EUROPEANCOURTOF AUDITORS

01NO.JANUARY 2016

JournalEuropean Court of Auditors

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

Cover:- Lazaros S. Lazarou, ECA Member, presenting our annual report to Nicos Anastasiades, President of the Republic of Cyprus- Visit of the Auditor General of the Republic of Lithuania Arūnas Dulkys to the ECA

Past editions of the Journal can be found on:ECA’s website: http://eca.europa.eu/en/Pages/Journal.aspxEU bookshop: http://bookshop.europa.eu

PRODUCTIONRédacteur en chef / Editor in Chief : Rosmarie Carotti Tél. / tel.: 00352 4398 - 45506 - e-mail : rosmarie.carotti@eca.europa.euMise en page, diffusion / Layout, distribution : Direction de la Présidence - Directorate of the Presidency Photos : Reproduction interdite / Reproduction prohibited

© ECA

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02 New Year message by ECA President Vítor Caldeira 03 Visit of the Auditor General of the Republic of Lithuania Arūnas Dulkys to the ECA and the experience sharing event delivered by the delegation of the National Audit of Lithuania By the Internatinal Relations Division of the National Audit Office of Lithuania

06 There are professions which connect people all over the world: auditing is one of them Interview with Dr Arūnas Dulkys, Auditor General of Lithuania By Rosmarie Carotti

11 Special report N° 17/2015 Commission’s support of Youth Action Teams: redirection of ESF funding achieved but insufficient focus on results Questions to Iliana Ivanova, ECA Member By Rosmarie Carotti

14 Visit by the Lithuanian Parliamentary Committee on European Affairs By Tomas Mackevičius, head of private office of Rasa Budbergytė

15 Presentation of the 2014 ECA Annual Report in Cyprus By Andreas Antoniades, head of private office

17 “Famagusta – a European ghost town”, a photo exhibition at the ECA, from 30 November to 11 December 2015 By Andreas Antoniades, head of private office

19 Gender equality in power and decision-making Interview with Jolante Reingardė from the European Institute for Gender Equality (EIGE) By Rosmarie Carotti

22 Meeting of Chamber I Members with ENVI Committee Coordinators By the private office of Augustyn Kubik, Dean of Chamber I

23 FOCUS Special reports Nos 15, 16, 17, 21/2015 Hello to / Goodbye to

25 The Landscape review By Amita Patel, Principal Auditor

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TABLE OF CONTENTS

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Dear readers,

These are difficult times for the Europe and the European Project. The EU is facing many major challenges at the same time. Defending our Union and ensuring the wellbeing of our citizens will place a great burden on EU resources. Helping to ensure that those resources are used to their best effect will continue to be the principal task of the European Court of Auditors in 2016.

Our work in 2015 showed how we intend to do that. In our reports, we put more focus than ever on the performance of the Union’s budget and policies and how that performance can be improved. In this context, we also highlighted the need for a “wholly new approach” to EU spending and investment, so our Union can better address the major challenges it faces and resolve long-standing financial management issues.

That message has been well received by our main stakeholders, the European Parliament, the Council and the Commission. They recognise and appreciate our engagement and our professionalism. They also welcome the valuable, independent contribution that our work makes to their efforts to improve EU financial management and citizens’ trust in the EU and its institutions.

Our institution is itself engaged in a fundamental reform. We have recognised the need to improve our ability to respond to the changes that are taking place in the EU and to improve our performance. As part of our 2013-2017 strategy, we have taken measures to make better use of our experience, manage our resources more flexibly, and complete our audits more quickly. Major changes in the way we manage our resources, tasks and knowledge will take effect from the start of 2016. It will be a crucial year for our institution to move forwards.

I wish you all a successful and fulfilling year ahead!

Vítor Caldeira

Vítor Caldeira, ECA President

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Visit of the Auditor General of the Republic of Lithuania Arūnas Dulkys to the ECA and the experience sharing event delivered by the delegation of the National Audit of Lithuania

Upon the invitation of the ECA President Vítor Caldeira and Lithuanian ECA Member Rasa Budbergytė, Auditor General of the Republic of Lithuania Arūnas Dulkys paid a visit to the ECA on 30 November – 1 December.

