Source: EURLEX
Language: en
Format: md

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| 16.12.2016 | EN | Official Journal of the European Union | C 473/33 |

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REPORT

on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2015, together with the Joint Undertaking’s reply

(2016/C 473/05)

CONTENTS

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|  | Paragraph | Page |
| INTRODUCTION | 1–3 | 34 |
| INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE | 4 | 34 |
| STATEMENT OF ASSURANCE | 5–17 | 34 |
| Opinion on the reliability of the accounts | 10 | 35 |
| Opinion on the legality and regularity of the transactions underlying the accounts | 11 | 35 |
| Emphasis of matter | 12–17 | 36 |
| COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT | 18–19 | 37 |
| Presentation of the accounts | 18 | 37 |
| Implementation of the 2015 budget | 19 | 37 |
| COMMENTS ON KEY CONTROLS IN THE JOINT UNDERTAKING’S SUPERVISORY AND CONTROL SYSTEMS | 20–25 | 37 |
| Operational procurement and grants | 21–22 | 38 |
| Overall control and monitoring of operational procurement contracts and grants | 23–25 | 39 |
| OTHER MATTERS | 26–30 | 39 |
| Anti-fraud strategy | 26 | 39 |
| Legal framework | 27–29 | 39 |
| Annual activity report | 30 | 40 |
| FOLLOW-UP OF PREVIOUS OBSERVATIONS | 31–36 | 40 |
| Intellectual property rights and industrial policy | 31–33 | 40 |
| Host State agreement | 34–35 | 40 |
| Rules implementing the Staff Regulations | 36 | 40 |
| ANNEX | | 41 |

INTRODUCTION

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|  | 1. | The European Joint Undertaking for ITER[(1)](#ntr1-C_2016473EN.01003301-E0001) and the Development of Fusion Energy (F4E) was set up in March 2007[(2)](#ntr2-C_2016473EN.01003301-E0002) for a period of 35 years. While the main fusion facilities were to be developed at Cadarache in France, the Joint Undertaking is located in Barcelona. |

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|  | 2. | The tasks of the Joint Undertaking are[(3)](#ntr3-C_2016473EN.01003301-E0003):   |  |  | | --- | --- | | (a) | to provide Euratom’s contribution to the ITER International Fusion Energy Organisation[(4)](#ntr4-C_2016473EN.01003301-E0004); |  |  |  | | --- | --- | | (b) | to provide Euratom’s contribution to ‘Broader Approach’ (complementary joint fusion research) activities with Japan for the rapid development of fusion energy; |  |  |  | | --- | --- | | (c) | to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities, including the International Fusion Materials Irradiation Facility. | |

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|  | 3. | The members of the Joint Undertaking are Euratom, represented by the European Commission, the Euratom Member States and other countries which have concluded cooperation agreements with Euratom in the field of controlled nuclear fusion (as of 31 December 2015: Switzerland). |

INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE

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

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| STATEMENT OF ASSURANCE   |  |  |  |  |  |  |  | | --- | --- | --- | --- | --- | --- | --- | |  | 5. | Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union (TFEU), the Court has audited:   |  |  | | --- | --- | | (a) | the annual accounts of the Joint Undertaking for ITER and the Development of Fusion Energy[(5)](#ntr5-C_2016473EN.01003301-E0005), which comprise the financial statements and the reports on the implementation of the budget[(6)](#ntr6-C_2016473EN.01003301-E0006) for the financial year ended 31 December 2015; and |  |  |  | | --- | --- | | (b) | the legality and regularity of the transactions underlying those accounts. | |   The management’s responsibility   |  |  |  |  |  |  |  | | --- | --- | --- | --- | --- | --- | --- | |  | 6. | In accordance with Articles 39 and 50 of Commission Delegated Regulation (EU) No 1271/2013[(7)](#ntr7-C_2016473EN.01003301-E0007), the management is responsible for the preparation and fair presentation of the annual accounts of the Joint Undertaking and the legality and regularity of the underlying transactions.   |  |  | | --- | --- | | (a) | The management’s responsibilities in respect of the Joint Undertaking’s annual accounts include designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies on the basis of the accounting rules adopted by the Commission’s accounting officer[(8)](#ntr8-C_2016473EN.01003301-E0008), and making accounting estimates that are reasonable in the circumstances. The Director approves the annual accounts of the Joint Undertaking after its accounting officer has prepared them on the basis of all available information and established a note to accompany the accounts in which he declares, inter alia, that he has reasonable assurance that they present a true and fair view of the financial position of the Joint Undertaking in all material respects. |  |  |  | | --- | --- | | (b) | The management’s responsibilities in respect of the legality and regularity of the underlying transactions and compliance with the principle of sound financial management consist of designing, implementing and maintaining an effective and efficient internal control system comprising adequate supervision and appropriate measures to prevent irregularities and fraud and, if necessary, initiating legal proceedings to recover funds wrongly paid or used. | |   The auditor’s responsibility   |  |  |  | | --- | --- | --- | |  | 7. | The Court’s responsibility is, on the basis of its audit, to provide the European Parliament and the Council[(9)](#ntr9-C_2016473EN.01003301-E0009) with a statement of assurance as to the reliability of the annual accounts and the legality and regularity of the underlying transactions. The Court conducts its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the Intosai International Standards of Supreme Audit Institutions. These standards require the Court to plan and perform the audit to obtain reasonable assurance as to whether the annual accounts of the Joint Undertaking are free from material misstatement and the underlying transactions are legal and regular. |  |  |  |  | | --- | --- | --- | |  | 8. | The audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts and the legality and regularity of the underlying transactions. The procedures selected depend on the auditor’s judgement, which is based on an assessment of the risks of material misstatement of the accounts and material non-compliance by the underlying transactions with the requirements in the legal framework of the European Union, whether due to fraud or error. In assessing these risks, the auditor considers any internal controls relevant to the preparation and fair presentation of the accounts, as well as the supervisory and control systems that are implemented to ensure the legality and regularity of underlying transactions, and designs audit procedures that are appropriate in the circumstances. The audit also entails evaluating the appropriateness of accounting policies, the reasonableness of accounting estimates and the overall presentation of the accounts. |  |  |  |  | | --- | --- | --- | |  | 9. | The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for the opinions set out below. |   Opinion on the reliability of the accounts   |  |  |  | | --- | --- | --- | |  | 10. | In the Court’s opinion, the Joint Undertaking’s annual accounts present fairly, in all material respects, its financial position as at 31 December 2015 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its financial rules and the accounting rules adopted by the Commission’s accounting officer. |   Opinion on the legality and regularity of the transactions underlying the accounts   |  |  |  | | --- | --- | --- | |  | 11. | In the Court’s opinion, the transactions underlying the annual accounts of the Joint Undertaking for the year ended 31 December 2015 are, in all material respects, legal and regular. |   Emphasis of matter   |  |  |  | | --- | --- | --- | |  | 12. | Without calling into question the opinions expressed in paragraphs 10 and 11, the Court draws attention to the following. The Council conclusions adopted on 7 July 2010[(10)](#ntr10-C_2016473EN.01003301-E0010) approved 6,6 billion euro (in 2008 values) for the Joint Undertaking contribution to the ITER construction phase of the project initially planned for 2020. This figure, which doubled the initial budgeted costs for this phase of the project, did not include 663 million euro proposed by the European Commission in 2010 to cover potential contingencies[(11)](#ntr11-C_2016473EN.01003301-E0011). |  |  |  |  | | --- | --- | --- | |  | 13. | The complexity of ITER activities[(12)](#ntr12-C_2016473EN.01003301-E0012) puts the amount of the Joint Undertaking contribution to the construction phase of the project at significant risk of increasing[(13)](#ntr13-C_2016473EN.01003301-E0013). This risk mainly results from changes in the scope[(14)](#ntr14-C_2016473EN.01003301-E0014) of the project deliverables and delays in the current schedule, which was considered unrealistic[(15)](#ntr15-C_2016473EN.01003301-E0015). The release of a new ITER project baseline (scope, schedule and costs) by the ITER IO Council, initially planned for June 2015, was postponed first to November 2015 and then to June 2016. In its meeting of 15-16 June 2016 the ITER Council endorsed an updated integrated schedule for the ITER project which identifies the date of achievement of the strategic milestone of the construction phase of the project (‘First Plasma’) as December 2025. |  |  |  |  | | --- | --- | --- | |  | 14. | In 2015, F4E launched a major exercise to calculate the estimated cost at completion (EAC) of the Joint Undertaking contribution to the construction phase of the project. The result was an expected cost increase of around 2 375 million euro[(16)](#ntr16-C_2016473EN.01003301-E0016) (using a 50 % confidence level as applicable to major engineering projects)[(17)](#ntr17-C_2016473EN.01003301-E0017). |  |  |  |  | | --- | --- | --- | |  | 15. | F4E has not yet updated the valuation of the Joint Undertaking contribution to the ITER project beyond the finalisation of the construction phase. |  |  |  |  | | --- | --- | --- | |  | 16. | As a result of the challenges faced by the ITER project, in 2015 the Director-General of ITER IO presented to the ITER Council an action plan with specific measures to address the main constraints affecting the development of the project[(18)](#ntr18-C_2016473EN.01003301-E0018). The F4E Governing Board adopted its own action plan, which largely supports that of ITER IO[(19)](#ntr19-C_2016473EN.01003301-E0019). While some key actions started in 2015[(20)](#ntr20-C_2016473EN.01003301-E0020), the full implementation of both action plans is now subject to decisions adopted by the ITER Council at its meeting of June 2016 as regards the new schedule and resources for the ITER project. | |

