CELEX: 62017TJ0022
Language: en
Date: 2018-12-06 00:00:00
Title: Judgment of the General Court (Ninth Chamber) of 6 December 2018.#Portuguese Republic v European Commission.#EAFRD — Expenditure excluded from financing — Expenditure incurred by Portugal — Article 31(4)(c) of Regulation (EC) No 1290/2005 — Absence of evidence of serious and reasonable doubt — Key controls — Ancillary controls.#Case T-22/17.

JUDGMENT OF THE GENERAL COURT (Ninth Chamber)
      6 December 2018 (
            *1
         )
      (EAFRD — Expenditure excluded from financing — Expenditure incurred by Portugal — Article 31(4)(c) of Regulation (EC) No 1290/2005 — Absence of evidence of serious and reasonable doubt — Key controls — Ancillary controls)
      In Case T‑22/17,
      
         Portuguese Republic, represented by P. Estêvão, L. Inez Fernandes, M. Figueiredo and J. Saraiva de Almeida, acting as Agents,
      applicant,
      v
      
         European Commission, represented by B. Rechena, A. Sauka and D. Triantafyllou, acting as Agents,
      defendant,
      APPLICATION pursuant to Article 263 TFEU seeking the annulment of Commission Implementing Decision (EU) 2016/2018 of 15 November 2016 excluding from European Union financing certain expenditure incurred by the Member States under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) (OJ 2016 L 312, p. 26), in so far as it excludes payments made under the EAFRD by the competent paying agency of the Portuguese Republic amounting to a total of EUR 1 990 810.30,
      THE GENERAL COURT (Ninth Chamber),
      composed of S. Gervasoni, President, K. Kowalik‑Bańczyk (Rapporteur) and C. Mac Eochaidh, Judges,
      Registrar: M. Marescaux, Administrator,
      having regard to the written part of the procedure and further to the hearing on 12 July 2018,
      gives the following
      
         Judgment
      
      
         Background to the dispute
      
      
               1
            
            
               By decision of 4 December 2007, the Commission of the European Communities approved Prorural, the rural development programme of the Autonomous Region of the Azores (Portugal) for the years 2007 to 2013, established by the Portuguese Republic, in accordance with Article 18 of Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) (OJ 2005 L 277, p. 1).
            
         
               2
            
            
               In accordance with Article 37 of Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy (OJ 2005 L 209, p. 1), the Commission organised checks, between 17 and 21 June 2013, in Ponta Delgada (Portugal) in relation to the implementation of Prorural.
            
         
               3
            
            
               By letter of 12 September 2013, with reference Ares 3036530 (‘the letter of 12 September 2013’), the Commission communicated its findings to the Portuguese authorities on the basis of Article 11(1) of Commission Regulation (EC) No 885/2006 of 21 June 2006 laying down detailed rules for the application of Regulation No 1290/2005 as regards the accreditation of paying agencies and other bodies and the clearance of the accounts of the EAGF and of the EAFRD (OJ 2006 L 171, p. 90). It thus informed the Portuguese authorities of the failings which it had found in certain administrative checks which they had carried out under Article 24(2)(d) of Commission Regulation (EU) No 65/2011 of 27 January 2011 laying down detailed rules for the implementation of Regulation No 1698/2005, as regards the implementation of control procedures as well as cross-compliance in respect of rural development support measures (OJ 2011 L 25, p. 8), which succeeded Article 26(2)(d) of Commission Regulation (EC) No 1975/2006 of 7 December 2006 laying down detailed rules for the implementation of Regulation No 1698/2005, as regards the implementation of control procedures as well as cross-compliance in respect of rural development support measures (OJ 2006 L 368, p. 74).
            
         
               4
            
            
               More specifically, the Commission took the view that the administrative checks carried out by the Portuguese authorities had not made it possible to evaluate in an appropriate manner the reasonableness of the costs submitted by three beneficiaries of support targeting the competitiveness of the agricultural and forestry sectors; this concerned measures aimed at restructuring and developing physical potential and promoting innovation through adding value to agricultural and forestry products, referred to in Article 20(b)(iii) of Regulation No 1698/2005 and corresponding to measure 123 codified in Annex II to Commission Regulation (EC) No 1974/2006 of 15 December 2006 laying down detailed rules for the application of Regulation No 1698/2005 (OJ 2006 L 368, p. 15) (‘measure 123’). Those beneficiaries had the identification numbers 4715781, 4716022 and 5221903 respectively (‘the three beneficiaries at issue’).
            
