ISSN 1831-449X

European Court of Auditors

JOURNAL JOURNAL

SEPTEMBER
SEPTEMBRE

Cour des comptes europenne

2012
No8

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

Rdacteur en chef / Editor in Chief : Rosmarie Carotti Tl. / tel.: 00352 4398 - 45506 - e-mail : rosmarie.carotti@eca.europa.eu Mise en page, diffusion / Layout, distribution : Direction de la Prsidence - Directorate of the Presidency Photos : Reproduction interdite / Reproduction prohibited Tous les numros de notre Journal se trouvent sur les sites / The Journal can be found on : INTERNET : http://eca.europa.eu/portal/page/portal/publications/Journal EU bookshop : http://bookshop.europa.eu/
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BRIDGE FORUM DIALOGUE: WHICH ENERGY POLICY FOR EUROPE?" 2 July 2012 The speaker at this event was Gnther Oettinger, European Commissioner for Energy. Introductory remarks were made by Yves Mersch, Governor of the Luxembourg Central Bank, and Werner Hoyer, President of the European Investment Bank and Vice-President of the Bridge Forum Dialogue By Rosmarie Carotti "WE CALL THEM THE 'NON REGRET OPTIONS'" Interview with Mr GNTHER OETTINGER, European Commissioner for Energy By Rosmarie Carotti ENERGY TRANSITION IN EUROPE Presentation by Mr CLAUDE TURMES MEP from the Luxembourg Green Party, the European Parliaments negotiator with the Presidency of the Council on the Energy E ciency Directive By Rosmarie Carotti SPECIAL REPORT 3/2012 : STRUCTURAL FUNDS: DID THE COMMISSION SUCCESSFULLY DEAL WITH DEFICIENCIES IDENTIFIED IN THE MEMBER STATES' MANAGEMENT AND CONTROL SYSTEMS? Presentation by Mr. LAZAROS S. LAZAROU, reporting Member European Court of Auditors to the Committee on Budgetary Control - 9 July 2012 SPECIAL REPORT 2/2012 FINANCIAL INSTRUMENTS FOR SMEs CO-FINANCED BY THE EUROPEAN REGIONAL DEVELOPMENT FUND - Interview with Mr DENNIS WERNERUS, ECA auditor and team leader, who answers questions about Special Report 2/2012 By Rosmarie Carotti SPECIAL REPORT 7/2012 THE REFORM OF THE COMMON ORGANISATION OF THE MARKET IN WINE: PROGRESS TO DATE The ECA's Special Report 7/2012 was presented to the press by Dr HARALD WGERBAUER, Member of the Court, on 12 June. By Rosmarie Carotti SPECIAL REPORT 12/2011 HAVE EU MEASURES CONTRIBUTED TO ADAPTING THE CAPACITY OF THE FISHING FLEETS TO AVAILABLE FISHING OPPORTUNITIES? Interview with Mr COLM FRIEL, head of unit in Chamber I By Rosmarie Carotti CONSIDRATIONS GNRALES RELATIVES L'AUDIT DES SYSTMES Par Hubert Devill, auditeur principal FOCUS VISIT FROM THE VICE PRIME MINISTER AND MINISTER FOR JUSTICE, INTEGRATION AND EUROPE FROM THE STATE OF HESSE SPECIAL REPORT N10/2012 THE STRUCTURAL FUNDS = AN OPPORTUNITY FOR SICILY Conference entitled "Why invest in Sicily?" organized by the Istituto documentazione Richerche e Formazione per gli Enti Locali (ISEL) in Palermo on 30 and 31 March 2012 By Pietro Russo, Member of the Court

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Couverture/Cover: - Mr Gnther Oettinger, European Commissioner for Energy - Special Report 7/2012 The reform of the common organisation of the market in wine: Progress to date

BRIDGE FORUM DIALOGUE: WHICH ENERGY POLICY FOR EUROPE?" 2 JULY 2012
By Rosmarie Carotti The speaker at this event was Gnther Oettinger, European Commissioner for Energy since 2010. Introductory remarks were made by Yves Mersch, Governor of the Luxembourg Central Bank, and Werner Hoyer, President of the European Investment Bank and Vice-President of the Bridge Forum Dialogue

EIB Governor Yves Mersch emphasised how important energy prices are for him as a member of a central bank. They are included in indexes and can cause errors in projections of price stability. However, the issue is broader than simply of prices. Energy is also a matter of supply and demand, access, distribution and the permanence of our social model. Werner Hoyer framed the question: Which energy policy for Europe? A relevant energy strategy would make the continent less vulnerable to supply shortages, while also stimulating the creation of effective and environmentally-friendly investment and energy grids. The decisive factor would be Europes long-term role in globalisation, and whether it would succeed in maintaining and extending its technological lead. In this context, the EIB, which as banker for the EU, has gathered extensive experience with the private and public sectors. The EIB supports the 20-20-20 energy and climate protection targets and is Europes leading financier of sustainable energy projects. Its support would be strengthened further by means of the 10 billion euro that the Brussels Summit had approved on 28 June. The EIB is planning to conduct a comprehensive review of its own lending operations in the energy field. The review would include a public survey, to be launched in September. In mid-2013 the EIB will present a revision of its energy funding policy. Commissioner Oettinger described Europe as the worlds problem child, as only one third of Member States are able to boast of modest economic growth. Another third are experiencing stagnation. As a whole, Europe is in recession. He said it was possible, in economic terms, that a second decade would be lost. Europe had too little industry, but industry was the only way to obtain growth and overcome the crisis. Although some European regions had strong industrial sectors, the question was how these could be maintained. Industry was dependent on skilled and qualified engineers, materials processing, problem-solving and a desire to take the industry forward. In just ten years, the share of industry in Europe's economic output has declined from 22% to 18%. Europe needs energy if it was to remain competitive and retain stable employment. Energy is therefore becoming increasingly significant as a basis for growth, and energy costs and the security of the energy supply is more and more important.

WHICH ENERGY POLICY FOR EUROPE?"

Account being taken of all energy sources used in the EU crude oil, coal, gas, uranium and biomass Europe is currently 55% dependent on imports from non-Member States. In the next 18 years this percentage could rise to at least 70%. The reasons for this is that Europes own resources are coming to an end, the peak has been reached, and yet demand is continuing to increase. The EU therefore requires a clear European energy plan in the form of its own energy strategy, as the internal market is the largest consumer market in the world and Europe could be strong only if it pulled together. Commissioner Oettinger identified five headings or objectives for a common energy strategy. The first was energy efficiency. Some 40% of energy consumption is linked to buildings, and the recent adoption of the Energy Efficiency Guideline was significant in this respect. The Guideline sets binding measures that should result in 20% more energy efficiency over the next 20 years. Our approach to energy will change, technological innovations will help consumers to save energy, use it more intelligently and, thanks to smart metering, decide when and where to do so. The second objective was security, and in particular human safety, which led on to the topic of nuclear power. There are 140 nuclear plants in Europe. While Germany intends to abandon nuclear power by 2022, expansion is on the agenda elsewhere. Safety standards are the only common denominator, but the Lisbon Treaty makes this a matter of national responsibility. The greenhouse effect could be mitigated by reducing emissions of carbon dioxide. However, this would only work if participation were universal. Europe cannot solve global climate problems on its own. At the Rio+20 Conference, Europe was seen to be entirely isolated. Commissioner Oettinger felt that this tendency to stand apart was dangerous. Europe was able to take the lead as a pioneer of climate protection, but it is responsible for just 15% of all CO2 emissions. Two countries, the USA and China, are responsible for 45%. It was necessary to be realistic when countries like China openly put economic concerns first. Europe must reassess its carbon policy and show itself to be rather more flexible. An energy strategy would bring security of supply. Very few people still recalled the supply crisis of the 1970s, in response to which Europe adopted legislation compelling the Member States to retain 90 days oil reserves. In 2009 there were gas shortages, leading to adoption of the Gas Directive, which obliges the Member States, from 2018, to store sufficient gas for 30 days in pipelines and reservoirs. The provisions of the Directive are currently being implemented. In the immediate future, the EU is planning concrete measures to guarantee the gas supply. Commissioner Oettinger welcomed the decision by the Shah Deniz consortium in Azerbaijan to favour the Nabucco West pipeline. This brings Europe nearer to its target of pumping gas direct from Azerbaijan and other Caspian States from 2018, whatever the final decision on the overall route of the pipeline to Europe from eastern Turkey. This is a success for Europe and marks a step towards security of supply. In future, electrical power will be the measure of all things. At present, 80% of all European trains are powered by electricity, and industry is increasingly using electricity at all times of day and night, whether generated using biomass, coal or nuclear power. However, electricity can not be stored. Europe is therefore banking on the further expansion of renewables, but after careful reflection, in order to ensure that the supply remains guaranteed around the clock. The final component was that of pricing, which varies enormously all over the world. The most expensive energy is in Japan. Companies investing in Qatar were gifted land and 20 years energy free of charge. The USA has been able to slash oil imports by focusing on deep-sea drilling and oil sands and shale, which bring environmental challenges. It has cut taxes, making it very advantageous to invest there. In Germany, however, as shale oil and fracking are forbidden for environmental reasons, the price of gas is linked to that of oil, and talk of new taxes is an almost daily occurrence. Another advantage for the USA is the electricity price. In Europe this is dangerously high, which means an ongoing debate about the affordability of electricity. Commissioner Oettinger suggested that a core volume of electricity could be supplied free of charge, since the European energy strategy must be able to prevent ideology from forcing European industry to relocate abroad for economic reasons.

