EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

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EUU Alm.del Bilag 851
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SEPTEMBER 2016

N°

Journal

European Court of Auditors

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Past editions of the Journal can be found on:

ECA’s website: http://eca.europa.eu/en/Pages/Journal.aspx

PRODUCTION

Rédacteur en chef / Editor in Chief : Rosmarie Carotti

Tél. / tel.: 00352 4398 - 45506 - e-mail : [email protected]

Mise en page, diffusion / Layout, distribution : Direction de la Présidence - Directorate of the Presidency

Photos : Reproduction interdite / Reproduction prohibited

The contents of the interviews and the articles are the sole responsibility of the interviewees and

authors and do not necessarily reflect the opinion of the European Court of Auditors

Cover photos:

Rimantas Šadžius, new ECA Member

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

TABLE OF CONTENTS

There are lots of areas where the ECA could have its say

Interview with Rimantas Šadžius, new ECA Member

By Rosmarie Carotti

Special report no 19/2016: Implementing the EU budget through financial instruments –

lessons to be learnt from the 2007-2013 programme period

Questions to Iliana Ivanova, ECA Member

The ECA’s reformed Chambers and Committees

By James McQuade, private office of the President

ECA auditors visited the ITER project facilities in Saint Paul-lez-Durance (France)

By Alvaro Garrido-Lestache, principal auditor and head of task for the audit of

the EU research Joint Undertakings and Richard Hardy, principal manager in Chamber IV

Experiences and views on the discharge procedure

At the invitation of Alex Brenninkmeijer, ECA Member, three young practitioners from the

European Parliament, Council and Commission shared their experiences and views on the role of

discharge in the political decision-making process

By Rosmarie Carotti

Recent EU Case-law on State aid

The Legal Service invited all ECA staff to an information session given by Íde Ní Riagáin on the

case-law of the Court of Justice and the General Court from March 2016 to June 2016

By Rosmarie Carotti

FOCUS

- Engagement solennel des nouveaux Membres de la Cour, 6 juillet 2016

- Special reports No 13, 15, 17, 18, 19/2016

Performance auditing: Current methods and future prospects

By Luc T'Joen, senior administrator in Chamber II

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

There are lots of areas where the ECA could have

its say

Interview with Rimantas Šadžius, new ECA Member

By Rosmarie Carotti

interest with your present tasks? Did you have to

give up all your previous mandates upon joining

the ECA?

Rimantas Šadžius:

With the present tasks in the

ECA there is no conflict of interest whatsoever.

Of course, in the future, I will be very careful

and avoid any conflict of interest to the best of

my possibilities. The positions you referred to,

Governor of the European Stability Mechanism, the

European Investment Bank, the World Bank and

alternate Governor of the International Monetary

Fund, all these positions are ex officio. That means

that Ministers of Finance are appointed for these

positions. Boards of Governors have limited power;

the executive power belongs to other bodies.

For auditing, mostly the executive bodies are

responsible. Of course, when I will have to deal with

the Boards where I was Governor, I will carefully

weigh the scale to which I can or cannot be

responsible for a particular audit.

R. C.: In your hearing in the European

Parliament you said you were very proud that

during your term and under your leadership

Lithuania successfully joined the euro zone on

1 January 2015. What has changed for Lithuania

with the adoption of the euro?

Rimantas Šadžius:

Many things have changed.

In fact, the adoption of the euro meant a new

start for Lithuania. Now the country has to use this

means for improving the economic conditions and

fostering development.

First, the risk profile of the country changed. Before,

Lithuania had its own currency. It was pegged to

the euro since 2002 but still there was a risk of

devaluation. This was always included in investment

plans and when calculating the overall risk of the

country, for example when assessing its sovereign

debt. The sovereign debt of Lithuania became

significantly cheaper and its credit rating stepped

up immediately after the European Council adopted

the decision on the introduction of the euro in

2014.

Rimantas Šadžius, ECA Member

R. C. : Sir, you have formally been sworn in at the

European Court of Justice on 6 July. What did

that mean for you?

Rimantas Šadžius:

It was a very moving moment

and an important one in my life because it started

a new part of my career. From a politician for whom

it is necessary to plan and to act ex ante I became

an auditor representing an independent institution

which acts mainly ex post. It is quite difficult for a

person to change overnight but I had to do this. On

June I still was Minister of Finance in Lithuania

and on 16

June I was appointed ECA Member.

R.C.: What areas will you be responsible for?

Rimantas Šadžius:

I was assigned to Chamber IV

which acts in the audit domain of regulation of

markets and competitive economy. On my account

now are the financial and compliance audit of the

European agencies, the performance audit of the

Erasmus+ programme and the performance review

of Joint Undertakings in research and innovation.

R. C.: You held very important positions in many

international financial institutions. How can you

make sure that there is no potential conflict of

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Second, there was the indirect effect of the

abolition of the exchange rates. These exchange

operations in the Lithuanian commercial banks

amounted to over two thirds of the exchange

operations overall. The euro opened up better

possibilities to access the European markets. The

Lithuanian economy is characterised by a very

large percentage of exports going to the EU, out of

which most goes to the Eurozone. To have a simple

contract with partners without any devaluation

clause makes things much simpler.

Third, bank transfers have become much simpler

since joining the Single European Area starting from

January 1

2016. Also financial security is important

and Lithuania is a member of the European Stability

Mechanism which is another safeguard.

Last but not least, one of the factors that

determined the high appreciation of the new

currency by the Lithuanian population was

geopolitical security. Having this strong currency in

place meant to be fully integrated in the Western

European economic world and in the Western

defence mechanism. Joining the Eurozone finalised

a very important process that began more than ten

years ago with Lithuania’s entrance into NATO and

the EU. The advantages of being member of NATO,

the EU, the Eurozone are absolutely evident for

everyone.

R. C.: “Investment rather than better spending”

was clearly voiced in the course of the

Lithuanian Presidency of the Council. As a new

ECA Member, do you now share the concerns

expressed by the ECA in its opinion on the EFSI?

Rimantas Šadžius:

Of course, I always will have

to share the ECA’s consolidated point of view. Let

me however be precise here. The ECA expressed

its opinion on the regulation of the EFSI. This

was a very important ex ante opinion during the

discussion of this legislation and also influenced its

implementation. Now our turn is to assess how it

works. I hope this will be one of the priorities in the

ECA’s 2017 activities although it might be too early

to express a judgement on the overall operation of

the EFSI.

R. C.: Will the ECA only be able to give an opinion

on the EFSI lending directly linked to the EU

budget?

Rimantas Šadžius:

No, on the operation overall.

The ECA will assess how the fund operates from

the performance point of view. It is wider than the

angle on budgetary money, which in this case is

used for supplying the guarantee. It is absolutely

impossible in such a complicated mechanism as the

EFSI to confine ourselves with counting the money

of the guarantee. Looking only at this money, it will

be very difficult to tell if it was used effectively not

knowing the context. The main aim of this money

is to generate flows of private resources for funding

riskier projects that should have European added

value. Here there are lots of areas where the ECA

could have its say, starting from efficiency of using

this money to dealing with the European added

value of the projects.

If we, as an institution, confine ourselves to financial

and compliance audit and only care about the

regularity of the expenses, it can happen that,

absolutely in accordance with the law provisions,

the money will be spent for nothing and we will

miss a larger picture

We should try to develop methods to assess the

European added value in euros. This could already

be a substantial and relevant result of the activities

of our important independent audit institution.

I see this as the best for the institution to move

forward. In our annual reports the performance

component has already been integrated for a

couple of years. Landscape reviews are another

very important attempt to assess European politics

horizontally, from an economic, financial and

compliance point of view.

R. C.: It took the ECA many years to strengthen

its performance audit role. How can the ECA’s

work become more relevant for the citizen?

Rimantas Šadžius:

It is less important for people

to discuss whether everything went precisely in

accordance with the law, that’s to say financial and

compliance audit. But performance evaluation can

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

There are lots of areas where the ECA could have its say

continued

be made interesting and important for citizens

given we guess rightly what the hottest issues on

the European table are and if we try to mobilise our

limited resources just in these directions.

R. C.: How important is the role of the European

Parliament and the other EU institutions in this?

Rimantas Šadžius:

It is very important to listen to

all stakeholders. I believe there is good cooperation

with the European Parliament. The Council can

make suggestions, too, although so far there is

not an extensive practice of that. Civil society

organisations are another source of ideas. This is a

hotspot where we should concentrate our forces.

Another element which is important for citizens is

a fast result. This for auditors is the most difficult

thing because audit is a very lengthy, careful and

time-consuming exercise. In the ECA, we could

try to think about fast products, fast assessments,

with opinions on legislation for example, where

we do have experience. One has however to

acknowledge that there already is a visible shift in

the ECA’s activities in this direction. There already

are so-called “quick reports”. I think we can improve

on that first experience and concentrate more on

recent and current problems. This could also make a

contribution to the reliability of the EU as a whole.