         
               5
            
            
               The Portuguese authorities replied to the Commission’s observations by letter of 16 December 2013.
            
         
               6
            
            
               On 18 February 2014, a meeting was held between the representatives of the Portuguese authorities and the Commission, in accordance with Article 11(1) of Regulation No 885/2006.
            
         
               7
            
            
               By letter of 26 September 2014, with reference Ares 3174958 (‘the letter of 26 September 2014’), the Commission formally communicated to the Portuguese authorities, pursuant to Article 11(2) of Regulation No 885/2006, its conclusions on the basis of the information received in the context of the conformity clearance procedure. In that letter, on one hand, the Commission, by reference to Document No VI/5330/97 of 23 December 1997, entitled ‘Guidelines for the calculation of financial consequences when preparing the decision regarding the clearance of the accounts of EAGGF Guarantee’ (‘Document No VI/5330/97’), set out the evaluation of the expenditure relating, inter alia, to measure 123 which it planned to exclude from EU financing on the basis of Article 31 of Regulation No 1290/2005. On the other hand, it reminded the Portuguese authorities that they could have recourse to the conciliation procedure laid down in Article 16(1) of Regulation No 885/2006.
            
         
               8
            
            
               By letter of 7 November 2014, the Portuguese authorities informed the Commission that they wished to have recourse to that conciliation procedure.
            
         
               9
            
            
               Following the conciliation procedure, the Commission adopted Implementing Decision (EU) 2016/2018 of 15 November 2016 excluding from European Union financing certain expenditure incurred by the Member States under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) (OJ 2016 L 312, p. 26, ‘the contested decision’), excluding from EU financing payments made by the competent paying agency of the Portuguese Republic under the European Agricultural Fund for Rural Development (EAFRD) pursuant to measure 123, amounting to a total of EUR 1 990 810.30.
            
         
         Procedure and forms of order sought
      
      
               10
            
            
               By application lodged at the Court Registry on 16 January 2017, the Portuguese Republic brought the present action.
            
         
               11
            
            
               The Portuguese Republic claims that the Court should:
               
                        –
                     
                     
                        annul the contested decision in so far as it excludes from EU financing payments made under the EAFRD by its competent paying agency amounting to a total of EUR 1 990 810.30;
                     
                  
                        –
                     
                     
                        order the Commission to pay the costs.
                     
                  
         
               12
            
            
               The Commission contends that the Court should:
               
                        –
                     
                     
                        dismiss the action;
                     
                  
                        –
                     
                     
                        order the Portuguese Republic to pay the costs.
                     
                  
         
         Law
      
      
               13
            
            
               In support of the action, the Portuguese Republic puts forward two pleas in law, the first alleging an infringement of Article 31(4)(c) of Regulation No 1290/2005, and the second a ‘failure to state reasons’ resulting essentially, first, from the absence of serious and reasonable doubt as to the reasonableness of the costs submitted by the beneficiaries of measure 123 and, secondly, from a failure to comply with Document No VI/5330/97.
            
         
         
            First plea in law, alleging an infringement of Article 31(4)(c) of Regulation No 1290/2005
         
      
      
               14
            
            
               The Portuguese Republic submits that the Commission was wrong to apply a financial correction to the expenditure incurred in the course of the financial years 2010 and 2011, inasmuch as that expenditure predated by more than 24 months the notification of the letter of 12 September 2013.
            
         
               15
            
            
               The Commission disputes the Portuguese Republic’s arguments.
            
         
               16
            
            
               Under Article 31(4)(c) of Regulation No 1290/2005, financing may not be refused for ‘expenditure on measures in programmes, as indicated in Article 4 [of that regulation], other than those referred to in [Article 31(4)(b) of that regulation], for which the payment or, as the case may be, the payment of the balance, by the paying agency, is made more than 24 months before the Commission notifies the Member State in writing of its inspection findings’.
            
