European Court of Auditors · 2013-12-02 · By milan smid, ECa auditor 18 foCus - special report n°9/2013 - hello to/goodbye to - death notice 19 thE futurE of EuropEan dEfEnCE,

ISS

N 1831-449X

European Court of Auditors

2013

N O V E M B E R

No 10

N O V E M B R E

journalCour des comptes européenne

Tous les numéros de notre Journal se trouvent sur les sites / The Journal can be found on : iNTERNET : http://eca.europa.eu/portal/page/portal/publications/JournalEU bookshop : http://bookshop.europa.eu/

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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

Copyright

Cover/couverture: - PRESiDENT CALDEiRA AT THE COMMiTTEE ON BUDGETARY CONTROL OF EUROPEAN PARLiAMENT on 2 October 2013- iN CONVERSATiON wiTH MR YVES MERSCH, MEMBER OF THE ExECUTiVE BOARD OF THE ECB, 31 SEPTEMBER 2013- HENRik OTBO, DANiSH MEMBER OF THE ECA

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SOMMAIREPages

02 "EuropEanCourtofauditors:fromlEgalityandrEgularityauditsto EvaluationofEffiCiEnCyandEffECtivEnEssofEuprojECtsandprogrammEs. thEspECialrEportsasausEfulinstrumEntforthElEgislator" hearingoftheCommitteeonBudgetaryControloftheEuropeanparliament, Brussels,25september2013 speechofvítorCaldEira,presidentoftheECa07 prEsidEntCaldEira’smEssagE atthehearingonthe"futureroleoftheEuropeanCourtofauditors" atthECommittEEonBudgEtaryControlofEuropEanparliamEnton2october201309 towardsaEuropEanBankingunion mryvesmErsCh,memberoftheExecutiveBoardoftheECB,ataconferenceorganisedby theBridgeforumdialogueandtheEuropeaninvestmentBankinstituteinluxembourg. luxembourg,30september2013 ByrosmarieCarotti

11 inConvErsationwithmryvEsmErsCh,mEmBErofthEExECutivEBoardofthEECB, 31sEptEmBEr2013 ByrosmarieCarotti

13 visitBythEdanishpuBliCaCCountsCommittEEtothEECa,25sEptEmBEr2013 interviewwithhenrikotBo,danishmemberoftheECa parrosmarieCarotti15 thEEunEEdstoBEmorEdEmandingofCongoauthoritiEs ByhansgustafwEssBErg,memberoftheECa

17 sEminaron“auditingthEEuropEanunion’s struCturalinstrumEnts”hostEd BythECroatianstatEauditoffiCEon26and27sEptEmBEr2013 Bymilansmid,ECaauditor

18 foCus -specialreportn°9/2013 -helloto/goodbyeto -deathnotice19 thEfuturEofEuropEandEfEnCE,24sEptEmBEr2013 thespeakers: mrmichaelpalmEr,foundermemberoftheBridgeforumdialogue mrarnauddanjEan,memberoftheEuropeanparliament, Chairofthesubcommitteeonsecurityanddefence mr ioanmirceapaşCu,memberoftheEuropeanparliament, vice-ChairoftheCommitteeonforeignaffairs ByrosmarieCarotti

22 simplifiCationofthErEgulationsinthEstruCturalfunds ByBeataBŁasiak-nowak, Economicadvisorinthedepartmentofpublicadministrationofthesupremeaudit office(sao)inpolandand bymarzenarajCZEwska, technicaladvisorinthedepartmentofpublicadministrationofthesaoinpoland

CONTENTS

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Chairmantheurer,

honourablemembersoftheCommittee,

letmethankyou for theopportunityofaddressingthiscommitteeonavery importanttopicfortheCourt.

the title given in the programme to my intervention is “Compliance audit versusperformanceaudit,seenfromtheperspectiveoftheECa”.

itechoesaremarkofadistinguishedspeakerataprevioushearingonasimilarsubject.onthatoccasion,professorlevyfinishedhisexpertsubmissionwithaquestion:whichismoreimportant–performanceorcompliance?

A dangerous questionithinkitisadangerousquestionbecauseitriskssettingupafalsechoice.itisnotaquestionofoneortheother:complianceorperformance.fortheCourt’saudits,ithastobeboth-foranumberofreasons.

thefirstreasonis legal.thetreatyonthefunctioningoftheEuropeanunionrequirestheCourttoexamine whether all revenue has been received and all expenditure incurred in a lawful and regular manner and whether the financial management has been sound.

the financial regulation on the implementation of the Eu budget defines sound financialmanagementasapplyingtheprinciplesofeconomy,efficiencyandeffectiveness.

theCourt’smandatemirrorstheCommission’sresponsibilitiesformanagingtheimplementationofthebudget.thetreatyrequirestheEubudgettobeusedinaccordancewiththeprinciplesofsoundfinancialmanagementandtherelevantEulegalinstruments.

similarly, the European parliament is required to give discharge on the basis of both elements,regularityandsoundfinancialmanagement.

to make that possible, the Commission must provide Eu accounts showing how resources wereraisedandspentand–sincethelisbontreaty–anevaluationreportbasedontheresultsachieved.in addition, the Court prepares its annual and special reports – they act as a complementaryindependentsourceofinformationandassurance.

howtheCourtshouldmeetitsauditandreportingobligationsisamatterfortheCourttodecideitself,applyingtheprincipleofinstitutionalindependence.

"EuropEan Court of auditors: from lEgality and rEgularity audits to Evaluation of EffiCiEnCy and EffECtivEnEss of Eu projECts and programmEs. thE spECial rEports as a usEful instrumEnt for thE lEgislator" hearingoftheCommitteeonBudgetaryControloftheEuropeanparliament,

Brussels,25september2013

Speech of Vítor Caldeira, President of the ECA

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this leads me to the second reason why we need to be careful not to make too much of thecomplianceversusperformancedistinction.thereasonisprofessional.

The obligations of the Court

the Court is a recognised supreme audit institution, like the gao of the united states and thefrenchCourdescomptes.

that means it is obliged to respect the framework of international standards for supreme auditinstitutions,knownas“issais”.thesestandardsprovideabasisfortheCourttointerpretitsmandateandtocarryoutitsaudittasksunderthetreaty.

the issai framework identifies three types of audit: financial, compliance and performance.financialauditcoversthereliabilityoffinancialreporting.Complianceauditcoversregularity.andperformanceauditassesseseconomy,efficiencyandeffectiveness.

it is worth noting that compliance audit can be carried out on its own, or in combination withfinancialauditorperformanceaudit.

reflectingtheprovisionsofthetreaty, theCourttakesthecombinedapproach.theCourt’sdasauditsareanexampleofcomplianceauditscarriedoutaspartofanauditof financialaccounts.theCourt’sperformanceauditsalmostalways includecriteriawhichreflectcompliancewiththeprovisionsoflegislation.

so,fromatheoreticalperspective, ithinkweneedtobecarefulnottofocustoostronglyonthedifferencesbetweenthethreetypesofaudit.theyaretoolsthatarebestusedtogether.

thethirdreasonfornotover-emphasisingtheirdifferenceismorepractical.

Interrelation between compliance and performance issues

in reality, thecomplianceandperformance issuesassociatedwith implementingthebudgetareinterrelated.ourauditingandreportingtriestoreflectthisfact.

theCourt’sdasauditshowsthaterrorsofregularityareveryoftencaseswherespendingdidnothitthetargetorwasusedsub-optimally.typicalerrorsinourannualreportincludepaymentsforexpenditurewhichwasineligibleorforpurchaseswithoutproperapplicationofpublicprocurementrules.

theCourtusestheresultsofitsdaswork,whichcoversthewholebudget,toidentifyspecificareaswhereperformancemightbeatrisk.

theCourtalsocarriesoutperformanceauditsthatleadtoobservationsinourspecialreportswhichhighlightregularityissuesthathaveimplicationsforeconomy,efficiencyandeffectiveness.

inthisway,performanceauditsthenprovideabasisforrecommendationsinspecialreports–orin opinions on legislative proposals - on how to improve legal frameworks in order to reinforceperformance.

thisbringsmetothefinal–andperhapsthemostrelevant–reason,whichispublicinterest.

Ensuring effective accountability to EU citizens

wedonotcarryoutourdasandperformanceauditssimplybecausewemust.wedoitalsobecauseitcontributestoensuringeffectiveaccountabilitytoEucitizensforeveryeuroraisedandspentintheEubudget.

hEaringofthECommittEEonBudgEtaryControlofthEEuropEanparliamEnt,BrussEls,25sEptEmBEr2013

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ourstrategicobjectiveforthe2013to2017periodistomaximisethevalueoftheECa’scontributiontoimprovingEupublicaccountability.

ourpriorityistofocustheECa’sproductsonachievingthatgoal.fromourperspective,thatmeansproducingabalancedportfolioofreportsandopinionsbasedonourauditswhichbestaddresstheneedsofourstakeholders,inparticularthisparliamentandthecitizensyourepresent.

Eucitizenshavearighttoknow:whattheirmoneywasspenton;whetheritwasusedasintended;andwhetheritwasusedwisely.

that requires effective management and control arrangements in the Eu capable ensuring Euaccounts are reliable, its financial rules are respected, and results are achieved as efficiently aspossible.

asregardstheEuaccounts,theCourthasfoundthemtobereliableforanumberofyearsnow.theCourt’s das work contributed to this outcome.we advocated introducing a modern accountingframeworkbasedonaccruals.wethenauditeditsimplementation,makingrecommendationsonhowtoimprovetheaccountingsystems.

as regards regularity, thepicture ismixed.despitesignificant improvements in internalcontrolsinrecentyears,theCourthascontinuedtofindamateriallevelofirregularpayments.in2011,theCourtestimatedtheerrorratetobe3.9%.

asregardstheresultsachievedwiththeEubudget,itisimpossibletoprovideandoverallpicture.thefirsttwoeditionsoftheevaluationreporthavedemonstratedthatthebuildingblocksarenotyetinplaceforittobeaneffectivetoolforpublicscrutiny.

ourperformanceauditshelpexplainwhy.manyspendingprogrammesandschemesstilllackclearobjectivesandtargetsandhaveweakmonitoringandevaluationarrangements.

The Commission's administrative reforms

thecurrentstateofEu financialmanagementandcontrol is largelyexplainedby thepatternofdevelopmentsthathaveoccurredsincetheCommissionlauncheditsadministrativereforms.

the Commission began by reforming its own internal management and control arrangements,includingintroducinganaccruals-basedaccountingsystem.

it then turned its attention to developing and implementing an “integrated internal controlframework”. again the Court’s das and performance audit work helped us to contribute to thedevelopmentandimplementationphases.

ourauditexperiencewasthebasisofouropinionon“thesingleauditmodel”inwhichwesetoutourideasonwhatsuchaninternalcontrolframeworkshouldlooklike.andwehaveauditedmanyaspectsofitsoperationinrecentyears.

upuntilnow,theCommission’sfocushasprimarilybeenoncontrollingtheregularityofpayments.its stated aim has been to reduce the level of irregular payments made from the Eu budget tobelow2%,thematerialitylevelusedbytheCourtinitsdas.

theCourt’sestimateoftheoverallerrorrateshowsthatithasfallensince2006.Butasyouknow,theCourtwarnedthatatacertainpoint,themarginalcostofincreasedcontrolsbeginstooutweighthebenefitofreducingtheerrorrate.