R. C.: Things will change in the EU after the Brexit

concerning the budget. Is the ECA concerned?

Rimantas Šadžius:

The ECA will be able to

participate indirectly, through the working groups

that are already in place and try to formulate rules

for results-based budget. In some particular areas

the ECA can also have its say but it should not be

mixed into this political process. Political process

of the Brexit negotiations and the assessment of

the effectiveness of European policies by the ECA

should be kept separate.

R. C.: In some EU countries there is now an

independent budget policy monitoring

authority (so-called Fiscal Council). Should there

be one at EU level, too?

Rimantas Šadžius:

The existence of these kinds

of institutions is legitimate and necessary and

obligatory according to the European legislation,

which was signed at least by all the Eurozone

Member States. Independent fiscal institutions

exist in all European countries that subscribed to

the Fiscal Compact. In Lithuania we did not create a

new institution but decided to assign the function

to the Supreme Audit Institution.

On the European level, according to the five

Presidents’ Report (Commission, European

Parliament, European Council, European Central

Bank and Eurogroup) there was a proposal to

establish an advisory European Fiscal Board that

could coordinate activities of the independent fiscal

Councils in the Eurozone countries and provide

with insights. Such a European Fiscal Board should

lead to better compliance with the common fiscal

rules, a more informed public debate, and stronger

coordination of national fiscal policies.

Up to now to my best knowledge the personal

composition of this Council has not been yet

determined and in fact this institution did not start

operating, but such kind of centralised supervision

certainly make sense. I think that the ECA should

come back to this issue, to the economic and

monetary governance of the Union, the European

Semester, the application of the Stability and

Growth Pact and further explore its remit in this

field.

R. C.: Is there something at personal level, you

would like to add?

Rimantas Šadžius:

Specificities of audit are a new

area of activity for me. From a personal point of

view, I want to efficiently start working. I am very

glad that as the latest appointed ECA Member I can

learn very much from my 27 colleagues.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Special report no 19/2016: Implementing the EU

budget through financial instruments – lessons

to be learnt from the 2007-2013 programme

period

Questions to Iliana Ivanova, ECA Member

From left to right:

Mihail Stefanov- attaché; Iliana Ivanova – ECA Member; Niels-Erik Brokopp –principal manager;

Rares Rusanescu – team leader; Tony Murphy – head of private office; Agathoclis Argyrou – auditor

Q.: What does “Implementing the EU budget

through financial instruments” mean? And is the

meaning of financial instruments the same in

banking and the EU?

A.:

Financial instruments are a different delivery tool

from grants and are used in different parts of the EU

budget such as cohesion policy and agriculture. The

support that they provide to beneficiaries takes the

form of loans, guarantees, equity and quasi-equity.

Here it is important to stress that financial

Instruments which are the subject of our report

should not be confused with derivatives, which are

an entirely different class of high-risk investments

used by some participants on the financial markets.

Q.: How much money has been invested

through financial instruments in the 2007-2013

programming period?

A.:

In the 2007-2013 programme period more

than one thousand instruments have been set up

using ERDF and ESF funding totalling € 16 billion.

In addition, the Commission centrally manages

twenty-one financial instruments for an amount of

€ 5.5 bn.

For information, there are also instruments set

up with EAFRD and EFF (EU fisheries fund) but

there was no requirement for formal reporting for

them in 2007-2013 programme period. They are

estimated to be around € 770 m including national

contributions.

Q.: Would the conclusion of your report be that

financial instruments as a funding mechanism

should be abandoned or significantly reduced?

Are grants and the public budgets the only

realistic alternatives?

A.:

Absolutely not. Our report is the result of an

in-depth analysis of the functioning of financial

instruments during the 2007-2013 programme

period, and highlights challenges related to their

implementation as well as advantages of using

them. As the decision for using grants and/or

financial instruments as a funding mechanism

should be based on an analysis of the specific needs,

the conclusion may be that financial instruments are

the preferred option to grants or vice-versa. What I

would say is that the fact that loans have to be paid

back, guarantees have to be released or in the case

of equity investments returned should in principle

have an impact on the behaviour of final recipients,

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Special report no 19/2016: Implementing the EU budget through

financial instruments – lessons to be learnt from the 2007-2013

programme period

continued

leading to a better use of public funds and reducing

the likelihood that they become dependent on

public support.

Q.: In the SR you state that “improvements

were made in the legal framework for the 2014-

2020 programme period as regards financial

instruments”. What are these improvements?

A.:

Indeed, while we highlight several weaknesses

in our report we also acknowledge the efforts of

the Commission in several areas relating to the new

period.

For example, the provisions included in the legal

basis for 2014-2020 programme period will limit the

risk of setting-up instruments with excessive capital

endowments and as a consequence also help to

increase the likelihood of achieving a revolving

effect. This of course also requires that managing

authorities are more realistic about the share of

the ESIF funds that can be implemented through

financial instruments.

Q.: In the SR several observations relate to the

management costs and fees in the 2007-2013

programme period, and it seems that this is a

weak point for financial instruments. What has

been done already to address the issue in the

2014-2020 programme period?

A.:

Yes, we found that that a significant share of

initial endowments of shared management financial

instruments was spent on management costs and

fees. Moreover, their fee level was significantly

higher than for centrally managed instruments or

private sector investment funds when compared to

the financial support provided to beneficiaries.

The 2014-2020 legislation was significantly

improved in relation to management costs and

fees by providing ceilings on cumulative amounts

which are below those applicable for the 2007-2013

programme period, and by making performance-

related fees mandatory. However, the performance

based elements are not yet sufficiently strong and

we believe that the Commission must provide

additional clarification on how management

authorities should make use of these provisions

when negotiating the funding agreements.

funds allocated to these instruments exceeded

the needs. Does this mean that the excessive

funds were wasted? What were the problems

with market needs assessments? Why were they

missing or not trustworthy?

A.:

This observation of the report relates to

instruments that have been set up with the financial

support of the different operational programmes

(through ERDF, ESF). Our report concludes that in

nearly half of the cases surveyed, the initial market

needs have been overestimated which shows

that the underlying analysis was not sufficiently

robust during the 2007-2013 programming period.

This was also related to the fact that the 2007-

2013 framework did not require a mandatory

assessment of the market needs. This situation led

to instruments which were oversized and exceeding

the market needs.

I would like to clarify that while they could

potentially have been used for other purposes the

unused financial resources are not lost or wasted as

at the end of the eligibility period, the funds which

are not provided to final beneficiaries will be paid

back to the EU budget

In this respect, I would like to welcome the efforts

of the Commission for the 2014-2020 programming

period under which a detailed ex ante assessment

is mandatory for financial instruments under shared

management to establish evidence of market

failures (or suboptimal investment situations)

and to estimate the level and scope of public

investment needs. Moreover, the new financial

Regulation introduced a requirement for an ex ante

evaluation for all instruments directly managed by

the Commission.

Q.: Provisions in the legal base for the 2007-

2013 programme period created incentives for

Member States to use financial instruments to

circumvent the risk of de-commitment of EU

funds. Please explain.

A.:

The automatic decommitment rule also

known as “n+2” rule was introduced to help clear

outstanding commitments and requires automatic

decommitment of all funds not spent or covered

by a payment request by the end of the second

year following the year of allocation. However, the

legal basis for the previous programme period

allowed Member States to absorb EU funds from

Q.: One of the issues you mentioned was that the

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

the ERDF and ESF upfront through the use of

financial instruments. These payments made

from the operational programmes to the financial

instruments (funds) are considered absorbed and

therefore could be used as a mechanism to avoid

the risk of decommitment.

Q.: Did financial instruments succeed in

attracting private capital? And what was the

leverage effect of the private and public capital

for shared management instruments?

: One of the key advantages of EU financial

instruments is the fact that additional funds may

be leveraged, or in other words that private and

public funds can contribute to the funds capital

endowment. A high leverage would mean that the

instrument is successful in attracting additional

funding.

During our audit we have found that the

Commission and Member States have faced serious

difficulties in attracting private sector investors

for both shared and centrally managed financial

instruments during the 2007-2013 programme

period.

Q.: Similar structures as the ones covered by

your report are currently used by the Juncker

plan (EFSI). Does the weaknesses identified in

your report relate to it as well?

A.:

Our audit report focuses on the 2007-2013

programme period and covers instruments

managed directly by the Commission and those

instruments set up at national level and supported

through the operational programmes. At the time

the audit has been carried out it was still too early

to audit the Juncker plan instruments, as it was in

the early stage of implementation.

