the revision of the Framework Financial Regulation for the decentralised agencies (FFR) - adoption foreseen for the end of 2013),

-the participation of Commission representatives in agencies' management boards.

On 17 
   April 2013, 30 agencies
[18](#footnote19)
 receiving funds from the 2011 EU budget were granted discharge by the European Parliament. Five agencies do not receive EU funding and thus do not receive discharge by the European Parliament. Two of these agencies are fully self-financed, (the Office for Harmonisation in the Internal Market and the Community Plant Variety Office) and three are funded on an intergovernmental basis (the European Institute for Security Studies, the European Union Satellite Centre and the European Defence Agency) , financed directly by the participating Member States.

One agency that had been given a qualified opinion by the European Court of Auditors on the legality and regularity of their underlying transactions in 2010 (GNSS Agency), received a non-qualified opinion on their 2011 underlying transactions. The Court of Auditors issued also a qualified opinion on related to the annual accounts for the financial year 2011 for the European Centre for Disease Prevention and Control (ECDC).

European Court of Auditors (ECA) published a special report 15/2012 “Management of conflict of interest in selected EU Agencies”
[19](#footnote20)
 assessed and evaluated policies and procedures for the management of conflict of interest situations for four selected Agencies EASA, ECHA, EFSA and EMA.

The Court recommends that the Agencies improve their conflict of interest policies and procedures by, in particular, ensuring the consistency of the breach of trust policies and procedures, better management of the declaration of interest, addressing post–employment issues. Conflict of interest is one of the main issues addressed by the Roadmap implementing the Common Approach on EU decentralised agencies.

Joint Undertakings
[20](#footnote21)
 

For the management of the Joint Technology Initiatives (JTI) in the Research and Innovation area, seven Joint Undertakings (JU) were created for executing the FP7 budget on behalf of Parent DGs RTD, CNECT and MOVE: i.e. ARTEMIS in the area of embedded computing systems, ENIAC in nano-electronics in the ICT domain, IMI in innovative medicines, Clean Sky in aeronautics, FCH in the area of fuel cells and hydrogen, SESAR in air traffic management-EU single European Sky and F4E/ITER in energy research. These are separate and independent legal entities, subject to an individual discharge decision each as they are set up as bodies under Article 185 (old) FR. Two of those JUs, ENIAC and ARTEMIS; the ones linked to DG CNECT, do not only involve the Commission and the relevant industry’s representatives, but also public sector representatives from the JTI members states (which are not necessarily the EU’s 27 MS).

The Commission's supervisory arrangements over the JUs are ensured by monitoring the JU's set-up of its internal control system (when preparing for its budgetary autonomy), the 'General Agreement' between JU and Commission (on the governance set-up) and the Commission's representation on its governing Board (when having become autonomous). Parent DGs
[21](#footnote22)
 have to report in their own AAR Parts 2 on these supervision modalities and in Part 3 on the assessment of whether any serious control issue within the JU would affect their own (reputational) assurance building process.

The ECA issued qualified opinions on some JU’s 2011 accounts associated with:

–insufficient provision of assurance due to the non-functioning of the JU’s ex-post control strategy (delegated to the JTI member states’ national funding authorities): ARTEMIS;

–lack of assurance related to the JU’s insufficient control data being available from its ex-post control strategy: ENIAC;

–relatively high FP7 detected error rates: IMI (6.8%), CS (6.2%), FCH ('significant').

On 17 April 2013, all joint undertakings were granted discharge by the European Parliament related to the implementation of the budget for the financial year 2011.

In the context of preparing for the next programming period (MFF 2014-2020), on-going initiatives related to the JUs are:

–the preparation of a Model Financial Regulation for public-private partnership bodies in accordance with Article 209 of the new FR aiming at establishing financial rules which are more flexible and appropriate for this kind of bodies;

–the potential merger of existing JUs (ENIAC and ARTEMIS).

  

Annex 3:Report on negotiated procedures 2012

1. Legal basis

Article 53 of the Rules of application of the Financial Regulation requires authorising officers by delegation to record contracts concluded under the negotiated procedures of Articles 134 and 135 RAP. Furthermore, the Commission is required to annex a report on these negotiated procedures to the summary of the AARs referred to in Article 66.9 of the F R.

2. Methodology

A distinction has been made between the 45 Directorates-general, services, offices and executive agencies which normally do not provide external aid, and those three Directorates-general (DEVCO, ELARG and FPI) which conclude procurement contracts in the area of external relations (different legal basis: Chapter 3 of Title IV of Part Two of the Financial Regulation) or award contracts on their own account, but outside of the territory of the European Union.