"WE CALL THEM THE 'NON REGRET OPTIONS'"

Interview with Mr Gnther OETTINGER, European Commissioner for Energy
By Rosmarie Carotti
R. C.: Mr Oettinger, let us start off by talking about the internal market. You have indicated that you have been working together with Commissioner Joaqun Almunia, the European Commission's Vice-President for Competition. Can you be more specific? Commissioner Oettinger: Two big internal market packages are being implemented; these impose various requirements on Member States. For example, they must ensure that energy production, distribution and networks are properly separated, and that third parties can also access gas and electricity infrastructure. We are currently implementing a range of measures including proceedings against Member States to ensure that the implementation of the packages cannot be delayed. In addition to this, we are currently working on a communication on the subject of the internal market which is scheduled for release in October. In the communication, we will outline strengths and weaknesses and provide information about the next and final steps to be taken. We have clear support in this: the European Council has instructed the Commission to do everything possible to complete the internal market by the end of 2014. We still have two years left, and we intend to make full use of them. R. C.: You mention 2014, and in your presentation you talked about your plans for the next ten years. But what are your ideas for the period up to 2050? Commissioner Oettinger: We have our Energy Roadmap 2050. Of course it is difficult to make plans so far into the future, but there are a few options we call them the "non-regret options" which we will definitely be taking up. First, we need a genuinely pan-European system of energy infrastructure in the form of networks and pipelines. Investing in networks and pipelines is definitely the right thing to do. Second, the proportion of energy produced from renewable sources could increase and it should. However, the measures we take to achieve this should be targeted and appropriate. Third, we are trying to achieve the objective of making the energy market CO2 neutral. Whether this involves producing energy from renewable sources in one country, or using nuclear power in another country, or even using the ECTS (European Credit Transfer and Accumulation System) when buying energy produced from gas and coal from non-EU countries is a matter for Member States to decide. What I definitely want to achieve is a year-onyear reduction in the CO2 emissions caused by energy production in the next few years, leading to the energy market being largely CO2 neutral in the 2020-2050 period. R. C.: My next question is about distribution networks. Should energy be produced at one place and distributed through a large network, or should energy production be promoted at local level, thus ensuring a certain level of energy independence? Commissioner Oettinger: This is often seen as case of either/or. Either centralised or decentralised production, either at local or at European level. In response to this, I would say that both are needed. We need more decentralised energy by which I mean more decentralised electricity production. We need small solutions as well as large ones, and we need to transport electricity which is produced decentrally into larger cities. But the real demand for electricity comes from industry, which requires energy in huge quantities. These quantities of energy cannot be produced decentrally. We need both centralised and decentralised production, and to reflect this we are trying to move away from the argument about whether one or the other is the best way forward. R. C.: Energy is traded on the stock market, and it is not in large companies' interests if supply is too abundant. How do you intend to deal with this problem? Commissioner Oettinger: By implementing our internal market packages and bringing about more competition and more transparency. Of course companies have their own interests. For example, it wouldn't be in Volkswagen's interest if lots of new car producers entered the market. But in spite of this, competition in the car industry is flourishing. I believe that we are making good progress in our efforts to empower consumers, and I also believe that the quantity of energy being produced is sufficient. Companies, including large ones, are competing with each other as well. Even in a market with a few large suppliers, it is possible to promote competition and strengthen the rights of consumers.

ENERGY TRANSITION IN EUROPE

Presentation by Mr Claude TURMES MEP from the Luxembourg Green Party, the European Parliaments negotiator with the Presidency of the Council on the Energy E ciency Directive - Luxembourg, 14 June 2012 By Rosmarie Carotti

From left to right: Mr Georges Bingen (Representative of the Commission in Luxembourg), Mr Claude Turmes MEP, Mr Klaus Werner (President, Luxembourg German Association), Mr Joachim Schemel (German Embassy in Luxembourg)

The event was organised by the German Association in Luxembourg and chaired by its President, Klaus Werner, formerly at the European Court of Auditors, who made some introductory remarks. He thanked the Embassy of the Federal Republic of Germany, through its representative, Mr Joachim Schemel, for attending the event. The two agreed that a reliable, economic and environmentallyfriendly energy supply was one of the 21st centurys greatest challenges. In the aftermath of the Fukushima accident, which had previously been inconceivable in a country like Japan, Germany had reconsidered the role of nuclear energy and resolved to withdraw altogether from nuclear power generation by the end of 2022. Mr Schemel explained that the German governments energy strategy also foresaw a 40% reduction in greenhouse gases by 2020 and a reduction of at least 80% by 2050. The share taken by renewable energies was to be increased to 60% by 2050, when they would be responsible for 80% of the electricity used. Steps were being taken simultaneously to make lasting reductions in energy use. By 2050, primary energy consumption should be 50% lower than in 2008. To achieve this, it would be necessary to increase energy productivity by an average of 2.1% per year in relation to final consumption. Electricity consumption should fall by 25% between 2008 and 2050, with a 10% reduction as early as 2020. Meanwhile, the buildings renovation rate should double, from the present figure of around 1% of all buildings to 2%. In the transport sector, final energy consumption is expected to fall by approximately 40% in 2050 compared with 2005. The evenings presentation could not have been arranged at a better time. The guest speaker was Claude Turmes MEP, the European Parliament rapporteur on the new Energy Efficiency Directive. It was only the previous night that the Parliament and the Danish Presidency of the Council had reached an agreement on the new Directive. The EUs aim is to make greater energy savings in the future. In concrete terms, the parties to the agreement had committed to a 20% reduction in energy consumption by 2020. This would have serious implications for markets and the energy companies, which had profited in the past from the expansion of production and would now have to cut production by streamlining their systems.

ENERGY TRANSITION IN EUROPE

Without energy there could be no development. Yet there was also only one Earth, the population of which is expected to grow to 8.9 billion by 2050. This was why the theme of renewable energy is so sensitive. Some 40% of all energy consumption is due to buildings. Oil is running out, and the North Sea fields have already passed their production peak. Countries such as Italy, Greece, Spain and Portugal are particularly dependent on oil and gas imports, and even the UK is increasingly a net importer. Since the 1990s, the EU has subscribed to a very active energy policy with the aim of replacing conventional with renewable energy sources. The cornerstone of the new energy strategy is an increase in energy efficiency by focusing on new environmentally-acceptable forms of supply. The markets and energy companies, which have hitherto been concerned only with profit, will have to adapt. In 2007 the Heads of State and Government set the 2020 targets. In 2011, the Commission presented its proposal for a Directive. The Greens submitted their report to Parliament the same year, and Parliament voted on it in February 2012. The current aim is for the Member States to adopt binding rules in 2014. In contrast to Energy Commissioner Gnther Oettinger, who was calling for an EU vote on national renewable energy support schemes to promote the intensification of trade in wind and solar energy among the Member States, Mr Turmes believed the future lay more in a greater energy mix. Another policy challenge will be to limit costs effectively. There are many models of renewable energy, from biofuels to photovoltaic and wind energy. Technologically, virtually anything is feasible these days, from expanding the grid and laying undersea cables to new forms of storage. There is already talk of a project to lay cables from Greece to Milan within the next two or three years. Photovoltaic energy was an offshoot of the Apollo space programme and is continuously being refined. The crucial concern is the relations with the market, as prices are determined by the exchanges. The EU has next to no influence on energy prices. Excessive volumes of new energy production would cause prices to fall and thus affect the economics of the system. Mr Turmes said that Luxembourg has both Europes highest per capita CO2 consumption levels and its lowest energy prices. It is using a cheque-book policy to fulfil its Kyoto commitments. Luxembourg is lagging behind with efficiency measures, although it has recently introduced the B standard for new buildings. Mr Turmes also raised the problem of the cut in solar power subsidies. In Germany in particular, many people have now realised that German solar technology using German machinery was being mass-produced on a larger scale, and more cheaply, by Chinese firms, and that German panel manufacturers were no longer able to keep up. This fuelled fears and added to the debate about how to guarantee that German expertise was not usurped. Mr Turmes said nonetheless that there was no need to panic. The development of renewable energy sources creates employment, and in future there would be more jobs in the renewable than in the conventional sector. Skilled production and local installation engineers would always be in demand.