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therefore,wehavealsoencouragedEupolicymakerstore-considerthedesignofcertainspendingprogrammesandschemes.

itisfromthisperspectivethattheCourtwelcomedthespendingreviewanditsconclusionthattheEubudgetneededtobemore“focusedonresults”.

initscontributionstothatreviewandthepreparationsforthenextfinancialframework,theCourtstressed that a new“focus on results” should not be allowed to undermine the regularity of Euspending.

The Court's opinion

that iswhy - inearly2010 - theCourt issuedanopinioncallingontheCommissiontoprioritiseimprovingthequalityofspendingoverthenextfinancialframeworkperiod.

intheCourt’sview,goodqualityexpenditurerespectstherulesandachievesresults.Complianceandperformancearetwosidesofthesamecoin.

that has important implications for internal control, external audit and public oversight. inparticular,the“focus-on-results”needstobereflectedin:

• managementrolesandresponsibilities,

• theobjectivesandtargetstobeachieved,

• thepaymentconditionsforreceivingfunds,and

• therequirementsforrecording,checkingandreportingonresults.

thatwouldrepresentamajorchangeofmind-setforpublicpolicy-makersandfinancialmanagers.

thenewprogrammingperiodprovidesanimportantopportunitytomakeprogressinimprovingaccountabilityforresults.

indeed, the proposals for programmes and schemes after 2013 contain a number of elementsdesignedtobringmorefocusonresults.

wehaveprovidedopinionsonthemainproposals.

Opportunities for positive change

asyouknow,theCourt’sviewisthatanumberofopportunitieshavealreadybeenmissedatthehighest level of legislation to further clarify objectives, simplify programmes and schemes, linkpayments more closely to results, enhance monitoring and evaluation arrangements, and makeinternalcontrolsystemsmoreoutputoriented.

nevertheless, many opportunities for positive change remain at lower levels of legislation andwhenprogrammesandschemesareimplemented.

underthenewfinancialframework,thefundingprovidedfromtheEubudgetwillstillbelargelygrantbased.intheCourt’sview,akeywaytoimproveEuspendingwouldbetolinktheeligibilitycriteriaforreceivinggrantsmorecloselytooutputs–paymentbyresults.

if that were the case, the distinction between compliance and performance would be even lesspronouncedthanitisnow.


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Conclusion

Chairman,honourablemembers,

theCourtconsidersthatfinancial,complianceandperformanceauditareallindispensabletools.they assist those responsible for political oversight of the Eu’s finance to hold to account thoseresponsiblefortheirmanagement.

fortheCourt,thatmeansweneedtoworkwiththisparliament.weneedtocarryoutauditsandproducereportsthatassisttheparliamenttomeetitsresponsibilities.wehopethatparliament,foritspart,willmakeoptimaluseofthefullrangeoftheCourt’sproducts.

therewillbemajorauditandaccountabilitychallengesahead,forexampletheintroductionofnewfinancialinstruments.

wewillendeavourtosupportthisparliamentbyprovidingpositionpapers,landscapereviewsandopinions which analyse the implications of such developments for financial management, auditandaccountability.

however,wedonotauditinavacuum.whatwewillbeabletoauditinthefuture,andhow,willdependonhowtheinternalcontrolframeworkdevelops.

itisclearthatthepyramidofassuranceontheEubudgetstillneedstobecompleted–itmustbebuiltfromthebottomup.

iftheCommissionwasinapositiontoprovidesufficientandappropriateinformationontheerrorrate,theirfigurescouldbecomeamajorinputtothedas.

similarly,performancetargetsneedtobeinplaceasamanagementtoolbeforetheycanserveasauditcriteria.withsuchbuildingblocksinplacetheCommission’sevaluationreportunderarticle318 could serve as a starting point for public scrutiny of performance. indeed, that evaluationreportcouldbecomeauditable.

we recognise that an integrated internal control framework also provides opportunities for theECatocooperatewithnationalsais.thisisanavenueweareactivelyexploringwithournationalcounterpartsintheContactCommittee.

withthem,wealsorecognisethatcooperationbetweensaiswillbecrucialinordertodealwiththechallengesofdevelopmentsinEuropeangovernance.

thesinglesupervisorymechanismandthe financialandeconomicsurveillance intheEuropeansemesteraretwoexamplesofcaseswherecooperationisrequiredbetweensaisinordertogiveparliamentsandcitizensafullauditpictureofperformance.

Chairman,honourablemembers

Better accountability for the use of Eu finances is needed in order to strengthen democraticlegitimacyandfostercitizens’trustintheEu.theCourtwillcontinuetouseitsauditworkasbestitcantoassistthisparliamentandtheotherEuinstitutionstoachievethatgoal.


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prEsidEnt CaldEira’s mEssagE at thE hEaring on thE "futurE rolE of thE EuropEan Court of auditors"

at thE CommittEE on BudgEtary Control of EuropEan parliamEnt on 2 oCtoBEr 2013

iwouldliketothankthisCommitteeandinparticulartherapporteur, mrs ayala sender, for the initiative to bringforwardthisreport.

the draft report indeed makes proposals which wouldhaveimpactontheappointmentoftheCourt’smembers,itsgovernancearrangements,aswellasitsroleandwork.

iamsure,youappreciate,thattheCourthasnotyethadtheopportunitytogivealltheproposalsitsfullconsideration.the Court is willing to provide this Committee with itspositiononthedraftreportinthecomingweeks.ibelievethe annual meeting of the members of this Committee

withthemembersoftheCourt,thatisscheduledforthe14thofoctobermightprovideasuitableopportunitytopresentourcomments.

however,todayicanoffermyowninitialreactiontosomeofthepointsinthisreportandmainlybasedonthecontributionsthatiandothermembersoftheCourthavebeeneithermakingatthehearingonthefutureoftheCourtoneyearagooronsubsequentoccasions,thelastoneweekagointhissameCommittee.

The Court’s role

in my view, the Court’s role has to be seen in the context of those of the Commission and thisparliament,andinthecontextofthetreaty,takingintoaccountthechangesthataretakingplaceinEuropeanuniongovernance.

ourroleastheexternalauditoroftheEuropeanunionhastobeconsistentwiththeCommission’smanagement responsibilities and this parliament’s oversight role. and that is what the treatyprovides for today. our role is indeed to be the external auditor and this means to provide theinputtothepoliticalprocesswhichisappropriatetoapublicaudit institution.mrsayalasenderprovidedanumberof illustrationsofwhatwedo in thatsense.todoso inaccordancewith theinternationalauditingstandards,wehavetoremainprofessionalandwehavealsotooperatewithaclearunderstandingofwhatpublicauditorscanandcannotachieve.

in our view, the Commission’s management role includes the primary responsibility to provideinformation on the accounts, the regularity of the financial operations and the results achieved.andthatinformationcanserveasabasisforassurance.theCourt’sroleistoprovideindependentinformation, independent assessment and independent assurance on those three elements inordertoassistthisparliamenttomeet itsresponsibilities inthedischargeprocedureand,asyouunderlined,mrsayalasender, toassist thisparliament inseekingbettervalue formoney for theEuropeancitizensfromtheEuropeanunionbudget.

Carrying out financial, compliance and performance audits

thetreatyallowstheCourttoauditEuropeanrevenueandexpenditure.thatisourright.andforusthismeanscarryingoutfinancial,complianceandperformanceauditsinlinewithinternationalauditstandards. inourview, financial,performanceandcomplianceauditaretoolsthatarebestused when they are combined together. and i believe, without the powers to carry out ex post

presidentCaldeiraandmrskaljulaid,ECamember

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auditsofallthethreeaspectsoffinancialmanagement,theCourtwouldnothaveacrediblebasison which to warn this house, the citizens of the European union on the risks that the financialmanagementarestressingoroffertheguidance,theexanteguidance,thisreportislookingfor,forhowfinancialmanagementcanbebetterhandled.

tothisendtheCourtisalreadyengagedinanumberofprojects.ihadthehonourtoinformthisCommitteeearlythisyearonourworkprogrammefor2013andibelievewearecurrentlyalreadysolvingsomeoftheissuesthisreportunderlines.

justafewexamples:thedasandtheannualreport,weareworkingonhowtomakeitabetterinstrument for the assessment of the use of European funds. the project team on economicgovernanceandthefinancialcrisisisindeedworkingveryhardtoaddressnotonlytheexposureofthebudgetoftheEuropeanunioninthefinancialcrisiscontext,butalsotolookbeyondthebudgetonwhatistheCommission’sresponsibilityindealingwithalltheinstrumentsandmechanismstoexitthissituation.wearealsostreamliningtheproductionofspecialreportsthatmeettheneedsofourstakeholders,toprovideyouwithwhatwecalllandscapereviewsontherisksforthefinancialmanagementandontheaccountabilitygap.

The Court's ex-post audit mandate

so,itisintheinterestofthisparliamentthattheCourtcontinuestomakefulluseofitsexistingex-postauditmandate.anynewmandatesthatwouldbecommittedtotheCourtneedtobematchedwiththeresourcesappropriatetocarrythemout.

theproposedex-anterolefortheCourtwithrespecttowarningofsystemicriskstothefinancialsystemandgreaterinvolvementofotherinstitutionsinestablishingtheCourt’sworkprogramme,honourablemembers,couldindeedunderminetheCourt’sindependenceandthereforetheabilityoftheCourttoperformitsroleastheindependentexternalauditinstitutionoftheEuropeanunion.

thetreaty isveryclear.theEuropeanunion’s institutionsshouldcooperate inthe interestofall.andibelieve,mrChairman,thattheprincipleofinter-institutionalcooperationshouldguideourcommonactioninseekingthebestvalueforthemoneyoftheEuropeancitizens.

for the Court it is fundamental that it remains an independent, professional and credible auditinstitution;acredibleEuropeanunioninstitutionthatservesthesameobjectivesasthisone.

prEsidEntCaldEira’smEssagEatthEhEaringonthE"futurErolEofthEEuropEanCourtofauditors"

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towards a EuropEan Banking union

foryvesmerschitwasacomebacktoluxembourgwhere until 2012 he was governor of theluxembourg Central Bank and where in 2000he had been a co-founder of the Bridge forumdialogue.

thisarticleisbasedonthewrittenspeechofyvesmersch,thefulltextofwhichisavailableatwww.ecb.europa.eu.