         
               17
            
            
               It follows, therefore, from Article 31(4)(c) of Regulation No 1290/2005 that the Commission may exclude from EU financing expenditure which is not compliant with the rules of EU law for which payment or, as the case may be, payment of the balance is made in the 24 months preceding the written communication by the Commission to the Member State concerned of its inspection findings.
            
         
               18
            
            
               Regulation No 885/2006, which is the implementing regulation for Regulation No 1290/2005, specifies, in Article 11(1) thereof, the content of the written communication by which the Commission must communicate its inspection findings to Member States.
            
         
               19
            
            
               In that regard, it should be pointed out that the date which must be regarded as decisive as regards assessment of whether a payment was made within the period of 24 months must be that on which the final amount of the aid is fixed and the balance paid by the Member State concerned (see, to that effect and by analogy, judgment of 3 May 2012, Spain v Commission, C‑24/11 P, EU:C:2012:266, paragraph 45 and the case-law cited). It follows that, in accordance moreover with the terms used in Article 31(4)(c) of Regulation No 1290/2005 — which mentions ‘expenditure’ for which ‘payment’ or, as the case may be, ‘payment of the balance’ was made prior to the beginning of the relevant period of 24 months — the Commission may apply a financial correction to payments made prior to the beginning of that period where they relate to expenditure for which the final amount is fixed and the balance is paid by the Member State concerned after the beginning of the relevant period of 24 months.
            
         
               20
            
            
               In the present case, first, it is common ground between the parties that, by the letter of 12 September 2013, the Commission communicated its inspection findings to the Portuguese Republic under Article 11(1) of Regulation No 885/2006.
            
         
               21
            
            
               It follows that the period of 24 months referred to in Article 31(4)(c) of Regulation No 1290/2005 began on 12 September 2011 (‘the relevant 24-month period’).
            
         
               22
            
            
               Secondly, it should be pointed out that the Commission took the view that the financial correction had to be applied to certain payments made by the Portuguese authorities prior to 12 September 2011, inasmuch as those payments related to projects for which other payments had been made during the relevant 24-month period.
            
         
               23
            
            
               The Portuguese Republic submits that the Commission cannot take into account for the purposes of calculating the amount of the financial correction advances or intermediate payments made prior to the relevant 24-month period, inasmuch as neither Portuguese law nor Article 31(4)(c) of Regulation No 1290/2005 makes provision for those advances or intermediate payments.
            
         
               24
            
            
               In that regard, first, it should be noted, as stated in paragraph 16 above, contrary to what the Portuguese Republic maintains, that Article 31(4)(c) of Regulation No 1290/2005 expressly refers to payment of the balance of the expenditure in question, which necessarily implies the possibility of advance provisional payments of the aid claimed, regardless of the fact that the national law in question does not make provision for such a possibility.
            
         
               25
            
            
               Secondly, it is apparent from the letter of 26 September 2014, as the Commission explained in response to a measure of organisation of procedure addressed to it, that certain beneficiaries of measure 123 did in fact receive advance payments, the provisional nature of which is confirmed by the fact that those beneficiaries were required, where applicable, to repay part of those payments where they exceeded the final amount of aid due.
            
         
               26
            
            
               Thirdly, it should be pointed out that the Portuguese Republic does not deny that the payments made prior to 12 September 2011 identified by the Commission in the letter of 26 September 2014 do in fact relate to expenditure for which payment of the balance was made by the paying agency in question or, at least, the final amount was fixed after the beginning of the relevant 24-month period.
            
         
               27
            
            
               Consequently, it follows from the foregoing that the Commission was right to find that the payments made prior to 12 September 2011 which it had identified in the letter of 26 September 2014 could be excluded from EU financing, so that the first plea in law, alleging an infringement of Article 31(4)(c) of Regulation No 1290/2005, must be rejected.
            