The visit started with the meeting between the Auditor General Dulkys and the President Caldeira during which the two heads of the institutions discussed topics of common interest: changes in audit institutions, reform of the ECA, development plans of the National Audit Office of Lithuania (NAOL), possibility of joint initiatives for the promotion of more efficient use of the EU resources, and directions for future co-operation.

Within the framework of the visit, the delegation of the NAOL was provided an opportunity to share their experiences and best practices with the ECA Members and staff. The event with the participation of Rasa Budbergytė and Ruiz García, Secretary-General, focused on the NAOL activities and functions, performance management and monitoring system, system for the follow-up of audit recommendations, and audit quality management system.

By the International Relations Division of the National Audit Office of Lithuania

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Performance management

The opening presentation on performance management and monitoring system began with the information that the NAOL seeks to ensure the highest standards of quality in its performance management, as well as apply the most recent and innovative management techniques and practices, therefore regular revisions of processes and activities are annually carried out. For the management of its performance the NAOL chose to introduce processes and assign responsibilities to process owners. All corners of the audit “room“ are fully covered by a set of indicators, leading documents, diagrams and charts. Every action taken and each planned step is monitored by the activity planning and reporting system. An integral performance management tool is the risk management introduced in 2008, which assists the NAOL in distributing the limited available resources to the management of the most significant areas. It also provides a means of identifying, avoiding and managing problems, as well as discovering their underlying causes and developing preventive actions. It was noted that as part of the NAOL endeavour to do things faster, better and with fewer resources, a regular analysis of its business processes is carried out with the help of LEAN methodology, which aims at ongoing development and reducing activities not generating the added value. A crucial support to these processes is provided by actively involved NAOL staff who develop new more efficient ways to achieve better results with less time and fewer resources. Finally, one of the tools, which facilitates the planning of the NAOL performance from long-term strategic plans, individual public audit projects to individual tasks for staff members was presented. It is the VIPSIS: performance on-line management and audit documentation system developed with the help of external experts and internal NAOL resources. It is a tool for planning, recording and documentation, monitoring of performance progress and quality control and assurance procedures.

The follow-up of audit recommendations

Further, the NAOL presented the system for the follow-up of audit recommendations. It was pointed out that the NAOL aims to have at least 80 per cent of audit recommendations implemented,

thus the follow up is taken seriously at the institution. The reasons for the follow-up, the way it is done, as well as an efficient system for recording of audit results (ARAP) in place at the NAOL were presented. This information system with a database launched in 2002 and currently hosting 15 863 recommendations makes the monitoring of recommendation implementation more efficient, allows to instantly check the status of recommendations, as well as generates the recommendation implementation reports. These reports provide an information on the planned and actual impact of recommendations. It was said that the implementation of recommendations is monitored throughout the year until the recommendation is implemented and can be closed. The presentation was concluded by highlighting that the NAOL pays attention to drafting practical recommendations, which are agreed with auditees and are accompanied by the implementing measures proposed by them.

The audit quality management system

Finally, a best practice example related to the audit quality management system was offered. It focused on the audit quality management system in place at one of the NAOL departments, which acts as Audit Authority (AA) responsible for the provision of reliable opinion and evidence on legitimacy of use of the EU funds to the European Commission (EC). Audit quality management system is present in every stage of this department‘s work: from drafting of audit plan to the final meeting of the AA and EC representatives where audit report is discussed and agreed on. The year 2013 at the AA was dedicated to quality; the same year saw the launching of the Quality Project, which covered all the key areas of work: assessment of compliance with requirements, evaluation of performance efficiency, and audit recommendations. Audit methodology and resources fell within the scope of the project as well. The output of the project comprised the recommendations for optimization of cut-offs of the audit chain and advice on how to improve the efficiency of the audit quality assurance system. Development of the system for substitution was also among the outputs of the project. As a conclusion, it was mentioned that the implemented recommendations of the project resulted in the

Visit of the Auditor General of the Republic of Lithuania Arūnas Dulkys to the ECA and the experience sharing event delivered by the delegation of the National Audit of Lithuania continued

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development of an audit manual, audit process flow chart and improved effectiveness of activities.