How to address the root causes of the crisis

theeconomicandfinancialcrisisinrecentyearshastaughtthatarobustbankingsectorisessentialformoderndynamiceconomiesandyvesmerschisconvincedthatonlyaEuropeanBankingunionwillbeabletosucceedinaddressingallrootcausesofthesovereigndebtcrisisacrosscountriesandcompletingEmu’sarchitecture.

sound banking regulation and supervision are therefore key as, at present, the single monetarypolicy is still transmitted in a regime of national banking regulation, supervision and resolutionsettlement.

there are five adjustment programmes for greece, ireland, portugal, spain and Cyprus.they arejointlysupportedfinanciallybytheEuropeanfinancialstabilityfacility(Efsf)andthepermanentEuropeanstabilitymechanism(Esm),plus the imf.such risk-sharing requiresastrengtheningofthegovernanceframework.

the stability and growth pact has been tightened up by the so-called “six-pack” of economicgovernance measures, including the macroeconomic imbalance procedure. they, in turn, havebeen complemented by the“two-pack”. programme countries are undertaking painful domesticadjustmentprogrammeswhichshowfirstsignsofgettingthembackonasustainabletrack.

something new emerged at the june 2012 summit of euro area leaders: glimpses of a sharedEuropeanvisionforacoherentandviablearchitectureofEuropeanmonetaryunion(Emu).

A single supervisory mechanism

theregulationforestablishingasinglesupervisorymechanism(orssm)hasrecentlybeenapprovedbytheEuropeanparliament. it is intheprocessofbeingfinallyagreedbytheEuropeanCouncil.theECBwillbethecentralauthorityofthessmanditwillbesupportedbynationalsupervisoryauthorities.itsmandatewillbetosupervisethewholebankingsectoroftheeuroarea,plusthoseofanynon-euroareamemberstatewishingtojoin.theECBwillbeentrustedwiththewholetoolboxforbankingsupervisionincluding:authorisingandwithdrawingbanklicences,collectingon-andoff-siteinformation,undertakingon-siteinspectionsincooperationwiththenationalsupervisors,andvalidatingbanksinternalmodelsandriskcontrols.whenevernecessary,theECBwillalsobeabletosolicitadditionalcapital,liquidityandotherprudentialrequirements.

Mr Yves MErsCH,memberoftheExecutiveBoardoftheECB,ata conference organised by the Bridge forum dialogue and theEuropeaninvestmentBankinstituteinluxembourg.luxembourg,30september2013

mryvesmersch,memberoftheExecutiveBoardoftheECB

By rosmarie Carotti

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towardsaEuropEanBankingunion

at the moment it appears that the ECB will directly supervise approximately 130 banks that arefound to be“significant” according to the criteria laid down in the ssm regulation. this is lessthan 5% of all active euro area banks which are the ECB’s counterparts in monetary operations.nevertheless,theycoveraround85%ofthetotalbankingassets.

themethodologywasdevisedbytheECB.the"significant"banksare(i)thosehavingatotalvalueofassetsofmorethanEuro30billion,(ii)thosebanksrepresentingmorethan20%ofdomesticgdp(unlesslessthanEuro5billioninassets),(iii)thethreemostsignificantbanksineachcountryand(iv)thosebanksreceivingdirectassistancefromtheEfsf/Esm.furthermore,theECBcan,atanytime,decidetoexercisedirectsupervisionofanyotherbankifconsiderednecessary.

yvesmerschdeniesthatthiswillleadto“two-tiersystem”asthedifferencebetweenthetwogroupsofbankswillconcernonlythedegreeofcentralisationofsupervisoryactionwithinthessmandthesamecommonsupervisoryapproachwillbeappliedtoallbanks.

Accountability and independence

thessmregulationprovidesaclearseparationbetweenmonetarypolicyandsupervisorytasks,thelatterentrustedtothenewlyestablishedsupervisoryBoard.

the ssm will also have its own accountability framework vis-à-vis the European parliament, theEurogroupandnationalparliaments.itwillapplytotheChairofthessm’ssupervisoryBoardofthessm,andnottotheECB’spresident1.

A single resolution Mechanism (srM)

forbankingsupervisiontobeeffective,asingleresolutionmechanism(srm)isalsoindispensabletoresolvenon-viablebanks.withoutansrm,theremightbeamisalignmentofincentivesbetweenthesupervisoryandtheresolutionfunctions.moreover,thesupervisor’sjudgementsmustalsobeenforceable.theCommissionrecentlyproposessettingupasingleresolutionauthoritybackedbyasingleresolutionfund.theauthorityandthefundmustbeseparatefromthessm,independentandsupranational.jointly,theyconstituteasingleresolutionsystemwiththeabilitytointervenedirectlyinbankslosses,dividingthemamongshareholdersandcreditors.

shareholders and creditors will be first to bear the resolution costs. only if this is insufficientshouldthebankingindustryasawholestepinviaresolutionfunds–makingthefiscalbackstoptheverylastresort.toensureadequateloss-absorbingcapacity,eachbankhastofulfilaminimumrequirementofownfundsandeligibleliabilitiesforbail-in.

yvesmerschstronglysupportsthetimelineenvisagedforthesrmtostartfunctioningon1january2015.animportantprerequisiteforthesrmistheBankrecoveryandresolutiondirectivewhichstillhastobeagreedwiththeEuropeanparliament.

Why a banking union?

intheeuroareaabout80%ofthefinancingoftherealeconomyoriginatesfromthebankingsector.amoreintegratedbankingmarketwillintensifycompetitionandfortheECBanintegratedbankingspacewilleasemonetarypolicytransmissionandtheeffectivenessofmonetarypolicy.moreover,financialmarketintegrationwillhelpsmooththeeffectsofasymmetricshocks.intheus,suchrisksharinghasbeenshowntobefarmoreimportantthanfederalbudgettransfers.

1theECawillalsohavearoletoplayinthefieldofbankingsupervision(seetheattachedinterviewwithyvesmersch).CurrentlegislativeproposalsforthebankingresolutionsmechanismalsoenvisagearolefortheECa,butatthispointitisprematuretosaywhatpreciselythisrolewillbe.

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in ConvErsation with mr yvEs mErsCh, mEmBEr of thE ExECutivE Board of thE ECB, 31 september 2013By rosmarie Carotti

r. C.: Mr Mersch, as you stated in your presentation, the proposed ECB banking supervision mechanism is a first step towards a banking union. It will be applied to approximately 130 large banks. Which banking activities are concerned? What do you plan to supervise?

Mr Yves Mersch:oncewehavelegalsupervisorypowers,wewilltakeovertheresponsibilityfromthenationalbankingsupervisorsinthememberstates.aftertheentryintoforcewewillset-upthenew organisation within twelve months. this process includesa comprehensive balance sheet assessment of more than 130banks,attheendofwhichwewilldeterminewhetherthecapitalratiosandliquidityarestrongenough,orwhetherthereisaneedforfurtherimprovements.

r. C.: How do you propose to keep monetary policy and financial assessment separate?

Mr Yves Mersch:differentpeoplewillberesponsiblefordifferenttasks. this is why we are now hiring 750 new people withother professional backgrounds compared to those working inmonetarypolicy.

wewillhave fournewdirectorates-generalwhichareentrustedwithsupervision,andwhichwillorganisetheprocessofsupervisingbanks.theywillbeseparatedfromtheareaofmonetarypolicy.

r. C.: Where do the national authorities fit in? How do you plan to separate national and international banking supervision?

Mr Yves Mersch: we will make a distinction according tothe significance of the banks. we will only directly monitorapproximately130ofthelargestbanks;theotherbankswillstillbe subject to direct national supervision mechanisms, but theywill be monitored in accordance with the requirements of theEuropeanCentralBank,andnotaccordingtotheirownnationalrequirements,asiscurrentlythecase.

r. C.: This means that the national banking supervisors are required to submit reports to you?

Mr Yves Mersch:anotherwayofputtingitisthattheyactaccordingtoourcommonrules.indeed,theywillalsobeatthetablewhentherulesonbankingsupervisionandtheimplementationoftheserulesaredecided.sotheyarenotjusttakersofordersbuthaveasubstantialpartinthedecision-makingprocess.

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r. C.: Who oversees the exercising of supervisory authority?

Mr Yves Mersch: prudential oversight has a higher degree ofaccountabilitythanmonetarypolicy.thisisexpressedintheinter-institutionalagreementwiththeEuropeanparliament.

the European parliament approved this “interinstitutionalagreement” on 8 october of this year. the presidents of bothinstitutions have welcomed the agreement. the ECB remainscommitted to the other institutions in Europe, and it will stillrespectthecompetencesoftheseotherinstitutions.

theEuropeanCourtofauditors’nameappearsinthisagreement.as the European Court of auditors already plays a role in theECB today, it will also have a role to play in the field of bankingsupervision.

in my opinion, the European Court of auditors could apply adifferentsortofauditinrespectofbankingsupervisionfromtheoneusedinrespectofmonetarypolicy,becauseitisestablishedin treaties that the bank is to a large extent independent inexercisingitsmonetarypolicyrole.auditsoftheBank’smonetarypolicyrolearelimitedto“operationalefficiency”.

r. C.: In your presentation you spoke of harmonisation and centralisation: everything is to be done at European level. What does this mean for Luxembourg as a financial centre?

Mr Yves Mersch:luxembourghasneverbeendisadvantagedbyprogressinEurope,quitethecontrary.thisismyexperience.

inConvErsationwithmryvEsmErsCh,mEmBErofthEExECutivEBoardofthEECB

13

r. C.: sir, is this the first visit of the Danish Accounts Committee to you and the ECA?

Henrik Otbo: no,theyvisitusonaquiteregularbasisandiseethisasakindofrecognitionoftheECa’sroleinpublicaudit.

theCommitteeshowsakeeninterestinEuropeanmatters.theyare not only concerned with the danish budget but also withthoseactivitiesandpartsofthedanishbudgetwhichrepresentEuropean money.that’s where the link with us is. in the caseofdenmark,allmoneytoandfromtheEuropeanunionpassesthrough the national budget puts into play the national audit office and the public accountsCommittee.itisagoodmodelofcooperationbetweenanauditofficeandpoliticians.

the public accounts Committee was established indenmark in 1849. in those days the Committee didthe audit work. over the years, particularly in thelast century when the public sector developed a lot,gradually the audit office, as we know it now, wasestablished.

the danish accounts Committee is an institutionunder parliament and therefore a political institutioneven if its members do not need to be members of

parliament.Bytraditionthemajorityofthemare.thefinaldanishdischargedecisionistakenbythefinanceCommittee,neverthelessthemembersofthedanishaccountsCommitteeexercisefullpowerthroughouttheyear.

the danish national audit office does the work, the Committee of public accounts gives itspoliticalbackupsupportandthefinanceCommitteeformallydrawsuptheveryshortdischargerecommendationtoparliament.

whatismostimportant,indenmarkweapplytheanglo-saxonmodel-withoneauditorgeneral.

r. C.: You were the Auditor General of Denmark. How were your relations with the Danish Public Accounts Committee then?

Henrik Otbo:weworkedtogetheronthebasisofmutualrespect.iftheCommitteemadeuseofitspowertoasktheauditofficetoinitiateaspecificauditinvestigation,wewouldcarryitoutinthemostrelevantmannerandtakingintoaccounttheauditplanning.

therewasadialoguewhentheCommitteeaskedquestions,putforwardrequestsorsuggestions.wedevelopedaprocessinwhichicamebacktothesepointssettingthesceneandexplainingwhatcouldbedoneandwhenitcouldbedone.withmutualrespectaconstructivedialoguecantakeplace.

r. C.: Did you also have a good dialogue when they came here? What did you talk about?