SPECIAL REPORT 3/2012 : STRUCTURAL FUNDS: DID THE COMMISSION SUCCESSFULLY DEAL WITH DEFICIENCIES IDENTIFIED IN THE MEMBER STATES' MANAGEMENT AND CONTROL SYSTEMS?
Presentation by Mr. Lazaros S. LAZAROU, reporting Member European Court of Auditors to the Committee on Budgetary Control - 9 July 2012

Honourable Chairman and Members of the Committee on Budgetary Control, it is my pleasure to present to you the European Court of Auditors Special Report No 3/2012, an assessment as to whether the Commission has successfully dealt with deficiencies identified in the Member States management and control systems with regards to Structural Funds. On behalf of myself and my team, I take this opportunity to thank the Rapporteur, Mr Geier, and his team for our cooperation. The draft report prepared by the Rapporteur presents a full synthesis of the Courts Special Report which gives me the opportunity to be brief in my presentation. The audit showed that the Commission deployed considerable efforts to ensure the effectiveness in the management and control systems in the Member States for the 2000-2006 period. The Commission requested many corrections to protect the financial interests of the European citizens and, in many cases the Member States were able to substitute the ineligible expenditure withdrawn. The efforts to clear the way for a smooth closure process did not fully pay off as further issues need to be followed up and additional financial corrections will be required. Further endeavours by the Commission and the Member States are required to stabilise the systems at a good quality level for the 2007-2013 period. The Court's audit did not cover the closure process, as this is currently ongoing. Since the assurance obtained by the Commission during the programming period was not sufficient in all cases where deficiencies had been identified, it is the closure process that will have to serve as a safety net. The audit pointed out a number of challenges that the Commission will be facing. While closure audits are planned for a limited number of cases, the Commission will have to place reliance on the information in the winding-up declaration and further information provided at its request. This hampers the position of the Commission as experience indicates that the statements, declarations and commitments by MS authorities are not always accurate. Another challenge relates to the correct assessment of the final error rate on a programme as presented by the winding-up authority. Should this error rate exceed the materiality threshold of 2%, then financial corrections will be required on the basis of extrapolation of the error rate. Although further corrections will be decided for a number of programmes at closure, Member States can replace the expenditure previously found ineligible. This is possible because Member States can declare expenditure over and above the budget allocated and thus have a buffer to replace ineligible expenditure. The Court recommended for the budgetary authorities to reconsider whether any changes should be made to the arrangements regarding the possibilities for substitution of expenditure found to be ineligible in order to enhance the added value of European funds. Considering the difficult financial situation of some Member States and the general application of austerity measures, it is important to draw the right line between dissuasive measures and support for development and cohesion.

SPECIAL REPORT 3/2012: STRUCTURAL FUNDS: DID THE COMMISSION SUCCESSFULLY DEAL WITH DEFICIENCIES IDENTIFIED IN THE MEMBER STATES' MANAGEMENT AND CONTROL SYSTEMS?

In such a moment of crisis, it is even more so in the interest of the Member States to have well functioning systems that ensure legality and regularity of transactions as well as achievement of value for money. Indeed, firstly Structural Funds always involve co-financing from public or private resources in the Member States. Hence, their interest is at stake as well. Secondly, in case certain expenditure is not considered eligible by the Commission and is thus disallowed, it is to be covered by national or regional public money. The national taxpayer is concerned in any case and therefore legality and regularity and value for money should always be aimed at. The Rapporteur also refers to the concept of "single audit". The Structural Funds Regulations themselves do foresee a number of control layers which are mainly the first level checks to be carried out by the managing authorities or under their authority, and the second level checks to be carried out by the audit authorities. A major improvement introduced by the Regulation for the 2007-2013 period is the requirement for the audit authorities to produce annual error rates on the basis of a statistically representative sample. Statistical representativity means that extrapolation of results is possible. That's why these second level checks are now the main building block for the Commission's assurance. As the Rapporteur points out, if and only if these audit authorities produce reliable results, then even in the case of a high error rate, the Commission will be in a position to ensure legality and regularity by applying financial corrections on the basis of this error rate. Finally, with the significant strengthening of the second level checks the current architecture of control layers in the Structural Funds might be reconsidered.

SPECIAL REPORT 2/2012 FINANCIAL INSTRUMENTS FOR SMEs CO-FINANCED BY THE EUROPEAN REGIONAL DEVELOPMENT FUND
By Rosmarie Carotti
In the framework of the ECA's professional training programme, Mr Emmanuel Rauch, Head of unit in Chamber II, and Mr Dennis Wernerus, auditor, presented lessons learnt from Special Report Nr 2/2012. Dr Harald Noack, reporting Member of the Court described the history and background of the report and the ECAs contribution. Mr Dennis Wernerus, team leader, gave the detailed presentation on which the questions put to him in the interview overleaf are based. Dr. Noack reported that the ECA has raised awareness in the Commission that the regulations used for traditional instruments do not fit the purpose of the new financial instruments. While the public sector normally knows financial instruments as grants only, grants are not considered financial instruments in the private and banking sector, as they are money spent and not paid back. Only more recently did those responsible for public spending have the idea to use funds for special purposes like venture capital financing, for example in the ERDF area. The ECA considers this switch a good approach, but as the application of modern financial instruments is not the normal job of a European or national civil servant, the EU regulations and their implementation need to be adapted. Also, as there is nearly no practice in this field within the public sector, the ECA thought it would be good to audit what the Commission did with the new instruments. Financial instruments bear risks. Spending money with new modern financial instruments means accepting risk and learning to manage risk. Benchmarking is an important aspect. Financial market actors, the financial industry, use standardisation to produce at lower cost and reach better results and strive for leverage, which means to spend one euro but reaching an economic effect which goes beyond this one euro. At EU level, leverage should not have the effect that other public participants spend further public money, but foster public-private partnerships, a view which was not shared by DG REGIO. Europe has to learn from revolving funds, which have existed since the end of World War II, and the income of which remains available to finance continuing operations. Special report 2/2012 also served as part for the Courts opinion on the new rules governing cohesion spending for 2014-2020.

INTERVIEW WITH MR DENNIS WERNERUS, ECA AUDITOR AND TEAM LEADER, WHO ANSWERS QUESTIONS ABOUT SPECIAL REPORT 2/2012
By Rosmarie Carotti
R. C.: Why do we talk about new instruments? Guarantees and loans, equities are not new. Dennis Wernerus: It depends how you define new. Loans, equities and guarantees are by definition not new. However, under the EU Structural Funds, which have been designed for grants, the use of financial instruments is much more recent. It is new to the management culture of ERDF and it is new for many Member States. Apart from Portugal and the UK, which already started in 1994, all the other Member States only began in 2000-2006 using financial instruments for co-financing under the ERDF. These financial instruments are also called new because DG REGIO considers that with the new regulation - the new package that will be approved for 2014-2020 - there will be the so-called innovative instruments which will be more regulated and more standardised as compared to the instruments we have now. R. C.: The special report criticises the ERDFs territorial approach. For its implementation, the 27 Member States have been divided into 271 statistically defined regions, i.e. usually at the level of NUTS2. Dennis Wernerus: You are right. One of the conclusions of the report is that if you want to have an efficient financial instruments fund, you need to have sufficient critical mass. This is why I asked for the picture to be taken with the Commissions map, to show one of the basic problems of ERDF. The regions are based on macroeconomic and other criteria.

"The obligation for fund managers to comply with NUTS-2 or thematic constraints prevents the development of funds with sufcient critical mass"

For physical infrastructure projects, this is not a problem in principle, but it is a real problem for financial instruments for SMEs. When financial institutions or funds work at national or at international level, they do not cut a country in many regions or according to a wide range of exclusive socio-economic objectives. The fact of the matter is that there is rarely sufficient money to fund projects over many years (revolving) for a large number of SMEs through a specific financial instrument.

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INTERVIEW WITH MR DENNIS WERNERUS, ECA AUDITOR AND TEAM LEADER, WHO ANSWERS QUESTIONS ABOUT SR 2/2012

R. C.: Is this splitting into regions the continuing consequence of the old set up of structural funds? Dennis Wernerus: Yes it is. The Member States do not wish to break with the past, where they decide at which level they want to implement the structural funds. However, some of them have found ways of improving the framework for financial instruments. For Member States corresponding to one NUTS region, which is the case of Estonia, Latvia and Lithuania, implementation can be made more effectively and more efficiently. In the case of Portugal, which is divided in NUTS-2 regions, the simple solution was to earmark one priority axis of a single operational programme only to financial instruments and not mixing them up with grants. Also, not only the regional, but also the ERDF thematic split-up is a problem, because financial instruments for SMEs are actually one big theme, different from, say, Environment or ICT. R. C.: I think the difficulty already starts when having to identify the spending in the EU budget. Dennis Wernerus: From an audit point of view, there is indeed a big constraint for us auditors at Chamber II, because we need to select our audit scope in such a way that we actually address real spending. This can only be found out by digging through many operational programmes of a large range of Member States. In any case, it develops your language skills as an auditor. R. C.: Do you have full access to all the areas where a project might be found at the Commission? Dennis Wernerus: We do not have a problem in terms of accessing documentation, but as ERDF is under shared management most of the documentation is actually at Member State level. Auditors systematically need to obtain access from the Member States and cannot simply obtain documentation via the Commission. R. C.: What are, in your mind, the greatest shortcomings in the existing system? How can ECAs work contribute to overcome them? Dennis Wernerus: The first shortcoming is the absolute non-requirement to assess the need for financial instruments and hence, in practice, the absence of gap assessments for SME finance, in the meaning of either the OECD, or the ECA. The Commission has tried to develop the good practice of the gap assessment on a voluntary basis, but it failed in the sense that the quality of the gap assessments was not very good. In many cases the gap assessment did not take place at all, in other cases it was very good, but arrived after the operational programme had been approved. For the next programming period, the Commission and the Council understood that and the idea is that for the next generation of Structural Funds, there will be the requirement to conduct an exante assessment specific to financial instruments. I do not think that the Commission would have enshrined this obligation in the proposed regulation without the work of the ECA. We hope that what we have identified in the report will contribute to develop a good standard. We have identified one case of good practice, which was seldom copied and co-financed by the Commission, the gap assessment for Sweden. I am confident that it will be used as a template in the future. However, the Commission still has to specify what should be included in the SME gap assessments in the future and this by delegated act.

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INTERVIEW WITH MR DENNIS WERNERUS, ECA AUDITOR AND TEAM LEADER, WHO ANSWERS QUESTIONS ABOUT SR 2/2012
R. C.: We are talking about a proposal. At which stage is it? Dennis Wernerus: As we speak, the Commission and the Council are still negotiating parts of this future regulation. There is a compromise text on financial instruments from the Council, which takes stock of part of the SR 2/12 recommendations. Also, the Courts Opinion 7/11, which should be read in parallel with this special report, is important. I am particularly thankful to the Directorate of Chamber II, who asked me to contribute to the part of the Opinion dealing with financial instruments. This allowed the work to be successfully coordinated with the draft conclusions articulated in the special report and vice-versa. R. C.: Lets go back to the breaking down of the conclusions in shortcomings and solutions strived for by the Commission. Dennis Wernerus: The second shortcoming is the ERDF framework. In the Structural Funds regulations there is not a chapter, nor a title specific to financial instruments. There is secondary legislation in the form of Commission regulations and, since 2007, in the form of the so-called COCOF interpretative notes. These define and clarify the points which are not in the Structural Funds regulations; and there are plenty of them important ones. When writing the special report and opinion 7/11, the ECA identified issues which were either not identified at all, or improperly, namely leverage and revolving. At the moment there are no minimum requirements for recycling funds or achieving leverage. The concept of leverage or, as the Commission calls it, the multiplier effect, was neither used during the 2000-2006 programming period, nor during the 2007-20013 period, until the ECA first mentioned it. As Dr. Noack, the reporting member, has stressed many times, leverage is important to raise additional private finance and needs to be measured as one of the criteria of success. At the very beginning, the Commission did not seem to be troubled by achieving leverage with financial instruments for SMEs. DG REGIO was quite happy to see the Structural Funds being used by the Member States and did not want to lose out of sight developmental criteria. In contrast the ECA thought that the needs of the SMEs and the characteristics of the financial instruments were more important. The communication Financial Instruments in Cohesion Policy, a new policy statement prepared by DG REGIO and presented to the CONT Committee on 20 March, refers to the need for further guidance and support structures, regulatory changes, ex-ante assessments and critical mass all points addressed in SR 2/12 but remains weak on leverage. R. C.: Where does all the money for financial instruments, for venture capital, come from? There is, in parallel, the activity of the EIB. Do the two do the same thing but completely separately? Dennis Wernerus: This is one of our criticisms. We propose to use more off-the-shelf instruments, not to re-invent the wheel. If something works, you mentioned the EIB, why reproduce something with complex new structures? This can be seen as problem number three. The practical solution is to learn from the instruments which have proven their merits (including in terms of leverage and revolving funds). SR 2/12 has identified some examples of existing structures, some of which can be extended to any Member State. The Commission has now proposed such change for the future programming period. However; a trap that still needs to be avoided is that managing authorities commit an unjustified amount of money to a holding fund which only needs to be de-committed when the programming period is over. A case concerning Sardinia is described in the ECAs special report, but similar cases

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INTERVIEW WITH MR DENNIS WERNERUS, ECA AUDITOR AND TEAM LEADER, WHO ANSWERS QUESTIONS ABOUT SR 2/2012
are reported from Andalucia and elsewhere also. In all these cases there was no gap assessment or it came too late or was not relevant. R. C.: The last point is working capital. Dennis Wernerus: Working capital is a subject which is very fashionable, because SMEs need working capital, especially in times of crisis, when suppliers demand faster payment and clients pay slower. Moreover, it is very difficult to get working capital when the banking sector is in difficulty. Traditionally, the Commission has been against ERDF cofinancing working capital, because under State aid rules, one has to demonstrate that a working capital scheme is actually compatible with the internal market rules. Aid to firms in difficulty is considered not to be compatible with the internal market. The first problem is how to prove that an SME which asks for working capital is not in difficulty. The second problem is that a Member State can notify the aid, in the form of working capital, provided that this working capital will be given to SMEs associated with an expansion plan. Hence, each applicant SME needs to demonstrate to its banker that the aid is there to create jobs, to expand the firm, a difficult thing to do. What makes it even more complicated in the case of ERDF is that the actual expansion must be in an eligible ERDF region. All these complications made that working capital has traditionally been frowned upon. This has led financial intermediaries in countries like Lithuania and Hungary to say that they would not apply ERDF co-financed working capital. There is now an ongoing discussion. The ECAs report did not say working capital should either be banned or accepted but only called for clarifying the rules. R. C.: To conclude, were there other elements in the ECAs report which you want to mention? Dennis Wernerus: The special report also denounces the significant delays in implementing financial instruments. It took sometimes up to 3-5 years to get funding channelled from the operational programmes down to the SMEs. With the Structural Funds, as opposed to programmes under centralised management, there are managing authorities who delegate to an intermediary body, who in turn often delegates further down and eventually there is a financial intermediary who is the beneficiary in the framework of the ERDF. This causes the delay and the Commission justifies it because of their closeness to the regions. By contrast, managing authorities do not exist under centralised management. Important is that the financial intermediary is close to the region and for the SME to be located in that region.

13

SPECIAL REPORT NO 7/2012 THE REFORM OF THE COMMON ORGANISATION OF THE MARKET IN WINE: PROGRESS TO DATE
By Rosmarie Carotti
The ECA's Special Report 7/2012 was presented to the press by Dr HARALD WGERBAUER, Member of the Court, on 12 June. With a market share of 60 %, the EU is the world's largest producer of wine. For many decades, the main problem within the market has been the continuous lack of balance between production and consumption. Since the principal measures of the new wine market regulations were introduced in 2008 namely, the grubbing-up and restructuring of vineyards EU wine production has decreased from its 2007/08 level of 160 million hectolitres to 157 million hectolitres in 2010/11. Demand for wine is falling continuously in Europe and it is in large producer countries such as France, Spain and Italy that levels of wine consumption are diminishing fastest. It is true that consumption levels are growing in some states; however, these enhanced levels of demand are increasingly being met by imports from non-EU countries. This means that the EU has problems with the international competitiveness of the wine that it produces. In 2005, the EU's wine surplus amounted to 14.5 million hectolitres 8.5 % of total production. If wine sent for distillation is taken into account, the surplus rises to 18.5 million hectolitres. In 2008, the EU's new wine market regulations set out a framework for funding at a level of 1.4 billion per year. The two most important measures included in the regulations were the grubbing-up premium and the premium for restructuring vineyards. The grubbing-up premium had already existed prior to 2008; from 2008 onwards, however, the eligibility requirements for the premium were changed, enabling all growers to apply for funding. This change was a great success. The premium was increased by 20 % in the first year, and by 10 % in the second. In the third year, it was maintained at the same level. Over the three years that the measure lasted, the volume of applications greatly exceeded the amount of funding available. This was, of course, a sign of success, although it may be the case that if the premium had been set at a lower level, more applications could have been approved. The funding which was made available over the three years of the measure amounted to 1.1 billion. However, the EU's wine surplus did not decrease by as much as had been expected. Demand for the grubbing-up measure came to 350 000 hectares, but the level of funds available only allowed 160 550 hectares of vineyards to be grubbed up. The goal of the measure was to reduce production levels by 18.5 million hectolitres. However, this goal was not achieved: production levels fell by only 10.2 million hectolitres, or 6 %. Restructuring and converting vineyards was also not a new measure. Between 2001 and 2010, 4.2 billion 420 million per year, which represents almost 32 % of the funds spent in the context of the new wine market regulations was spent on this measure. The goal of this measure was to improve competitiveness by carrying out varietal conversion, relocating vineyards and improving vineyard management techniques. A payment to compensate producers for revenue lost during the implementation of the measure was also included, as well as a contribution to cover the costs of restructuring and conversion. The effects of the measure have been noticeable. In the last ten years, for example, 16 % of vine-growing land in Castilla-La Mancha has been restructured with EU funding. In LanguedocRoussillon, 21 % of wine-growing land was restructured with funding from the EU.

14

SPECIAL REPORT NO 7/2012 THE REFORM OF THE COMMON ORGANISATION OF THE MARKET IN WINE: PROGRESS TO DATE

However, these successes have been accompanied by a problem: it has proved impossible to achieve the objective of balancing supply and demand. In Spain, vineyard yields increased by 15 million hectolitres as a result of the measures; this amount was 30 % higher than the decrease in yield caused by grubbing-up. Of course, this was not universally the case. In Italy and France, for example, the restructuring measures did not lead to such large increases in productivity. In Italy and France, productivity was already at a higher level than in Spain; Spain needed to catch up. However, certain indicators suggest that increases in productivity have also occurred in other countries, which could work against the goal of achieving balance between supply and demand. An analysis of harvest areas, and of the useable crops produced by them, shows that some Member States have the potential to increase their production levels significantly. This is something which should be taken into account when the wine market regulations are updated, as the ECA recommended to the Commission. In conclusion, the problem of the surplus will become even more substantial in the future if more potential outlets are not found for the increased levels of wine production brought about by restructuring measures. The decrease in total wine consumption in the EU in the last two years was a continuation of falling consumption levels over the last 20 years. This means that promoting the exportation of wine is a sensible course of action. The amount of wine exported in the last two years has increased, and stocks of wine have decreased slightly. However, wine production and wine exports to nonEU countries are also influenced by other factors: the weather influences production volumes and quality, and international competitiveness also depends on exchange rates, as well as the competitiveness of non-Member States. The report concludes that the Commission should establish an estimate of the balance between supply and demand in the wine sector based on updated data, including the planned liberalisation of planting rights, and determine whether and if so, which measures are necessary to address possible imbalances. To achieve the most important aim of reforming the wine market regulations that is, balancing supply and demand Europe needs to apply an appropriate combination of measures, principally to address the countervailing effects of grubbing-up and restructuring.

From left to right: Davide Lingua, Head of Unit, Dr Harald Wgerbauer, Member of the Court, Jol Costantzer, Head of Private Office and Cline Ollier, team leader

15

SPECIAL REPORT 12/2011 HAVE EU MEASURES CONTRIBUTED TO ADAPTING THE CAPACITY OF THE FISHING FLEETS TO AVAILABLE FISHING OPPORTUNITIES?
Interview with Mr Colm FRIEL, head of unit in Chamber I, NR6, Fisheries, environment, health who presented this report to the personnel of the ECA on 5 July. The European Fisheries Fund (EFF) provides 4.3 billion for the 200713 programming period to support the Common Fisheries Policy (CFP). Measures funded by the EFF are set out in operational programmes, which are prepared by Member States and approved by the Commission. Available Funding includes 1.2 billion to adapt shing eets, including co- nancing vessel decommissioning schemes provided that Member States prepare shing e ort adjustment plans (FEAPs).
By Rosmarie Carotti

Mr Colm FRIELS, head of unit

R. C.: To which period does your report refer and does it include shing agreements of the EU with third countries? Colm Friel: Our report refers to the CFP (Common Fishery Policy) for the 2007-2013 programming period and relates to the European Fishery Fund (EFF) which actually does not provide a funding for the shery partnership agreements with third countries. R. C.: What were the reasons for doing the audit and when did it start? Colm Friel: We did most of the missions in 2010 and we audited the projects nanced by the Commission between 2007 and 2010. There were a few main reasons for doing the audit. ECAs last special report 2/2007 on sheries dealt with control systems. That does not deal with funding, but in that report the ECA identi ed the main risk for the common shing policy - overcapacity of the shing eet. We also knew that the Commission was in the process of preparing its proposals for a reform for the next programming period which would come into e ect from 2013. We knew that if we could produce a special report published in 2012, we would still be in time to in uence Parliaments and Councils discussions. The contradictory procedure took place in September 2011and we published our report in November. It was the perfect time. In the summer 2011, the Commission published its proposals without acknowledging our work, but in fact even now the Council and Parliament are still negotiating the reform. The Parliament was eagerly awaiting our report because they already had the Commissions proposals from the summer. When it was nally discussed in Parliament in December 2011 we got a lot of attention, because Parliament and Council had just started to examine the Commissions proposals. R. C.: Please list the recommendations made in our special report which were incorporated into the proposal for the new programming period. Colm Friel: We had two main blocks of recommendations; one was about the policy framework where we identi ed various weaknesses. A key point was that shing capacity and overcapacity are not de ned. Second, the mechanism that the Commission has to control capacity has not been e ective. We say it is a big problem because the limits set out in the regulations are ine ective; they dont change Member States behaviour. And then we raised an important issue which is that the CFP sends out contradictory, con icting signals about shing rights. In fact, the seas are open and you catch what you can before somebody else does.

16

SPECIAL REPORT 12/2011 HAVE EU MEASURES CONTRIBUTED TO ADAPTING THE CAPACITYOF THE FISHING FLEETS TO AVAILABLE FISHING OPPORTUNITIES?
This creates a huge risk. If you have a big boat you catch as much as you can before somebody else does, no matter what the quota is. R. C.: Are there general quotas for sh catch or general quotas for countries? Colm Friel: There are general quotas for sh you can catch and then the Council divides up the total quota between the countries. But the Council always assigns a higher quota then the Commission proposals and the Commission always proposes a higher quota then recommended by the scientists. And the shermen always catch more than the quota. They are then obliged to throw away much of what they catch because they can only land what they have a quota for. If a sherman has caught, lets say, 30 tons of cod and sees afterwards really nice cod, he throws away the cod already caught. A shermans quota is often much higher than his catch, but he cannot do anything with it. Some countries let the sherman sell his quota. This is a national decision and is not part of the common sheries policy. This creates strange e ects. Take for example the aid for scrapping vessels. If a Danish sherman gets aid to scrap his vessel he is allowed to also sell his quota. It probably makes economic sense that he can sell his quota, but because there are di erent practices between the states, this is not fair. The Commission and the Parliament think that this creates some kind of tension and in its proposal the Commission says that the transfer of quotas should be an option for the Member States. In our report we dont say this option should or should not be used, but we say that there should be rules on it at the EU level. We talk about an enormous change because the sherman would be given a right which is worth something, something to pass on, to trade. There should be a common policy. It should be well understood what is allowed and what is not, because one part of the common sheries policy says that you cannot transfer shing rights when you get public aid for scrapping, while elsewhere it says that in some circumstances this is possible. The Commission recognises in theory that by paying shermen to scrap their boats, shermen would just take the money and only scrap their old boats. Technology has increased so much in recent years, that the fact to de ne shing capacity in terms of tons and power does not really re ect the ability to catch sh. Even though the tons and the power are going down, the ability to catch sh is going up. So the Commission and many Member States decided that it does not make any sense to give money to scrap boats because it does not have an impact on the ability to catch sh. R. C.: These were all remarks made by ECA? Colm Friel: Yes, these are our remarks. We also recommended that there should be better selection criteria, because we saw cases where the EU was spending money for boats that were scrapped or for boats for shing sh which are endangered. The Commission in its proposal did not decide to target the scrapping better, it abolished it. This proposal is now under discussion. The Council has presented their rst draft proposal watering the Commissions text down a lot, and Parliament is looking at it, but they have not yet voted, because for the rst time this falls under co-decision. The co-decision should be still this year, it should not be complicated. For sheries there is a 12 mile limit within which the Member States can restrict shing to their own boats. Out to 200 miles, the economic zone, the shing opportunities are shared by the EU countries and the Council decides on the quotas.

17

SPECIAL REPORT 12/2011 HAVE EU MEASURES CONTRIBUTED TO ADAPTING THE CAPACITYOF THE FISHING FLEETS TO AVAILABLE FISHING OPPORTUNITIES?

R. C.: Who controls outside the 12 miles? Colm Friel: The Member States control within the 200 mile zone but in Vigo there is the European Fisheries Control Agency (EFCA). They coordinate. We also visited the Agency, but they had no responsibility for this audit. We also visited the main scienti c body in Esbjerg, in Denmark, which provides advice to the Commission. We also visited Norway, not only to benchmark best practices, but to see how they manage their eet, which they manage in a totally di erent way. They do not give aid for modernisation or scrapping and have transferrable shing quotas, more or less the same system the Commission is proposing. R. C.: Which countries are directly concerned by ECAs report? Colm Friel: We visited Denmark, Spain, France, Italy, Poland, Portugal and the United Kingdom. They were selected on the basis of the size of their shing eets and the resources available for adapting their shing eets under the EFF. To visit all the seafaring countries would have cost too much and taken too long. The countries we chose represented about of total catch in the eet. Our conclusions were accepted by the Commission. We had, in fact, a very easy time with the Commission, but we had a more di cult time in Parliament, because the MPs have their own speci c views and this is the rst time that common sheries policy is under co-decision procedure. Many in Parliament did not like the Commissions proposals to abolish scrapping aid and to introduce transferrable shing quotas. They misread our report, deliberately or not, to assume that we were recommending introducing transferrable shing quotas. Mr Lazarou, the responsible Member of the ECA was invited to the sheries committee of Parliament twice to explain the Courts report.