Presentations and discussions

Presentations and lively discussions that followed, which were moderated by Ruiz García were held in a friendly and open atmosphere with questions and insights exchanged and many left for the future meetings. Maybe as a result of an active interest of the ECA Members and staff in the NAOL activities, the NAOL was invited to take part in the training event, which will be held at the ECA in October 2016 and to present the applied audit methodology and results of specific audits.

In addition to extensive discussions with Rasa Budbergytė , Dr Arūnas Dulkys also had interesting discussions with the ECA Members Igors Ludboržs, Wynn Owen and Bettina Jakobsen, as well as constructive exchanges with CEAD-B and DOP teams on practical arrangements for the NAOL to perform a single audit and to manage its quality, as well as on the system for programming the annual audit work.

The visit concluded with the NAOL delegation‘s meeting with Lithuanians working at the ECA where possibilities of even closer co-operation and sharing of experience between the national auditors and those employed at the ECA were discussed.

6There are professions which connect people all over the world: auditing is one of them

By Rosmarie Carotti

Interview with Dr Arūnas Dulkys, Auditor General of Lithuania 1 December 2015

Dr Arūnas Dulkys joined the National Audit Office of Lithuania

in 2007 when Rasa Budbergytė, ECA Member, was the Auditor

General. Dr Arūnas Dulkys began his career with the NAOL in the

department responsible for the European Structural Funds, the

Audit Authority. He belongs to a young generation, for which an Auditor General is not only a qualified auditor, but also a

manager.

R. C.: You were appointed Auditor General six months ago. Could you please introduce your institution and tell us how you plan to develop it further?

Dr Arūnas Dulkys: The National Audit Office of Lithuania (NAOL) is the Supreme Audit Institution (SAI) accountable to the Parliament of the Republic of Lithuania and is unique in its functions. Following a Parliament Resolution the NAOL was given a mandate to perform three different, independent functions: to act as the Supreme Audit Institution, as the Audit Authority for European Union structural assistance and as the Budget Policy Monitoring Institution. The NAOL is the only SAI in the European Union which has three such functions (in the EU, the Romanian SAI includes the Audit Authority, and the Finnish SAI has a mandate to implement the functions of the Fiscal Council).

In this unique situation, it is of utmost importance to further strengthen these functions while maintaining the independence of each of them. A number of developments have been achieved and more are to come, such as further development of our institutional structure, rotation of audit staff and managers, closer cooperation with other public expenditure control institutions, and an improved mechanism for compiling the SAI’s audit programme.

Just to give you some more detail about this mechanism - we are applying a significantly improved audit programme compilation mechanism for the annual audit programme for 2016 currently in preparation. The mechanism is based on a new methodology for audit risk assessment and selection. Each identified risk is assessed on the basis of eight criteria. The key criterion is the relationship with strategic documents, such as Europe 2020, Lithuania 2030, the priorities of the Government of the Republic of Lithuania, Lithuania’s international obligations. Other criteria are the following: indicators – we assess the extent to which each particular risk is linked to indicators and what the significance of the indicators is at EU level, at the level of the Baltic States and at global level; funds –what amount of funds is related to the identified risk; assets – what amount of assets is related to the identified risk; external proposals – if we have received proposals from other institutions, if the problem was mentioned in the media; relevance – which part of the public does the risk relate to, how many institutions is this risk relevant to; problem/ risk management – how the identified risk is managed, if the objectives are clearly formulated and assessment criteria are laid down, if the monitoring and reporting system is adequate (and if none of the above exists, the risk is given a higher score); professional judgement (we assess the level of the

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risk in terms of previous audit results, the specific nature of the public sector, etc.).

The assessed risks are rated in accordance with the criteria mentioned, then the key risks in any given area of public sector governance and the most relevant risks at national level are identified.

We do not only consider the scores: the assigned experts analyse the results collectively and identify horizontal risks which affect several areas of the public sector; we also identify risks which, although very significant, are left for further monitoring.

Particular attention is paid to horizontal systematic topics: budgeting, promotion of innovations, management of state investments, governance of state-owned enterprises, the efficiency of internal controls in the country, the establishment and management of public bodies.

It is natural that the list of risks and problems is much longer than our capacity to address them, so we assess the available resources (the number of public auditors) and select what is most significant for the state in order to allocate the resources to key topics.

