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EUROPEAN PARLIAMENT 2009 - 2014

Special committee on the policy challenges and budgetary resources for a

sustainable European Union after 2013

26.10.2010

REFLECTION PAPER
on the implementation and financial management in the
multiannual financial framework

Rapporteur: Salvador GARRIGA POLLEDO

Introduction
Article 317 of the TFEU1 states that the Commission shall implement the budget in
cooperation with the Member States, in accordance with the provisions of the
regulations pursuant to Article 322, on its own responsibility and within the limits of
the appropriations, having regard to the principle of sound financial management.
Member States shall cooperate with the Commission to ensure that the appropriations
are used in accordance with the sound financial management.
The Part III of the IIA of 17 May 20062 deals with the sound financial management of
EU funds, integrating the European Parliament's requests for improving the
qualitative aspects of the implementation of EU budget. This new part III is at the
origin of the change in the title of the IIA, which also covers "sound financial
management". It addresses notably:
 the recognition of the need for more efficient controls and simplification of
rules, in particular in the context of shared management (annual summary,
assessment of national management and control systems)
 the implementation of the budget in accordance with the principles of sound
financial management
The Financial Regulation (FR) applicable to the general budget of the European
Communities3 sets, in its Title IV, the general rules for the implementation of the EU
funds.

Sound financial management and control

The principle of sound financial management is one of the budgetary principles, in

compliance to which the budget shall be established and implemented. In accordance
with this principle, the budget shall be implemented by respecting the principle of
economy, efficiency and effectiveness4. The principle of economy requires that the
resources used by the institutions for the pursuit of its activities shall be made
available in due time, in appropriate quality and quantity and at the best price. The
principle of efficiency is concerned with the best relationship between resources
employed and results achieved. The principle of effectiveness is concerned with
attaining the specific objectives set and achieving the intended results.
The budget shall be implemented in compliance with effective and efficient internal
control as appropriate in each management mode, and in accordance with the relevant
sector-specific Regulations.
The Court of Auditors examines the accounts of all revenues and expenditure of the
Union and provides the European Parliament and the Council with statement of
assurance as to the reliability of the accounts and the legality and regularity of the
underlining transactions5.

1
Ex-Article 274 TEC
2
Interinstitutional Agreement on budgetary discipline and sound financial management of 17 May
2006, OJ 139/1 of 14.06.2006
3
Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation
applicable to the general budget of the European Communities, OJ L 248 , 16.09.2002
4
Article 27 of the Financial Regulation
5
Article 287 TFUE

2
Implementation Methods
In accordance with Article 3 of the Financial Regulation, the Commission implements
the budget in the following ways: on a centralised basis, by shared or decentralised
management and by joint management with international organisations.
Centralised management
Where the Commission implements the budget on centralised basis, implementation
tasks shall be performed ether directly by its departments or indirectly by delegating
to third parties its executive power (i.e. executive agencies, other specialised
Community bodies, such as EIB or EIF, national or international public sector
bodies).
A regards the direct management, the operational implementation of the budget is
delegated by the College to the Directors-General, who as a 'authorising officers by
delegation", are responsible for the sound and efficient management of the resources
and for ensuring adequate and effective control systems in their services. Directors-
General report on the performance of their duties in the Annual activity reports, which
includes a signed declaration of assurance focusing on their responsibilities and
covering the legality and regularity of financial transactions. On the basis of the
assurance and reservations made in their annual activity reports, the Commission
adopts a Synthesis report6, assuming in this way its political responsibility for the
management. It identifies key management issues to be addressed as a matter of
priority and defines lines of action to address indentified weaknesses. Thus, the
Commission focuses on issues such as simplification the legislation, integrated
internal control framework, strengthening of Commission's supervisory role in shared
management of the EU funds.
The Commission stresses in its Report on the management achievements of 2009 that
significant progress has been achieved in the management of the EU Funds thanks to
far-reaching changes to management and control system, working methods and
culture. However, it also acknowledged that there are still areas which require
improvement, for example in shared management, where member States execute
some 80% of the budget.
Shared management
When the Commission implements the budget by shared management,
implementation tasks are delegated to the Member States. Without prejudice to
complementary provisions in relevant sector specific Regulations, and in order to
ensure that the funds are used in accordance with the applicable rules and principles,
the MSs shall take all legislative, regulatory and administrative or other measures
necessary for protecting the Community's financial interests. To that effect, the
Member States shall conduct checks and shall put in place an effective and efficient
internal control system and produce, on this basis, an annual summary at the
appropriate national level of the available audits and declarations (Article 53 (b) of
the Financial Regulation).
The implementation of major EU policies is characterised by the shared management
of the Community budget, under which 80% of Community expenditure is
administrated by the Member States. The improvement of the financial management in
the Union must be supported by a close monitoring of progress in the Commission