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

COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT

Presentation of the accounts

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|  | 18. | In the notes to the financial statements, the table and the information included under heading 4.3.1.1. ‘ITER Procurement Arrangement (ITER IO)’, reflect the procurement arrangements signed (column 3) and those credited so far (column 4). However, the table does not show the actual degree of advancement of the works in progress. In the 2015 annual accounts, F4E has supplemented this information with an estimate of the work in progress taking into account the total value of spending on contracts linked to PAs, and a chart showing the achievement of milestones for each procurement arrangement signed with ITER IO[(21)](#ntr21-C_2016473EN.01003301-E0021). Despite the estimate presented in the 2015 accounts, further work is needed to present more accurate information on the status and value of the activities carried out so far by the Joint Undertaking[(22)](#ntr22-C_2016473EN.01003301-E0022). |

Implementation of the 2015 budget

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|  | 19. | The final 2015 budget available for implementation included commitment appropriations of 467,9 million euro and payment appropriations of 586,08 million euro. The utilisation rates for commitment and payment appropriations were 100 % and 99,9 % respectively. However, the implementation rate for commitment appropriations with respect to the 2015 initial budget was 49 %[(23)](#ntr23-C_2016473EN.01003301-E0023). Out of the 467,9 million euro available for commitment appropriations, 52 % was implemented through direct individual commitments, and the remaining 48 % through global commitments[(24)](#ntr24-C_2016473EN.01003301-E0024). The implementation rate for payment appropriations with respect to the 2015 initial budget was 82 %[(25)](#ntr25-C_2016473EN.01003301-E0025). |