Henrik Otbo:wetalkedabouttheEuropeanuniongraduallyincreasingitsfocusonperformance,onoutputand impact. it isnotenoughtousethemoney incompliancewithall therules. iwasverypleasedthatmrsarmas,mrdevries,mrusherandmrrossfromtheECacameandexplainedthings related to this issue, to underline the need for this change towards more performance. ithinkthat theECa isdoingverywell in this respect in thechapterof theannual report“gettingresults”.thedanishpublicaccountsCommittee,on its side,askedquestionsandexplainedhowtheyactedinsimilarcircumstancesindenmark.

visit By thE danish puBliC aCCounts CommittEE to thE ECa, 25 september 2013

By rosmarie CarottiinterviewwithHenrik OTBO, Danish Member of the ECA

the public accounts Committee (paC) cooperatesclosely with the auditor general whose office,rigsrevisionen, carries out both financial andperformance audits.the paC has the authority torequestthatspecificauditinvestigationsbecarriedout by the auditor general. formally, its findingsand recommendations have to be transmitted toparliamentthroughthefinanceCommittee.

14

visitBythEdanishpuBliCaCCountsCommittEEtothEECa

wealsowentontoanother issue, theECa’srelationwitholaf,becausethey intendedtomeetthemanagingdirector,mrkessler,thefollowingday.Becausethefilesofsuspicionoffraudencounteredby the ECa in its work are part of my responsibility, i explained how the cooperation with olaf isorganisedinordertokeeptheconfidentialityofthesefiles.

wealsodiscussedanothertopicofparticularconcerntodenmark:thedecreasingnumberofdanesworkingfortheEuropeanunion.

r. C.: How come?

Henrik Otbo:whendenmark joinedtheEu,41yearsago,a lotofdanes joinedtheEu institutions.thisiswhyquitemanydanesaretobefoundintheuppergrades.Butnotmanyaretobefoundinthelowergrades,ontheirwayup.

theidealbalancewouldbethatallmemberstatesoftheEuwererepresentedequallyaccordingtothesizeofthecountry.theministryofforeignaffairsindenmarkhasthereforetakenaninitiativetofightthisproblemwhichisnotspecifictotheECabutconcernsallEuinstitutions.

inyoungdanishcouples,boththemanandthewomanworkandearngoodsalaries.theunemploymentrateforpeoplecomingfromuniversityisratherlow.anotheraspectisthatdanishuniversitiesdonotpreparepeopleforpassing“concours”,theEuropeanselectionprocedures.that’swhytheministryisrunningaprogrammetopreparepeopleforthattypeoftesting.Butmanyarealsonotwillingtoinvesttimeandenergywithouthavingtheassurancetobeofferedemploymentafterwards.thisisanissueindanishsociety.

r. C.: The Danish Public Accounts Committee carries out both financial and performance audits. How do they see our work?

Henrik Otbo:theyareusedtoastatementontheannualaccountswhichispositiveevenitcontainsanumberofremarks.itisdifficultforpoliticianstouseanegativestatementaswehavegivenitsofar.

ontheotherhand,theyhaveakeeninterestinourspecialreports.idonotsaythistounderstatetheimportanceoftheECa’sannualreportortheworkdoneforthedasbuttostresstheimportanceofourspecialreportsforthepublicaccountsCommittee.

r. C.: Why have we not adopted the model of a positive statement?

Henrik Otbo: let’snot lookbackbutaheadforthechangesweshouldmakenow. iampleasedtosee that the ECa is considering how to improve its financial audit all together.we have a very welldevelopeddasandweshouldnotjustthrowitawaybutdeveloptheannualreportanditsunderlyingwork. my colleague, mrs kaljulaid, and myself have been trusted to come up with proposals to theECa.thingsarechangingveryrapidlyandtheECahastokeepupwiththesechanges.thegreatestchallengefortheECawillbethenewfinancialframeworkfrom2014onwards.

r. C.: Which points of the new financial framework will particularly affect the ECA’s work?

Henrik Otbo:thefinancialregulationdemandsthatmemberstatesforwardreportstotheCommission.theECawillhavetoaudithowtheCommissionsupervisesthisrequirementandweareconsideringhowtodothat.

mystartingpoint isthattheCommissionistheauditee.wehavetoseewhattheCommissiondoes,how it performs and how it handles these new reporting tools.then, the ECa has to also focus oncontrol,andhastogothroughthedocumentation.itisanimportanttaskfortheECatofocusontheCommission’s handling of its obligations and on the opportunities deriving from the new financialframework.

r. C.: A last and personal question. What powers did you have as Auditor General of Denmark that you do not have anymore and you regret no longer having?

Henrik Otbo: i have to say that i was auditor general for a very long time, in fact, too long. in theend,youruntheriskofnotbeingasolution,butrathertheproblem.iwasverypleasedtobeauditorgeneralandnowiamverypleasedtobehere.itisanotherjob,anotherchallengeandifyouconsiderthat28countriesworktogether,ithinkwearedoingquitewell.

15

thE Eu nEEds to BE morE dEmanding of Congo authoritiEsBy Hans Gustaf Wessberg, Member of the ECA

i have just had the pleasure of presenting the main conclusions andrecommendations of the performance audit on the topic of ‘Eu support forgovernanceinthedemocraticrepublicoftheCongo’tothepublicandthemediainBrusselson1october2013.

on the day of the publication, we first organised a targeted pre-briefing for aselection of Belgian journalists, given the close historic links between the twocountries, which was followed by the standard press-conference covered byEuropean satellite (EBs). i am happy to say that the report has since receivedextensivecoverageinboththeEuropeanandCongolesemedia.

so, why an audit on state fragility?

goodgovernance isacoreEuropeanvalueanda fundamental factor forpeace,stability and development and underpins all Eu cooperation with third worldcountries.however, thefact is thataround1.5billionpeoplecontinueto live in

conflict-affectedareasandfragilestates.inspiteofsignificantinvestmentsandthecommitmentsof the recent aid effectiveness agendas, results and value for money have been modest. thesecountries remain the furthest away from achieving the millennium development goals. theconclusionisthatthecurrentwaysofworkinginfragilestatesneedseriousimprovement.

theauditassessedwhetherEusupportforgovernanceinthedrCisrelevanttoneedsandifitisachievingitsplannedresults.tothisend,theauditcovered16Eufundedprojectsinkeyareasofgovernanceincluding:supportfortheelectoralprocess,securitysectorreform(justiceandpolice),pfmreformanddecentralisationintheperiod2003-2011.

thedrCwaschosenasthecasestudybecauseit iswidelyrecognisedasoneofthemostfragilestatesintheworldandduetothefactthattheEuisoneofitsmaindevelopmentpartnerswithatotalofabout€1,9billioninassistanceoverthe2003-2011period.

The audit findingswe found that, while the Commission/EEas had set up comprehensive cooperation strategy,addressing main political, economic, social and security needs of the drC, there were seriousshortcomingsatthelevelofindividualprogrammes.

fewerthanhalfof theprogrammeshavedelivered,orare likelytodeliver,mostoftheexpectedresults. progress made in the period under audit has been slow, uneven and, overall, limited.sustainabilityisanunrealisticprospectinmostcases

while the fragile context explains some of the shortcomings, the audit found areas where theachievement of results had been negatively affected by poor project design, overambitious orunclearprogrammeobjectives,andinsufficientriskmanagementgiventhedifficultimplementationcontext.theCommission/EEashasalsonotmadesufficientuseofconditionstopromotenationalcommitmentbeforeprogrammesarelaunchedoratkeystagesoftheirimplementation.

The recommendations

werecommendthat,inlinewiththeinternationalaideffectivenessagendaregardingfragilestates,theCommission/EEasconsidersthefollowingmeasuresinordertomaximisethatEumoneyiswellspent:

mr hans gustaf wessberg,memberoftheECa

16

thEEunEEdstoBEmorEdEmandingofCongoauthoritiEs

firstly, the Commission/EEas should review parts of its cooperation strategy concerning thegeographical distribution of aid across the provinces and consider putting more emphasis onpromotingimproveddrCgovernmentaccountability.

secondly,whenacceptingtheriskofengaging,theCommissionshouldsharpenitsriskassessmentswithaviewtosettingmorerealisticprogrammeobjectivesgiventhelimitedabsorptioncapacitiesandthedifficult implementationcontext(e.g.weaknessofdomesticadministrations,corruption,scarcityofexpertsandcontractorsandlimitedmonitoringpossibilities).inthisfragilecontext,theCommissionmuststrikeabetterbalancebetweenitsobjectivesandwhatisrealisticallypossibletoachieve.

thirdly,therehastobeadomesticcommitmentforresults.theEuisoneofthedrC’smainpartners.inthispartnership,Eumoneymustbeadequatelylinkedtotheagreementofthepartnercountryon programme commitments, conditions, objectives and risks. Compliance should be assessed.where there is divergence, the Eu must respond firmly, timely and proportionately, whereverneeded.

finally,theEu’spoliticalandpolicydialogueneedstobeimproved.itmustbedemandingandyetunderstandingatthesametime,timelyandconductedthroughtherightchannels. ifconductedaccording to those principles, it will stand a better chance of being effective and lead moreeasilytoanagreementontheconditionslinkedtotheprogrammeobjectivesandrisks,whichisfundamentalforachievingtheobjectivesofEuassistance.withtheEusupportgiventhereshouldbeareturnintermsofreform.

to conclude, this report comes at an opportune moment as the Commission/EEas is about tofinalise the strategic framework with the drC covering the Eu spending programmes over theperiod2014-2020.thismeansthattheserecommendationsarriveingoodtimetohelptoimprovethemanagementofEuprogrammesinthefinancialframeworktocome.

auditteam:sitting:hgwessberg,peterEklund standing:piotrZych,patricialeBriand,thierryCozier

17

on26and27september2013theCroatianstate audit office hosted a seminar on“auditing the European union’s structuralinstruments”inZagrebwhererepresentativesoftheEuropeanCourtofauditorspresentedtheauditapproachappliedbytheECaintheCohesionarea.

the republic of Croatia became the 28thmember state of the European union on 1july2013.sofar,Croatiahasbenefittedfrompre-accessionfundsand,followingaccession,a first set of operational programmes werelaunchedfortheremainingsixmonthsofthe2007-13 programming period. from 2014onwards, the transfer of funds from the Eubudget under the Erdf, Esf and Cohesion

fundaretoincreasesubstantially.overall,over€8billionhavebeenearmarkedunderthe2014-2020programmingperiodforthethreefunds.inviewoftheconsiderabledifficultiesinabsorbingthe much smaller allocations under pre-accession aid, an efficient and effective management ofstructuralfundsisthereforeamajorconcernforCroatia.

themainpurposeoftheseminarwastofamiliarisenationalauthoritiesintherepublicofCroatiawiththeEuropeanCourtofauditors’workingmethodsandauditapproachincontrollingtheuseandmanagementofEufunds.