6
Synthesis of the Commission's management achievements in 2008 and 2009 (COM(2009)256 of 8
June 2009 and COM(2010)281 of 2 June 2010)

3
and in the MSs, while the Member States should assume responsibility in the
management of the EU Funds, ensuring the completion of the EU integrated control
framework with the aim of obtaining a positive Statement of Assurance (DAS)7.
The main policies, implemented under shared management are agriculture and rural
development and cohesion policy. The cohesion policy, representing around 31% of
the EU budget, remains the policy area with the highest error rate in the DAS 2008
(11%) and is the only policy area still receiving a red light form the Court of
Auditors8. This is largely due to the ineffective functioning of the specific
management and control systems in some Member States9. The complexity of the
rules combined with implementation requirements, which differ from one MSs to
another and sometimes even between regions, remain the main problem of the 'shared
management' policies. Despite the marked improvements in the management and
control systems introduced by the 2008 Commission action plan, which strengthened
the Commission's supervisory role in the structural actions, only 31% of the systems
work well and more that 60% require improvement.
In this context, the EP invites the Commission, in its supervisory role, to analyse the
strengths and weaknesses of each Member State's national system for administration
and control of the EU funds and to forward its comparative analysis to the European
Parliament, the Council and the Court of Auditors; to take this evaluation into account
while revising the Guidance Note concerning the annual summaries and to take the
opportunity to include in the Guidance Note a framework for national management
declaration for those MSs that decide to introduce them to develop its incentive-based
approach10.
On the other hand, it stresses the need to strengthen the role of the Member States in
the upcoming review of the Financial Regulation as well as to improve the quality,
homogeneity and comparability of the data provided by the MSs so as to ensure the
added value in the field of the control of EU Funds.

Joint management
Where the Commission implements the budget by joint management, certain
implementation tasks shall be delegated to international organisations11. External aid,
development and enlargement, including the pre-accession and neighbourhood
policies count among policy areas with a significant level of irregularity in
payments12.
In accordance with the European Court of Auditors' Special report n°15/2009, the EU
assistance for development and humanitarian aid implemented through United
Nations organisations increased form EUR 500 million in 2002 to over EUR 1 billion

7
EP resolution on discharge in the respect of the implementation of the European Union general
budget for the financial year 2008, Text adopted in Plenary on 05.05.2010, P7_TA(2010)0134
8
Annual Report of the Court of Auditors on the implementation of the budget concerning the
financial year 2008, together with the institutions’ replies, OJ C 269, 10.11.2009
9
Communication form the Commission to the European Parliament, the Council and the Court of
Auditors, Synthesis of the Commission's management achievements in 2009, COM(2010)281 of
2.06.2010
10
idem, Points 40-46
11
Article 53d of the Financial Regulation
12
Court of Auditors Annual Report concerning the financial year 2008, of 24 September 2009

4
in 200813. The EU contribution to UN organisations represents about 6% of UN
resources, and in 2006 and 2007 the Commission made over 700 separate
contributions to around 30 different organisations and spread over more than 90
countries14.
The Financial Regulation and the arrangements in the FAFA15, which applies to all
funding agreements between the Commission and the UN, provide the framework
enabling the Commission to contract directly with UN organisations. The individual
agreements concluded with international organisations to which implementation tasks
are delegated shall contain detailed provisions for the implementation of the tasks
entrusted. However, those implementation tasks are carried out in accordance with the
international organisations' own accounting, audit, internal control and procurement
procedures, while the Commission remains responsible for the funds implemented
through international organisations and accountable to the European Parliament.
The Court of Auditors special report notes that the "procedures for joint management
with UN organisations differ from those required for actions implemented through
NGOs, which generally involve competition and the use of Commission procedures"
and concluded that the Commission does not convincingly demonstrate, before
deciding to work with a UN organisation, that it has assessed whether the advantages
offset any disadvantages" and that the "choice of a UN organisation is not based on
sufficient evidence that this approach is more efficient and effective than other ways
of delivering aid" (paragraphs 9 and III of the Special Report n°15/2009.
On the basis of this report, the Court of Auditors issued one recommendation to the
Commission as regard improved decision-making and four as regards more focus on
the achievement of results: to issue and ensure the implementation of practical
guidelines in order to improve the decision-making process for selecting the
implementing channel for the proposed task; to explore opportunities to rely on audit
work carried out by UN bodies and to ensure that the FAFA is applied so that any
issues of access to information are rapidly resolved; to ensure that UN reports provide
adequate information on project performance and the achievement of results; to
consider whether it can built on its expertise with one UN agency by contribution in a
less fragmented way, for example at country level, to other UN organisations with
view a to engaging in a similar high-level dialogue enhancing the focus on their
performance in achieving objectives.