The aim of the selection is to identify those areas of the public sector which are most at risk, evaluate the potential added value of the audit and its potential impact. This is the risk assessment system that has been applied so far, but this year it was given a new shape and a new scope.

Currently our institution is also drawing up a strategy document. It will identify the key areas for the institution’s further development. Today we can already say that they are going to be IMPACT, QUALITY, and DISSEMINATION.

Our institution is certified according to the ISO standard, we follow a LEAN philosophy and conduct our activities in accordance with clearly defined business processes, each of which is applied to define high quality and continuous development requirements, so any compromise between acting efficiently and taking a standard approach is just not on the table. This is my reply to the question about my future plans: they are ambitious and courageous, both in terms of structural and administrative changes, while seeking to maintain our current independence, conducting audits of relevant, sensitive problems in the country and providing high-quality professional insights

and audit recommendations. Furthermore, we will endeavour to inform the public as widely as possible both about the activities of public sector institutions and about their efforts in implementing public audit recommendations. We will be open, professional, and able to respond quickly, while at the same time maintaining all the high quality requirements imposed on the audit profession.

R. C.: You act as the audit authority for EU funds. How do you ensure the independence of this function from your main audit activities?

Dr Arūnas Dulkys: At that time the assignment of this function to the NAOL was a sign of huge confidence in our work and its quality and in our independence. And all of that has so far remained relevant. While still performing some work for the 2004-2007 period, we are already looking at the future and preparing for the audit of the 2014-2020 period.

You are right to raise the question about the sensitivity of ensuring the independence of these functions. However, as you can see, we are succeeding in this area. I tend to see more positive than negative sides in everything. And in this case such a situation entails both advantages and challenges.

First of all, independence is ensured by the structure of the NAOL: all the three above-mentioned NAOL functions are managed by different Deputy Auditors General. The audit authority (AA) is a separate audit department, which functions in accordance with the EU regulation on audit authorities. It is accountable both to the European Commission and to the management of the NAOL.

A second particularly important aspect related to ensuring independence of functions is the professionalism of our staff. All those working at our institution understand very clearly both the political and administrative aspects of this issue. We therefore know how much we can use each other‘s information when formulating professional insights or drafting annual plans, how to support each other and learn from each other. However unconventional and, in some cases, controversial it might seem, today we see it as a challenge which can only strengthen us.

R. C.: Do you carry out an audit of the management and control of EU funds and the implementation of EU policy in Lithuania and

8There are professions which connect people all over the world: auditing is one of them continued

what are the main findings?

Dr Arūnas Dulkys: As regards the EU funds and EU policy, I would like to highlight that being an EU member state we audit various programmes and projects which are financed from EU funds and cofinanced by the Lithuanian budget, therefore most of our audits which examine management and control issues contribute to the achievement of the EU’s common goals, i.e. the more efficient use of resources and promotion of results-oriented management.

In terms of the specific audits conducted by the AA, as previously mentioned, following a special Resolution of the Parliament, the NAOL was mandated to carry out the functions of the audit authority for the European Union structural assistance for 2007-2013 and the operational programmes for European Union structural funds investments for 2014-2020. Audit results for the new 2014-2020 EU financial period are not available yet, but the results of the annual audits of the 2007-2013 EU structural assistance period, which is nearing the closure of operational programmes, as well as of the management and control system of this period and expenditure declared to the European Commission, show that most of the irregularities identified (up to 50 per cent) are in the public procurement area; other irregularities include non-compliance with the requirements for eligibility of expenditure, inaccurate or incomplete supporting documents for expenditure justification and expenditure payment, etc. It should also be mentioned that in this respect Lithuania is no exception: irregularities affecting public procurements often predominate in other EU member states as well.

However, it should be noted that particularly in recent years we have observed a downward trend in flawed payment requests, where our audits identify non-eligible expenditure and recommend corresponding financial corrections (consequently, the number of audit findings and recommendations has decreased as well). Also, the error rate identified by the AA is below the materiality threshold of 2 per cent for the most likely error rate (the statistics of the audits carried out to date reveal that the most likely error rate ranges between 0.53-1.55 per cent in the 2009-2013 period).