thefirstpartoftheseminartookplaceon26september2013attheCentralfinanceandContractingagencyoftheCroatianministryoffinanceandbroughttogetherstateauditorsandrepresentativesofbodiesandinstitutionsinvolvedinthemanagementandcontrolsystemsofstructuralfundsintherepublicofCroatia,certifyingandpayingauthorities,thecoordinatingbody,auditauthorities,managementbodiesforoperationalprogrammes,aswellasleveloneandleveltwointermediarybodies.

martin weber,headoftheEtEunitinChamberii,presentedtheEuropeanCourtofauditors’auditapproach intheareaofstructural fundsandgavesomepractical insights inhowtheECaworkswiththenationalauthoritiesresponsibleforthemanagementofEustructuralinstruments.

this introductory part of the seminar was followed by a series of thematic workshops aimed atfamiliarisingparticipants,onthebasisofreal-lifeexamplesandstudies,withspecificaspectsoftheauditofEustructuralfunds:theuseofsimplifiedcostsbyignaciogonzález-Bastero(headoftheEsdunitinChamberii),onfinancialengineeringinstruments(fEis)byrares rusanescu,onpublicprocurementissuesbyBernardwitkosandonstateaidbymilansmid(allauditorsintheEtEunit).

the second part of the seminar took place on 27 september 2013 at the state audit office andwasintendedonlyforthestaffofthestateauditoffice.inparticular,participantswerepresentedby judit oroszki (attaché in the cabinet of kersti kaljulaid) with the das methodology and theEuropeanCourtofauditors’approachtothesubject.manyotherimportantissuessuchasauditingstandards,theworkofexternalauditors(bothatthenationalandEulevel)inrelationtostructuralfundsandthemostfrequentissuestheECaauditorsdealwithinotherEumemberstateswerealsodiscussed.

thepresidentoftheCroatianstateauditoffice, ivanklešić,thankedtheECarepresentativesforheaving the opportunity to discuss key aspects related to the audit of the Eu structural fundsduringthesetwodays.

sEminar on “auditing thE EuropEan union’s struCtural instrumEnts” hostEd By thE Croatian statE audit offiCE on 26 and 27 september 2013By Milan smid, ECA Auditor

Zagrebseminar

18

FOCUSEA

Goodbye to

Hello to

inoCtoBEr2013thECourtsays:

thedemocraticrepublicoftheCongoisoneofthemainbeneficiariesofEu support,withabout€1.9billionofassistanceprovidedbetween2003and2011.inthisreport,theEuropeanCourtofauditorsassessediftheCommissionandtheEEasmanagedeffectivelyEusupportforgovernanceandwhetherthissupportachieveditsplannedresults.itfocusedonkeyareasofgovernance:the electoral process, justice and police, public finance managementreformsandthedecentralisationprocess.itconcludesthatEusupporthasbeensetwithinagenerallysoundcooperationstrategy,addressingmainneeds,butprogresshasbeenslow,unevenandoveralllimited.sustainabilitywas an unrealistic prospect for most projects examined.this was in partduetothefragilecountrycontextbutalsoduetoshortcomingsinthewayin which the Commission and the EEas have managed their cooperationwiththedrC(seealsopage15).

EusupportforgovErnanCEinthEdEmoCratiCrEpuBliCofthECongospECialrEportn°9/2013

grguriC marija

nousavonsleregretd'annoncerledécèsdemonsieurrOGEr CAMUssurvenule15octobre,àmont-godinne,enBelgique.

néle18décembre1928,m.rogerCamusétaitdenationalitébelge.ilfutmembredelaCourdescomptesdu21décembre1992au9février1994

DéCÈS

BadEa anda

vandEnBoom marianne

19

thE futurE of EuropEan dEfEnCE, 24 september 2013By rosmarie Carotti

the speakers:

Mr Michael PALMEr, Founder Member of the bridge Forum dialogue

Mr Arnaud DAnjEAn, Member of the european Parliament,Chair of the Subcommittee on Security and defence

Mr Ioan Mircea PAşCU, Member of the european Parliament,Vice-Chair of the Committee on Foreign Affairs

the bridge – Forum dialogue serves as a platform for interdisciplinary debates. the President of the board is Mr Gaston REINESCH, Governor of the Central bank of luxembourg; the Vice-Presidents are Mr Vassilios SKOURIS, President of the european Court of Justice, Mr Vítor Manuel DA SILVA CALDEIRA, President of the european Court of Auditors and Mr Werner HOYER, President of the european Investment bank.

from left to right: mr arnaud danjean, mr michael palmer,mrioanmirceapaşcu

Where do we stand?

theEuropeanCouncilsummitof19–20december2013willbededicatedtosecurityanddefenceissuesandhopefullywillgivefreshimpetustotheCommonsecurityanddefencepolicy(Csdp).

thelisbontreatyaffirmsEurope'sambitionforacommonsecurityanddefencepolicy,givinglegalrecognition to the European defence agency, upholding the principle of mutual assistance andadding a solidarity clause. however this aspect of thetreaty is not applied and no thought hasbeengiventotheoperationalconsequencesofthisclause.

the threat to Europe has changed, from massive conventional attacks to nuclear missiles fromasia,chemicalattacksandsuicideattacksbyterrorists,cyber-warfareandthedestabilisationofthemiddleEast.itisdevelopmentsofthiskindwhichhavecausedmrvanrompuytoplacediscussionofEuropeandefenceontheagendaofthedecembermeetingoftheEuropeanCouncil.

it is time for Europe to become a provider rather than a consumer of security; all the speakersare convinced of this. the theoretical distinction between a federalist view and the widerintergovernmentalnatureofEuropeandefenceshouldnotstopEuropefromengagingindiscussionaboutitsfuturedefencepolicy.

The options

institutionally,maintainingthestatusquoisnotaviablesolutionsincetheamericansarereducingtheirinputandtheEuropeansareback-slidingintheirbudgetarycontribution.itseemssensibletoobtainawidernatoframeworkinfuture,inwhichtheusislessprominent.thiscouldbeachievedthroughastep-by-stepapproachandthegroupingofstatesindifferentprojects.

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thEfuturEofEuropEandEfEnCE

unfortunately, there seems currently to be an insufficient political will to establish Europeandefenceunitybymeansofanewtreaty.anotheroptioncouldbetoactonthebasisofexistingbodiesandoptimisetheircapabilities.

inthiscontext,weshould,firstofall,mentionthehighrepresentativeoftheEuandtheEuropeandefenceagencyintheimplementationofmilitarycooperationprojectsand,mostpromisingly,thedevelopmentofEurocorpsintoaEuropeanarmy.

another institutional option could be to create a real European defence industry. this industrycouldbeheadedbyaEuropeanparliament'sagency.movingtoaEuropeandefenceindustrywouldmeanabandoningnationalistpoliciesandallowingfinancialsavingsatnationallevel.

Europe: a global military power?

theEuropeannationsarecollectivelyaglobalmilitarypower.howevertheydonotseemtorealisethis.

overthelastthreeyears,threesuccessivecriseshaveoccurredonEurope'sdoorstep,inlibya,maliandsyria.thesethreecrisesneverthelessrepresentedsomanymissedopportunitiesforcreatingatangibleEuropeandefencepolicy.

in libya, the Europeans intervened under the nato flag. mali was another missed opportunity,despitethefactthatEuropehadsetupasecurityanddevelopmentstrategyforthesaharanregionand had collectively identified the threats facing the saharan states in the form of terrorist andcriminalactivity,andpoliticalandsocialcollapse.Europeiscurrentlydealingwiththecrisisinsyriaand,hereagain,Europeanpositionsarefarfromagreed.

Europe and the United states

theunitedstatesisencouragingEuropetobecomemoreinvolvedbecauseitisitselfchangingitspriorities.thepolicyof"leadingfrombehind"inthelibyanwaristypicaloftheamericanapproachtoallthecrisestakingplaceincloseproximitytotheEuropeancontinent.

aredistributionofpoweristakingplace,withthecentreofdecisionmovingfromtheatlantictothepacific.Europeanditscentralityinthesystemarebeingchallenged.Europeiscaughtbetweentheneedtoincreaseitsparticipation,inordertomakeupforthisstrategicre-orientationbytheusandthelackofapoliticalwilltodoso.

theideathatEuropehasneverbeensosecure,soprosperous,sofree,isanillusion.Europeshouldbeawareofthesituationandboostitsdefence,compensateforthestrategicreorientation,facetheincreasingchallenges,preserveitstechnologicaledgeandbolsteritsmilitaryindustry.

thereiscomplementarityinnato-Eurelations,andasnatoplanstostrengthentheciviliansideoftheinterventioninstrument,Europemustbereadytoincreaseitsmilitaryfootprint.

What should be done?

awhite paper on security and defence may possibly lead to common educational and trainingstandards,commonprojectsandcommonoperationalrequirementsforequipmentandmateriel.EuropeneedsproperlogisticalsupportandaCsdpwarehouse,aswellasastart-upfundforman-madecrisesornaturaldisasters.Butaboveall,politicaldecision-makingmustbestreamlined.thepoolingandsharingofmilitaryinstrumentsmakessensebutrequiresawillingnesstocooperate.

21

thEfuturEofEuropEandEfEnCE

whenitcomestoindustry,themostimportantthingistoconsolidatedemandinEuropeandstopslashingdefencebudgets.Europemustmovetowardsasingledefencemarket,withresponsibilitiesandbenefitsforallconcerned.

thereisgreatdisparityinEuropewithregardtodefencebudgets,capacitiesandthepoliticalwilltomoveforwardondefenceissues.theproblemofnationalsovereigntyisclearlypartofthis,but,today the European states have an unrivalled opportunity to produce a common policy. Europemustlearntoprioritiseacrossthe28memberstatesandovercomenationalconcerns.

What can be expected from the European Council summit?

the objectives in the conclusions of the previous European Councils on defence, such as rapidreactionforces,areexcellent,butpurelytheoretical.

amorerealisticapproachwouldbetoproduceaninitialroadmapofobjectives,whichwouldthenstimulatesomestructuralorinstitutionalproposalsandthesemightresultinmilitarycooperationprojects.

Eurocorps

withregardtothebudgetforacommondefencepolicy,allmilitaryoperationscarriedoutaspartofthecommonsecurityanddefencepolicyarecurrently financedbytheparticipantstates.thisisadoublehandicap.firstlybecause itexcludesacertainnumberofstateswhichcanno longerparticipateinexternaloperationsbecausetheydonothavethemeanstodoso.secondlybecausesomestatesaremajorcontributorstomilitaryoperationsandarebeginningtowonderifitisfairthat they should shoulder both the financial and human cost by committing a large budget todefence, and are then hauled up by the Commission in Brussels because of an excessively largedeficit.

a system must be devised to spread the cost between member states and produce some typeof community budget for military operations in the same way that we shall gradually have theCommissionthattakesaninterestindefence,itselfhithertoataboosubject.

the reader is referred to the article published in the September edition of the Journal about the presentation on contemporary strategic thought given at the eCA by Colonel Michel Goya, director of the "new conflicts" section of the French Military Academy's Institute of Strategic Research, and the interview with Colonel Goya entitled "the problem is that of a vision of the use of force and military culture".