Improving the quality of implementation: economy, efficiency and effectiveness

In its opinion n°1/2010 "Improving the financial management of the EU: Risks and
challenges"16, the Court of Auditors brings together the main messages of its recent
annual and special reports in order to identify the main risks and challenges to
reducing further the level of irregularity as well as improving the quality of EU
spending.
In line with this opinion, the debate on how to improve implementation and financial
management of the EU budget could address the following issues:

13
European Court of Auditors' Special report n°15/2009 - EU assistance implemented through United
Nations organisations: decision-making and monitoring, point 1.
14
idem, points 4 to 5
15
Financial and Administrative Framework Agreement (FAFA)
16
http://eca.europa.eu/portal/pls/portal/docs/1/4030745.PDF

5
Quality of the implementation
 simplification and strengthening of delivery instruments
 streamline within and across the policies (EAV, clear and quantifiable
objectives, improved eligibility criteria), develop synergies, clear repartition of
responsibilities (notably in the area of shared management and development
assistance);
 setting out of casual links between the funded activities and desired outcomes
 improvements in monitoring and evaluation arrangements
 transparency and accountability
Reduce the irregularities
 Simplification of rules and procedures could not only decrease the risk of error
but can also reduce the control costs
 better balance between the cost of control and efficiency and benefit of such a
control
 further improvement of Commission's internal financial management and
control systems

6
 TECHNICAL ANNEXES:

Annex 1. Implementation of EU budget for 2000-2010 period (in payments)

compared with the MFF and own resources ceilings (1a/ in absolute
figures, 1b/ graphic presentation)

Annex 2. Implementation of commitments and payments per MFF headings for

2007-2010 (million EUR and %)

Annex 3. EU budget surpluses from 2000 to 2010 - Comparative table

***

Annex 1a. Implementation of EU budget for 2000-2010 period (in absolute figures)

Implementation of the EU budget compared to the ceilings in payment appropriations for 2000-2010 period
(million EUR, current prices)

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Own Resources
ceiling* 105,884 109,542 113,435 114,948 126,319 131,527 137,169 151,354 152,446 144,014 147,194
MFF ceiling 91,322 94,730 100,078 102,767 111,380 114,060 119,112 122,190 129,681 120,445 134,289
Adopted budget 87,945 92,569 95,655 97,503 99,724 106,300 111,970 115,497 120,347 116,096 122,937
Final budget** 89,440 93,780 95,656 92,525 101,807 105,684 107,378 113,846 115,771 113,035 122,937
Implementation*** 80,449 80,558 85,766 89,377 99,934 104,000 105,809 110,049 110,449 109,055 87,301
* Based on a yearly established GNI figure multiplied by 1,24% (and 1,23% for 2010)
** Including subsequently adopted amending budgets (except or 2010)
*** 2010 data based on the latest provisional figures from 27 September 2010
Source: European Commission, provided by Policy Department D

***

Annex 1b. Implementation of EU budget for 2000-2010 period (graphic presentation)

Implementation of the EU budget compared to the ceilings in payment appropriations for 2000-2010 period
(million EUR, current prices)

180

160

140

120

100

80

60

40

20

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

OR ceiling FP ceiling Adopted budget Final budget Implementation

Source: European Commission, provided by Policy Department D

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 ***

Annex 2. Implementation of commitments and payments per MFF headings for 2007-2010 (million EUR and %)

IMPLEMENTATION OF COMMITMENTS AND PAYMENTS PER MFF HEADINGS FOR 2007-2010 (million EUR and %)

2007 2008 2009 2010*

HEADING CA PA CA PA CA PA CA PA
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %

1. SUSTAINABLE GROWTH 53.723,3 97,9 43.178,0 98,7 57.919,1 99,0 45.057,0 98,1 61.649,7 99,1 43.994,8 96,9 61.419,6 95,5 29.852,7 61,4

1a. Competitiveness for growth and employment 8.821,8 94,1 6.203,3 92,6 10.558,7 95,3 9.502,2 94,3 13.242,3 96,1 10.062,2 96,2 12.070,2 81,0 7.003,2 60,4