However, I consider this report to be very relevant

in the context of the Juncker plan and I hope that

the EU Commission and all bodies involved in the

implementation of the EFSI will go thoroughly

through the report and take appropriate measures,

if necessary, based on the weaknesses and risks

identified in it.

A high-level conference organised by Iliana Ivanova will take

place at the ECA on 15 November 2016 with the participation of

representatives of EU institutions, practitioners and other public

and private stakeholders

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

The ECA’s reformed Chambers and Committees

By James McQuade, private office of the President

In June 2016, the ECA reformed the Chambers and Committees it uses to prepare and take

ECA decisions on important audit and organisational matters. This reform was brought

into effect by revising key provisions of the ECA’s rules for implementing its Rules of

Procedure, which set out its governance arrangements. Three changes with respect to the

previous arrangements are particularly noteworthy.

James McQuade

First, the reform establishes

five equal chambers

of five Members, including the Dean

each Chamber elects to help coordinate its work. Previously, the ECA had four “vertical”

Chambers and a “horizontal” Chamber, the CEAD Chamber, which had three permanent

Members plus a representative from each of the other four Chambers.

The main function of the five Chambers will continue to be adopting ECA special reports

and opinions, preparing the chapters of the Annual Report, and overseeing the associated

audit tasks. However, instead of each Chamber being responsible for specific EU budget

areas or bodies, each Chamber now has an EU policy-based “theme” to guide its work.

Chamber I

Sustainable use of

natural resources

Chamber II

Investments for

cohesion, growth

and inclusion

Chamber III

External action,

security and justice

Chamber IV

Regulation of

markets and

competitive

economy

Chamber V

Financing and

administering the

Union

The Chambers’ themes effectively represent five policy perspectives (environmental, social, economic,

external affairs, and internal governance) that help the ECA to analyse EU activities and develop related

audit tasks. Under the new work-programming procedure, the ECA identifies audit tasks and allocates the

responsibility and resources for carrying them out to Chambers. Each Chamber is supported by an audit

directorate.

As regards the preparation of the Annual Report, the tasks and coordinating role of the CEAD chamber with

a new Member for the Annual Report taking over the role and responsibilities previously played by the ECA’s

DAS Member.

Second, the reform establishes a new Committee to oversee the ECA’s audit quality management framework.

The

Audit Quality Control Committee

is composed of the Member for Audit Quality Control and two

Members from Chambers, who are appointed by the ECA on a proposal of the President.

The Committee is already up and running. It has taken over responsibilities in the areas of promoting audit

quality and coordinating the ECA’s participation in international audit standard setting bodies that were

previously carried out by part of the CEAD Chamber. From now on, the AQCC will be the driving force behind

the ECA’s development as a professional audit institution. The AQCC is supported by a dedicated directorate

not responsible for carrying out audits, thus reinforcing the independence of the audit quality control

function within the ECA in line with best practice.

Third, the reform provides for new responsibilities and an additional Member for the ECA’s

Administrative

Committee

(AC). The AC maintains its current responsibilities for preparing ECA decisions on strategy, the

work programme and organisational matters and takes on additional decision-making responsibilities with

respect to certain staff matters. The new Member for Audit Quality Control joins the AC, which comprises the

President (the Committee Chair), the Deans of the Chambers and the Member for Institutional Relations with

the participation of the Secretary General. The work of AC continues to be supported by the Directorate of

the Presidency and the services of the Secretary General.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

A major milestone towards implementing the 2013-2017 ECA Strategy

The reform of the ECA’s Chambers and Committees complements two other major reforms linked to

implementing the ECA Strategy 2013-2017; the introduction of task-based organisation at the start of 2016

and the ongoing initiative to establish an ECA-wide network to strengthen knowledge management.

Under the new task-based organisation, audit directorates are composed of a management team (a director

and principal managers) and a “pool” of staff (auditors and assistants). For each task, the Chamber responsible

assigns a reporting Member, a head of task (a senior auditor) and an audit team. In future, knowledge

management will be led by internal “policy experts” with responsibility for following specific subjects (the

“nodes” in the ECA-wide knowledge network), with the main subjects for creating, maintaining and sharing

knowledge decided by the ECA in the Work Programme.

All three reforms - the newly configured Chambers and Committees, the task-based organisation, and

the knowledge network - are provided for in the ECA’s newly revised rules for implementing its Rules of

Procedure. Together they aim to make the ECA more flexible in selecting tasks, assembling audit teams and

sharing knowledge. In this way, the ECA will be able to make better use of its knowledge, skills and experience

to carry out relevant, high-quality audits in a timely manner - a key goal of the ECA’s strategy for 2013-2017.

The ECA’s new organisation structure can be found at

http://www.eca.europa.eu/en/Pages/Structure.aspx.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

ECA auditors visited the ITER project facilities

By Alvaro Garrido-Lestache, principal auditor and head of task for the audit of

the EU research Joint Undertakings and Richard Hardy, principal manager in

Chamber IV

On 20 and 21 June the ECA audit team in charge of the audit of the European Joint Undertaking for ITER and

the Development of Fusion Energy visited the ITER project facilities located in Saint Paul-lez-Durance (France)

together with the Joint Undertaking Audit Committee, representatives of the management of the Joint

Undertaking, representatives of the Directorate General of the European Commission responsible for the ITER

project (DG ENERGY), and representatives of the Internal Audit Service of the Commission (IAS).

From left to right: Richard Hardy, principal

manager in Chamber IV,

Alvaro Garrido-Lestache, principal auditor and

head of the Joint Undertakings audit task,

Marco Corradi and Santiago Fuentes, members

of the ECA audit team for the European Joint

Undertaking for ITER and the Development of

Fusion Energy.

Introduction

Following an invitation from the Chair of the Audit

Committee of the European Joint Undertaking for

ITER

and the Development of Fusion Energy, Brian

Gray, the ECA audit team participated in the 13th

meeting of the Joint Undertaking Audit Committee

and were given a tour of the ITER project facilities

under construction, enabling an appreciation of

the current status of the works, and the scale and

complexity of the project. The ECA auditors also met

the ITER Organization Director General, Dr Bernard

Bigot.

The ITER project “bringing the power of the sun to

earth”

(Sources: ITER Organization and Fusion for Energy Joint

Undertaking

)

The ITER project is an international experimental

facility, and is one of the most important and

ambitious projects in the field of energy today. It

is focused on the development of a secure and

sustainable source of energy based on nuclear fusion.

Since the idea for an international joint experiment

in fusion was first launched in 1985, thousands of

engineers and scientists have contributed to the

design and construction of the world’s first large-

scale experimental thermonuclear reactor.

ITER was launched at the Geneva Superpower

Summit in November 1985, when the idea of a

collaborative international project to develop fusion

energy for peaceful purposes was proposed by

General Secretary Gorbachev of the former Soviet

Union to US ex-President Reagan.

Sources: https://www.iter.org; http://fusionforenergy.europa.eu

1 This article is based on information available on the websites of

the ITER Organization and of the European Joint Undertaking

for ITER and the Development of Fusion Energy, and at other

European Union Institutions, including ECA publications.

2 ITER: International Thermonuclear Experimental Reactor.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

The fusion energy process

Fusion is the process which powers the sun. Energy

is produced by the fusing together of atoms, such

as hydrogen, at the extremely high pressures and

temperatures which exist at the centre of the sun

(15 million ºC). At these high temperatures any

gas becomes plasma

. The fusion reaction that is

easiest to accomplish is the reaction between two

hydrogen isotopes: deuterium, extracted from

water and tritium, produced during the fusion

reaction through contact with lithium. When

deuterium and tritium nuclei fuse, they form a

helium nucleus, a neutron and a large amount of

energy.

US President Ronald Reagan and General Secretary Mihail

Gorbachev of the former Soviet Union at the Geneva

Superpower Summit (1985).

The building phase of the project started in 2007

after the signature of the ITER agreement

at the

Elysée Palace in Paris on 21 November 2006 by

Ministers from the seven ITER Members—

the

European Union, China, India, Japan, South

Korea, Russia and the United States.

Since then,

the ITER members have been engaged in a 35-

year collaboration to build and operate the ITER

experimental device, which aims to demonstrate

that fusion energy can be part of the solution to

achieve sustainable and secure sources of energy for

the future.

Two atoms, deuterium and tritium, fuse together,

forming a helium nucleus, a neutron and lots of

energy.

The core of the ITER project: the thermonuclear

fusion reactor “Tokamak”

The thermonuclear reactor “Tokamak” is an

experimental machine designed to harness the

energy of fusion. ITER will be the world's largest

thermonuclear fusion reactor, with a plasma radius

(R) of 6.2 m and a plasma volume of 840 m³.