22

By Beata Błasiak-nowak, Economicadvisorinthedepartmentofpublicadministrationofthesupremeauditoffice(sao)inpoland1

By Marzena rajczewska, technicaladvisorinthedepartmentofpublicadministrationofthesaoinpoland

Introduction

theEuropeanCourtofauditors(ECa)andthesupremeauditinstitutions(sais)ofthememberstatesoftheEuropeanunionfoundalargenumberoferrorsandirregularitiesintheapplicationofEulawregardingtheimplementationofthestructuralfunds,duetothe complexityoftherulesapplicableinthefield.theEuropeanparliamentandtheCourtofauditorsthereforecalledontheEuropeanCommissiontosimplifytheprovisionsoftheregulations2 layingdowntheprovisionsfortheimplementationofthestructuralfunds.theEuropeanCommissiondrewup11regulations3amendingtherulesfortheimplementationofthestructuralfunds.

asthesaisandtheECahavecontinuedtonoteerrorsandirregularitiesinthisarea,theyhavebegunto focus on the issue of simplification of the rules regarding the implementation of the structuralfundswithintheContactCommittee4.asaresult,in2011,theContactCommitteetaskedtheworkinggrouponstructuralfunds5withcarryingoutaparallelaudit inthememberstates inrespectoftheCommission’ssimplificationoftherulesfortheimplementationofthestructuralfunds.thepolishsao’srepresentativesinthisworkinggroupparticipatedinestablishingtheframeworkfortheparallelaudittobecarriedoutbythesaisofthememberstates.

thepolishsaohaspreparedandcarriedoutanauditintheareaofthesimplificationoftheprovisionsfor the implementation of the structural funds in accordance with its national audit procedures. atthesametime,initsauditthesaocompliedwiththeobjectivescontainedintheparallelauditplan6drawnupandadoptedbytheworkinggroup.theauditreportpresentingtheresultsofthisauditwaspublishedinjune 20137.theauditfindingsandconclusionsofthepolishsaowerethensubmittedinthenationalreporttotheworkinggroupinordertobeincorporatedasthepolishcontributioninthe

1 nationalexpertattheEuropeanCourtofauditorsfrom2009to2011.2 Council regulation (EC) no 1083/2006 of 11 july 2006 laying down general provisions on the European

developmentfund,theEuropeansocialfundandtheCohesionfund(ojl 210of31.7.2006,p. 25,asamended),regulation (EC) no 1080/2006 of 5 july 2006 on the European regional development fund (oj l 210 of31.7.2006,p. 1,asamended),regulation(EC)no 1081/2006of5july2006ontheEuropeansocialfund (ojl 210of31.7.2006,p. 12,asamended),Commissionregulation(EC)no 1828/2006of8december2006settingoutrulesfortheimplementationofCouncilregulation(EC)no 1083/2006(ojl 371of27.12.2006,asamended).

3 regulationno 1341/2008of18december2008 (ojl 348of24.12.2008,p. 19),regulationno 284/2009of7 april2009(ojl 94of8.4.2009,p. 10),regulationno 396/2009of6 may2009(ojl 126of21.5.2009,p. 1),regulationno 397/2009of6 may2009(ojl 126of21.5.2009,p. 3),regulationno 846/2009of1 september2009(ojl 250of23.9.2009,p. 1),regulationno 437/2010of19 may2010(ojl 132of29.5.2010,p. 1),regulationno 539/2010of16 june2010 (ojl 158of24.6.2010,p. 1),regulationno 832/2010of17september2010(oj l 248of22.9.2010,p. 1),regulationno 1236/2011of29november2011(ojl 317of30.11.2011,p. 24),regulationno 1310/2011of13decem-ber2011 (ojl 337of20.12.2011,p. 1),regulationno 1311/2011of13december2011(ojl 337of20.12.2011,p. 5).

4 the Contact Committee is a cooperation structure comprising the heads of the Eu sais and the ECa. itsmain objective is to improve the effectiveness and consistency of audits concerning the Eu funds. By car-rying out parallel audits, this cooperation allows the effectiveness of the sais’ activities to be increased. to find out more: Kontrola Państwowa no 1/2007 – special edition for the meeting of the Contact Com-mittee of the heads of the Eu supreme audit institutions in warsaw on 11 and 12 december 2006.

5 theworkinggrouponstructuralfundswascreatedin2000.attherequestoftheContactCommittee,ithasal-readycarriedoutsixparallelauditsconcerningthemanagementandimplementationofthestructuralfunds.tofindoutmoreabouttheparallelauditsalreadycarriedoutbytheworkinggroupandthecontributiontothisworkmadebythepolishsao:B. Błasiak-nowak,m.rajczewska,Udział Najwyższej Izby Kontroli w pracach Grupy Roboczej Komitetu Kontaktowego ds. Funduszy Strukturalnych(ContributionofthepolishsaototheworkoftheworkinggroupoftheContactCommitteeonstructuralfunds).Kontrola Państwowano 2/2009,p. 119.

6 Parallel Audit on Simplification of the Regulations in Structural Funds. Audit Plan,internaldocument,april 2012.7 Informacja o wynikach kontroli upraszczania zasad wdrażania funduszy strukturalnych. polish sao, june 2013.

simplifiCation of thE rEgulations in thE struCtural funds

23

finalreportregardingtheresultsoftheparallelaudit8carriedoutby12 Eusais9.thefinalreportsettingouttheresultsoftheparallelauditwillbesubmittedtotheContactCommitteeforapprovalinoctober201310,andthenpublishedatthewebsitesoftheContactCommitteeandthepolishsao.

Framework of the audit carried out by the Polish sAO

theregulationsamendingthelegalbasesforthestructuralfundsarebindingintheirentiretyandtheyaredirectlyapplicableinallthememberstates.someregulations,however,allowthememberstatesultimateresponsibilityfortheapplicationofsomeofthemeasures.inotherwords,somemeasuresonlyintroduceapossibilitytouseameasureandthememberstatescandecidewhetherornottoapplythemeasure.thepolishsaohasexaminedtheimplementationofthesimplifyingmeasuresintroducedintheamendments laiddowninthe11regulationsamendingtheEulaw,adoptedbetween2008and2011,including:1. tenoptionalmeasures(i.e.thesemeasureswhichthememberstatescouldchoosetoimplementorotherwise):• increaseinthetypesofcostseligibletoinclude:- indirectcostsdeclaredonaflat-ratebasis,upto20%ofthedirectcostsofanoperation;- flat-ratecostscomputedbyapplyingstandardscalesofunitcosts;- directcostsdeclaredaslumpsums,upto50,000euro;• in-kindcontributionsaseligibleexpenditureinfinancialengineeringinstruments;• reducedrequirementsforadvancepayments;• increased flexibility for major projects consisting in declaring expenditure without prior agreementoftheCommission;• introductionofcertaintypesofreimbursableaid;• expenditureonhousingformarginalisedcommunities;• instrumentsforenergyefficiencyanduseofrenewableenergyinbuildings;• guaranteesforprivateenterprisesbyapublicentityorbythememberstate.

2. tenobligatorymeasures(i.e.thosemeasureswhichthememberstatewasobligedtoimplement).• raisingofthethresholdoftotalcostsforrevenue-generatingprojectstoone millioneuro;• introductionofasinglethresholdof50 millioneuroformajorprojects;• requirementtodeductnetrevenuefromtheexpendituredeclaredtotheCommission;• exemptionfromdurabilityofoperationsincaseofnon-fraudulentbankruptcy;• requirementtotakeothermeasurestopublicisetheEucontributionincaseswhereit wouldbe impossibletoaffixa permanentexplanatoryplaquetoamaterialobject;• identification in the accounts of the amounts relating to the irregularities notified to the Commission;• obligation to submit the list of unrecoverable amounts with the annual declaration of the Certificationauthority;• requirement to notify the Commission of details of procedures imposing administrative or criminalsanctionsin relationtothereportedirregularities;• exemption from the registration of recoverable amounts below the reporting threshold of 10,000 euro;• obligationtousefinancialengineeringinstrumentsonlytoinvestinpotentiallyeconomically viableactivities.

8 National Audit Report of Poland on the parallel audit on Simplification of the Regulations in Structural Funds submitted to the Working Group on Structural Funds V of the Contact Committee of the Heads of the Supreme Audit Institutions of the eU Member States and of the european Court of Auditors,documentnottranslatedorpublished,february 2013.

9 theparallelauditswerecarriedoutbythesaisofaustria,Bulgaria,germany,hungary,italy,malta,theneth-erlands,poland,portugal,slovakrepublic,sloveniaandsweden.therepresentativesoftheCzechsaitookpartinthecooperationoftheworkinggroupasobservers.

10 Report to the Contact Committee of the heads of the Supreme Audit Institutions of the Member States of the euro-pean Union and the european Court of Auditors on the Parallel Audit on Simplification of the Regulations in Structural Funds by the Working Group on Structural Funds.

simplifiCationofthErEgulationsinthEstruCturalfunds

24

in its audit, the polish sao also examined introduction of improvements and simplifications to theproceduresforimplementationoftheoperationalprogrammesnotarisingfromanychangestotheEulaw.

theauditwascarriedoutintherelevantdepartmentsoftheministryofregionaldevelopment,actingas:1. themanagingauthorityforthefollowingoperationalprogrammes:a) operationalprogrammehumanCapital(thehCop),b) operationalprogrammeinfrastructureandEnvironment(thei&Eop),c) operationalprogrammeinnovativeEconomy(theiEop),d) operationalprogrammedevelopmentofEasternpoland(theEpdop),e) operationalprogrammetechnicalassistance(thetaop).2. theCertificationauthorityfortheabove-mentionedoperationalprogrammes,3. theCoordinationBodyforthenationalstrategicreferenceframeworkfor2007-2014.

the total value of the structural funds and the Cohesion fund co-financing of the five auditedprogrammes was € 49.9 billion, including € 22.4 billion from the Cohesion fund (Cf), € 17.5 billionfrom the European regional development fund (Erdf) and € 10.0 billion from the European socialfund(Esf).oneofthefiveauditedprogrammes, i.e. theinfrastructureandEnvironmentoperationalprogramme(thei&Eop)wasa mixedprogrammeco-financedbothwiththeErdfandtheCf.

thesaoauditedthemanagingauthorities(mas)andtheCertifyingauthority(Ca)ofthefiveabove-mentionedoperationalprogrammesintheministryofregionaldevelopment(sixseparatedepartments)aswellasbeneficiariesimplementingprojects.incaseofthemasandtheCa,theauditobjectivewastogiveopiniononactionsundertakentointroducethemodificationsinordertosimplifyrequirementsforimplementation,expenditureanddeclarationofexpensesfromtheEsfandoftheErdf,inorderto reduce administrative and financial burden for the management and control system and for thebeneficiaries.

the highest number of amendments to the structural funds regulations was introduced in the hCop, co-financed by the Esf.the most widespread simplified cost option applied in poland was thedeclarationofindirectcostsonaflat-ratebasis.therefore,inthecaseofthehCopanextendedauditwascarriedoutbythesao,includingon-the-spotchecksof26projectswithflat-ratesforindirectcosts.thesaoaudited26 beneficiariesimplementingprojectsco-financedbytheEuropeansocialfund(Esf)underthehCopinordertoascertainwhetherornotthesimplifiedmethodforestablishingprojectexpenditure,consistingofdeterminingindirectcostsonaflat-ratebasis,hadbeenproperlyapplied.theauditalsocheckedtheregularityofthebeneficiaries’expenditurefortheseprojectsincompliancewiththeprovisionsoftheprojectfinancingagreementsandtheguidelinesbytheministryofregionaldevelopment11.

theon-the-spotcheckswereperformedfor26hCopprojectswithindirectcostsdeclaredon a flatratebasis,implementedineightvoivodships(regions)12.thepublicco-financing13oftheauditedprojectsamountedtoapproximately€7.4millionwhichmadeup1%of publicco-financingofallcontracts14for measure 9.1 equalization of educational chances and providing high quality of educational services performed within the framework of the educational system. the audited beneficiaries were either localgovernmentunits,privateenterprisesornon-governmentalorganisations.

