1. The ECA’s 2017 Annual Report
09 October, 2018
The ECA’s 2017 Annual Report

2. European Court of Auditors
The European Court of Auditors is the independent external auditor of the European Union.
Our mission is to contribute to improving EU financial management, to promote accountability and transparency and to act as the independent guardian of the financial interests of the citizens of the EU. We warn of risks, provide assurance and indicate shortcomings and successes. We offer guidance to EU policymakers and legislators on how to improve the management of EU policies and programmes and ensure that Europe’s citizens know how their money is being spent.
We are based in Luxembourg and employ around 900 professional and support staff of all EU nationalities.

3. Organisation of ECA: five Audit Chambers
Presidency Corporate strategy, reporting, planning and communication Cooperation with other SAIs Inter-institutional relations
Secretariat- General Human resources, finance and general services Information, workplace and innovation Translation and language services
28 Members
28 Members
Legal matters
Audit Quality Control Committee
Internal audit
Chamber I
Sustainable use of natural resources
Chamber II
Investment for cohesion, growth and inclusion
Chamber III
External action, security and justice
Chamber IV
Regulation of markets and competitive economy
Chamber V
Financing and administering the Union
Administrative Committee

4. ECA Publications Audit reports and opinions Special reports
Selected audits on specific budgetary areas or management topics, mainly performance audit
Annual reports
Statement of assurance on compliance of EU budget with rules, and findings on results achieved (also EDFs)
Opinions and reviews
Issues of EU legislation and public sector management and audit
Specific annual reports
Financial audit of EU agencies, decentralised bodies and other institutions

5. Users of the ECA’s reports

6. European Court of Auditors
Our mandate

7. SoA: Mission of the Court
Art. 287 (1) of the Treaty on the functioning of the European Union:
“The Court of Auditors shall provide the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions.
...
This statement may be supplemented by specific assessments for each major area of Community activity.”
Stakeholders
Discharge procedure
ECA products
This statement may be supplemented by specific assessments for each major area of Union activity". The same Article also states: "The Court of Auditors shall draw up an annual report after the close of each financial year." Current practice is that this Statement of Assurance is included in the European Court of Auditors’ Annual Report on the implementation of the general budget, which also contains specific assessments for each major policy group.
EDFs, agencies, offices and similar bodies As required by the applicable Regulations, a similar DAS-type opinion and Annual Report is produced for the EDFs.
LEGALITLY REGULARITY BUT ALSO SFM
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8. European Court of Auditors
Our statement of assurance

9. Reliability of the accounts
Do the EU annual accounts provide a true and fair view of the EU’s financial position and financial results?
We evaluate the accounting system to ensure it provides a good basis for producing reliable data.
We verify key accounting procedures to ensure they function correctly.
We make analytical checks of accounting data to ensure they are presented consistently and appear reasonable.
We directly check a sample of accounting entries to ensure the underlying transaction exists and are accurately recorded.
We check financial statements to ensure they present the financial situation fairly.

10. Regularity of transactions
Do the EU income and expensed payment transactions underlying the EU accounts comply with the rules?
We assess the systems for revenue and expenditure to determine their effectiveness in making sure transactions are regular.
We take statistical samples of transactions to provide a basis for detailed testing by our auditors. We examine the sampled transactions in detail, including at the premises of final recipients (e.g. farmers, research institutes or companies providing publicly procured works or services), to obtain evidence that each underlying event exists, is properly recorded and complies with the rules for making payments.

11. Regularity of transactions
Do the EU income and expensed payment transactions underlying the EU accounts comply with the rules?
We analyse errors and classify them as either quantifiable or not. Transactions are affected by quantifiable error if, based on the rules, the payment should not have been authorised. We extrapolate the quantifiable errors to obtain an estimated level of error for each area in which we make a specific assessment. We then compare the estimated level of error against a materiality threshold of 2% and assess whether the errors are pervasive.
Our opinions take account of these assessments and of other relevant information, such as annual activity reports and reports by other external auditors.
We discuss all our findings both with the authorities in the Member States and with the Commission so as to confirm our facts are correct.

12. Suspected fraud detected during our audit work
We report all suspected fraud cases detected during our audit work to OLAF, the European Union’s anti-fraud office.
13 instances of suspected fraud were detected during the 2017 audit.
The instances of suspected fraud concerned the artificial creation of the necessary conditions for EU financing, the declaration of costs not meeting the eligibility criteria and procurement irregularities.

13. European Court of Auditors
What do we audit

14. The EU Budget in context (ECA mandate).
EU 28 gross national income
100% [15.178]
EU 28 general government expenditure
46% [7.022]
EU spending
0,9% [137,4]
Source: 2017 AR
2014
March 2011

15. EU budget in 2017 €134.5 billion Revenue Expenditure*
Maybe explain the importance of budget book (take a copy of paper version with you  (2,5 kg)) to demonstrate our audit mandate. I have a copy if you need one. Budget book is not just a boring book with some text and figures but the government’s purest expression of values and priorities.
Spending Areas
The ECA checks spending on policies and programmes in all areas of the EU budget. We also audit the European Development Funds, which are financed directly by the Member States.
The annual EU budget is spent on a wide range of areas. Payments are made to support activities as varied as farming and the development of rural and urban areas, transport infrastructure projects, research, training for the unemployed, support for countries wishing to join the EU, or aid for neighbouring and developing countries.
The EDFs provide European Union assistance for development cooperation to the African, Caribbean and Pacific (ACP) states and overseas countries and territories (OCTs). EDF spending and cooperation instruments aim to overcome poverty, and to promote sustainable development and the integration of ACP countries and OCTs into the world economy.
Smart and Inclusive Growth     
 • Competitiveness for growth and jobs
Spending in this area is aimed at improving research and innovation, enhancing education systems and promoting employment, ensuring a digital single market, promoting renewable energy and energy efficiency, modernising the transport sector and improving the business environment, especially for small and medium‑sized enterprises (SMEs).
The majority of spending is in the form of grants to private and public beneficiaries, with the Commission reimbursing costs declared by beneficiaries in project cost statements.
 • Economic, social and territorial cohesion
Regional and urban policy accounts for about 80% of total spending in this area and is mostly implemented through the European Regional Development Fund (ERDF) and the Cohesion Fund (CF). It aims to help the least developed EU countries and regions to catch up with the rest by making all regions more competitive and developing inter-regional cooperation. The funds are used to finance investments in infrastructure, the creation or preservation of jobs, regional economic development initiatives and activities to support small and medium enterprises.
Employment and social affairs policy covers the remaining 20% of spending in this area. It is mainly financed by the European Social Fund (ESF). Expenditure includes investments in human capital through training and other employment measures.
Expenditure is managed jointly with the Member States and involves co-financing projects within approved spending programmes. 
 Sustainable Growth: Natural Resources      
This spending area covers the common agricultural policy (CAP), the common fisheries policy (CFP), rural development and environmental measures.
The CAP aims to increase agricultural productivity, ensure a fair standard of living for the agricultural community, stabilise markets, guarantee the availability of supplies and ensure that supplies reach consumers at reasonable prices. It is implemented through two funds: the European Agricultural Guarantee Fund (EAGF), which fully finances EU direct aid and market measures, and the European Agricultural Fund for Rural Development (EAFRD), which co finances rural development programmes together with the Member States. CAP spending is managed jointly with the Member States. Expenditure under both funds is channelled through some 80 paying agencies that are responsible for checking the eligibility of aid applications and making payments to beneficiaries.
The CFP pursues similar objectives to the CAP and the main tool for implementation is the European Maritime and Fisheries Fund (EFF). The fund is managed by the Commission and the Member States under shared management.
The EU’s environmental policy aims to protect and improve environmental quality and thus people’s lives, and to ensure that natural resources are used rationally. Expenditure in this area is managed centrally by the Commission. The programme for the environment (LIFE) is the most important programme. It co finances projects related to nature, biodiversity, environmental policy and governance, information and communication.
 Security and citizenship
The main components of this spending area are justice and home affairs, border protection, immigration and asylum policy, public health, consumer protection, culture, youth, information and dialogue with citizens.
 Global Europe
This spending area covers expenditure in the fields of foreign policy, support for EU candidate and potential candidate countries, as well as development assistance and humanitarian aid for developing and neighbouring countries (with the exception of the European Development Funds).
Expenditure is implemented in more than 150 countries, using a broad range of cooperation instruments and delivery methods. Spending is implemented directly by Commission directorates‑general, either from their headquarters in Brussels, by EU delegations in recipient countries, or jointly with international organisations.
 Administration
This spending area covers the administrative expenditure of EU institutions and other bodies. Spending on human resources (salaries, allowances and pensions), accounts for about 60% of the total. Expenditure on buildings, equipment, energy, communications and information technology covers the remainder. The results of our audits of the EU agencies and other decentralised bodies are reported in specific annual reports, which are published separately, together with a summary of the results.
* Payment appropriations
Source: General budget of the EU 2017 (28/02/2017)