The amount of fusion energy a Tokamak is capable

of producing is a direct result of the number of

fusion reactions taking place in its core. Scientists

Ceremony hosted by French President Jacques Chirac and the

President of the European Commission José Manuel Durão

Barroso, on the occasion of the signature of the ITER Agreement

in Paris on 21 November 2006

4 Agreement on the Establishment of the ITER International

Fusion Energy Organization for the Joint Implementation of the

ITER Project of 16 December 2006. (OJ L358/62)

5 Plasma is the fourth state of matter (solid, liquid and gas being

the other three), and is described as an ‘electrically-charged gas’

in which the negatively charged electrons in atoms are completely

separated from the positively charged atomic nuclei (or ions).

Although plasma is rarely found on earth, it is estimated that

more than 99% of the universe exists as plasma (Source: Fusion

for Energy Joint Undertaking website )

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

ECA auditors visited the ITER project facilities

continued

state that the larger the vessel, the larger the

volume of the plasma, and therefore the greater the

potential for fusion energy. While previous Tokamak

experiments such as JET

succeeded in producing

significant amounts of fusion power for short

periods, none so far was capable of demonstrating

fusion on a scale needed to allow it to generate part

of its own fuel and produce power on a continuous

basis. The Tokamak ITER is designed to achieve this

objective, as a unique experimental tool, capable

of longer plasmas and better confinement. The

machine has been designed specifically to reach the

goals shown in the following table:

ITER's goals

The Tokamak thermonuclear reactor ITER

1) Produce 500 MW of fusion power

The world record for fusion power is held by the European tokamak JET. In 1997, JET produced 16 MW

of fusion power from a total input power of 24 MW (Q=0.67). ITER is designed to produce a ten-fold

return on energy (Q=10), or

500 MW

of fusion power from 50 MW of input power. ITER will not capture

the energy it produces as electricity, but—as the first of all fusion experiments in history to produce net

energy gain—it will prepare the way for the machine that can.

2) Demonstrate the integrated operation of technologies for a fusion power plant

ITER will bridge the gap between today's smaller-scale experimental fusion devices and the

demonstration fusion power plants of the future. Scientists will be able to study plasmas under

conditions similar to those expected in a future power plant and test technologies such as heating,

control, diagnostics, cryogenics and remote maintenance.

3) Achieve a deuterium-tritium plasma in which the reaction is sustained through internal heating

Fusion research today is at the threshold of exploring a "burning plasma"—one in which the heat from

the fusion reaction is confined within the plasma efficiently enough for the reaction to be sustained for a

long duration. Scientists are confident that the plasmas in ITER will not only produce much more fusion

energy, but will remain stable for longer periods of time.

4) Test tritium breeding

One of the missions for the later stages of ITER operation is to demonstrate the feasibility of producing

tritium within the vacuum vessel. The world supply of tritium (used with deuterium to fuel the

fusion reaction) is not sufficient to cover the needs of future power plants. ITER will provide a unique

opportunity to test mockup in-vessel tritium breeding blankets in a real fusion environment.

5) Demonstrate the safety characteristics of a fusion device

ITER achieved an important landmark in fusion history when, in 2012, the ITER International Organization

was licensed as a nuclear operator in France based on the rigorous and impartial examination of its safety

files. One of the primary goals of ITER operation is to demonstrate the control of the plasma and the

fusion reactions with negligible consequences for the environment.

6 Joint European Torus (JET), the world’s leading fusion device

located in the Culham Centre for Fusion Energy in Oxfordshire,

UK, is now under the umbrella of the EUROfusion consortium

agreement (formerly the European Fusion Development Agreement

(EFDA).

7 Source: https://www.iter.org; and http://fusionforenergy.europa.eu

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Inside of the Tokamak ITER where fusion is to take place.

The ITER Organization

The ITER Organization is the international body

set up to run the ITER project. It is managed by

a Director General, under the supervision of

the ITER Council, the highest Governing Board

of the organization where its seven parties are

represented. The Chair of the ITER Council since 1

January 2016 is Professor Emeritus Won Namkung.

The Director General of the ITER organization

since 5 March 2015 is Dr. Bernard Bigot. The ITER

Organization is staffed by men and women from the

seven ITER Members. Approximately 7000 directly

employed staff and 500 external contractors work

for the ITER Project in its installations at the

CEA

Reseach Center of Cadarache, Saint Paul-

lez-Durance, France. The accounts of the ITER

Organization are audited by a Financial Audit Board

made up of independent representatives from

each ITER Member, and which provides an annual

audit report that is included in the Annual Financial

Report of the ITER Organization

The European Joint Undertaking for ITER and

the Development of Fusion Energy

The European Joint Undertaking for ITER and

the Development of Fusion Energy (F4E Joint

Undertaking) was set up by Council Decision

2007/198/Euratom of 27 March 2007 for a period

The French Alternative Energies and Atomic Energy

Commission (CEA).

https://www.iter.org/doc/www/content/com/Lists/list_items/

Attachments/625/2014_iter_financial_statements.pdf.

of 35 years. While the main fusion facilities of the

ITER project are in Cadarache, France, the European

Joint Undertaking is located in Barcelona. The main

task of the F4E Joint Undertaking is to provide the

EU contribution to the ITER Organization under the

ITER International Agreement. Other tasks of the

Joint Undertaking are to provide the contribution

of Euratom to ‘Broader Approach’ (complementary

joint fusion research) activities with Japan for the

rapid development of fusion energy; and to prepare

and coordinate a programme for the construction

of fusion reactors. The Chair of the Governing Board

of F4E Joint Undertaking since 2 December 2015

is Dr. Joaquín Sanchez. The Director General of the

Joint Undertaking since 1 January 2016 is Johannes

Schwemmer. As of 31 December 2015, the total

number of staff at the Joint Undertaking was 434, of

which 252 EU Officials and Temporary Agents, 167

Contract Agents, and 15 interim staff. The accounts

of the F4E Joint Undertaking are audited by the ECA,

which has produced a Specific Annual Report on the

accounts of the Joint Undertaking since the 2008

financial year.

The members’ contributions to the ITER project:

“in-kind contributions”

The seven parties of the ITER project have committed

themselves through the signature of the ITER

International Agreement to contribute to the project

mainly with “in-kind contributions”. Around 90% of

the ITER project is based on in-kind contributions.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

ECA auditors visited the ITER project facilities

continued

To this end, the components that make up the ITER

facility have been divided into 85 procurement

“packages” distributed among the seven parties

to the ITER Agreement. To value the “in-kind

contributions” of each party to the project, the ITER

Organization has set up its own ITER Unit of Account

(IUA).

Europe, as the host party, and France, as the

host state, have special responsibilities for the

success of the project. Europe supports 46% of the

construction cost and 34% of the cost of operation,

deactivation and decommissioning of the facility, as

well as the preparation of the site.

The role of the ECA

The ECA is the external auditor of the F4E Joint

Undertaking but does not have any audit mandate

for the ITER Organization accounts, which are

audited by its Financial Audit Board.

The first work of the ECA in relation to the F4E Joint

Undertaking was the formulation of Opinion 4/2008

of 6 October 2008 on the Joint Undertaking’s

Financial Regulation. This Opinion contained 50

recommendations which were broadly accepted by

the F4E Joint Undertaking’s Governing Board and

introduced in its Financial Rules

. Of significant

value in order to strengthen the financial control

framework of the Joint Undertaking was the ECA

recommendation to allow for the same powers

for the Internal Audit Service of the Commission

(IAS) over F4E JU as it exercised in respect of other

EU bodies. That has proved to be a very important

instrument within the internal control framework

of the Joint Undertaking. Other important

recommendations were to further develop

the conditions under which exceptions to the

budgetary principles of the Framework Financial

Regulation could be applied and, in view of the size

of the budget and the complexity of the tasks to be

performed by the Joint Undertaking, to set up an

Audit Committee, which was created by Decision of

the Governing Board on 10 June 2010.

The ECA issued its first Specific Annual Report

on the accounts of the F4E Joint Undertaking in

relation to the 2008 financial year

. Since then,

and for seven consecutive financial exercises,

the ECA’s audit opinions on the reliability of the

accounts and the legality and regularity of the

transactions underlying the accounts of the Joint

Undertaking have been positive. Without calling

the audit opinions into question, as a result of its

audits, the ECA has raised numerous observations

and recommendations which have contributed

to reinforcing the internal control systems of the

F4E Joint Undertaking in different areas: ex ante

and ex post controls, the legal framework for the

operational tendering procedures launched for

the components to be provided in kind to the ITER

project, the Joint Undertaking’s industrial policy

10 www.eca.europa.eu/Lists/ECADocuments/.../OP08_04_

EN.PDF

11 Last one referred to the financial year 2014. The Specific Audit

Report on the 2015 Joint Undertaking Accounts will be made

available on 15 November 2016.