         
         
            Second plea in law, alleging a ‘failure to state reasons’
         
      
      
               28
            
            
               The Portuguese Republic’s second plea in law consists in two parts, the first alleging the absence of serious and reasonable doubt as to whether the checks carried out by the Portuguese authorities were compliant with EU rules, and the second a failure to comply with Document No VI/5330/97.
            
         
               29
            
            
               The Commission disputes the Portuguese Republic’s arguments.
            
         
         The first part of the second plea in law, alleging the absence of evidence of serious and reasonable doubt
      
      
               30
            
            
               The Portuguese Republic submits that the Commission cannot rely on the existence of serious and reasonable doubt with regard to the checks, carried out by the Portuguese authorities, in respect of the reasonableness of the costs submitted by the beneficiaries of measure 123, in order to justify the application of a financial correction.
            
         
               31
            
            
               Under Article 26(2)(d) of Regulation No 1975/2006, which was succeeded by Article 24(2)(d) of Regulation No 65/2011, administrative checks by Member States on applications for support must include verification of the reasonableness of the costs submitted, which are to be evaluated using a suitable evaluation system, such as reference costs, a comparison of different offers or an evaluation committee.
            
         
               32
            
            
               It should be recalled that, according to settled case-law, only intervention undertaken in accordance with the EU rules is to be financed by the EAFRD (see judgment of 4 September 2015, United Kingdom v Commission, T‑503/12, EU:T:2015:597, paragraph 52 and the case-law cited). In that context, it is for the Commission to prove that an infringement of those rules has occurred. The Commission is, therefore, obliged to give reasons for its decision finding an absence of, or defects in, inspection procedures operated by the Member State in question. However, the Commission is required not to demonstrate exhaustively that the checks carried out by the national authorities are inadequate or that there are irregularities in the figures submitted by them, but to adduce evidence of serious and reasonable doubt on its part regarding those checks or figures (see, by analogy, judgments of 9 January 2003, Greece v Commission, C‑157/00, EU:C:2003:5, paragraphs 15 and 16 and the case-law cited, and of 24 February 2005, Greece v Commission, C‑300/02, EU:C:2005:103, paragraphs 32 to 34 and the case-law cited).
            
         
               33
            
            
               The Member State concerned, for its part, cannot rebut the Commission’s findings by mere assertions which are not substantiated by evidence of a reliable and operational supervisory system. If it is not able to show that the Commission’s findings are inaccurate, those findings can give rise to serious doubts as to the existence of an adequate and effective series of supervisory measures and inspection procedures (see, by analogy, judgments of 9 January 2003, Greece v Commission, C‑157/00, EU:C:2003:5, paragraph 18 and the case-law cited, and of 24 February 2005, Greece v Commission, C‑300/02, EU:C:2005:103, paragraph 35 and the case-law cited).
            
         
               34
            
            
               The reason for this mitigation of the burden of proof on the Commission is that it is the Member State which is best placed to collect and verify the data required for the clearance of EAFRD accounts; consequently, it is for the State to adduce the most detailed and comprehensive evidence that it has made checks or that its figures are accurate and, if appropriate, that the Commission’s assertions are incorrect (see, by analogy, judgments of 9 January 2003, Greece v Commission, C‑157/00, EU:C:2003:5, paragraph 17 and the case-law cited, and of 24 February 2005, Greece v Commission, C‑300/02, EU:C:2005:103, paragraph 36 and the case-law cited).
            
         
               35
            
            
               In the present case, the Commission took the view that the checks operated by the Portuguese authorities had not made it possible to evaluate in an appropriate manner the reasonableness of the costs submitted by the three beneficiaries at issue.
            
         
               36
            
            
               The Portuguese Republic maintains that the Commission did not identify any failings in the evaluation of the reasonableness of the costs submitted by the beneficiaries of measure 123 and that the Portuguese authorities, despite the inherent constraints of the Azorean market, implemented a suitable system for evaluating the reasonableness of the costs submitted by those beneficiaries, in accordance with Article 26(2)(d) of Regulation No 1975/2006 and Article 24(2)(d) of Regulation No 65/2011, since that system was based on reference costs. In addition, the Portuguese Republic argues that the Commission did not put forward any irregularities in the verification of whether the expenditure declared by those beneficiaries had in fact been incurred or in the conducting of checks at the premises of the subsidised operation or at the investment site.
            
         
               37
            
            
               In that regard, in the first place, it should be pointed out that, contrary to what the Portuguese Republic maintains, the Commission identified in concrete and detailed terms, in the letter of 12 September 2013, failings in the evaluation by the Portuguese authorities of the reasonableness of the costs submitted by the three beneficiaries at issue.
            
         
               38
            
            
               Thus, the Commission found, inter alia, first, that the lists of reference costs drawn up by the Portuguese authorities had sometimes been based exclusively on the prices of the undertakings ultimately chosen by the beneficiaries, so that the Portuguese authorities, in certain cases, had simply compared prices provided by one and the same undertaking with a view to determining whether or not that undertaking’s prices were reasonable. Secondly, it found that the reference costs could be up to 4.5 times as high as the prices of the undertakings selected by the beneficiaries, which, according to the Commission, indicated that there was no connection between the reference costs and market prices. Thirdly, the Commission found that the justification for certain payments which amounted to several hundreds of thousands of euros may be either non-existent or inadequate.
            
         
               39
            
            
               It is important to note that the Portuguese Republic does not dispute the accuracy of the Commission’s findings mentioned in paragraph 38 above.
            
         
               40
            
            
               In the second place, the fact that the Portuguese authorities had put in place an evaluation system based on the comparison of the costs submitted by the beneficiaries of measure 123 with reference costs does not mean that that system was suitable within the meaning of the provisions mentioned in paragraph 31 above.
            
         
               41
            
            
               It is quite clear from those provisions that the Portuguese authorities were free to choose the evaluation system that they wished to implement, so that they could choose another evaluation system if, in practice, it was not possible to establish reference costs.
            
         
               42
            
            
               Consequently, while it is not disputed that the implementation of an evaluation system based on the comparison of the costs submitted by the beneficiaries of measure 123 with reference costs was made difficult by the constraints inherent in the insularity and the limited size of the Azorean market, it was, nevertheless, open to the Portuguese authorities to implement another evaluation system which was both reliable and operational to check the reasonableness of the costs submitted by those beneficiaries, such as, for example, a system involving an evaluation committee.
            
         
               43
            
            
               However, in the present case, the Portuguese Republic has not adduced any evidence capable of establishing the existence of a reliable and operational supervisory system in accordance with the provisions mentioned in paragraph 31 above.
            
         
               44
            
            
               In the third place, the fact that the failings identified by the Commission relate neither to the verification of whether the expenditure declared by the beneficiaries of measure 123 had in fact been incurred nor to the conduct of checks at the premises of the subsidised operation or at the investment site is not such as to call in question the serious and reasonable doubt which the Commission was entitled to have with regard to the checks, carried out by the Portuguese authorities, in respect of the reasonableness of the costs submitted by the beneficiaries of measure 123.
            
         
               45
            
            
               Consequently, it follows from the foregoing that, in the light of the failings mentioned in paragraph 38 above, the Commission adduced evidence of the serious and reasonable doubt, within the meaning of the case-law cited in paragraph 32 above, which it had with regard to the checks, carried out by the Portuguese authorities, in respect of the reasonableness of the costs submitted by the beneficiaries of measure 123.
            
         
               46
            
            
               In those circumstances and in the light of the case-law mentioned in paragraphs 32 to 34 above, the Portuguese Republic cannot validly criticise the Commission for not having been able itself to identify the costs submitted by the beneficiaries of measure 123 which were unreasonable.
            
         
               47
            
            
               The first part of the second plea in law must, therefore, be rejected.
            
         
         Second part of the second plea in law, alleging a failure to comply with Document No VI/5330/97
      
      
               48
            
            
               The Portuguese Republic submits that, in the light of the failings which were found, the financial correction applied by the Commission is contrary to Document No VI/5330/97 and to Article 31(2) of Regulation No 1290/2005.
            
         
               49
            
            
               By way of a preliminary point, it should be recalled that, in accordance with the case-law cited in paragraph 32 above, only intervention undertaken in accordance with the EU rules is to be financed by the EAFRD.
            
         
               50
            
            
               Thus, Article 31(1) of Regulation No 1290/2005 provides that if the Commission finds that expenditure has been incurred in a way that has infringed EU rules, it must decide what amounts are to be excluded from EU financing, and Article 31(2) provides that the Commission must assess the amounts to be excluded on the basis of the gravity of the non-conformity recorded, and specifies, in that regard, that the Commission must take due account of the nature and gravity of the infringement and of the financial damage caused to the European Union.
            
         
               51
            
            
               However, although it is for the Commission to prove that EU rules have been infringed, once it has established such an infringement, it is for the Member State to demonstrate, if that be the case, that the Commission made an error as to the financial consequences to be attached to that infringement (judgments of 24 April 2008, Belgium v Commission, C‑418/06 P, EU:C:2008:247, paragraph 135, and of 4 September 2015, United Kingdom v Commission, T‑503/12, EU:T:2015:597, paragraph 53).
            
         
               52
            
            
               As recalled, in essence, in paragraph 34 above, the management of the financing of the EAFRD is principally in the hands of the national administrative authorities responsible for ensuring that the EU rules are strictly observed and is based on trust between national and EU authorities. Only the Member State is in a position to know and determine precisely the information necessary for drawing up the accounts of the EAFRD, since the Commission is not close enough to obtain the information it needs from the economic operators (see, by analogy, judgments of 7 October 2004, Spain v Commission, C‑153/01, EU:C:2004:589, paragraph 133 and the case-law cited, and of 4 September 2015, United Kingdom v Commission, T‑503/12, EU:T:2015:597, paragraph 54).
            
         
               53
            
            
               As regards the type of correction applied, it should be recalled that, in the light of Document No VI/5330/97, a flat-rate correction may be considered by the Commission where it is not possible to determine precisely the losses sustained by the European Union (judgments of 18 September 2003, United Kingdom v Commission, C‑346/00, EU:C:2003:474, paragraph 53, and of 24 April 2008, Belgium v Commission, C‑418/06 P, EU:C:2008:247, paragraph 136). In that respect, it must be added that while Document No VI/5330/97 was issued by the Commission in the context of the European Agricultural Guidance and Guarantee Fund (EAGGF) and, as its title indicates, contains guidelines for the calculation of financial consequences when preparing the decision regarding the clearance of the accounts of the EAGGF Guarantee Section, there is nothing to prevent the Commission from applying that document also when exercising the powers which Article 31(1) of Regulation No 1290/2005 confers on it for the purpose of the clearance of the accounts of the EAFRD (judgment of 4 September 2015, United Kingdom v Commission, T‑503/12, EU:T:2015:597, paragraph 55; see also, to that effect, judgment of 17 May 2013, Bulgaria v Commission, T‑335/11, not published, EU:T:2013:262, paragraph 86), which the Portuguese Republic admits moreover in the reply.
            
         
               54
            
            
               In that regard, it should also be pointed out, in the light of Document No VI/5330/97, that when all key controls are applied, but not, inter alia, in the depth required by the regulations, a flat-rate correction of 5% is justified, as it can be reasonably concluded that they do not provide the appropriate level of regularity of claims, and that the risk of loss to the EAFRD is significant (see judgment of 4 September 2015, United Kingdom v Commission, T‑503/12, EU:T:2015:597, paragraph 56 and the case-law cited).
            
         
               55
            
            
               It is also apparent from Document No VI/5330/97 that the rate of correction should be applied to the part of the expenditure which constituted a risk. When the deficiency results from a failure by the Member State to adopt an appropriate control system, then the correction should, by very reason of its flat-rate nature, be applied to the entire expenditure under the measure concerned (see judgment of 4 September 2015, United Kingdom v Commission, T‑503/12, EU:T:2015:597, paragraph 57 and the case-law cited).
            
         
               56
            
            
               In the present case, it is apparent from the material in the file that the Commission, by reference to Document No VI/5330/97, applied a flat-rate correction of 5% to the expenditure relating to measure 123 for which payments had been made during the relevant 24-month period. It justified the application of that correction on the basis of failings found in the evaluation of the reasonableness of the costs submitted by the three beneficiaries at issue.
            