R. C.: Can you suggest ways of most effectively sharing experience and auditing methods with the ECA?

Dr Arūnas Dulkys: Cooperation between the National Audit Office of Lithuania and the European Court of Auditors provides a good opportunity to share best audit practices, methods and tools. We are delighted that we have found ways and formats to discuss and share the good practices we have accumulated. In this regard I would like to mention the peer review of the NAOL, visits by ECA members and methodology experts to Lithuania and our current visit to the ECA. Such exchanges are enriching for both of us, therefore we would like to continue our cooperation on issues that focus primarily on mutual benefit, but also to create a broader added value going beyond the boundaries of bilateral cooperation.

The ECA’s administrative reform is also a topic of interest for us. Just like every other institution, we want to manage our activities in the most effective, efficient and flexible manner, therefore we would like to analyse more deeply the ECA’s experiences and lessons in this area.

R. C.: Has the peer review of the NAOL, which was conducted by the ECA and the national offices of Norway and Finland, been a help in further developing your institution? What were the main benefits of this process?

Dr Arūnas Dulkys: I would like to thank the ECA once again for the agreement to act as team leader in the peer review of our organisation, alongside the experts from the SAIs of Norway and Finland. The peer review findings provided us with assurance that we are on the right path in the development of our audit practice. Moreover, it gave us the impetus to initiate a number of changes in different areas within our office: in our relations with Parliament, in annual audit planning and resource management, in audit quality assurance, etc. The insights of the peers were beneficial for us in all respects.

As far as the peer review recommendations are concerned, I can say that some of them have already been implemented. For their implementation, we have created three target groups: IMPACT, QUALITY

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and DISSEMINATION. I am pleased to mention that Irena Petruškevičienė, a former Member of the ECA, is one of the persons responsible for the target groups mentioned. Her experience at the ECA as well as in other audit bodies is very valuable for us. These groups work out practical proposals for the implementation of the peer review recommendations and prepare progress reports on it. They also discuss the implementation of recommendations in a wider context covering the impact the NAOL wants to achieve, and how audit quality and dissemination could contribute to the achievement of the desired impact.

For example, the Impact target group, which is charged with the implementation of the peer review recommendations related to audit impact, reviewed the definition of audit impact and expanded it, they modified the understanding of ‘impact’ and proposed using the following definition in the newly developed NAOL Strategy: Audit impact means positive effects on the relevant public sector (public finances, public governance, public sector accountability, etc.) or on the state’s well-being, occurring as a result of the NAOL's activities or of the public audit and audit findings, contributing to the achievement of effective, efficient and economical management of the state’s property and resources, and public accountability. This target group is currently interested in positive experiences made in other countries in the area of measuring impact. Besides the peer review recommendations, the Dissemination target group is also interested in how social networks could help to achieve greater impact, whereas the agenda of the Audit Quality target group includes issues relating to the improvement of audit quality assessment.

In summary, I could say that the peer review was a very useful exercise for us not only in terms of concrete recommendations, but also in terms of encouraging us to once again think about the NAOL’s goals and ways of achieving them.

R. C.: For the ECA, it would be interesting to learn how the NAOL follows up the ECA's work.

Dr Arūnas Dulkys: Lithuania is part of the EU and our audits at national level are connected with the questions which are important for Europe. Life brought us together, and we need each other.

For us as an SAI, it is very important to read the ECA’s audit reports and its audit findings in detail. At a higher level auditors look at the questions which interest the ECA and what topics have been chosen for the years to come. They are a signal for the national audit office.

R. C.: You came to visit us, our CEAD colleagues visited your institution, the ECA‘s Secretary-General took part in the peer review of the NAOL. Are there other exchanges, in particular with the Lithuanian ECA Member, Rasa Budbergytė?

Dr Arūnas Dulkys: First of all I would like to say that the relationship between the Lithuanian ECA Member and the NAOL is an important component in facilitating co-operation between the ECA and a national SAI. The NAOL has always had this strong component.