Sharing of the contributions to the construction cost of ITER by

each of the ITER Parties (Fusion for Energy 2015 Annual Activity

Report)

View of the construction of the ITER Tokamak in Cadarache-

March 2016

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

and rules for the protection and dissemination

of intellectual property rights, anti-fraud strategy

and rules on the management of the prevention

of conflicts of interest, as well as the control and

monitoring of the operational procurement

contracts and grants launched by the F4E Joint

Undertaking for the implementation of its activities.

In performing the task, the ECA auditors have

maintained very close and productive cooperation

with the management and staff of the Joint

Undertaking, the IAS, the Internal Audit Capability

of the Joint Undertaking, the private audit firms

performing the audit of the reliability of the

financial statements of the F4E Joint Undertaking

since the 2014 financial year, and other auditing and

consulting firms which have carried out evaluations

of the performance of the Joint Undertaking over

the years

A major concern for the European Union: “The

cost of the EU contribution to the ITER project”

One of the main concerns of the EU budgetary

authority has been the cost of the EU contribution

to the ITER project. The EU is the main contributor

to the construction phase of ITER. In view of its

complexity, the progress of ITER has been the

subject of numerous debates in the Budgetary

Control Committee of the European Parliament,

which takes a particular interest in the development

of the project.

Article 4 (3) of the Council Decision setting up

the European Joint Undertaking for ITER and the

Development of Fusion Energy

refers to

€9 653 million in 2008 values as the indicative

total resources deemed necessary for the Joint

Undertaking to carry out its tasks under the

timeframe of 35 years for which it was set up.

Already in July 2010, the Council agreed a revised

budget estimate for the EU contribution to the first

phase of the project, “the construction phase”,

initially targeted to be finalised in 2020, from the

initial estimate of €2.7 billion euro to €6.6 billion

(2008 value)

. This figure, which doubled the

initial budgeted costs for this phase of the project,

did not include €663 million proposed by the

European Commission in 2010 to cover potential

contingencies

ECA has been reporting since 2010 that the

complexity of ITER activities implies that the

amount of the F4E Joint Undertaking’s contribution

to the construction phase of the project is exposed

to significant risks of increase, mainly as a result of

changes in the scope of the project deliverables

and delays in the schedule. At the time of the

publication of the last Specific Annual Report, on

the 2014 accounts of the F4E Joint Undertaking, the

Joint Undertaking was working together with the

ITER Organization on a revised estimate for the cost

of the EU contribution to the construction phase

of the ITER project. These two issues concerning

the cost and schedule of the project have been

the subject of an emphasis of matter in the ECA

audit reports on the accounts of the F4E Joint

Undertaking since 2013

Current status of the ITER project: the road to

“First Plasma”

As a result of a two-year exercise carried out by

the ITER Organization and its seven members to

establish a new baseline schedule, the ITER Council

endorsed in its meeting of 15-16 June 2016

, an

updated Integrated Schedule for the ITER Project,

which identifies the date of achievement of “First

Plasma” as December 2025. The updated integrated

schedule proposed by ITER is the following:

12 See for example “`Potential for Reorganization within the ITER

project' of 2013, carried out by Ernst & Young upon request of the

European Parliament,

13 Council Decision 2007/198/Euratom of 27 March 2007

establishing the European Joint Undertaking for ITER and the

Development of Fusion Energy and conferring advantages upon

it (OJ L 90, 30.3.2007, p. 58), amended by Council Decision 2013/

791/Euratom of 13 December 2013 (OJ L 349, 21.12.2013, p. 100)

and Council Decision (Euratom) 2015/224 of 10 February 2015

(OJ L 37, 13.2.2015, p. 8).

14 Council conclusions on ITER status of 7 July 2010 (Ref.

11902/10).

15 Communication from the Commission to the European

Parliament and the Council of 4 May 2010 on ITER status and

possible way forward (COM(2010) 226 final).

16 See Specific Annual Reports on the annual accounts of the F4E

Joint Undertaking for 2013 and 2014 at

www.eca.europa.eu.

Oficial Journal at http://eur-lex.europa.eu/legal-content/EN/TXT/

HTML/?uri=OJ:C:2015:422:FULL&from=EN

17 https://www.iter.org/org/team/odg/comm/pressreleases

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

ITER Timeline to achieve first plasma

2005 Decision to site the project in France

2007

Formal creation of the ITER Organization

2007-2009

Land clearing and levelling

2010-2014

Ground support structure and seismic

foundations or the Tokamak

2012

Nuclear licensing milestone: ITER becomes a

Basic Nuclear Installation under French law

2014-2021*

Construction of the Tokamak Building

(access for assembly activities in 2019)

2010-2021*

Construction of the ITER plant and

auxiliary buildings for First Plasma

2008-2021*

Manufacturing of principal First

Plasma components

2015-2021*

Largest components are transported

along the ITER Itinerary

2018-2025*

Assembly phase I

2024-2025*

Integrated commissioning phase

(commissioning by system starts several years

earlier)

Dec 2025* First Plasma

According to the ITER Council conclusions of 15-16

June 2016, the updated schedule is challenging

but technically achievable, and will have now to be

duly validated with a thorough and comprehensive

review by the independent ITER Council Review

Group

Further information on the ITER project, the

European Joint Undertaking for ITER and the

development of Fusion Energy and the reports by

the ECA can be found at:

www.iter.org/

http://fusionforenergy.europa.eu/

http://www.eca.europa.eu

ITER work site-April 2016

18 Source: ITER Organization https://www.iter.org/proj/

inafewlines

19 The ITER Council Review Group provides external validation of

ITER Project progress.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Experiences and views on the discharge

procedure

By Rosmarie Carotti

At the invitation of Alex Brenninkmeijer, ECA Member, three young practitioners from the

European Parliament, Council and Commission shared their experiences and views on the role

of discharge in the political decision-making process

11 July 2016

From left to right:

Di Hai, ECA auditor structural policies; Kristina Maksinen, ECA auditor external actions; Dessislava

Velinova, member of Commissioner Kristalina Georgieva’s private office; Martina Dlabajová, Member of

the European Parliament and rapporteur for the 2014 discharge procedure; Sabine Klok, chairperson of

the Council’s budget committee; Alex Brenninkmeijer, ECA Member; Danièle Lamarque, ECA Member;

Katja Mattfolk, head of private office of Bettina Jakobsen, ECA Member

The panel:

Martina Dlabajová, Member of the European Parliament and rapporteur for the 2014 discharge procedure

Sabine Klok, chairperson of the Council’s budget committee

Dessislava Velinova, member of Commissioner Kristalina Georgieva’s private office

Danièle Lamarque, ECA Member

Katja Mattfolk, head of private office of Bettina Jakobsen, ECA Member

Kristina Maksinen, ECA auditor external actions

Di Hai, ECA auditor structural policies

The basic idea behind this seminar organised and

moderated by Alex Brennikmeijer was to create

a dialogue between young practitioners from

the EP, Council, Commission and ECA and to give

perspectives on what could be important for the

future of the ECA.

Giving a positive message to citizens

Martina Dlabajová, Vice-Chair of the Committee

of Budgetary Control (CONT) of the European

Parliament talked about the 2014 discharge to the

Commission. As rapporteur, she had submitted a

report on the Commission’s budget implementation

to her colleagues in the EP and negotiated the

discharge text with the other political groups.

[Her

main concern is to give citizens a positive

message on how the budget is used. Not every error

leads to misspending and EU budget allocations

have to present added value on concrete projects.

Shifting to more performance makes citizens better

understand the added value of EU funding. There

is the need however for balance between formal

matters and performance results and the need to

consider the economic reality and the economic

policy environment. Continuity is needed to

facilitate the contact between the CONT and the

Member States.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Experiences and views on the discharge procedure

continued

Balancing costs and benefits in EU financial

management

Sabine Klok, chair of the Council’s Budget

Committee during the 2014 discharge negotiations,

recalled the Council’s regret of the estimated

level of error for payments as a whole of 4.4%

and expressed a wish for more openness of what

is happening in the Member States. 80% of the

EU funds are under shared management. She

underlined the need to strike a balance between

risk of error and cost of control. Prevention is better

than cure, but she also called upon the Commission

to continue with the implementation of all available

corrective measures.

Concerning the ECA’s annual report, she stressed

the importance of ensuring continuity and

comparability between years and policy areas and

she expressed the wish for more performance

information.

The priorities of the European Commission were

presented by Dessislava Velinova, member of the

Cabinet of Vice-President Georgieva. She also

identified as the main challenge to achieve an

appropriate balance between performance and

compliance. She explained the Commission’s

initiative of a budget focused on results and,

concerning the reporting on the EU budget,

presented the novel annual Management and

Performance Report.

For her performance is a process in which it is

important to maintain realistic expectations,

identify best practices, address root causes of error

and simplify where possible.