18

CONSIDRATIONS GNRALES RELATIVES L'AUDIT DES SYSTMES

Par Hubert Devill, auditeur principal

La notion de systme est souvent invoque en audit, notamment au travers des concepts de systme de contrle interne ou de systme d'information . L'objet du prsent article est de formuler quelques dfinitions et propositions gnrales relatives l'audit des systmes en tant que tels. Le principe dun audit
M. Hubert Devill

De faon schmatique, et dans le cadre d'un sujet d'audit donn, un audit consiste essentiellement comparer de faon objective ce qui est avec ce qui devrait tre .

Ce qui est relve de l'observation du sujet audit, tandis que ce qui devrait tre est le rfrentiel daudit, cest--dire les normes, les standards auxquels l'auditeur se rfre. Pour ce qui est de l'objectivit, il s'agit d'une notion relative, qui peut dpendre de la culture d'audit concerne. Ainsi, dans certaines cultures d'audit, par exemple, l'objectivit sera considre comme un attribut de l'auditeur lui-mme, qui peut ventuellement en tre investi de par sa rputation dexprience, dexpertise, ou de probit. Dans d'autres cultures d'audit l'objectivit sera davantage perue comme rsultant de la mise-en-uvre dune mthodologie daudit. Le plus souvent, cette mthodologie reposera largement sur un dialogue contradictoire aussi appel procdure contradictoire entre l'auditeur et l'audit, au cours duquel les arguments de lun et de lautre seront mthodiquement confronts. Le but de ce dialogue contradictoire sera de faire merger ce quon pourrait appeler la vrit administrative du sujet audit. La suite du prsent texte s'inscrit dans une telle dmarche positive. La notion de systme Un systme peut tre dfini comme un ensemble d'lments interagissant les uns avec les autres . Toutefois, avec une dfinition aussi gnrale, toute partie de la ralit - voire la ralit elle-mme est susceptible d'tre considre comme un systme. Dans une perspective d'audit, une faon de rendre cette dfinition plus oprationnelle est d'y ajouter un lment de dessein : pour un auditeur, un systme serait ainsi un ensemble d'lments interagissant les uns avec les autres en vue de raliser une fonction commune, d'atteindre un objectif commun . De cette manire, un systme serait dfini non seulement par les lments qui le composent, mais aussi par des objectifs qui lui sont attribus. En pratique, pour un auditeur, un systme sera le plus souvent compos dun ensemble de procdures plus ou moins formalises et/ou automatises, et mises en uvre en vue de remplir des fonctions donnes. Le rfrentiel daudit Un systme peut tre audit selon au-moins deux grandes catgories de critres : des critres de forme et des critres de performance.

19

CONSIDRATIONS GNRALES RELATIVES L'AUDIT DES SYSTMES

Les critres de formes dcoulent des rgles et standards qui sappliquent doffice au systme concern. Il peut sagir de rgles ou de standards dordre public ou de directives internes lorganisation audite. Dans ce cas, la question daudit est de savoir si le systme se conforme aux normes concernes. Les critres de performance dcoulent des objectifs attribus au systme par ses responsables ; la principale question daudit est alors de savoir dans quelle mesure le systme remplit ces objectifs. De limportance de cadrer laudit En pratique, le systme auditer sera toujours inscrit dans un environnement plus large, ventuellement un autre systme plus vaste ; de plus, les contours du systme audit et donc du champ daudit seront le plus souvent flous entre ce qui fait partie du systme et ce qui en est exclu. Ainsi, par exemple, un systme dinformation donn sinscrira-t-il dans un systme plus large de contrle interne, aux autres lments duquel il sera intimement li. Un des principaux objectifs de lauditeur, dont le mandat consiste valuer ce systme particulier, sera donc den dfinir les contours aussi prcisment que possible. Parce que lesdits contours peuvent se rvler particulirement complexes, leur dfinition ne pourra pas se faire dun coup, mais bien par approches successives dans le cadre du dialogue contradictoire entre lauditeur et laudit. En effet, laudit responsable du systme aura souvent intrt rfuter les observations critiques mises par lauditeur vis--vis du systme ; il sera donc tout aussi souvent tent de dtourner la critique en vue de la faire porter hors du systme concern. Exemple Supposons un systme dinformation dont les objectifs seraient de mettre en forme des indicateurs de gestion destines aux dirigeants dune organisation. Les exemples de dialogues ci-dessous pourraient avoir lieu entre lauditeur et le responsable du systme, laudit : Sur la mise en forme des donnes Auditeur : Plusieurs faiblesses techniques du systme compliquent, voire empchent, la mise en forme des donnes. Audit : Les donnes sont mises en forme par ailleurs. Nous avons dautres outils. Auditeur : Cest ennuyeux, car lobjectif principal de ce systme, dans lequel vous avez investi, tait prcisment de mettre les donnes en forme. Auditeur : Le systme fournit des donnes errones. Audit : La faute nen revient pas au systme lui-mme, mais ses utilisateurs, qui encodent mal les donnes. Auditeur : Selon votre propre d nition de systme dinformation, le systme inclut les utilisateurs.

Sur la qualit des donnes du systme

Lors de chacune de ses observations, lauditeur devra donc se demander si elle concerne bien le systme audit ou, autrement dit, si elle est pertinente dans le cadre de son mandat daudit, et sil peut dfendre cette position vis--vis de laudit. Cest vraisemblablement l une des principales conditions pour mener bien laudit dun systme.

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FOCUS

VISIT FROM THE VICE PRIME MINISTER AND MINISTER FOR JUSTICE, INTEGRATION AND EUROPE FROM THE STATE OF HESSE

From left to right: Mr Friedrich von Heusinger, Head of the representation of the State of Hesse to the EU, Mr Jrg-Uwe Hahn, Vice Prime Minister and Minister for Justice, Integration and Europe from the State of Hesse, Dr Zsuzsa Breier, Secretary of State for European Affairs and Dr Harald Noack, Member of the ECA

On 10 July 2012 Mr Noack received a visit from the Vice Prime Minister and Minister for Justice, Integration and Europe from the State of Hesse, Mr Jrg-Uwe Hahn. Mr Hahn was accompanied by the Secretary of State for European Affairs Ms Zsuzsa Breier and by Mr Friedrich von Heusinger, Head of the representation of the State of Hesse to the EU. The meeting centred on the organisation and work of the Court. Special attention was given to aspects of international cooperation, such as the Contact Committees as well as EUROSAI and INTOSAI activities. Also, the methodology leading to the Statement of Assurance was discussed in more detail. Mr Noack considers such exchanges as particularly useful as they help to increase the Court's visibility in the Member States. Mr Hahn and the delegation expressed their thanks for the information visit and the new insights gained.

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FOCUS

SPECIAL REPORT N10/2012

THE EFFECTIVENESS OF STAFF DEVELOPMENT IN THE EUROPEAN COMMISSION
In order to perform e ectively, the Commission's sta need to keep their skills up to date through training, informal learning and job moves. In this report, the Court of Auditors reviews the Commission's sta development activities. It examines whether the Commission encourages its sta to learn new skills and to apply them in the workplace so that the organisation can better achieve its objectives.