Rasa Budbergytė presents the ECA‘s annual report, gives presentations and provides information about the implementation of the ECA’s strategy, its reform and the new programming system. The presentation of the ECA's annual report and other reports to the NAOL and to our National Parliament is a very useful and meaningful tradition, which not only allows us as public auditors to gain a better understanding of the outcomes of the ECA's audit work, but also helps the Members of our National Parliament to compare the messages coming from our reports with the ECA's audit conclusions. In a way it makes our communication with the Parliament easier. Rasa Budbergytė also helps the NAOL to focus on issues earlier and to read between the lines. She participates in meetings at the European Parliament and her knowledge helps us to better understand the trends and tendencies in our profession.

The Lithuanian ECA Member and her Cabinet initiated numerous events where both the ECA and the NAOL had the opportunity to share their working methods and experience, and to learn from each other. Yesterday‘s seminar and the joint workshop today are examples of such initiatives.

I would like to stress that the NAOL is looking forward to having a good working relationship with all Members of the ECA. We are always willing

10There are professions which connect people all over the world: auditing is one of them continued

to take part in the ECA's audits and we would like to see more ECA Members coming to the NAOL and the Parliament of Lithuania, e.g., to present special reports relevant to Lithuania. A few weeks ago the ECA’s methodology department came on a study visit to Vilnius. Young professionals from the NAOL are invited to join the ECA’s training events for auditors, which will further improve their professionalism. These are examples which illustrate that we are building new bilateral forms of professional co-operation between the ECA and the NAOL. Meetings that produce nothing but nice photos belong to the past.

R. C.: Is it right to say that because the NAOL is a small institution compared to the ECA it is easier for it to listen to the citizens? How do you listen to the voices of your citizens?

Dr Arūnas Dulkys: I would like to correct you here. The size of a supreme audit institution does not play a major role. Auditors have tools which allow them to find the answers regardless of their institution’s size.

Each year when the NAOL does its audit planning and carries out the risk analysis, it uses a database of all Lithuanian organisations and asks them to suggest the areas they experience as problematic. The NAOL also sends letters to all Members of the National Parliament, to the Government and Ministries and has a link on its website where every citizen of Lithuania can write suggestions for audits. When making a professional judgement auditors have to be independent but they need to listen to their stakeholders and understand their expectations.

R. C.: Do you want to add something about these days here in Luxembourg and your meeting with President Caldeira and the ECA Secretary-General, Eduardo Ruiz García?

Dr Arūnas Dulkys: Our visit to the ECA once again proved the usefulness and even the need for such exchanges between supreme audit institutions. In addition to a very professional attitude, warm welcome and consideration towards our delegation, we have also received numerous ideas and insights that we will work on once we are home. I would also like to believe that our presentations to the ECA Members and staff raised their interest in our work and gave them some food for thought.

My overall feeling is that our delegation became a part of the wider ECA family for several days of sharing and receiving knowledge, exchanging experience and having very profound and extensive discussions on topics of common interest. Maybe as a result of these exchanges, the NAOL was invited to take part in a training event at the ECA in October 2016 and to present some case studies on the best audits of the year.

I therefore hope that the tradition of fruitful professional co-operation between the ECA and the NAOL will continue and strengthen in the future, in the best interests of the people we serve.

From left to right: Rosmarie Carotti, Editor in Chief; Dr Arūnas Dulkys, Auditor General of Lithuania; Rasa Budbergytė, ECA Member

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R. C.: The primary responsibility for tackling youth unemployment lies with the Member States but the Commission has a role in proposing country specific recommendations to the Council. Has the Commission done enough in this respect?

Iliana Ivanova: To achieve EU2020 objectives all Member States have translated them into national targets. To coordinate national efforts the EU has established an annual cycle for economic policy coordination which includes the preparation of country-specific recommendations which are based on the analyses of each country’s situation. This includes, amongst others, the Commission’s assessment of the National reform programmes which are Member States’ plans for policy measures to increase employment and growth.

In the context of our audit, we reviewed the 2012 and 2013 National reform programmes for the eight Member States that have been covered by the Youth action teams initiative, as well as the related Commission assessment, to verify whether they include reference to the outcomes of the Youth action teams meetings.

Special report N° 17/2015 Commission’s support of Youth Action Teams: redirection of ESF funding achieved but insufficient focus on results

By Rosmarie Carotti

Questions to Iliana Ivanova, ECA Member. This special report was adopted on 16 December 2015.