Katja Mattfolk, head of private office in the ECA,

recalled that in the 2004 ECA annual report there

was no error rate and very little mention of Member

States. The special reports presented during the

year were just summarized at the end of each

chapter. In the last ECA 2014 report, there is a

multitude of assessments: global, risks, error rates,

performance, cases sent to OLAF. However there are

still opportunities to develop further, for example to

integrate performance to a greater extent. Another

point of discussion is how big a percentage of the

error rate could have been avoided if the Member

States had used all the information available.

What is the cost of reducing this error rate? It comes

at a significant cost. Administrative costs are also

increasing. Everybody is also keen on promoting

simplification but it has to be balanced towards

the issue of performance. Sometimes simplification

and performance are contradictory. There are many

ways of increasing the information value of the

annual report and thus providing more added value

to administering EU funds in the Member States.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Reflecting performance in the ECA's annual

report

Kristina Maksinen, ECA auditor, talked about

performance and the ECA special reports. The ECA

has to provide a balanced view of what the EU

achieves and be strategic about how its work is

used by others. Special reports complement the

annual report which focuses on figures, percentages

and error rates. Looking at the latest ECA report of

2014, although it addresses explicitly the special

reports, it only provides a limited overview on them

and shows the need to strengthen the link between

performance audit and the annual report.

Di Hai, ECA auditor, also felt that not much of her

work was reflected in the annual report during

the discharge procedure. Much of the attention

of the annual report and the discharge procedure

goes to defining the financial activities of the

EU, whereby the error rates expresses a political

attitude. In between the lines of the annual report

and the discussion during the discharge there is a

huge gap for questions like how the EU is actually

doing. Performance audit can be used as a tool to

provoke that question even if at the end of the day

performance audit should be focusing on analysing

projects resolved. But to analyse projects you need

clearly defined objectives and for that a strong

political and policy framework.

Even if performance may aim at a public outreach,

the ultimate platform for discussion in the European

context is Parliament. It is therefore important

to strengthen or re-strengthen the institutional

focus within the ECA’s performance audit reports.

The key thought guiding this debate should be

the supranational character of the EU institution,

additionality and EU added value. Even though this

concept has well established legal ground, it is not

always very clear what this concept means.

Developing the way the ECA works

Danièle Lamarque, ECA Member, stressed that

there still are gaps and expectations in terms of

responsibility and transparency. To whom is the

EU accountable? The citizens should be better

informed about what happens with the use of the

EU funds. Who is in charge of the improvement

of the use of the EU funds in the Commission but

also in the Member States? There still is a lack of

cooperation with the Member States.

In order to become more efficient the ECA has

made improvements in the use of its resources and

changes in its methodology allowing it to rely more

on the work done by others. On the question of

balance, the ECA is committed to show not only the

error rates but also how practices can be improved,

and to report best practices.

The discharge can be an occasion to improve clarity

and better understanding of what the added value

of the EU is. A challenge for the coming years in

terms of responsibility will be the cooperation

with the Member States whereby the EU may be

accountable for 80% shared management.

The general discussion brought interesting ideas on

risks and costs. To manage means to take risks. And

reducing risks cause costs of control. We should not

neglect the opportunity cost for the performance

of projects when better projects are ignored due to

burdensome rules.

Corruption is a risk for the whole system. Could the

ECA use a new approach and make better use of

performance audit answering the question if the EU

expenditure is well protected against corruption?

It was also said that prevention of corruption is

important and that special reports might contribute

to that effect.

The discussion further centred on the cooperation

between the EU institutions and the national

authorities. Could the profile of the Budget ECOFIN

Council meeting be raised in a way that there would

be a separate meeting with the deputy ministers

before the general ECOFIN ministers meeting?

The EU budget is implemented under shared

management (i.e. both Member States and

Commission are responsible). Next to shared

management there is shared finance. The ECA

only reports on the part that is financed by the EU

and leaves out what is financed by the Member

States. Would the interest of national parliaments

in the EU discharge procedure be raised if the ECA

included in its reports the shared financing and did

mention who the primary responsibility belongs

to? Ultimately each euro comes from the same

taxpayers.

To conclude, it is up to all politicians in the Member

States to change their rhetoric and for the EU to

come up with realistic stories. To use the words of

Alex Brenninkmeijer, “auditing is listening” and this

audit process should be part of the learning process

and continuity. It also is important that the message

of the ECA to the outside world is a balanced one,

not only a negative one.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Recent EU Case-law on State aid

By Rosmarie Carotti

The Legal Service invited all ECA staff to an information session given by

Íde

Ní Riagáin on

the case-law of the Court of Justice and the General Court from March 2016 to June 2016

Íde

Ní Riagáin, Lawyer

conferred on the Frucona Košice, the Commission

had to carry out a” global assessment” (since

Case 124/10 P EDF v Commission), taking into

account all relevant evidence in the case enabling

it to determine whether Frucona Košice would

manifestly not have obtained comparable facilities

from a private creditor. The judgment considers

whether the Tax Office would have been better

off accepting the conditions proposed under the

arrangement or whether it would have been more

advantageous to initiate bankruptcy proceedings or

to make some other arrangements..

Case T-471/15

Germany v Commission

(10 May 2016)

received a lot of attention in the media, particularly

in Germany. The German law on renewable energy,

in its 2012 version, established a scheme to support

undertakings producing energy from renewable

energy sources. The Commission considered that

the feed-in tariffs and market premiums, which

guarantee producers of EEG electricity a higher

price for the electricity they produce than the

market price, constituted State aid which was

however compatible with the internal market.

It also considered that the reduction of the EEG

surcharge for certain energy-intensive users also

constituted State aid, the compatibility of which

would be recognised only if it fell into certain

categories. .

Germany argued that the surcharge was not such

an economic advantage and that the mechanism

set up by the German environmental law was such

that it was not a case of State resources. The General

Court distinguished it from the Case Preussen

Elektra where the CJEU had found that there was

no transfer of State resources and accordingly no

State aid, because Germany merely had imposed an

obligation on electricity distributors to buy green

electricity without establishing a mechanism that

would allow to exercise control over the resources

that flowed between users, distributors and

producers of electricity.

Even though under the mechanism at issue

Germany did not have actual access to the

resources generated by the EEG surcharge, it

influenced the use of the resources in that it was

able to decide in advance, through the adoption of

There are four cumulative conditions for State aid:

aid granted through State resources, conferring

a selective advantage on undertakings, having

an impact on trade between Member States and

distortion of competition (article 107(1) TFEU).

In May 2016, the Commission finally adopted a

Notice on the Notion of State aid

which seeks to

provide guidance on all aspects of the definition of

State aid, by systematically summarising the case

law of the EU courts and the Commission's decision-

making practice.

The first Case T-103/14

Frucona Košice v Commission

– the Frucona II Case (16 March 2016) discussed

deals with the notion of advantage, one of the

criteria which must be fulfilled in order that a

measure be considered State aid. Advantage is an

economic benefit which an undertaking would not

have obtained under normal market conditions. Tax

exemptions tax arrangements and infrastructure

provisions may also be considered an advantage.

Frucona Košice was a Slovak company which

produced spirits and benefited from several

deferrals of payment of tax debts. The Commission

felt that this agreement by the fiscal authorities was

State aid as it would not have been given under

normal market conditions.

The case is interesting because it concerns the

application of the private creditor test. In order

to assess whether an advantage was actually

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Recent EU Case-law on State aid

continued

the EEG 2012, which objectives were to be followed

and how those resources were to be used.

There has since been a revision of the German

energy law on this in 2014 and another revision will

take place in 2017.

Three cases (Cases T-50/06 RENV II (IRL), T-56/06

RENV II (FRA) and T-60/06 RENV II (ITA) (22 April

2016) involved tax exemptions for producers of

alumina in three countries.

A Council decision granted tax exemption on the

mineral oil they needed for the production of

alumina. The Commission later held that those

measures constituted unlawful State aid. The

General Court held that the Commission had the

power to examine the Council’s authorisation

since State aid is an objective concept. When the

Commission assesses a measure, it must examine its

effects.

The General Court also found that the companies at

issue had an advantage vis-à-vis other companies

and that despite the unreasonably long delays

for the Commission to take a decision, the latter

had not infringed on the principle of protection

of legitimate expectations. It followed that the

Commission was entitled to order recovery.

The final case Case C–

270/15 P Belgium v

Commission

(30 June 2016) had to do with

selectivity. Belgium’s, partial or full, financing of

the compulsory BSE (transmissible

spongiform

encephalopathies (TSE) in bovine animals)

screenings

was considered by the Commission and the General

Court to be State aid.

Belgium challenged both decisions on the basis

that one of the four criteria for State aid, namely

the selective nature of the measure, was not

fulfilled because it was a general scheme and the

measure did not confer a selective advantage on

undertakings.