         
               57
            
            
               The Portuguese Republic challenges the flat-rate correction of 5%, on the ground that the Commission did not, in the course of the conformity clearance procedure and, in particular, in the letter of 12 September 2013, identify any omission of key controls, within the meaning of Document No VI/5330/97, relating to the reasonableness of the costs submitted by the beneficiaries of measure 123, whether in terms of their number, frequency or rigour, thus failing to respect the ‘procedural guarantee’ provided for by Article 31(4)(c) of Regulation No 1290/2005. In addition, the Portuguese Republic considers that the Commission, wrongly, required it to achieve a certain result in the evaluation of the reasonableness of those costs and that, in any event, the failings which the Commission found relate only to ancillary controls, within the meaning of Document No VI/5330/97, so that a flat-rate correction of 2% alone was applicable.
            
         
               58
            
            
               In that regard, first, it should be pointed out that, as the Portuguese Republic essentially argues, a failure to observe Article 11(1) of Regulation No 885/2006 — mentioned in paragraph 18 above and on the basis of which the Commission notified the letter of 12 September 2013 — could deprive of its efficacy the procedural guarantee accorded to Member States by Article 31(4)(c) of Regulation No 1290/2005, which, as stated in paragraph 16 above, limits the period for which expenditure can be refused financing by the EAFRD (see, to that effect and by analogy, judgment of 24 February 2005, Greece v Commission, C‑300/02, EU:C:2005:103, paragraph 70).
            
         
               59
            
            
               However, as stated in paragraph 37 above, by the letter of 12 September 2013, the Commission informed the Portuguese authorities that the checks which they had carried out under Article 24(2)(d) of Regulation No 65/2011, which succeeded Article 26(2)(d) of Regulation No 1975/2006, had not made it possible to evaluate in an appropriate manner the reasonableness of the costs submitted by the three beneficiaries at issue. Thus, while it is true that the Commission did not question the number or frequency of the checks carried out by the Portuguese authorities, it cannot be maintained that the Commission failed to cast doubt on the rigour of those checks, within the meaning of Document No VI/5330/97 and the case-law cited in paragraph 54 above.
            
         
               60
            
            
               That conclusion cannot be called in question by the fact that the Commission, in the letter of 12 September 2013, did not identify precisely which costs, of those submitted by the three beneficiaries at issue, were unreasonable. In the light of what is stated in paragraphs 45 and 46 above, it was sufficient for the Commission to show that there was serious and reasonable doubt as to whether the checks carried out by the Portuguese authorities made it possible to evaluate in an appropriate manner the reasonableness of the costs submitted by the beneficiaries of measure 123, in order to find that those checks were not as rigorous, within the meaning of Document No VI/5330/97 and the case-law cited in paragraph 54 above, as required by Regulations No 1975/2006 and No 65/2011.
            
         
               61
            
            
               It follows that the Commission did not fail to respect the procedural guarantee accorded to the Portuguese Republic by Article 31(4)(c) of Regulation No 1290/2005.
            
         
               62
            
            
               Secondly, it is important to recall that while the fact that a procedure is open to improvement does not, in itself, justify a financial adjustment, a significant failing in the application of EU rules, exposing the EAFRD to a genuine risk of loss or irregularity, may justify the application of a financial adjustment (see, to that effect and by analogy, judgment of 7 July 2005, Greece v Commission, C‑5/03, EU:C:2005:426, paragraph 51).
            
         
               63
            
            
               As stated in paragraph 45 above, the Commission showed that serious and reasonable doubt could exist with regard to the rigour of the checks carried out by the Portuguese authorities, so that it was possible that the costs submitted by the beneficiaries of measure 123 may have been overstated and, consequently, a genuine risk of loss for the EAFRD was established.
            
         
               64
            
            
               It follows that, while the Portuguese authorities could choose, as recalled in paragraph 42 above, the evaluation system that they wished to implement, they were, nevertheless, obliged to carry out reliable and operational checks in order to not expose the EAFRD to a genuine risk of loss.
            