Based on our analysis, we found that the outcome of the Youth Action teams meetings and its implication for redirecting ESF funding towards youth employment measures were referred to only in a general way. Also in the Commission’s assessment of the National reform programs, the reference to the Youth action teams was mainly linked to general statements on amounts being reprogrammed to measures supporting young people rather than concrete solutions for the specific situation and needs of young unemployed people and their expected impact.

R. C.: Commission President Barroso called for action on youth unemployment at the informal European Council of 30 January 2012. He proposed the creation of Action teams consisting of representatives of national authorities and Commission officials for eight Member States having rates of youth unemployment of around 30 % or above at the end of 2011: Ireland, Greece, Spain, Italy, Latvia, Lithuania, Portugal and Slovakia. What was the mandate of the Action Teams?

Iliana Ivanova: Indeed, the Youth Action Teams Initiative was launched in a difficult period and aimed at mobilising unallocated EU structural funds, including ESF, towards measures supporting job opportunities for young people and help SMEs access funds. The experts were to have a fresh look at the use of EU funding in the eight Member States with highest levels of youth unemployment. They were supposed to utilise the Commission’s knowledge of good practice in different Member States in order to help national authorities reallocate funds to projects that would make, according to the “job description” of these teams as presented by the Commission, the “biggest difference in the shortest time”.

R. C.: Did and could they make concrete proposals to the Member States and effectively target the available funds?

Iliana Ivanova, ECA Member

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Iliana Ivanova: We found during our audit, that the initiative could not meet the expectations raised by the Commission at the informal meeting of the 2012 European Council, not least due to the limitations in the information available to the Commission, based on the monitoring and reporting arrangements under shared management for the 2007-2013 programming period. For example, the Commission did not have a complete and up to date information on the available ESF funding that could be potentially reprogrammed or reallocated.

As a result of these limitations our audit found that the Youth Action Teams made limited specific proposals on how to achieve faster and more effective results for young unemployed people.

R. C.: Did they make inspections in the countries? How often did they meet?

Iliana Ivanova: The Youth Action Teams had an advisory mandate rather than a controller or audit role. In this regard, the Commission did not carry out inspections or audits in the context of the initiative.

As regards the meetings of the Youth action teams, they have been held in the eight Member States in the period 14-28 February 2012. Figure 2 of our report presents more information about the dates of the meetings, the youth unemployment rate and the number of young persons unemployed per Member State.

R. C.: The Action Teams were proposed for the eight Member States with the highest level of unemployment and to help SMEs to get access to financing. The Commission also proposed a pilot action to re-allocate EU structural funds to tackle youth unemployment. Please explain the use of “structural funds” against “European Social Fund” used in other parts of the special report.

Iliana Ivanova: Firstly, I would like clarify that the Youth Action Teams was a pilot action proposed by the Commission to help the eight Member States having the highest levels of youth unemployment to re-direct some of their EU structural funds, which include mainly the European Regional

Development Fund and the European Social Fund, towards measures to increase job opportunities for young people.

The scope of our audit report has been limited to the European Social fund-related actions within the Youth Action Team Initiative. They mainly relate to helping people find a job or to increase their employability.

R. C.: Can one say that absorption of funds rather than a targeted action to reduce unemployment in specific areas was the main concern in the Member States?

Iliana Ivanova: Our audit focused on the Commission’s contribution to the Youth Action Team Initiative. Any reprogramming of ESF funding can be initiated by the Member State concerned through a proposal for modification of the relevant Operational Programme, which should be assessed and approved by the Commission.

We found that when assessing the Member States’ requests for amendments for the sampled Operational Programmes, the Commission did not examine whether the reprogrammed ESF funds were more likely to help young people to find a job or increase their employability than the ongoing measures. Instead, our audit shows that the Commission’s assessment focused mainly on budgetary aspects of the reprogramming exercise.

R. C.: Could the financial information provided by the Member States clearly be linked to the target group, that’s to say the young unemployed people?

Iliana Ivanova: For the previous programming period 2007-2013 the ESF financial monitoring system does not allow for funding to be directly linked to specific target groups such as young unemployed people. This is one of the reasons why the Commission experienced difficulties to meet the expectations raised with the announcement of the initiative.