There are very interesting elements to this

judgement. Article 107(1) TFEU does not distinguish

between State interventions by reference to their

causes or aims but defines them in relation to their

effects and distortion of competition within the

Member State.

The situation of the operators in the bovine sector

was compared to that of all undertakings which

are like them subject to inspections which they

are required to perform. The Advocate General

had previously concluded in his opinion: “The fact

remains that the financing of BSE screening tests

through State resources constituted a selective

advantage that was not available for other sectors”.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

FOCUS

Focus

Engagement solennel des nouveaux Membres de la Cour

6 juillet 2016

Les cinq nouveaux Membres de la Cour, Messieurs Janusz Wojciechowski, Samo Jereb, Jan Gregor, Mihails Kozlovs

et Rimantas Šadžius s’engagent solennellement devant la Cour de justice, conformément aux dispositions du

traité.

Cette cérémonie souligne une fois de plus l’importance que revêtent l’indépendance et l’intégrité de chaque

Membre pour la réputation de la Cour en tant qu’institution d’audit externe des finances de l’Union ayant pour

mission d’améliorer la gestion financière, renforcer l’obligation de rendre compte et la transparence, et protéger

les intérêts financiers des citoyens.

Monsieur Vítor Manuel da Silva Caldeira assiste à la cérémonie d’engagement solennel comme Président de la

Cour des comptes européenne pour la dernière fois avant de prendre les fonctions de Président de la Cour des

comptes du Portugal à partir du 1

octobre 2016.

Janusz Wojciechowski

Samo Jereb

Jan Gregor

Mihails Kozlovs

Rimantas Šadžius

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

FOCUS

Focus

EU assistance for strengthening the public administration

in Moldova

Special report

N° 13/2016

Moldova receives the highest amount of EU aid per inhabitant of all of the EU’s

eastern neighbours. We assessed whether EU aid had contributed effectively to

improving the country’s public administration.

We concluded that budget support had had a limited effect. The Commission

could have responded more quickly when risks materialised, and programmes

were not sufficiently aligned to Moldovan strategies. The Commission did not

make full use of its ability to set conditions for disbursement, and additional

incentive-based funds were not fully justified.

The projects we assessed were relevant, and had delivered the expected

outputs. However, they were not always well coordinated with budget support

programmes, and results were not always sustainable.

This report was published on1 September 2016 and is available on our website

www.eca.europa.eu.

Special Report

N°15 /2016

Did the Commission effectively manage the Humanitarian

aid provided to populations affected by conflicts in the

African Great Lakes Region?

The auditors conclude that humanitarian aid to the populations affected by

conflicts in the African Great Lakes area was generally managed effectively by

the Commission.

The funding was allocated to well-established main priorities, but there was

insufficient clarity at a later stage when further specifying priorities and

selecting projects. It was not possible to determine whether the most suitable

projects had been selected.

Overall, the Commission’s monitoring was appropriate, although it could have

made better use of the information it obtained. Finally, taking into account

the particular challenges faced in the region, most of the projects examined

delivered satisfactory results.

This report was published on 4 July 2016 and is available on our website

www.eca.europa.eu.

Special Report

N°17/2016

The EU institutions can do more to facilitate access to their

public procurement

EU institutions procurement rules are broadly in line with the general EU

legislation on public procurement which requires putting procurement

contracts out to tender on the broadest possible basis to maximise competition.

The management and control arrangements of the EU institutions are robust

and in general mitigate the risk of errors. We found however that EU institutions

can do more to facilitate access of economic operators (especially of small and

medium-sized enterprises) for example by simplifying the rules to the fullest

possible extent and by removing unnecessary hurdles which make life difficult

for potential tenderers who want to identify procurement opportunities offered

by the EU institutions.

This report was published on 13 July 2016 and is available on our website

www.eca.europa.eu.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

FOCUS

Focus

Special Report

N°18 /2016

The EU system for the certification of sustainable biofuels

The Member States must ensure that the share of energy from renewable

sources in transport in 2020 will be at least 10 % of the final energy

consumption in this sector. They can count towards this target biofuels

certified as sustainable by voluntary schemes recognised by the Commission.

We conclude that, because of weaknesses in the Commission’s recognition

procedure and in the subsequent supervision of voluntary schemes, the EU

certification system for the sustainability of biofuels is not fully reliable.

As regards the achievement of the 10 % transport target, we found that the

statistics might be overestimated, because Member States could report as

sustainable biofuel whose sustainability was not verified.

This report was published on 21 July 2016 and is available on our website

www.eca.europa.eu.

Special report

N° 19/2016

Implementing the EU budget through financial instruments –

lessons to be learnt from the 2007-2013 programme period

Financial instruments are increasingly used to provide financial support from

the EU budget through loans, guarantees and equity investments. During the

2007-2013 programming period, some €21.5 billion from the EU budget were

allocated to financial instruments. We found that while they may have distinct

advantages compared to other forms of EU funding such as grants, their

implementation faces significant challenges which could limit their efficiency.

This report was published on 7 July 2016 and is available on our website

www.eca.europa.eu.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Performance auditing: Current methods and

future prospects

By Luc T'Joen, senior administrator in Chamber II

Luc T'Joen

The ECA has launched the

EKA (Enabling Knowledge for Audit) initiative

with the aim of promoting a corporate culture of knowledge-sharing and

collective learning. An important part of this initiative in the praparation of

Subject Briefs in which staff members set out and share their professional

knowledge on specific subjects.

This Subject Brief contains a number of personal suggestions for further

developing performance audit knowledge. Audit is a knowledge-based

activity.

Introduction

This brief highlights the importance of using

performance auditing in addition to other forms

of auditing to further improve the quality of

EU spending. Increased performance auditing

knowledge, new ways of sharing the knowledge

and better use of performance audit results are

key to better spending, and to convincing policy-

makers and the general public of the possibilities

offered by performance auditing.

Performance auditing

Currently, most of the Commission's attention

regarding policy and audit matters is directed

towards the legality and regularity of EU

expenditure. Policy incentives for rewarding

performance in cohesion policy are limited (a 6 %

performance reserve has existed since the 2007-

2013 programme period) but in practice these

reserves are hardly used.

In the context of an increased public expectation

to prove that every euro of the EU budget spent is

used to deliver tangible results, there is growing

consensus on the relevance of using performance

audit methods. This was acknowledged by the new

Juncker Commission, which explicitly recognised

that there is a need for a budget aimed at results,

rather than rules: “A

road to nowhere, built according

to the rules, is still a road to nowhere”

and “the

budget

for us is therefore not an accounting tool, but a means

to achieve our political goals”

The Commission considers that the progressive

development of a performance culture will take

several years to come to full effect, and there is a

Speech by Commission President Juncker at the Conference

“EU budget focused on results” – Brussels, 2015.

“limited development of mechanisms to reward

performance and penalise non-effective use of the

funds.”

Some progress has been noted over time in the

form of recent small steps towards assessing

results, or at least paving the way to obtaining

better results. While these changes were not always

directly connected to previous ECA performance

audits, the Commission has used some of the

ECA's performance audit outcomes as a basis

for proposing policy directed towards greater

performance orientation. For example:

The ECA's Special Report on seaports

provided

support for the Council and Parliament to

adopt legislation for the 2014-2020 period

which included “ex-ante conditionality”,

meaning that future EU-funding for transport

infrastructure, amongst other investment

areas, must be framed within a long-term

strategic plan which must be submitted to, and

assessed by, the European Commission before

any EU funding can be provided from the

2014-2020 framework period;

The same report was one reason why 11,3

billion euro in EU funding for transport

investment, originally allocated to the

Member States and regions to be spent

under the “shared management” umbrella,

were transferred to the Commission for direct

centralised management by the Commission

via its Innovation and Networks Executive

Agency (INEA) through the Connecting Europe

Facility (CEF) instrument;

Commission reply to paragraph 10.1 of the ECA “Annual Report

concerning the financial year 2012”.

See Special report No 4/2012: “Using Structural and Cohesion

Funds to co finance transport infrastructures in seaports - an

effective investment?”

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Performance auditing: Current methods and future prospects

continued

Procedures for assessing the

underperformance of Cohesion Fund projects

in the programming period 2000-2006 were

adopted to assist Commission desk officers

in the closure process. These set out a

consultation procedure for possible financial

corrections;

A new Cost-Benefit Analysis (CBA) guide has

been published, building upon the experience

gained over time;

The “JASPERS” instrument will provide technical

assistance at EU-level for major projects and

Cohesion fund projects.

target audit topics, scope and population,

as recommended by the Court in 2012.

Commission audit teams do not work on

performance and continue to give priority to

lowering the historical error rate.