These three Directorates-general have special characteristics as regards data collection (decentralised services, …), the total number of contracts concluded, thresholds to be applied for the recording of negotiated procedures (EUR 10 000), as well as the possibility to have recourse to negotiated procedures in the framework of the rapid reaction mechanism (extreme urgency). For these reasons, a separate approach has been used for procurement contracts of these three Directorates-general.

3. Overall results of negotiated procedures recorded

3.1.The 45 Directorates-general, services or offices, excluding the three "external relations" Directorates-general

On the basis of the data received, the following statistics were registered: 111 negotiated procedures with a total value of EUR 372 million were processed out of a total of 728 procedures (negotiated, restricted or open) for contracts over EUR 60,000 with a total value of EUR 2822 million.

For the Commission, the average proportion of negotiated procedures in relation to all procedures amounts to 15.2 % in number (14.3 % in 2011), which represents some 13.2 % of all procedures in value (15.2 % in 2011).

An authorising service is considered to have concluded a "distinctly higher" proportion of negotiated procedures "than the average recorded for the Institution" if it exceeds the average proportion by 50%, or if the increase from one year to the next is over 10%. Thus, the reference threshold for this year is fixed at 22.9 % (21.5 % in 2011).

Some 13 Directorates-general or services out of the 45 exceeded the reference threshold, and another 2 increased their number of negotiated procedures by more than 10% compared to the previous year. Among those 15 services, it should be noted that 7 Directorates-general concluded only one to four negotiated procedures, but because of the low number of procedures conducted by each of them (less than 8), the average was exceeded. In addition, 15 out of 45 Directorates-general have not used any negotiated procedure, including 5 services that awarded no contract at all.

The assessment of negotiated procedures compared with the previous year shows a slight increase in the order of 0.9 percentage points in terms of relative number and an increase of 6.6 percentage points in terms of relative value.

3.2.The three "external relations" Directorates-general

On the basis of the data received, the following statistics were registered: 179 negotiated procedures for a total value of contracts EUR 154 million were processed out of a total of 666 procedures for contracts over EUR 10 000 with a total value of about EUR 870 million.

For the three "external relations" Directorates-general, the average proportion of negotiated procedures in relation to all procedures amounts to 26.9 % in number, which represents some 17.7 % of all procedures in value terms. Only one Directorate-general exceeds the reference threshold of 40.3 % (average + 50 %).

If compared with previous years, these Directorates-general have registered a decrease of 1 percentage point in number of negotiated procedures in relation to all procedures compared to the previous year.

4. Analysis of the justifications and corrective measures

The following categories of justifications have been presented by those Directorates-general who exceeded the thresholds:

Statistical deviations due to the low number of contracts awarded under all procedures. Indeed 11 out of the 15 DGs over average have carried out less than 15 procurement procedures.

Objective situations of the economic activity sector, where the number of operators may be very limited or even in a monopoly situation (for reasons of intellectual property, specific expertise, etc.) for instance in the nuclear or scientific area. Situations of technical captivity may also arise especially in the IT domain (proprietary software or maintenance of complex servers hosting critical information systems, etc).

Situations of emergency that cannot be foreseen by the contracting authority, as is the case for the Stability Instrument.

Similar services/works as provided for in the initial tender specifications. Some services in charge of large inter-institutional procedures are faced with estimations of needs at the beginning of (usually framework) contracts that do not always match the consumption trend of the contract during its execution. The leading service must then use a negotiated procedure on behalf of all institutions party to the contract to extend the ceiling of the framework contract in question.

Unsuccessful open or restricted procedure, leading to a negotiated procedure.

Besides it should be highlighted that the number of negotiated procedures in 2012 compared to 2011 has increased slightly in absolute terms (from 104 to 111), while the overall number of procurement procedures has remained stable (from 727 to 728), so this explains the relative increase in proportion of negotiated procedures compared to the total number of procedures. The increase in value from EUR  300 million to EUR 372 million remains quite below the level registered in 2009 (EUR  578 million).

Several corrective measures have already been proposed or implemented by the Directorates-general concerned:

Regular update of standard model documents and guidance documents on procurement.

Training and improved inter-service communication. The Central Financial Service provides regular practical training sessions on procurement.