FOCUS

IN SEPTEMBER 2012 THE COURT SAYS :

HELLO TO
PAPATHEODOROU FARCAS PAVEL PILARCZYK Ioulia Florin-Alexandru Mihaela Julia

GOODBYE TO
KOLITSCHOVA CRAUSER OLSEN Katerina Marceline Bjorn

FOCUS

DCS
Nous avons le regret d'annoncer le dcs de Mme UTE SEINECKE, survenu le 6 juillet 2012

22

THE STRUCTURAL FUNDS = AN OPPORTUNITY FOR SICILY

Conference entitled "Why invest in Sicily?" organized by the Istituto documentazione Richerche e Formazione per gli Enti Locali (ISEL) in Palermo on 30 and 31 March 2012 By Pietro Russo1, Member of the Court
I was invited to participate in this conference in my capacity as Member of the European Court of Auditors, and therefore as an "auditor" of the expenditure incurred under the budget of the European Union. My talk therefore focused on problems related to the utilisation, in Sicily, of Structural Fund contributions, which are subject to audit by the European Court of Auditors, as it is responsible according to the Treaty on the Functioning of the European Union (TFEU) for verifying that expenditure of this type is implemented correctly, both from the point of view of legality and of sound financial management. The connection with the subject of this conference, investing in Sicily, clearly resides in the Funds enormous potential as a driving force for investment in the Region, via an increase in public intervention, and the direct and indirect impulses they give to private economic activity. I do not think that it is necessary to insist on this point, and certainly not in the context of today's meeting, but I would recall - to myself more than to my listeners - that the general Centre-North/ South divide with regard to the negative effects of the current economic crisis has had a particularly serious impact on the credit market in the South. Moreover, the annual enquiry conducted by the Bank of Italy in 2011 showed that investments in industry were more or less stationary in the Centre-North and were falling in the South. The companies interviewed in 2011 anticipated a fall in investments for the current year, which would be greater in the South. Therefore, although I appreciate that I run the risk of repeating what other speakers have already said, I would like to start by giving a short quantitative explanation of the financial side of the Structural Funds. As we know, the Structural Funds are instruments designed by the European Community with a view to using EU financial contributions, combined with national ones, to bring about economic and social integration within what is now the European Union via "convergence", meaning bringing the incomes of European citizens closer to each other (a concept which, as we shall see, is still in vogue and corresponds to one of the objectives of the current programming period). However, another aim that should be taken into consideration is that of providing a counterweight to the Communitys own work towards creating a uniform internal market, which may also have the effect of increasing the divide between the various regions. On this occasion, I will look exclusively at the European Social Fund and the Regional Development Fund, leaving aside the European Agricultural Rural Development Fund (which was set up in 1962 to improve both production structures and product marketing in the agricultural sector). The European Social Fund (ESF) was already specifically mentioned in Articles 123-128 of the Treaty of Rome, and its purpose is to facilitate the professional requalification of workers and their possible movement within the Community. The European Regional Development Fund (ERDF), on the other hand, was introduced under Regulation No 724/1975 in order to correct the main regional imbalances within the Community.

All views expressed are the authors own.

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THE STRUCTURAL FUNDS = AN OPPORTUNITY FOR SICILY

In order to understand what is at stake with regard to the effective utilisation of the Funds contributions, we just have to take a look at the figures in the National Strategic Framework (the document, drawn up by the Member States and discussed with the European Commission, which reflects the estimates for the utilisation of the Funds) regarding the current 2006-2013 ERDF and ESF Programming Periods. In this connection, it should also be recalled that one of the basic principles of EU Cohesion Policy - of which the Funds are a part - is additionality. According to this principle, financial contributions from the Funds should not replace normal national spending that would have been incurred in any case in the period in question, but must be "additional" to it. It is for this reason that the National Strategic Framework provides for an average national expenditure over the programming period, in order to justify the amount of the European contribution within the terms agreed. However, the data from the public accounts documents for the current programming period (2007 -2013) show that, in reality, average national public expenditure has been considerably lower than envisaged. This is clearly the effect of the general worsening of the situation of public finances, and, in particular, of the resulting reduction in the financial allocation for the Fondo Aree Sottoutilizzate (the under-utilized areas Fund, recently re-baptised Fondo per lo Sviluppo e la Coesione, or Development and Cohesion Fund, by legislative decree No 88 of 2011). The European Union has allocated 28.8 billion in connection with the ERDF and ESF, 3.3 billion of which are for Regions with a GDP higher than 75% of the EU average, which fall under the "competitiveness" Objective (improving competitiveness and employment), and 25 billion of which are for Regions, like Sicily, that fall under the "convergence" Objective (speeding up convergence between Regions whose development is lagging behind), whose per capita GDP is below this threshold. On the other hand, given that the Funds mechanism provides for co-financing at a rate of more or less 50%, the total figure in question is in fact 60.5 billion, 43.6 billion of which concerns the "Convergence" regions. Now, after the completion of around two-thirds of the programming period, the current picture of the financial utilisation of Fund resources allocated to Italy is very negative, as is shown by the recent report submitted to the Budget Committees of the Chamber of Deputies and Senate by the Minister of the newly created Ministry for Territorial Cohesion (whose specific responsibility is to monitor, coordinate and promote the utilisation of the resources in question, both Community and national). In terms of the payments received from the Commission, on 31 December 2010, Italy was even at second-to-last place among the beneficiary countries, ahead of only Romania, with an average of 7.4% of the resources allocated - less than half the European average of 14.4% and considerably lower than its own figure for the previous programming period (2000-2006) which, at the same stage of progress, was 16.6%. It should, however, be noted that the following year showed a considerable recovery as this percentage of 7.4% rose to 12%. With regard to commitments incurred and expenditure made in connection with the financial implementation of the ESF and the ERDF, an analysis by Objective as of 31 October 2011 (with the exclusion of Objective 3, on Interregional Cooperation) shows that, whereas the implementation of the "Competitiveness" Objective, which concerns central and northern Italy, showed an average, for commitments and expenditure, of 49.6% and 28.4% of programme resources respectively , in the "Convergence" Objective regions, the average was 39.8% and 14.3%. In particular, the average for the Sicilian Region was among the lowest in the country, at 36.8% for commitments and 9.1% for expenditure.

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THE STRUCTURAL FUNDS = AN OPPORTUNITY FOR SICILY

As I said at the beginning, the approach that I intend to take with regard to the topic of the conference is that of an auditor, which precludes me from making value judgements on measures whose implementation we audit (I will, however, make one general observation concerning all the member states of the EU, i.e. that, in the current period, there were great difficulties in implementing the Funds at start-up because of the effects of the economic-financial crisis on liquidity and the inclination to invest). We shall, therefore, look at some of the results of the European Court of Auditors most recent audit activity in the field in question results that concern, under the responsibilities allocated it by TFEU, both the audit of legality/regularity (whose aim is to establish compliance with the applicable legislation, so that it necessarily focuses on individual legal texts) and that of sound financial management (which focuses on an ongoing activity over time and attempts to establish compliance with non-legal standards of an economic, financial and technical nature). Both types of audit (the European Court works exclusively on an ex-post basis) can produce relevant results with regard to the activities of the Structural Funds. With regard to the audit of legality/ regularity, the uncovering of cases of non-compliance with European Regulations due both to criminally relevant behaviour, and, more commonly, culpable errors may result in the reduction or cancellation of the share of funding due from the Union. According to the complex regulations applicable in the field (for the last two programming periods, mainly Regulation No 1260/1999 and Regulation No 283/2006), the detection of irregularities in the management of the Funds leads to the relevant national authorities having either to self-correct their requests for European Union contributions mid-term or eliminate expenditure found to be irregular from the relevant final certification and to the Commissions having to suspend, or even cancel individual items of funding or even entire programmes or parts of programmes that had originally been approved in agreement between the Commission itself and the member state concerned. A birds eye view of the most recent results of the general audits performed by the Court on the management of the ERDF and the ESF in the context of the Statement of Assurance on the EU accounts (DAS) for 2010 enables us to observe how the sectoral policy in question (accounting for approximately one third of the value of the entire budget of the Union) is characterised by the highest rate of irregularities found, equal to 7.7%. If we then examine the so-called "geographical concentration" of these irregularities, as found by the European Commission, it must be noted that they concern a small number of programmes co-financed by the Structural Funds and only a few member states. In particular, with regard to the ERDF, out of 18 member states audited between 2006 and 2009, 60% of the irregularities were found exclusively in Italy, Spain and the United Kingdom. For 2008, the irregularities found in Italy and Spain made up two thirds of the total. With regard to the ESF, for the same period, 2006-2009, the irregularities found in six of the 13 countries audited (Spain, Italy, United Kingdom, Portugal, Germany and France) made up 90% of the total. The Corte dei Contis audit section for Community and international affairs (Community Affairs Section) recently approved (December 2011) Report No 2/2011 concerning a coordinated audit with the European Court under Article 287 (3) TFEU on the results of the closure of the ERDF programming for the 2000-2006 period. From this report, we can obtain a figure for the percentage of irregularities found for the Sicilian Regional Operational Programme (ROP) (the instrument for the management of Community contributions allocated to Sicily under the ERDF for the period in question) by the Audit Authority, a body designated by the relevant national administration and independent from the bodies responsible for managing the funds.

