1. Presentation from the ECA 26 May 2016 Gerhard Ross and Robert Markus European Court of Auditors

2. Page 2 DAS 2015 and 2016 As in the past we will (2015) and are likely to (2016) provide three specific assessments (error rates) in agriculture: -One for EAGF -One for EAFRD (incl. fisheries, environement and climate action) and -And overall for the MFF 2 heading – natural resources Approach mainly unchanged: error rates based on the testing of a statistical sample of payment transactions ECA presentation – part 1

3. Page 3 DAS 2017 Because current DAS work is resource intensive and ECA needs to ensure maximum added value it is possible that there will be only one assessment for the MFF 2 heading in AR 2017. =>what could be the medium/long term perspective for the DAS in a changing environment? ECA presentationECA presentation – part 1

4. Page 4 New enhanced role of the CBs  New Financial Regulation: requirement that CBs have to provide an opinion on the legality and regularity of the expenditure for which the reimbursement has been requested from the Commission (applicable from claim year 2014 / FY 2015)  Thus, the first opinions on L&R had to be submitted to the Commission in February 2016  The Commission may use these opinions for the assurance of Director General of DG AGRI  We will review to what extent DG AGRI can take the CB’s results into account in its 2015 annual activity report ECA presentationECA presentation – part 1

5. Page 5 Court’s on-going audit on CBs The Court started in 2016 an audit focusing on the design and monitoring of the CB work on L&R both at Commission and Member State level This work is expected to result in a special report (planned publication: April 2017) Potential next phases of this audit would focus on the implementation of the CB work on L&R, primarily through a review of the Commission’s audit approach and results in this regard ECA presentationECA presentation – part 1

6. Page 6 Longer term perspectives The Court’s current DAS assurance model largely builds on substantive testing (of a representative sample of transactions) Should the Court arrive at the conclusion that additional work of the CBs can be relied upon, the current focus on substantive testing could be reconsidered towards a single audit approach, which puts more reliance on the work of other auditors ECA presentationECA presentation – part 1

7. Page 7 Part 2 – How can we improve EU spending for RD investments? ECA Annual Report 2014: ECA presentation – part 2 “There is a strong relationship between expenditure type and levels of error”

8. Page 8 Our DAS audit work shows: Most investment projects are implemented via a cost reimbursement system For which we find the following typical errors: (a)non-compliance with private procurement rules (b) reasonableness of costs not checked (c) declared expenditure not eligible - changes in the project (d) certain categories of expenditure not eligible (e) calculation mistakes (f) sanction not applied The DAS 214 for EAFRDECA presentation – part 2

9. Page 9 Disadvantages of a cost reimbursement system 1.beneficiaries may declare higher expenditure than needed, or than approved and/or paid => risk of ineligible expenditure and errors 2.insufficient focus on achieving objectives as the payment is related to the size of the investment, not to results to be achieved 3.paying agencies (and auditors) need to carry out detailed checks, leading to high costs of control The DAS 214 for EAFRDECA presentation – part 2

10. Page 10 What is the alternative? The DAS 214 for EAFRDECA presentation – part 2 Determine: 1.Needs, objectives and results to be achieved 2.Eligible costs based on outputs/results x unit costs 3. Indicators Simplified Example 1.Increase the use of renewable energy 2. Subsidy = number of units of renewable energy produces x unit cost 3. Result indicator = units of renewable energy

11. Page 11 What is the alternative? The DAS 214 for EAFRDECA presentation – part 2

12. Page 12 The 2014-2020 legal basis Forms of grants and repayable assistance:* 1 (a) reimbursement of eligible costs actually incurred and paid (+ contributions in kind and depreciation) * 2 (b) standard scales of unit costs (c) lump sums not exceeding 100 000 euro of public contribution (d) flat-rate financing, determined by the application of a percentage to one or more defined categories of costs * 1 See Art. 67 of the CPR (Regulation (EU) No 1303/2013) for details * 2 When the project is fully implemented via public procurement, only this form can be used. The DAS 214 for EAFRDECA presentation – part 2

13. Page 13 The 2014-2020 legal basis EC - Guidance on Simplified Cost Options (a)flat-rate financing, fixed % applied to specific eligible cost category (b)standard scales of unit costs (est. in advance) x easily quantified activities/outputs/results (c) lump sums (“simplified costs”) Example: A group of farmers who have received support to cover new participation in a recognised quality scheme wants to organise a promotional activity for their products. The managing authority has calculated the cost of the activity as a lump sum (e.g. EUR 15 000 / seminar min. 50 participants). The group of farmers has to provide evidence of carrying out the activity and the number of participants (at least equal to 50). The DAS 214 for EAFRDECA presentation – part 2

14. Page 14 The 2014-2020 legal basis SCOs apply to 8 RD measures and 3 sub- measures M3 Quality schemes M4 Investments in physical assets M5 Restoring agricultural production potential M7 Basic services and village renewal M8 Investments in forest area and improvement of viability of forests M16 Cooperation M19 LEADER M20 Technical Assistance 6.3 Creation and development of non-agricultural activities 10.2 Conservation, use and development of genetic resources 15.2 Forest genetic resources These measures represent more than 45% of EAFRD funding - around 5 billion euro per year The DAS 214 for EAFRDECA presentation – part 2

15. Page 15 Advantages Simplification for beneficiaries and administration e.g. flat-rate financing: no need for supporting documents Focus on achieving policy objectives Ex-post control of achievements, not tracing every euro to individual invoices The DAS 214 for EAFRDECA presentation – part 2

16. Page 16 ECA audit? One of our priority areas for audit is “Better EU spending: focusing on priorities, efficiency and results” We are considering auditing “from cost reimbursement to entitlement and performance based payments” We would be happy to hear about your experience and successes in this area! The DAS 214 for EAFRDECA presentation – part 2

17. Thank you for your attention. Any questions? Page 17

18. Contact Details gerhard.ross@eca.europa.eu robert.markus@eca.europa.eu European Court of Auditors 12, Rue Alcide De Gasperi L-1615 Luxembourg Page 18