Improvement of the system of evaluation of needs of Directorates-general/services and an improved programming of procurement procedures. The Commission' horizontal services will continue their active communication and consultation policy with the other DGs, institutions, agencies and other bodies along the following axes:

permanent exchange of information via regular meetings with user services and agencies in appropriate fora;

ad-hoc surveys prior to the initiation of (inter-institutional) procurement procedures for the evaluation of needs;

better estimate of needs of inter-institutional framework contracts and better monitoring with semester consumption reports from user services or agencies;

  

Annex 4:Summary of Waivers of recoveries of established amounts receivable in 2012 (Article 87.5 IR)

In accordance with Article 87(5) of the Implementing Rules, the Commission is required to report each year to the budgetary authority, in an annex to the summary of the AARs, on the waivers of recovery involving EUR 100.000 or more.

The following table shows the total amount and the number of waivers above EUR 100.000 per Directorate-General/Service for the EC budget and the European Development Fund for the financial year 2012.

EC budget:

|  |  |  |
| --- | --- | --- |
| Directorate-General/Service | Amount of waivers  in EUR | Number of waivers |
| CNECT | 1.011.193,29 | 3 |
| DEVCO | 914.719,77 | 2 |
| EAC | 151.273,00 | 1 |
| EACEA | 357.152,02 | 2 |
| ECHO | 584.571,51 | 1 |
| ELARG | 109.676,25 | 1 |
| ENER | 571.490,97 | 3 |
| ENV | 398.089,00 | 1 |
| MARE | 677.640,72 | 1 |
| RTD | 1.413.717,51 | 7 |
| Total: | 6.189.524,04 | 22 |

European Development Fund:

|  |  |  |
| --- | --- | --- |
| Directorate-General/Service | Amount of waivers in € | Number of waivers |
| EDF | 700.915,25 | 5 |

Guarantee Fund:

|  |  |  |
| --- | --- | --- |
| Directorate-General/Service | Amount of waivers in € | Number of waivers |
| GF (FP7) | 140.492,55 | 1 |

  

Annex 5:Compliance with payment time limits (Article 106.6 IR)

The statutory time limits for payments are still laid down in the Implementing Rules of the Financial Regulation
[22](#footnote23)
 (hereinafter IR). Exceptionally, they are also laid down in sector-specific regulations. Under Article 106 IR, payments had to be made within no more than 45 calendar days from the date on which an admissible payment request is registered or 30 calendar days for payments relating to service or supply contracts, save where the contract provides otherwise.

Commission standard contracts are in line with the time limits provided for in the IR. However, for payments which, pursuant to the contract, grant agreement or decision, depend on the approval of a report or a certificate (i.e. the interim and/or final payment), the payment time starts running when the report or certificate in question has been approved
[23](#footnote24)
. Under Article 87 of the Regulation of the European Parliament and the Council laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund, a specific rule applies: payments have to be made within two months
[24](#footnote25)
.

Compliance with payment time limits has been reported by the Services in the AARs since 2007
[25](#footnote26)
.

In accordance with the applicable rules, the payment times reported in this annex have been calculated as follows:

where the payment is contingent upon the approval of a report, the time from approval of the report until payment;

where no report is required, the time from reception of the payment request until payment.

Since January 2013, the new Financial Regulation and its rules of application apply
[26](#footnote27)
 with changes to the payment limits. Now Article 92 of the Financial Regulation foresees that payments to creditors must be made within deadlines of 30, 60 or 90 days, depending on how demanding it is to test the deliverables against the contractual obligations. For contracts and grant agreements under which payment depends on the approval of a report or a certificate, the time limit for the purposes of the payment periods is not any more automatically suspended until the report or certificate in question has been approved. The specific delay of two months foreseen in the Article 87 of the Regulation of the European Parliament and the Council is still applicable.

The Commission's global average payment time has developed as follows over the last few years:

|  |  |  |  |
| --- | --- | --- | --- |
|  | 2010 | 2011 | 2012 |
| Global average payment time | 25,8 days | 25,7 days | 24,9 days |

The data shows that the global average payment time of the Commission services has stabilised over the last three years and slightly decreased in 2012 resulting in 25 days compared to about 26 days in the two preceding years.

Nevertheless, there is scope for reducing the global payment time further, and services are encouraged to take further action in this area.

The table below provides the evolution of payments made after expiration of the statutory time limit ("late payments") during the three last years, based on data extracted from the ABAC accounting system:

|  |  |  |  |
| --- | --- | --- | --- |
|  | 2010 | 2011 | 2012 |
| Late payments in number | 15,9 % | 12,3 % | 11,9 % |
| Late payments in value | 6,0 % | 7,3 % | 13, 6% |
| Average number of overdue days [27](#footnote28) | 34,2 days | 43,2 days | 41,9 days |

While the number of late payments (12 %) stabilised in 2012 compared with last year, the average number of overdue days decreased with one day. However, late payments in terms of value have almost doubled. The figures show the need for services to intensify their efforts towards meeting the statutory payment time for every payment.