R. C.: The conclusion reached in the ECA report is very hard: a direct link has not been established between the evolution of the trend in youth unemployment rate and the Youth

Special report N° 17/2015 Commission’s support of Youth Action Teams: redirection of ESF funding achieved but sufficient focus on results continued

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Action Teams. Is it enough to blame shared management between the Member States and the Commission for that? Would it not have been the Commission’s role to assess the effectiveness of the measures taken or at least carry out sufficient verification of the data presented by Member States?

Iliana Ivanova: The Youth Action Team Initiative is not a panacea and was proposed as a pilot exercise at a difficult moment. Its objective was to improve the effectiveness of EU funds and redirect them towards measures which are effective and achieve quickly the intended results, namely to reduce youth unemployment or improve employability.

Given the importance of the youth unemployment problem, it was a first step aiming at raising political awareness of the issue and preparing the ground for a more systematic and long-term approach which included the establishment of the EU Youth Guarantee. Currently we are carrying out an audit of the Youth Guarantee initiative which aims at assessing the results achieved in the Member States.

When proposing amendments to Operational Programmes, Member States are required to present justifications to the Commission on proposed revisions, including their expected impact. As part of the shared management arrangements the Commission has a clear role as it should assess the proposed changes and approve the amendment.

R. C.: How can the Commission in future avoid that its EU actions are jeopardised by national political and legal thinking?

Iliana Ivanova: Our analysis showed that expectations for initiatives such as the Youth Action Teams need to be better managed by the Commission, especially in cases of a potential gap between what is promised and what can realistically be delivered by its services. For this reason we recommend that for future initiatives of this kind, the Commission should take due account of the possibilities and constraints given by the political and legal context, its specific knowledge and expertise of the area and the availability of financial resources at EU and Member State level.

Link to the ECA SR on the web: http://www.eca.europa.eu/en/Pages/DocItem.aspx?did=34705

14Visit by the Lithuanian Parliamentary Committee on European AffairsBy Tomas Mackevičius, head of private office of Rasa Budbergytė

A delegation from the Lithuanian Parliament's Committee on European Affairs visited the ECA on December 2nd. The delegation comprised Messrs Gediminas Kirkilas (Chair of the Committee and Deputy Speaker of the Parliament), Vydas Gedvilas (Member of the Committee and First Deputy Speaker of the Parliament), Povilas Gylys (Deputy Chair of the Committee), Arminas Lydeka (Deputy Chair of the Committee) and Kęstutis Masiulis (Member of the Committee). The delegation was welcomed by President Caldeira, with whom discussions took place on a wide range of issues of mutual interest.

Bilateral discussions were then held on three topics of interest to the Committee and the ECA: energy security (with Phil Wynn Owen, ECA Member), economic and financial governance (with Zacharias Kolias, in his role as Principal Manager in this area), and external migration policy (with Danièle Lamarque, ECA Member).

Phil Wynn Owen presented information on the ECA’s recent and ongoing audits in the climate and energy domain. Particular attention was focused on the audit of the internal energy market and energy security. The very lively interactions on this subject reflected its importance and relevance in Lithuania, where considerable efforts are being expended to build secure energy bridges with European Union countries as an alternative to Russian supplies. The ECA’s audit of nuclear decommissioning was

From left to right: Gediminas Kirkilas, Chair of the Committee on European Affairs and Deputy Speaker of the Parliament; Povilas Gylys, Deputy Chair of the Committee on European Affairs; Vitor Manuel Caldeira, ECA President; and Vydas Gedvilas, Member of the Committee on European Affairs and First Deputy Speaker of the Parliament

also discussed, with the Committee expressing particular interest in the decommissioning of the Ignalina nuclear power plant in Lithuania.

Zacharias Kolias provided a summary of all audits being carried out by the ECA in the area of economic and financial governance. This subject area of was of particular interest to the delegation, given that Lithuania joined the Eurozone on 1 January 2015 and thus the national budget had been subject to assessment by the Commission for the first time. There were interesting discussions on the ECA’s current audit of the Excessive Deficit Procedure. The delegation participants pointed out that, while this procedure is intended to maintain public debt within pre-defined levels, it doesn’t allow for increased spending in order to stimulate economic growth.

Finally, