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European Commission

Check Against Delivery

Algirdas Šemeta

Commissioner responsible for Taxation and Customs Union, Statistics, Audit and Anti-fraud

Remarks by Commissioner Šemeta on EU budget discharge procedure

Hearing in European Parliament

Brussels, 21 January 2014

Dear Chairman,

Mr Rapporteur,

Honourable Members of this Committee and of the Court of Auditors,

My hearing today comes after a series of dialogues you had with my fellow Commissioners in charge of important policies supported by significant financial interventions.

Since the presentation of the Court's annual report in November last year, I and my services have been in close contact with the rapporteur and Members of this Committee.

I believe that we have together identified the main issues at stake. This discharge procedure can help all financial actors, including the Member States, to focus on the best way to ensure the sound financial management of the EU Budget under the new programming period.

New programming period means new rules, instruments and processes that aim at reducing further the risk of error and at delivering the expected added-value in a transparent and cost-effective manner.

Let me come now to the Court's annual report.

I am pleased that the Court has signed off the accounts of the European Union for the sixth time in a row and that the audit concludes that EU revenue, all commitments and administrative expenditure are free from material error.

The Commission welcome the Court's recommendations and commits to implement them in order to address effectively the problems identified.

Follow up to ECA recommendations

In our recent contacts, the Court expressed its appreciation vis-à-vis the way the Commission follows up on its recommendations, in particular as regards the special reports.

The Commission, via its Audit Progress Committee, has agreed with M. Otbo to further improve the monitoring of actions undertaken by the Commission's services and facilitate the feedback from the Court about the measures taken and their impact. In particular, Services will be asked to publish their action plans into the system that is accessible to the Court, to inform it and enable it to comment on the adequacy of these actions. Use of common language and the ranking of recommendations will also be considered.

Dealing with the increase of the most likely error rate

However, despite the effective implementation of the Court's recommendations, I am concerned that the most likely error rate estimated by the Court for payments increased from 3,9% in 2011 to 4.8% in 2012.

As you know, a third of this increase is related to the Court's new sampling methodology in direct expenditure.

Furthermore, if flat rate corrections imposed by the Commission before Member States send their payment claims would have been taken into account by the Court, the error rate for 2012 would be broadly in line with the ones for the previous years. See boxes 1.2 and 1.3 of the Court’s Annual Report 2012 (Romania: 81 mio. EUR; Czech Republic: 259 mio. EUR; and Slovakia: 32 mio. EUR) but the actual impact is based on extrapolation of these corrections to the concerned population of transactions.

Main focus of our activities

From the Court's report it is clear that, once again, we have to focus our efforts on the area of shared management.

Commission actions to address origin of errors in Cohesion

The Commission does address actively the sources of errors with the Member States and focus its efforts on the most risky programmes and less performing national authorities.

In order to deal with complex management structure or insufficient guidance to beneficiaries in Cohesion policy, the Commission has carried out specific thematic audits in 2013. They allowed identifying the necessary actions to be carried out by the national authorities concerned, including recommendations as regards their administrative setup and targeted training actions towards beneficiaries and national controllers.

Moreover, the Commission encourages actively Member States to use simplified cost options. As you know the Court did not find any errors in the 26% of ESF operations using these simplifications.

In regional policy, the focus was given in particular on the reliability of the Audit Authorities work. By end 2013, DG REGIO's review of the audit authorities has covered 47 Regional and Cohesion Funds audit authorities in charge of 96% of the budget of both funds. For 91% 41 out of 45 AAs for which the review is completed in 2013, the results are positive.

For the others, action plans have been established and, where needed, payments have been interrupted until the weaknesses are properly addressed. It is worth stressing that 2/3 of the interruptions procedures in 2013 were based on national audit reports.

For agriculture, problems like ineligible investment projects and non-compliance with public procurement rules are addressed by a series of concrete actions in the framework of partnerships with the MS, with obligation to report on actions taken. This method led to several concrete changes on the spot such as the cancellation of certain support schemes, changes to control procedure or enhanced information to the beneficiaries.

Reliance on Member States' controls

The Commission cooperates with and assists the Member States but it does not rely "blindly" on them. Thanks to the increased number of the Court's and the Commission's system oriented audits from 2009 till 2013, 47 audit authorities have been audited by REGIO covering 96% of the budget and 85 by EMPL covering 99% of the budget the Commission is becoming more and more aware of the strengths and weaknesses of national controls.

On this basis the Commission develops evidence based risk charts for each programme. The risk chart is regularly updated on the bases of audits carried audit by the DG’s external auditors, the control reports by the AAs and the overall Annual Control Report.

These risk charts are used when elaborating the Enquiry Planning Memoranda (EPM) and audit programmes in order to concentrate scarce resources on the riskier programmes/systems.

This methodology not only allows the Commission to allocate its audit resources in a more efficient way. It enables also the Commission to define the risk profile of each Member State and Region in relation to their performance.

When they perform well, those Member States and Regions are subject to less audit controls while the others will be put under stricter scrutiny. A higher risk profile will also trigger the preventive and corrective measures.

Interruptions and suspensions

As soon as there is evidence of serious weaknesses in Member States' management and control systems, the Commission stops payments. In 2012, interruptions in regional, cohesion, social and fisheries funds amounted to 5 billion EURO 2,6 billion EURO in 2011.

This was not a one shot. For instance, for the ESF, by October 2013, 22 interruptions were decided and 7 programmes partially or fully suspended.

Communication on the protection of the EU Budget

Where errors have occurred, the Commission has no other choice than to apply corrective measures. As explained in the recent Communication on the protection of the EU budget, the financial corrections and recoveries have increased noticeably, amounting to 4.4 billion euro in 2012, compared to 1.8 billion euro in 2011.

For the period 2009-2012 these corrective measures correspond on average to 2% of all payments.

Although one cannot compare an annual error rate with the results of a multiannual correction mechanism, we consider that the error rate estimated by the Court at the level of the final beneficiaries cannot be seen as the only indicator for assessing the performance of the Commission as regards the programmes under shared-management.

Moreover, I want to stress that if the Commission is responsible for protecting the EU financial interests, the protection of the national tax payers money belongs in first instance to the Member states themselves.

Communication on net financial corrections

The Commission shares the Parliament's vision that the start of the new financial period 2014-2020 must be seized to strengthen the Commission's supervisory role by using optimally the new arsenal of preventive and corrective measures put at its disposal by the co-legislators.

The Commission has rapidly reacted to your letter addressed in November to President Barroso. It adopted on 13 December 2013 a Communication on the net financial corrections.

Like in agriculture, Member States will lose definitely money in the Cohesion policy if the Commission or the Court of Auditors detects serious deficiencies that should have been found by the national authorities themselves.

The process triggering the net financial corrections shall be systematic, that means applied without discretion, and based on objective and transparent criteria.

Example of net financial corrections for CAP

For the Common Agricultural Policy, NET financial corrections are already a "routine" process.

For example, a Rural Development audit mission in Finland in May 2011 found that although the overall control system was effective, exceptional conditions for buying certain equipment were neither well defined nor controlled.

Further checks found individual errors amounting to 2.7 % of the payments which represent an amount of about 1 million EUR.

The amount will be repaid by Finland to the EU budget in March 2014 and will be accounted as assigned revenue.

This is one of the 147 CAP financial corrections adopted in 2013 by the Commission for an amount of 1.1 billion EUR.

New accountability framework – management and national declarations

I agree with the rapporteur that the net financial corrections are a last recourse instrument, aiming in first instance at protecting the EU budget while having the potential to influence the behaviour of underperforming Member States.

Therefore, I believe that the responsibilisation of Member States through the introduction of the management declarations by national management authorities is a promising step.

The management declaration accompanying the accounts of expenditure will state whether the information is complete and reliable, the expenditure is legal and regular, what issues occurred and what actions are taken by national authorities. It will be subject to an independent audit opinion.

However, the Commission shares the view of the European Parliament as regards the added-value of the voluntary national declaration at political level.

This instrument is likely to reinforce accountability of national authorities managing the EU funds notably by involving the national parliaments in the monitoring of those financial actors.

The inter-institutional working group established by the Commission, but inspired by Jan Mulder, has taken up its tasks. The first two meetings were productive and a set of recommendations and a template of a voluntary National Declaration is expected to be ready soon.


Finally, the Commission introduced a new performance framework to better demonstrate the added-value delivered by the EU action to our citizens and businesses.

It includes a set of specific objectives and key performance indicators defined in all legal acts adopted by the co-legislators for the new MFF.

Moreover, the Commission's annual reporting process will dedicate special attention to the monitoring and reporting of progress, using milestones and intermediary reviews. Where needed, adjustments to the programmes will be proposed.

The Court's Special Reports are highly valuable instruments that should help all of us, legislators and executive, to assess whether the design and/or the implementation of the EU programmes is delivering the expected impact and added-value.


Ladies and Gentlemen,

Together with the simplification of rules and the new accountability setup under shared-management, the implementation of effective preventive and corrective instruments will be our key priorities from now.

The Commission has the highest interest to ensure that the EU Budget is spent in accordance with sound management principles. In line with the legislation in force, the new instruments will start progressively to deliver their potential.

The discharge on the budgetary year 2012 is therefore the best opportunity to promote the effective and timely implementation of the new framework. We will continue our work in close contact with the rapporteur and the Members of the Budgetary Control Committee to further develop an adequate approach for the new programming period.

Thank you for your attention.

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