In its April 2009 Communication
[28](#footnote29)
, the Commission announced its intention to reduce its payment times further beyond the statutory time limits, setting ambitious targets which correspond now to the new legal time limit introduced by the revised FR.

The only remaining “target” time limit is 20 days for the first pre-financing payments.

In 2012 – the third full year of application of these targets – a slight improvement was noted; around 80 % of payments (in terms of their number) met the targets in 2012, which is in line with the figure of 2011 (78 % in 2010). The required efforts towards a further reduction in the global overall payment time, called for above, would of course also have a positive effect on compliance with the new legal deadlines.

As regards interest paid for late payments 
[29](#footnote30)
 (see figures in the table below) the total amount paid by the Commission in 2012 has been dropping back around the  level of 2010. 2011 was exceptional, due to large amounts of interest paid related to two litigation cases in a DG. 

|  |  |  |  |
| --- | --- | --- | --- |
|  | 2010 | 2011 | 2012 |
| Interest paid for late payments (rounded amounts) | 733.403 € | 1.734.230 € | 738 959,75 € |

The causes of late payments include inter alia the complexities of evaluating supporting documents, in particular the technical reports that in some cases require external expertise, difficulties at efficiently coordinating the financial and operational checks of payment requests, and issues with the management of payment suspensions.

The 2009 Communication establishing Commission-internal payment targets provided a clear incentive to services to reduce their payment times, in particular in 2009 when the global average payment time fell significantly; from 34 to 26 days but it has not substantially changed ever since, with 26 days in 2010 and 2011 and 25 days in 2012. Yet, there is scope for reducing it further especially since the value of late payments rose in 2012 remarkably. When setting up action plans in this area, services should focus on further reducing late payments from their current level of 14 % of payments in terms of their value. The aim should be to meet the statutory payment time for every payment.

The minor improvement reported in 2012 as regards the compliance with the Commission-internal payment targets also points to the need to cut payment times further.

:   [(1)](#footnoteref2)

       This table presents a summary of reservations; it is not intended to offer an exhaustive description of them. For details of the reservations, please consult the AAR of the relevant Commission department on http://ec.europa.eu/atwork/synthesis/aar/index\_en.htm
:   [(2)](#footnoteref3)

     
       These cannot be related to policy-making activities.
:   [(3)](#footnoteref4)

     
       Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities, OJ L 248, 16.09.2002, p. 1. The new FR introduces in its Article 209 specific provisions on the public-private partnership bodies which are not subject to the same obligations as the decentralized agencies and other bodies covered by Article 208 FR
:   [(4)](#footnoteref5)

       Council Regulation (EC) No 58/2003 of 19 December 2002 laying down the statute for executive agencies to be entrusted with certain tasks in the management of Community programmes (OJ L 11, 16.1.2003).
:   [(5)](#footnoteref6)

     
       Former regulatory procedure which is now the examination procedure with the requirement of a positive opinion in the Committee according to Article 13(1)(c) of Regulation 182/2011.
:   [(6)](#footnoteref7)

     
       i.e. the Directorates General which have delegated the implementation of programmes (or parts of it) to the executive agency. EACI (parent DGs: ENTR, ENV, ENER, MOVE); EAHC (parent DG: SANCO); EACEA (parent DGs: EAC, COMM, DEVCO; associated: EMPL, FPI); ERCEA (parent DG: RTD); REA (parent DGs: RTD, ENTR, EAC); TEN-TEA (parent DG: MOVE).
:   [(7)](#footnoteref8)

     
       Unlike the discharge process of the decentralised agencies and Joint Undertakings, which are separate from the Commission's discharge.
:   [(8)](#footnoteref9)

     
       This figure is made up of 275 contract agents and 9 seconded national experts.
:   [(9)](#footnoteref10)

     
       SEC(2007) 530 "Planning & optimising Commission human resources to serve EU priorities".
:   [(10)](#footnoteref11)

     
       For EAHC - Commission implementing decision 2012/740/EU of 29/11/2012 and for EACEA – Commission implementing decision 2012/797/EU of 18/12/2012.
:   [(11)](#footnoteref12)

     
       Special report 13/2009: "Delegating implementing tasks to Executive Agencies: a successful option?" The associated report concludes that agencies provide better service delivery than the Commission, offer the advantages of simplified processes and increased external visibility for EU actions. The report also confirms cost-savings, although these are difficult to quantify due to a lack of reliable data.
:   [(12)](#footnoteref13)