11 guidelinesoftheministryofregionaldevelopmentregardingeligibilityofexpenditureinthecontextofthehCop:http://www.efs.gov.pl/dokumenty/wso/strony/wytyczne.aspx,http://www.efs.gov.pl/dokumenty/wso/strony/archiwum.aspx

12 on the spot checks were performed for projects implemented in the following voivodships: kujawsko-po-morskie, śląskie, małopolskie, lubelskie, łódzkie, warmińsko-mazurskie, wielkopolskie, and mazowieckie.

13 publicco-financingofthehCopprojectscomprisednationalbudgetsubsidiesandtheEuropeansocialfundgrants.

14 ministry of regional development announced that the total value of all signed co-financing contracts for thehC op measure 9.1 on 31 march 2012 was pln 3.1 billion: http://www.efs.gov.pl/analizyraportypodsumow-ania/strony/default.aspx. the nik used the central exchange rate of 31 december 2011: 1 Eur = 4.5270 pln.


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moreover,aquestionnairewassentto37beneficiariesofthehCop,whoimplemented54projectswiththedirectcostsdeclaredaslumpsums,inordertocollectinformationontheirexperience,problemsand best practices. the public co-financing of these projects was of a smaller value, ranging fromapproximately€700to€11,000ineachcase.

asforthebeneficiaries,theauditobjectivewastogiveanopinionontheregularityof implementationof the audited projects in accord with the co-financing contract. in particular, in the case of thebeneficiaries, the audit objective was to verify whether the modified requirements for expendingresourcesfromtheEsfwereproperlyimplementedandwhethertheyactuallyreducedadministrativeandfinancialburdenfor the beneficiaries.finally,theauditobjectivewasalsotocollectinformationontheauditees’experiencein usingthemodifications,whethertheyactuallysimplifiedexpenditureoftheEuresourcesand whethertheyshouldbecontinuedinthefinancialperiod2014-2020.

results of the audit by the Polish sAO

the audit by the polish sao showed that the managing authorities of the audited operationalprogrammeshadintroducedalltheobligatorymeasuresadoptedinthe11Euregulationsandthattheoptionalmeasuresarisingfromthelegislationhadeitherbeenimplementedorhadbeenthesubjectof analyses and actions aiming to implement them. the procedures for the implementation of theoperationalprogrammeswerealsoimprovedinwaysotherthanthosearisingfromthechangesmadebytheEulegislation.

theopinionofthesaowasalsoinfluencedbythefactthattheauditwasconcludedat an advancedstageoftheauditedoperationalprogrammes’ implementation,whenthemanagementandcontrolsystemshadalreadybeenestablishedandfullyoperating,andwhenthestructuralfundsallocationsfor polandhadalreadybeen,toalargeextent,contracted.

themanagingauthoritieshaveappliedthefollowingoptionalmeasuresintheindividualoperationalprogrammesauditedbythepolishsao:

a) theyhavemadeitpossibletodeclarethefollowingcostsusingaflatrate:

− indirectcostsdeclaredonaflat-ratebasisupto20%ofthedirectcostsofatransaction(thehC op);

− flat-ratecostscomputedbyapplyingstandardscalesofunitcosts(thehCop);

− directcostsdeclaredaslumpsums(thehCop,theiEop);

b) theyreducedtherequirementsforadvancepaymentstobeneficiaries(theiEop,thei&Eop,theEpdop);

c)theymadeiteasierforbeneficiariestoobtainguarantees(theiEop,thei&Eop,theEpdop);

d) theymadeitpossibleformajorprojectstodeclareandcertifyexpenditurewithoutthepriorconsentoftheEuropeanCommission(theiEop,thei&Eop,theEpdop).

alltheobligatorymeasureshavebeenimplementedintheindividualoperationalprogrammesauditedby the polish sao. the horizontal15 and/or specific16 guidelines adopted by the minister of regional

15 thehorizontalguidelinesoftheministryofregionaldevelopmentaregeneralinnatureandapplicabletoalloperationalprogrammesco-financedbythestructuralfunds.

16 thespecificguidelinesoftheministryofregionaldevelopmentarespecificinnatureandapplicabletoagiven


26

developmentcontainprovisionsconcerningthefollowingaspects:a) raisingofthethresholdfortotalcosts for revenue-generating projects to one million euro; b) introduction of a single threshold of50 millioneuroformajorprojects;c) requirementtodeductnetrevenuefromtheexpendituredeclaredto theCommission;d) exemption fromdurabilityofoperations incaseofnon-fraudulentbankruptcy;e) requirement to take other measures to publicise the Eu contribution in cases where it would beimpossibletoaffixa permanentexplanatoryplaquetoamaterialobject;f ) identificationintheaccountsoftheamountsrelatingto irregularitiesnotifiedtotheCommission;g) obligationtosubmitthelistofunrecoverableamountswiththeannualdeclarationoftheCertificationauthority;h) requirementtonotifytotheCommissionofdetailsoftheproceduresimposingadministrativeorcriminalsanctionsinrelationtothereportedirregularities;i) exemptionfromtherequirementofregistrationofrecoverableamountslessthan€10,000;j) obligationtousefinancialengineeringinstrumentstoinvestonlyinpotentiallyviableactivities.

the audited managing authorities have undertaken actions in order to provide improvements notarisingfromtheEulegislationwithaviewtomakingiteasierforbeneficiariestoobtainEufundingbysimplifyingnationallegislationandreducingtheformalrequirementstothosestrictlynecessary.theauditshowedthattherewasataskforceforsimplifyingthesystemfortheuseoftheEufunds,workingin the ministry of regional development in the framework of the Proste fundusze (simplified funds)actionplan.ithasrecommendedawholeseriesofimprovementsforimplementationintheauditedoperational programmes, in particular concerning the procedures for verification and approval ofpaymentclaimssubmittedbybeneficiaries.asaresultoftheimprovementsimplemented,thenumberofdocumentstobeincludedwithpaymentclaimswasreducedandtheverificationprocessforsuchdocumentswasaccelerated.

the audit revealed that the audited beneficiaries had correctly carried out most of the tasks andresponsibilitiesincumbentupontheminfinancingcontractfortheimplementationoftheproject.mostofthemhadsuccessfullyfulfilledtheirobligationsinthefollowingareas:

• projectimplementationinaccordwiththemostrecentfinancingapplicationandbytheagreed deadline;

• declarationofindirectcostsonaflat-ratebasisinaccordancewiththeamountsplannedinthe financingapplication,calculatedonthebasisofthemethodindicatedintheapplication;

• compliancewiththerequirementsconcerningstaffrecruitmentandremuneration;

• financialandmaterialcompletionoftheproject;

• compliancewiththerequirementsforinformationandpublicityinrelationtotheproject;

• compliancewiththerequirementsconcerningthearchivingofprojectdocumentation.

themostfrequenterrordetectedbythepolishsaointheprocessofprojectimplementationbytheauditedbeneficiarieswaslatesubmission,inrelationtothedeadlinesetinthefinancingcontract,ofpaymentclaimstotheintermediateBodyforverification.othererrorsnotedinthecourseoftheauditconcernedsinglecasesof:

• failuretocomplywiththeprinciplessetoutinparagraph20ofthefinancingcontract,byvirtue of which the purchase of goods and services must take place on the basis of the most economicallyadvantageousoffer;

• declaration of the costs relating to accounting services and office rental as both direct and indirectcosts;

operationalprogrammeco-financedbythestructuralfunds.


27

• failuretoreturnunusedpartofthegrant(andthecorrespondinginterest)fromthefinancing awardedtoaproject;

• failuretofullyidentifythetransactionsregardingtheprojectexpenditureintheaccounts.

according to the polish sao, the optional and obligatory measures audited, which were introducedonthebasisof the11Euregulationsdatingfrom2008to2011,aimedtosimplifythemanagementoftheoperationalprogrammesandtheprojectsimplementedinthecontextoftheprogrammes.forthreeoperationalprogrammes,measureswereintroducedtoenablethebeneficiariestocalculatetheircostsonaflat-ratebasis.thesebeneficiarieswhoappliedthismethodintheirprojectsconsidereditusefulandfoundthatitdidfacilitateimplementation.theCertificationauthorityconsidersthatthesemeasuresmadeitpossibletoimproveprojectfinancialimplementation.

the managing authorities and beneficiaries who used the flat-rate method to declare indirect costsin their projects found that the method was useful and considered that it would also be useful tointroducethemethodforthenextprogrammingperiod2014-2020.accordingtothesao,themethodforcalculatingprojectexpenditureshouldbesimplifiedasfromthestartoftheimplementationoftheoperationalprogrammes,sothatthebeneficiariescanplanforthistypeofcostdeclarationassoonastheprojectbudgetisprepared.theapplicationofauniformapproachtotheuseofaflat-ratemethodfor calculating costs would make it possible to eliminate the very long period currently needed foragreeingthe methodologybetweenthememberstateandtheEuropeanCommission.

the application of the changes introduced by the European Commission required some additionalworkbothfromtheinstitutionsresponsibleformanagementandimplementationoftheoperationalprogrammes,andalso frombeneficiaries.this ismainlybecausetheauditedchanges introducedbythe Eu legislation to simplify the implementation of the structural funds were not introduced rightfrom the start of the programming period, but between 2008 and 2011, i.e. when the 2007-2013financialperspectivewasalreadyinforce.asaresultofthis,thebeneficiariesimplementingthehCopco-financedprojectsgenerallychosetodocumentalltheirexpenditurebyprovidinginvoices,sincetheywerefamiliarwiththatmethod.ingeneral,thebeneficiarieswerenotveryenthusiasticattheideaofusingnewmethodstodeclaretheirexpenditure,suchastheflat-ratecalculationofcertaincosts,asthisrequiredextrawork,atleastatthebeginningoftheproject.atthesametime,somebeneficiariesfoundthattheintroductionofchangesduringtheprogrammingperiodconstitutedafurthercomplicationandthattheneedtomasterthenewprinciplesandsimplifiedmethodsforcalculatingexpenditurewasanadditionalburden.

theauditedbeneficiariesconsiderthatthesimplifiedmethodsforcalculatingexpenditure,consistingofbeingabletodeclaredirectandindirectcostsonaflat-ratebasis,makeiteasiertoconcentrateontheworktobecarriedoutandtheresultsachievedbytheprojects.generallyspeaking,thebeneficiarieshadapositivereactiontothepossibilityoffocusingmoreonprojectresultsratherthantheregularityofthejustificationofexpenditure.many,however,wereafraidthatthiswouldleadtoadditionalrequirementswithregardtotheneedtoprovidedetailedexplanationsconcerningthedegreeofimplementationoftheoutputandresultindicatorsandreporting.

the introduction by the managing authority of the human Capital operational programme of theflat-rate method for declaring direct and indirect costs really helped to simplify the declaration andcertification of project expenditure, as the beneficiaries no longer had to assemble all the financialdocumentationtoprovetheregularityoftheexpendituredeclaredonaflat-ratebasis.thismeasurealso facilitated the work of the institutions responsible for management and implementation of theprogrammeandledtoareductioninthenumberofdocumentsthatneededtobechecked.