         
               65
            
            
               Thirdly, it should be noted that the Portuguese authorities did not set out a method of calculation making it possible to establish the actual amount of irregular expenditure or to show, in accordance with the case-law cited in paragraph 51 above, that the Commission had made an error as to the financial consequences to be attached thereto, as the Portuguese Republic does not indeed challenge, in itself, the application of a flat-rate correction.
            
         
               66
            
            
               Consequently, since, as stated in paragraph 59 above, the Commission complained that the Portuguese authorities failed to exercise the rigour required by the applicable regulations, it was necessary to apply, in accordance with Document No VI/5330/97 and the case-law cited in paragraph 54 above, a flat-rate correction of 5% under Article 31(1) and (2) of Regulation No 1290/2005.
            
         
               67
            
            
               That conclusion cannot be called in question by the Portuguese Republic’s claim that the checks relating to the reasonableness of the costs submitted constituted only an ancillary control, the omission of which, pursuant to Document No VI/5330/97, could lead only to a 2% correction.
            
         
               68
            
            
               It should be recalled that, under Document No VI/5330/97, key controls correspond to those physical and administrative checks required to verify substantive elements, whereas ancillary controls refer to administrative operations required to correctly process claims, such as verification of the respect of time limits for their submission, identification of duplicate claims for the same subject, risk analysis, application of sanctions and appropriate supervision of the procedures.
            
         
               69
            
            
               First, it should be pointed out that the Portuguese Republic has not substantiated its assertion that the checks provided for in Article 26(2)(d) of Regulation No 1975/2006 and in Article 24(2)(d) of Regulation No 65/2011 must be regarded as ancillary controls not key controls.
            
         
               70
            
            
               Next, it should be noted that the verification of the reasonableness of the costs constitutes an administrative check required to prevent the overstatement of claims. It therefore involves the verification of one of the substantive elements of those claims, which must be distinguished from the administrative operations required to process those claims.
            
         
               71
            
            
               Lastly, it is apparent from Document No VI/5330/97 that while a risk of loss justifying a correction of 5% can be presumed to exist if failings are found in relation to key controls, it is, nonetheless, the existence of a risk of loss for the EAFRD which, ultimately, justifies the imposition of such a correction (see, to that effect and by analogy, judgments of 12 September 2007, Finland v Commission, T‑230/04, not published, EU:T:2007:259, paragraph 71, and of 30 September 2009, Portugal v Commission, T‑183/06, not published, EU:T:2009:370, paragraph 99). In the light of the case-law cited in paragraph 51 above, the Portuguese Republic has not adduced any evidence capable of showing that the financial consequences to be attached to the failings found with regard to the checks carried out by the Portuguese authorities under Article 26(2)(d) of Regulation No 1975/2006 and Article 24(2)(d) of Regulation No 65/2011 are less than 5%.
            
         
               72
            
            
               It follows from the foregoing that the second part of the second plea in law must be rejected and, consequently, the action in its entirety must be dismissed.
            
         
         Costs
      
      
               73
            
            
               Under Article 134(1) of the Rules of Procedure of the General Court, the unsuccessful party shall be ordered to pay the costs if they have been applied for in the successful party’s pleadings.
            
         
               74
            
            
               Since the Portuguese Republic has been unsuccessful, it must be ordered to pay the costs, in accordance with the form of order sought by the Commission.
            
          
            
               On those grounds,
               THE GENERAL COURT (Ninth Chamber)
               hereby:
            
          
            
               
                        
                           1.
                        
                     
                     
                        
                           Dismisses the action;
                        
                     
                  
          
            
               
                        
                           2.
                        
                     
                     
                        
                           Orders the Portuguese Republic to pay the costs.
                        
                     
                  
          
               
                  
                     
                        
                           Gervasoni
                        
                        
                           Kowalik-Bańczyk
                        
                        
                           Mac Eochaidh
                        
                     
                     Delivered in open court in Luxembourg on 6 December 2018.
                     [Signatures]
                  
               
            (
            *1
         )	Language of the case: Portuguese.