16. More about budget expenditure… (not just BXL problem)
2014
March 2011

17. European Court of Auditors
2017 annual reports
Overall findings

18. 2017 annual reports - Overall findings
The European Court of Auditors gives a clean opinion on the reliability of the accounts of the European Union.
Revenue for 2017, taken as a whole, was legal and regular, as in previous years.
In 2017 – for the second year in a row – we issue a qualified opinion on payments.
Payments were legal and regular, except for cost reimbursements. A significant part of the audited expenditure – mainly entitlement payments – was not affected by a material level of error.
The estimated level of error in payments from the EU budget continues to decrease. In 2017 it was 2.4 %, down from 3.1 % in 2016 and 3.8 % in 2015.

19. Estimated level of error for the EU budget as a whole (2015 to 2017)

20. Overall findings: transactions
Entitlement payments represent about half (53%) of expenditure audited in and include:
direct aid to farmers, the largest share of spending under ‘Natural Resources: Direct support’; and
‘Administration’
Both these areas had an estimated level of error below the 2 % materiality threshold.
Other activities funded through entitlement payments are student and research fellowships and agri-environment measures.

21. Overall findings: transactions
Cost reimbursement payments include spending in the areas with the highest error rates, including the research expenditures included under ‘Competitiveness for growth and jobs’ and ‘Economic, social and territorial cohesion’.
Other activities funded by reimbursing costs are ‘Natural Resources: Rural development, market measures, the environment, climate action and fisheries’, training schemes and development aid projects.

22. 2017 expenditure audited

23. About half of 2017 expenditure is free from material error

24. Comparison between estimated levels of error for EU spending areas (2015 - 2017)
% The estimated level of error is based on quantifiable errors which we identified through our work, notably the testing of a sample of transactions. We use standard statistical techniques to draw this sample and to estimate the level of error (see Chapter 1, Annex 1.1 to the 2017 annual report).

25. 2017 annual reports
A closer look

26. Revenue: €139.7 billion
Overall, revenue‐related systems we examined were effective.
Controls for traditional own resources (mostly customs duties) in certain Member States were only partially effective.
Commission’s actions to safeguard EU revenue should be improved (in particular, checks for under-valued imports by customs).
Affected by material error No
Estimated level of error
0 %

27. Competitiveness for growth and jobs: €14.9 billion
Most of the errors are related to the reimbursement of ineligible personnel costs, direct and indirect costs declared by beneficiaries under the various research programmes.
Further improvements of the new control and assurance framework are necessary, in particular in terms of its implementation.
Affected by material error
Yes
Estimated level of error
4.2 %

28. Economic, social and territorial cohesion: € 8 billion
Weaknesses with regard to the regularity of the expenditure declared by managing authorities persist. Financial instruments contributed most to the estimated level of error, followed by ineligible costs.
There is a clear link between output objectives at operational programme and project level. However, many performance measurement systems lack result indicators.
Affected by material error
Yes
Estimated level of error
3,0 %

29. Natural resources: €56.6 billion
Agriculture: Continuous improvements in the control systems helped to keep the level of error in 2017 to below the 2 % materiality threshold.
Rural development, market measures, environment, climate action and fisheries: The main sources of error were non- compliance with eligibility conditions, the provision of inaccurate information on areas or animal numbers, and beneficiaries’ non-compliance with agri- environmental commitments.
Natural resources overall
Affected by material error
Yes
Estimated level of error
2.4 %

30. Global Europe: €8.2 billion
Our tests on transactions revealed some control weaknesses in the Commission’s systems affecting second-level procurement procedures (procurement carried out by a beneficiary), and in the reimbursement of the salaries of Resident Twinning Advisors (RTAs) seconded to EU-funded projects.

31. Administration: €9.7 billion
Our examination of systems did not reveal any significant weaknesses.
However, we found areas where there was scope for improvement in certain EU institutions and bodies.
Affected by material error No
Estimated level of error
0.5 %

32. Thank you for your attention!
Any questions?
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