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

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|  | 20. | Significant progress has been achieved in many areas, and the exercise carried out by F4E in 2015 to calculate the EAC for the construction phase of the project was a major achievement (see paragraphs 14 and 15). At the time of the Court’s audit (April 2016), a number of key actions for the management of the Joint Undertaking’s activities were being addressed:   |  |  | | --- | --- | | — | F4E is further developing a central and uniform system for the integration of all the operational, financial and budgeting data, which will allow regular monitoring and control of estimates, costs and deviations. At its meeting of 8-9 June 2015, the Governing Board endorsed a proposal by the Director to implement an Enterprise Resources Planning (ERP) system within 2 years, |  |  |  | | --- | --- | | — | F4E has developed a system (Contract Tracker) to manage all the amendments made to contracts under implementation, and to report on deviations and cost impact, |  |  |  | | --- | --- | | — | the system to provide information on the value of the degree of the implementation of activities (Earned Value Management) is under discussion with ITER IO with a view to improving the distribution of credit milestones during the life of a procurement arrangement (see paragraph 18), |  |  |  | | --- | --- | | — | as regards the overall status of the action plans adopted by F4E in response to previous internal audits[(26)](#ntr26-C_2016473EN.01003301-E0026), at the time of the Court’s audit only five recommendations were still open[(27)](#ntr27-C_2016473EN.01003301-E0027), |  |  |  | | --- | --- | | — | in 2015 the Joint Undertaking’s Internal Audit Capability (IAC) completed two engagements, — of neutral beam systems and cryoplant systems. The IAC also performed three follow-up engagements on audits[(28)](#ntr28-C_2016473EN.01003301-E0028) for which all recommendations had been formally closed, |  |  |  | | --- | --- | | — | in 2015 the European Commission’s Internal Audit Service (IAS) performed a follow-up of its limited review on the competitive dialogue procedure for the procurement of Tender Batch 03 (Tokamak Complex), conducted in 2013. The IAS acknowledged the efforts made by F4E to implement the recommendations aiming at improving the procurement process in general. Two recommendations remained open[(29)](#ntr29-C_2016473EN.01003301-E0029). The IAS also followed up the outstanding recommendations of its audit of procurement arrangements, conducted in 2012. It concluded that, of the nine recommendations still outstanding after the first follow-up in 2014, seven had been adequately implemented; the other two would be reassessed through a new engagement on the implementation of procurement arrangements[(30)](#ntr30-C_2016473EN.01003301-E0030), |  |  |  | | --- | --- | | — | in 2015 the Joint Undertaking commissioned an independent assessment of F4E buildings contracts[(31)](#ntr31-C_2016473EN.01003301-E0031). Among other conclusions relating to the delays and cost deviations suffered by F4E in the area of buildings (see paragraphs 13 and 14), the authors reiterated the assessment that the schedule and contingency reserve were unrealistic owing to the low maturity design of the project, |  |  |  | | --- | --- | | — | the F4E internal corporate risk management system did not identify any new risks in 2015. Of the 16 actions identified in 2015 to address very high risks, 11 have been implemented, three are still in progress and two have yet to start. | |

Operational procurement and grants

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|  | 21. | Negotiated procedures constituted 45 % of the 84 operational tendering procedures launched in 2015 (58 % in 2014). Although the Joint Undertaking reduced the percentage of negotiated procedures in 2015, efforts are needed to increase the competitiveness of its operational procurement procedures. For grants, the average number of proposals received was 1,4 per call. |

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|  | 22. | The Court audited five operational procurement procedures. Significant progress has been achieved in the updating of cost estimates when procurement procedures are launched. However, the following weaknesses were identified:   |  |  | | --- | --- | | — | in one case, the EAC[(32)](#ntr32-C_2016473EN.01003301-E0032) was 21 % higher (4,7 million euro in 2008 values) than the budget allocated to the contract at the time the procedure was launched. In another case there was a 20 % increase (11,9 million euro in 2008 values), |  |  |  | | --- | --- | | — | one procurement procedure was only completed 8 months after the date set out in the procurement strategy. One of the reasons was a three-month delay in completing the tender submission procedure. Consequently, the contract was signed in October 2015 rather than February 2015, as initially planned, |  |  |  | | --- | --- | | — | in one case, although the award notice was published in the Official Journal of the European Union, F4E failed to publish a reference to the notice on its website as required by its Financial Regulation. | |

Overall control and monitoring of operational procurement contracts and grants

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|  | 23. | The Joint Undertaking has a system for performing audits[(33)](#ntr33-C_2016473EN.01003301-E0033) at contractors with the aim of checking compliance with quality assurance requirements[(34)](#ntr34-C_2016473EN.01003301-E0034). |

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|  | 24. | The overall control and monitoring of operational contracts (including financial and compliance verification) were covered by the IAC and the European Commission’s Internal Audit Service in their 2015 audit plans[(35)](#ntr35-C_2016473EN.01003301-E0035). |

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|  | 25. | In 2015, F4E performed ex post audits on three beneficiaries of grants it had awarded[(36)](#ntr36-C_2016473EN.01003301-E0036). While F4E is taking the necessary action to correct the identified errors[(37)](#ntr37-C_2016473EN.01003301-E0037), a residual error rate has not been calculated due to the small number of ex post audits carried out so far[(38)](#ntr38-C_2016473EN.01003301-E0038) and the low impact of the grants awarded by F4E on its total budget[(39)](#ntr39-C_2016473EN.01003301-E0039). |