28

thesaonotedthat,inthecaseoftheauditedbeneficiaries,thechangeconsistingofenablingcoststobedeclaredonaflat-ratebasiswasapplicabletoindirectcosts,whichrepresentedbetween0.58%and16.19%ofdirectexpendituredeclaredand incurredwithregardtotheproject.therelationshipbetweentheindirectcostscalculatedonaflat-ratebasisandthedirectcostsincurredanddocumentedintheprojectsauditedbythesaoisshowninfigure 1.forallotherprojectexpenditure,thesimplifiedmethodofcalculatingexpenditurewasnotapplicableandthebeneficiariescontinuedtodocumenttheregularityofthisexpenditurebymeansofinvoicesorequivalentaccountingdocuments.

Figure 1

relationship between indirect costs calculated on a flat-rate basis and direct project costs declared in the audited projects

source:saoauditfindings


29

the survey carried out for the audit of beneficiaries implementing projects financed under the hCopshowedthat, inmostcases,theoptionofusingaflat-ratemethodtocalculatedirectcostsreallysimplifiedtheprinciplesforthedeclarationofexpenditureincurredwhencarryingouttheproject.inparticular, the small ngos, which had no previous experience of implementing any Eu co-financedprojects, considered that the flat-rate method of calculating direct costs was well-adapted to theirinstitutionalcapacity.mostbeneficiariesconsiderthattheintroductionofthischangehasreducedtheadministrativeburdenwithregardtoprojectimplementationwhile,inmostcases,thecorrespondingfinancialburdenhasremainedunchangedorhasdecreasedslightly.theopinionofthebeneficiariesasregardstheadministrativeandfinancialburdenduetotheintroductionoftheflat-ratemethodofcalculatingdirectcostsispresentedinfigures2and3.

Figure 2

Beneficiaries’ opinion concerning the administrative burden resulting from the introduction of the flat-rate method for declaring direct costs

Administrative burden

73%

10%

10%7%

reduced

increased

reduced in this area but otherobligations elsewhere

unchanged

Figure 3

Beneficiaries’ opinion concerning the financial burden resulting from the introduction of the flat-rate method for declaring direct costs


43%

40%

10%7%

Financial burden

unchanged

reduced

reduced in this area, but other obligationselsewhere

increased



30

according to the sao, the flat-rate calculation of direct costs (lump sums) did not only simplifydocumentationofexpenditureincurredbythebeneficiaries,italsosimplifiedthetaskoftheintermediateBodiesinvolvedinimplementingthem.thebeneficiarieswerenolongerrequiredtoassembleallthefinancialdocumentsshowingtheregularityoftheexpenditureincurredandtheintermediateBodies,fortheirpart,wereexemptedfromtherequirementtocheckthesedocuments,whichthebeneficiarywasnolongerrequiredtoenclosewiththerequestforpayment.

manyofthebeneficiariesquestionedobservedthatthemanagingauthoritywasmoredemandinginterms of the outputs and results of projects for which the direct costs had been declared using thelumpsums.themanagingauthoritiesrequiredbeneficiariestoplantheoutputandresultsindicatorspreciselywhendrawinguptheapplication forfinancingandthentodrawupreports regardingtheprogressmadeinrelationtotheplannedindicators.thebeneficiariesemphasisedthatpartialfailureinrelationtoaplannedindicatorcouldgiverisetoafinancialcorrection.

thebeneficiaries that tookpart in thesurveyproposedan improvement to theflat-ratemethod forcalculatingdirectcostsinrelationtooutputandresultindicatorsplannedattheoutsetoftheproject.someofthemconsideredthatitshouldbepossibletoamendtheindicatorssetoutintheapplicationfor financing during the project implementation, in some specific, exceptional cases, and with theagreementoftheinstitutionsresponsiblefor implementation.theyalsosuggestedthatthefinancialcorrectionappliedincasesofpartialfulfilmentofanindicatorshouldbeproportionatetothedegreeofimplementationofthisindicator,notequaltothetotalamountconcerned.

thebeneficiariesalsodrewupthefollowingproposalstofurtherimprovethenewflat-ratemethodforcalculatingdirectcosts(aslumpsums)17:

specificguidelinesshouldbedrawnupconcerningthismethodofcalculatingcosts; thestaffofthebodiesresponsibleforimplementationshouldprovidespecificinformation; acleartemplateshouldbedrawnupforprojectfinancingcontractstakingintoaccounttheflat-rate calculationofdirectcostsaslumpsums; thelumpsummethodusedtodeclaredirectcostsshouldalsoapplytoprojectswhosebudgetsare higherthanthoseaffectedtodate.

oneofthebeneficiariesputforwardaproposaltoreorganisethemanagementandcontrolsystemfortheoperationalprogrammeviatheintroductionofanoptionforcalculatingdirectcostsusingthelumpsums.inhisview,someofthestaffofthebodyresponsibleforimplementationcouldberedeployedtotheunitsresponsibleforon-the-spotprojectchecks,asthechangemadewouldleadtoareductionin workload for the units responsible for verifying the expenditure incurred. this reorganisationwouldenableeachco-financedprojecttobethesubjectofatleastoneon-the-spotcheckduringitsimplementation.thebeneficiaryconsidersthatthemeasureproposedwouldbeuseful,giventhatthedocumentsforcheckingwouldnolongerneedtobesenttothebodyresponsibleforimplementation.theon-the-spotcheckswouldalsoplayasignificantpartinerrorprevention.

thebeneficiariesdidnotoftentakeadvantageofthesimplificationconsistingoftheoptiontodeclareflat-rate costs computed by applying standard scales of unit costs, which was implemented by themanaging authority for the hC op.they were afraid of encountering difficulties during subsequentstages,inparticularprojectimplementationandcompletion,duetotheapplicationofthisnewmethodof declaring expenditure. this is the main reason why beneficiaries only showed a relatively slightinterest intheapplicationofthissimplifiedmethod,althoughthemanagingauthorityofthehCophadprovidedthemwithinformationonhowtoapplythismeasureinthecontextoftheirprojects.

17Eachoftheseproposalswasputforwardbymorethanonebeneficiary.


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thepriorimplementationofapilotprojectbythemanagingauthorityofthehCop,inthecontextoftheapplicationbythebeneficiariesofthedirectcostsdeclaredaslumpsumsandflat-ratecostscomputedby applying standard scales of unit costs, must be considered a good practice for introducing newsimplifiedmethods.themanagingauthorityofthehCopauthorisedthedeclarationofdirectcostsaslumpsumsasfrom1 january2010forsmallprojectsinthethreecategoriesdecidedfortheop.thenon1 january2011,themanagingauthorityofthehCopintroducedtheoptionofbenefitingfromflat-ratecostscomputedbyapplyingstandardscalesofunitcostsinthewestpomeranianregion.theobjectiveofthepilotprojectswastobetterpreparetheinstitutionandthebeneficiariesfortheapplicationofthesesimplifiedcostdeclarationmethods,inparticulargiventhatthe2014-2020multiannualfinancialframeworkplanstoextendtheapplicationofsuchmethods.thelessonslearnedfromthispilotphasewerethenputtouseforthemorewidespreadintroductionofnewchangesinthecontextofthehCop.

the optional measures in the five audited operational programmes examined were only minimallyapplied.theyonlyconcernedasmallshareofexpenditureinrelationtothetotalprojectexpenditureincurred,orcouldonlybeappliedbycertaincategoriesofbeneficiaryoronlyforprojectsmeetingveryspecificconditions.thebeneficiariesconsideredthattheoptionalmeasuresconsistingofcalculatingindirect and direct costs on a flat-rate basis should be applied more widely, in particular in otheroperationalprogrammesorinalargernumberofmeasuresincludedintheseprogrammes.accordingto the beneficiaries, the thresholds for the amount of indirect and direct expenditure which can bedeclaredona flat-ratebasisshouldberaisedinthefuture.

Conclusion

over the past few years, the European Commission has put in place measures aimed at simplifyingprinciplesfortheimplementationofthestructuralfunds,inordertoreducethenumberoferrorsandirregularities relatingtotheapplicationof theEuropean lawarising fromtheextremecomplexityoftherulesfortheimplementationofthesefunds.atthenationallevel,theEu’srulesaresupplementedby provisions and guidelines. the measures concerning the simplification of the principles for theimplementationof thefundsat theEu levelcanonly, therefore,beeffective if similarmeasuresareintroducedatthenationallevel.

as part of the parallel audit carried out simultaneously by twelve Eu member states, the polish saoaudited the introduction of simplifications for the implementation, expenditure and declaration ofexpensesfromthestructuralfundsbythemanagingauthoritiesoffiveoperationalprogrammesforthe2007-2013period,co-financedbytheEuropeansocialfundandtheEuropeanregionaldevelopmentfund.theauditalsocoveredtheregularityoftheapplicationofthesimplifiedprinciplesonthebasisofwhichthebeneficiariesdeclareexpenses.

thesaoauditshowedthatthebodiesresponsiblefortheimplementationofthenationaloperationalprogrammes had implemented the audited obligatory measures as laid down in the amended Eulegislation.theyalsoundertookactionsaimingtoapplytheoptionalmeasures.themeasuresactuallyappliedintheauditedoperationalprogrammesincludedthesimplificationofthedeclarationofprojectexpenditurebythebeneficiaries,a reduction in therequirementsconcerningadvancepayments forprojectexecutionandprovisionsmakingiteasierforbeneficiariestoobtainguarantees.inthecaseofmajorprojects,expendituremaybeincurredwithouttheprioragreementoftheCommission.

itisinterestingtonotethatmanybeneficiariesdidnotmakeuseoftheoptionalsimplificationsintheirapplicationforfinancing,oftenpreferringtokeeptofamiliarrulesandprovisionsratherthantakingtheriskofapplyingnewones.thebeneficiarieswhodaredthechallengeofdeclaringtheircostsaccordingtothenewmethodsgenerallyconsideredthattheyreallydidsimplifymatters.theyconsideredthatthesenewmethodsindeedsimplifiedthedeclarationofexpenditureincurredintheirprojects.


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