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THE STRUCTURAL FUNDS = AN OPPORTUNITY FOR SICILY

Out of a total expenditure of 5.6 billion submitted to the Commission, 0.5 billion were audited and irregularities were found to the tune of 0.047 billion, representing 9.53 %, or the highest average for all programmes in Italy, whether national or regional, with the exception of the Calabria ROP. With regard to irregularities, for reasons of time, I shall limit myself to one representative example. The 2010 DAS revealed a recurrent problem in Italy with regard to the awarding of contracts in the field of Structural Funds management; among other things, in some of the cases examined, award criteria had been used that did not comply with the applicable rules and there were shortcomings with regard to procedures and publicity requirements. In this field, the aforementioned report from the Community affairs section highlighted a phenomenon that only concerns the Sicilian Region: the European Commission found, before the entry into force of Regional Law No 16 of 3 August 2010 (which substantially brought the Region into line with the national rules, which in turn reflect the Community ones), that there were numerous cases of contracts which were irregular insofar as they had been awarded on the basis of the old legislation, which was not completely in keeping with the new. Under the aforementioned European rules, irregularities in the management of the Structural Funds (something which, unfortunately, as we have seen, is certainly not alien to Italy and, in particular, Sicily) inevitably lead to the loss of some of the contributions allocated to Italy under the distribution of the Union's budget. In the final analysis, it is clear that this places a considerable limitation on the intended function of the Funds as a driving force for economic and social development. However, in my opinion, a limitation that is even more serious with regard to the achievement of the objectives pursued by the Structural Funds derives from situations in which, even in the presence of formal compliance with the European and national legal requirements, shortcomings in programming, organisation and, in general, the management of the contributions paid out by the Funds end up by partly or completely undoing their potential benefits. As observed, above, situations like these can be detected by audits of sound financial management. Here too, there is no shortage of cases in Sicily. In this connection, it should first be noted that a specific problem was mentioned in the aforementioned report by the Community Affairs Section. This is the fact that there has been a very high turnover in the relevant offices of the Sicilian Region (bearing in mind that, in our system, the Regions are the main interface with the EU for the implementation of the Structural Funds) due to the general reorganisation of the administration following the entry into force of the Regional Law of 16 December 2008. Similar findings were made by the Sicilian regional section of the Corte dei Conti in the context of the certification procedure for the Regional accounts. This has affected the effectiveness and timeliness of the relevant administrative activities. With regard to the 2000-2006 programming period, and in particular the ERDF, in general, the proportion of the expenditure submitted to the Commission for Sicily (as we have seen, 5.6 billion that corresponds to unfinished and/or non-operational projects (amounting to 1.9 billion, or 35% of the total) is extremely large (although part of this last amount relates to projects that have been suspended because of legal proceedings). More specifically, various cases come to mind, again concerning Sicily, which were recently identified by the European Court of Auditors during the audits for its Special Reports on clearly defined subjects and sectors. In the context of Report No 9 of 2011, on the effectiveness of e-government projects subsidised by the ERDF, the Court examined a Sicilian project, the Centro servizi per i cittadini e le imprese (service centre for citizens and businesses), whose implementation revealed a number of organisational problems. Its objective was to create technological infrastructure shared by the

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THE STRUCTURAL FUNDS = AN OPPORTUNITY FOR SICILY

57 public participating bodies, developing IT applications for the shared management of various services. The system was actually developed, and started up in 2007; however, it was closed down in 2008 because the maintenance costs, which had not been adequately estimated, turned out to be unsustainable in the wake of the general financial crisis that had developed in the meantime. Another example is the Tessera sanitaria (health card) project, which had been introduced to enable people in Sicily to access e-goverment services in the social and health field (management of appointments, prescriptions and health payments etc), which was part of a broader project involving the renovation of health infrastructures on the island. However, the audit showed that it had not actually been possible to use the 5 million cards distributed to access these services insofar as the latter were not yet operational. Special Report No 9 of 2010, concerning the utilisation of funds for water supply for domestic consumption, also looked at projects that were implemented in Sicily. Here, the audit showed a positive outcome, insofar as there had been a measurable improvement in water supply for domestic use. However, a more careful preliminary analysis would have made it possible to build smaller capacity infrastructures and allow more effective and less expensive alternative solutions to be taken into consideration. This was because the estimates relating to future water needs did not take into account the trend towards reduced individual consumption (due both to awareness campaigns and the increasing numbers of individual water meters), while overall consumption is also in decline due to the greater efficiency of the water networks. Moreover, the possibility of implementation by stages was not taken into consideration. Finally, there was a tendency to maximize the European financial contribution whilst keeping water rates low (it emerged, for example, that this was the case in Palermo, where the price had not been updated since the 1990s). In this context too, there are specific examples of shortcomings: the desalination plant built in one town takes water for domestic consumption towards the storage tanks at excessively high temperatures, so it is unusable because cooling costs, which were not taken into account at the planning stage, have become too high. Another topic which calls for particular attention in this context is that of the so-called progetti coerenti or consistent projects. In short, these are projects which have already been financed (or even completed) on a national basis and which are then submitted for European co-financing in substitution for other projects which have not been approved by the Commission because they are considered not to be in compliance with the regulations governing the Funds, or have 3 been eliminated by the national authorities themselves because they found that they were not immediately feasible. Clearly, this is a general problem, given that, although the mechanism in question is permitted under European regulations and is doubtlessly useful in terms of the timely spending of funds that have already been allocated, it does present a number of issues. For example, the use of the "consistent projects" system implies a greater risk of irregularities, given the fact that these projects do not go through an appropriate selection procedure in relation to the eligibility conditions for funding. For the same reason, there is no absolute guarantee that the impact expected of the intervention will actually be achieved. Although, as I said, the "consistent projects" problem is a general one, it should also be said that Italy has made particularly large scale use of the system; as for Sicily, the aforementioned Report from the Community Affairs Section notes that nearly 2.4 million of the total of approximately 5.5 million (43 %) in co-financed ERDF expenditure submitted to the Commission concerned "consistent projects".

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THE STRUCTURAL FUNDS = AN OPPORTUNITY FOR SICILY

It should also be recalled that the adoption of consistent projects for Community funding also means that the corresponding national resources originally earmarked for co-financing the cancelled projects are freed up. These resources, as provided for in Article 6(e) of Legislative Decree No 133/2008, are subsequently reprogrammed (as laid down in CIPE Decision No 79 of July 2010). Therefore, even though this provision safeguards the requirement relating to the previous destination of the funds, the reprogramming will inevitably affect the choices originally made by the Region. Finally, in this brief overview, I would also like to mention the Innovative Financial Instruments, which have recently been introduced to the system of European Structural Funds. Here, amounts from the Unions budget pass, via management authorities set up at national level, into holding funds that work according to the revolving principle. The amounts earmarked for the funds by the relevant Operational Programmes are paid out in one single amount as soon as the relevant legal structure has been set up. As the applicable European regulations treat these payments as implemented expenditure that must be certified to the Commission, it is clear how an increase in the financial allocation in question can be used to demonstrate the utilisation of the European cofinancing share. However, it is equally clear that, in order to actually achieve the objectives underlying the contribution of the Structural Funds, the financial instruments in question must not only be financed in a timely manner, but must also be made operational. However, the aforementioned report from the Minister for Cohesion shows that, at the end of 2011, none of the instruments of this type constituted in Sicily had yet been activated. Furthermore, it should also be observed that, even where the objectives envisaged in the projects financed by the Funds are actually achieved, some systematic negative factors can also have a significant effect on the actual impact of the projects themselves. This is the case for the project for the construction of a port in Sicily, to which the ERDF contributed, which was audited by the ECA in connection with its Report No 4/2012 on the effectiveness of investments in maritime ports. Here, although the auditors recognized that the planned works had been carried out, they also noted with amazement that the relevant administrative procedure, which started in 1991, long before the presentation of the project itself at European level, had taken 17 years, and that a total of 33 authorisations had been granted by the various authorities concerned (both national and regional), regarding technical and environmental requirements. Finally, it would not be right to bring this overview to a close without recalling that, in Sicily, there are also projects which have been able to bring tangible and immediate benefits. For example, the maritime ports report also examined a project regarding the construction of two moorings near the Messina-Tremestieri motorway exit. In this connection, it is recognized that, although the project (which actually belongs to the consistent projects" category mentioned above) was finished late, with additional expenditure as compared with estimates, it did enable infrastructure to be created that was fully utilised from the moment it entered into operation. The work satisfied the needs of the Messina area with regard to the absorption of the heavy vehicles travelling from Sicily to Calabria and vice versa, enabling the diversion of almost all traffic outside the city centre and a reduction of about 50% in related accidents within the centre itself. This example, which is certainly positive, leads us to the conclusion that Sicily can, and must, show that it is able to exploit fully the important opportunity for economic progress offered by the Structural Funds, which certainly has not been the case so far. In order to succeed in this, we certainly need to maintain vigilance so as to prevent irregularities in the management of these funds. However, of equal importance is the need to make administrative action more efficient and effective - above all in the apparently modest daily organisational activities on which, however, the final result depends.

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MAIN CONTENT

WHICH ENERGY POLICY FOR EUROPE? Interview with Mr GNTHER OETTINGER, European Commissioner for Energy ENERGY TRANSITION IN EUROPE Presentation by Mr CLAUDE TURMES MEP, the European Parliaments negotiator with the Presidency of the Council on the Energy Efficiency Directive ECA SPECIAL REPORT 3/2012 ECA SPECIAL REPORT 2/2012 ECA SPECIAL REPORT 7/2012 ECA SPECIAL REPORT 12/2011

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