OTHER MATTERS

Anti-fraud strategy

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|  | 26. | On 8-9 June 2015, the F4E Governing Board adopted an anti-fraud strategy and corresponding action plan. On 9 December 2015 the Joint Undertaking also adopted a Decision on Whistleblowing Rules. At the time of the Court’s audit (April 2016), most of the actions had been implemented and communication was in place, as well as training for all departments of the Joint Undertaking. |

Legal framework

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|  | 27. | The new Financial Regulation applicable to the general budget of the EU[(40)](#ntr40-C_2016473EN.01003301-E0040) was adopted on 25 October 2012 and took effect on 1 January 2013[(41)](#ntr41-C_2016473EN.01003301-E0041). The framework financial regulation for the bodies[(42)](#ntr42-C_2016473EN.01003301-E0042) referred to in Article 208 of the new Financial Regulation entered into force on 8 December 2013. |

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|  | 28. | On 2 December 2015, the F4E Governing Board finally amended its Financial Regulation and Implementing Rules to align them with the new EU Financial Framework. In February 2016, the European Commission issued a positive opinion on the amendments introduced by F4E in its financial rules, but requested the Joint Undertaking to consider further developing certain provisions in its Implementing Rules relating to specific derogations from the EU Financial Regulation and from the framework financial regulation applicable to the Article 208 bodies[(43)](#ntr43-C_2016473EN.01003301-E0043). |

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|  | 29. | The new F4E Financial Regulation and Implementing Rules entered into force retroactively on 1 January 2016. The new procurement and grant rules entered into force on 1 June 2016. F4E is currently revising those of its working procedures and processes that are affected by the new requirements. |

Annual activity report

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|  | 30. | The Chair of F4E Governing Board refers in the 2015 annual activity report of the Joint Undertaking to the cost overruns and delays suffered by the ITER project so far and the expectations to have a new budget and schedule in place by the end of 2016. In addition, the F4E Director confirms that the system of internal control is being further enhanced in order to appropriately mitigate the risks observed by the Court, in particular concerning the amount of the Joint Undertaking’s contribution to the construction phase of the ITER project[(44)](#ntr44-C_2016473EN.01003301-E0044). |

FOLLOW-UP OF PREVIOUS OBSERVATIONS

Intellectual property rights and industrial policy

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|  | 31. | The Decision on the implementation of the Fusion for Energy Industrial Policy and the policy on intellectual property rights and dissemination of information was adopted by the Joint Undertaking's Governing Board on 27 June 2013. |

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|  | 32. | The Joint Undertaking has developed a procurement strategy document for each procurement action. A checklist for monitoring the implementation of the procurement strategy as regards the ownership of the foreground for each procurement action has been drawn up. |

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|  | 33. | At the time of the audit (April 2016), F4E had implemented the majority of the provisions in the Governing Board Decision of 27 June 2013, though five were not yet fully implemented[(45)](#ntr45-C_2016473EN.01003301-E0045) and three were still pending[(46)](#ntr46-C_2016473EN.01003301-E0046). An impact assessment on the implementation of these policies is planned but has not yet been carried out. |

Host State agreement

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|  | 34. | According to the Host State Agreement signed with the Kingdom of Spain on 28 June 2007, permanent premises should have been made available to the Joint Undertaking by June 2010. |

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|  | 35. | Following contacts between F4E and the Spanish Government, a formal offer was presented to the Joint Undertaking on 10 March 2015. In December 2015, the Host State informed the F4E Governing Board that the discussions at ministerial level to formalise the offer of 10 March 2015 had not been concluded, and offered instead to start negotiations with the owner of the building where F4E is currently located with a view to making it the permanent headquarters of the Joint Undertaking. At the time of the audit (April 2016) this new proposal was under examination by the Joint Undertaking. |

Rules implementing the Staff Regulations

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|  | 36. | During 2015, the Joint Undertaking continued with its adoption by analogy of several EU rules implementing the Staff Regulations[(47)](#ntr47-C_2016473EN.01003301-E0047). However, certain specific rules for the implementation of the Staff Regulations still remain to be adopted[(48)](#ntr48-C_2016473EN.01003301-E0048). |

This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 18 October 2016.

For the Court of Auditors

Klaus-Heiner LEHNE

President

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