1b. Cohesion for growth and employment 44.901,5 98,7 36.974,6 99,8 47.360,4 99,9 35.554,8 99,2 48.407,4 99,9 33.932,6 97,2 49.349,3 99,9 22.849,4 61,6

2. PRESERVATION AND MANAGEMENT OF NATURAL RESOURCES

52.563,2 94,2 54.016,5 99,2 56.767,9 99,7 52.266,9 98,0 56.037,9 99,5 50.424,2 99,4 57.142,4 95,7 48.843,4 84,0

of which CAP expenditure 42.148,4 99,6 42.096,4 99,5 40.948,9 99,8 40.752,6 99,6 41.046,5 100,0 40.907,8 99,8 41.382,1 94,4 41.086,8 93,9

3. CITIZENSHIP, FREEDOM, SECURITY AND JUSTICE 1.368,3 97,6 1.010,7 82,9 1.521,4 93,6 1.261,7 91,0 2.201,1 99,4 1.930,5 94,6 1.282,4 76,6 895,3 63,7

3a. Freedom, security and justice 567,2 96,1 199,5 59,3 640,9 87,8 380,0 85,6 932,5 99,1 666,6 90,4 769,5 76,5 454,9 61,5

3b. Citizenship 801,1 98,7 811,2 91,8 880,6 98,3 881,8 93,5 1.268,6 99,6 1.263,9 96,9 512,9 76,7 440,4 66,1

4. THE EUROPEAN UNION AS A GLOBAL PARTNER 6.478,5 95,1 7.091,0 94,8 7.352,9 96,1 7.190,5 90,1 8.309,8 99,2 7.786,3 91,8 6.683,1 82,4 4.059,7 51,7

5. ADMINISTRATION 4.329,9 98,4 4.308,4 90,2 4.510,7 97,9 4.466,7 90,1 4.739,8 98,9 4.710,8 91,3 4.730,3 95,6 3.650,7 68,8

GRAND TOTAL 118.907,9 96,1 110.049,1 98,2 128.278,7 99,1 110.449,5 97,0 133.147,3 99,3 109.055,7 97,4 131.257,7 94,6 87.301,8 71,9

*Based on the latest provisional figures from 27 September 2010

***
Annex 3. EU budget surpluses from 2000 to 2010

EU budget surplus, € million

16.000
14.000
12.000
10.000
8.000
6.000
4.000
2.000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: European Commission, provided by Policy Department D

 LINKS

General Rules

IIA of 17 May 2006 on budgetary discipline and sound financial management

http://ec.europa.eu/budget/library/documents/multiannual_framework/2007_2013/comm_2010_0073_en.pdf

Financial Regulation applicable to the general budget of the European Communities

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002Q1605:EN:HTML

Financial Regulation Triennial revision

http://ec.europa.eu/budget/library/documents/sound_fin_management/financial_regulation/comm_2010_260_en.pdf

Budget Review
Communication form the Commission to the European Parliament, the Council, the European
Economic and Social Committee, the Committee of Regions and National Parliaments on the EU
Budget Review
http://ec.europa.eu/budget/reform/library/com_2010_700_en.pdf

Discharge for the implementation of the EU budget

2008 Discharge
http://www.europarl.europa.eu/document/activities/cont/201005/20100511ATT74395/20100511ATT74395EN.pdf

2007 Discharge
http://www.europarl.europa.eu/document/activities/cont/200905/20090519ATT56154/20090519ATT56154EN.pdf

Commission's Reports

Synthesis of the Commission's management achievements in 2009

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0281:FIN:EN:PDF

Synthesis of the Commission's management achievements in 2008

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0256:FIN:EN:PDF

Court of Auditors Reports

Annual Report of the Court of Auditors on the implementation of the budget concerning the
financial year 2008, together with the institutions’ replies
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:269:0001:0256:EN:PDF

Annual Report of the Court of Auditors on the implementation of the budget concerning the
financial year 2007, together with the institutions’ replies
http://eca.europa.eu/portal/pls/portal/docs/1/1569525.PDF

Special Report No 15/2009: EU assistance implemented through United Nations

organisations: decision-making and monitoring
http://eca.europa.eu/portal/pls/portal/docs/1/3632657.PDF

Opinion No 1/2010: Improving the financial management of the European Union budget:
Risks and challenges
http://eca.europa.eu/portal/pls/portal/docs/1/4030745.PDF

10