     
       Ref. Ares(2010) 140547 of 16 March 2010.
:   [(13)](#footnoteref14)

       
       COM(2011)500, 29.6.2011, point 6.1.3.
:   [(14)](#footnoteref15)

     
       The 30 agencies having received parliamentary discharge for the implementation of the budget for the financial year 2011 which includes the Euratom Supply Agency under the separate Euratom Treaty and the European Institute of Innovation and Technology (body), added with the three intergovernmental agencies under the Common Security and Defence policy, the 2 newly created agencies (EASO and the EU agency for large-scale IT systems) and the 2 self-financed agencies. A list can be found at 
    [EUROPA - Agencies and other EU bodies - Decentralised agencies](http://europa.eu/agencies/regulatory_agencies_bodies/index_en.htm)
:   [(15)](#footnoteref16)

    http://europa.eu/agencies/documents/joint\_statement\_and\_common\_approach\_2012\_en.pdf
:   [(16)](#footnoteref17)

     
       In a Communication of March 2008 entitled "EU agencies: the way forward" the Commission drew attention to the lack of a common vision on the role and functions of regulatory agencies. It announced a moratorium on creating new agencies and a horizontal evaluation of regulatory agencies which was finalized in December 2009. Following the evaluation, the three institutions launched an inter-institutional working group (IIWG) chaired by the Commission, to discuss the governance and functioning of EU agencies which finally led to the adoption of the common Approach.
:   [(17)](#footnoteref18)

     
       
    <http://europa.eu/agencies/documents/2012-12-18_roadmap_on_the_follow_up_to_the_common_approach_on_eu_decentralised_agencies_en.pdf>
:   [(18)](#footnoteref19)

     
       Including the European Centre for Disease Prevention and Control which received a qualified opinion from the European court of auditors as regards the 2011 annual accounts and the European Environment Agency for which the committee on budgetary control proposed a postponement. The two newest agencies (European Asylum Support Office and the Agency for large-scale IT systems were not subject to the discharge resolution related to 2011 financial year.
:   [(19)](#footnoteref20)

    http://eca.europa.eu/portal/pls/portal/docs/1/18686746.PDF.
:   [(20)](#footnoteref21)

     
       JTIs are established on the basis of Article 171 of the EC Treaty which allows the Commission to set up 
       Joint Undertakings for "the efficient execution of Community research, technological development and 
       demonstration programmes". Article 172 says that these Joint Undertakings can be implemented via a 
       Council Regulation in agreement with Member States, on the basis of a proposal by the Commission.
:   [(21)](#footnoteref22)

     
       The parent DG of an Agency is the Commission department responsible for the political domain in the frame of which an Agency is operating according to its basic act..
:   [(22)](#footnoteref23)

       Commission Regulation (EC) No 2342/2002 of 23 December 2002 (OJ L 357, 31.12.2002, p. 1) as last amended by Regulation (EC) No 478/2007 of 23 April 2007 (OJ L 111, 28.4.2007, p. 13).
:   [(23)](#footnoteref24)

       Pursuant to Article 106(3) IR, the time allowed for approval may not exceed:
       
      
    (a) 20 calendar days for straightforward contracts relating to the supply of goods and services;
      
    (b) 45 calendar days for other contracts and grants agreements;
       
      
    (c) 60 calendar days for contracts and grant agreements involving technical services or actions which are particularly complex to evaluate.
:   [(24)](#footnoteref25)

       Regulation (EC) No 1083/2006 of the European Parliament and of the Council laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion fund and repealing Regulation (EC) No 1260/1999 (OJ L 210, 31.7.2006, p. 25).
:   [(25)](#footnoteref26)

       Based on available data in ABAC as of end of the financial year 2007.
:   [(26)](#footnoteref27)

     
       Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25/10/2012 (OJ L 298,26.10.2012, p.1) and Commission delegated Regulation (EU) No 1268/2012 of 29/10/2012 (OJ L 362, 31.12.2012, p.1).
:   [(27)](#footnoteref28)

       i.e. above the statutory time limit.
:   [(28)](#footnoteref29)

     
       Communication from Mrs Grybauskaite: "Streamlining financial rules and accelerating budget implementation to help economic recovery"; SEC(2009) 477 of 08/04/2009.
:   [(29)](#footnoteref30)

       i.e. no longer conditional upon the presentation of a request for payment (with the exception of amounts below 200 euros).

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