INEA project officers and Managing Authority

officials have not been trained in performance

measurement and still sign off invoices as soon

as a construction has been completed, even

if the output would not be in use. In addition,

the legal annexes to the grant agreements

have not been amended. As a result, empty

port quays, airports which are too large and

unused or underused, roads which are empty

for most of the day and so on, would therefore

still get the EU funding agreed upon at the

start of the project.

However, although these are steps in the right

direction, they are only small steps since there is, as

yet, no clear focus on sound financial management

in the ERDF and CF policy or its practical

implementation:

Indicators (common indicators and

programme-specific indicators) will be set

for each priority in the 2014-2020 cohesion

policy framework to assess progress towards

achieving objectives. However, this will not

solve future ineffective spending practices,

as the information available at project level

will not feed in to the higher level strategic

framework information (the indicators do not

match).

In other words, whilst it is true that bad

performers will not get money out of the

reserve, bad performance will still be rewarded

with the full amount of EU money, as the

rules only provide for outputs to be assessed.

If these outputs have been built, the money

will be paid, and there is no penalty, other

than... not getting a bonus. This means that

EU project management is vulnerable to flaws,

and the Commission’s responsibility for sound

management is still at high risk for the years to

come.

So far, the Commission’s auditors have not

carried out any of the performance checks

on projects using risk-based sampling to

There are several ways to significantly improve

the future value of money implemented in the EU

budget. For example:

Increased use of repayable instruments

(e.g. loans and guarantees), with fewer

unconditional grants, which are often

perceived by the beneficiaries as ‘free

money’. For the 2014-2020 period the

Commission is already exploring this

option by increasing the share of the EU

budget spent through repayable forms of

financial support, implemented through

financial instruments which are managed

by the European Investment Bank (EIB), the

European Investment Fund (EIF) or financial

intermediaries in Member States.

The spread of performance audit methods

and their use for financial decisions should be

pursued. Internal control bodies (such as the

audit authorities checking cohesion policy

expenditure) and programme managers in

Member States or the Commission should

become more performance-oriented in their

work. To do so, they could apply the methods

used by the ECA and other supreme audit

institutions. Not all Member States need help,

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

but training in our methodology could, and

should, be provided upon request;

Financial and compliance audits at Member

State level could also collect more performance

information from the management systems

and projects and could include a focus on

assessing the impact of irregularities on

performance rather than just reporting on

irregularities, which often have little to do

with whether the intended results have been

achieved or not.

While performance audits are generally carried

out ex-post (“after

the harm has been done”),

audit bodies could get involved earlier in the

EU funding process. They could examine,

for example, whether there is a robust

performance measurement process in place

before projects selected for EU funding are

implemented, i.e. whether SMART

objectives

and RACER

indicators have been set. They

could also check to what extent the cost-

effectiveness concept has been systematically

applied when selecting the projects

Considering that 80 % of the EU budget flows

through shared management, in which the

Member States have direct responsibility

for a number of key activities (e.g. needs

assessment, project selection, management,

reporting), the ECA could get more involved

with Member State authorities by presenting

more performance audit reports before

national parliaments

, more regularly.

As suggested by the European Parliament

the ECA could also seek closer cooperation

with national Supreme Audit Institutions to

cross-fertilize knowledge, harmonize audit

approaches, and carry out the following:

“coordinated”

audits,

where the activities

of various audit teams are coordinated.

There are recent examples of some of

these audits in Chamber II (e.g. JASPERS

performance audit being coordinated

between ECA, the Polish SAI, the Croatian

SAI and ...), and

“joint”

performance audits.

In this

case, ECA auditors would take part in

Member State performance audits of

nationally-funded projects (e.g. an audit

of national roads with methodologies

discussed and agreed upfront), and

Member State auditors would take part in

ECA performance audits of similar EU co-

funded projects. This would increase the

horizons of the work of ECA auditors, since

EU-funded projects are usually only a very

small part of the overall picture in a given

field and give them a better overall view

of the things we report upon. This would

also give national auditors an increased

understanding of how the ECA applies

its methods in practice, and enable both

parties to collect important information

on the quality and management of EU co-

funded projects compared with nationally-

funded projects (are the EU-funded

projects better, or worse, and why?)

Conclusions

The EU budget remains a mystery to many

Europeans

: while 80 % of the EU budget is

managed at Member State level, only 34 % of

Europeans have heard about EU co-financed

projects to improve the area in which they live

The Commission has recognised politically that

more needs to be done to move from being a

European Parliament, “Report on the future role of the Court

of Auditors” (2014) paragraph 17-19 and 31.

G. Cipriani, “The EU budget: responsibility without

accountability?” (2010, p. 66) – CEPS.

European Commission, “Spotlight on European public opinion

in 2013” – Eurobarometer (2013:31).

SMART = Specific, Measurable, Achievable, Realistic, Time-

based.

RACER = Relevant, Acceptable, Credible, Easy, Robust.

L. Pirelli, “The added value of the European Court of Auditors’

performance audits”, ECA Journal N°11/2015, page 21.

Some ECA performance audit reports have already been

presented in national parliaments in the past. For example:

(i) Mr Brenninkmeijer (NL ECA Member) sent 16 performance

audit reports to the Dutch Parliament in 2014-2015.

This lead to several presentations, 23 parliamentary questions to

the Dutch Ministers and 6 motions to the Dutch

Government related to ECA performance audit reports;

(ii) Mr Herics (AT ECA Member) presented the ECA’s performance

audit work to the Austrian Parliament’s

Rechnungshofausschuss on several occasions, usually combined

with discussions on the annual report. For example, on

6.11.2014, 3.12.2014, 24.6.2015 and 14.4.2016.

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Performance auditing: Current methods and future prospects

continued

spending body to being an effective spending

body. Political will has been demonstrated at the

highest level by the recent Juncker Commission,

and EU cohesion policy has been adapted for the

2014-2020 period to reflect the search for results,

but work on this is by no means complete yet. As

long as EU budget disbursements remain largely

disconnected from results, particularly in relation to

CEF, ERDF and CF payments, and no active efforts

are made to pursue and implement real incentives

for effective spending (or sanctions based on

negative performance audit outcomes, such as

empty and unused infrastructures), clearly positive

results will remain just a “noble aim” of the EU

budget.

By increasing the visibility of its performance audit

reports in Member States and by demonstrating the

usefulness of performance audit methods to assess

the relevance of EU spending, by working together

and, more generally, by spreading a performance

culture, the ECA may significantly help to bridge the

gap between the EU's citizens and its institutions

and restore the citizens’ trust in the EU.

Whatever the future priorities for it, performance

auditing will be a key contributor to ensuring better

quality and more efficient spending of EU funds.

There is still room to enhance the role of

performance audit and share knowledge about it, in

which the ECA can play a pioneering role.

Or, as the great Mahatma Ghandi once said:

“Be the change that you wish to see in the world”

Although the Commission monitors the

implementation of its policies and provides

evaluations on the performance and impact of

these policies, the ECA - in its role of external

auditor - is in a prominent position to provide

EU policymakers and citizens with independent

opinions on results achieved. This has been

acknowledged by the European Parliament when

it asked the ECA to “devote more resources to the

examination of whether economy, effectiveness

and efficiency have been achieved in the use of

public funds entrusted to the Commission”

Performance audit can help a lot to restore

confidence in what the EU is trying to do. For

instance, in 2003 the European Parliament noted

that “the focus actually given to the legality and

regularity of the spending does not help to inform

the legislator and the public as to whether the

money has been spent effectively”

At this point in time, and based on the follow-up

of earlier recommendations in the transport field,

the most promising prospect for performance audit

seems to be its development as a widespread tool

to be used not only for ex-post examination of EU

spending by (too few) ECA performance auditors,

but also to improve future funding allocation and

project selection and move towards a performance-

based reward system.

11European

Commission, “Spotlight on European public opinion

in 2013” – Eurobarometer (2013:31).

European Parliament, 2003 discharge: section III of the

general budget, par. 32(d).

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

Reproduction is authorised provided the source is acknowledged/Reproduction autorisée

à condition de mentionner la source

EUU, Alm.del - 2015-16 - Bilag 851: Rapport fra Den Europæiske Revisionsret september 2016

ISSN 1831-449X

Main Contents

INTERVIEW WITH RIMANTAS ŠAD�½IUS, NEW ECA MEMBER

SPECIAL REPORT NO 19/2016: IMPLEMENTING THE EU BUDGET THROUGH FINANCIAL INSTRUMENTS

THE ECA’S REFORMED CHAMBERS AND COMMITTEES

ECA AUDITORS VISITED THE ITER PROJECT FACILITIES IN SAINT PAUL-LEZ-DURANCE (FRANCE)

EXPERIENCES AND VIEWS ON THE DISCHARGE PROCEDURE

PERFORMANCE AUDITING: CURRENT METHODS AND FUTURE PROSPECTS

For more information

European Court of Auditors

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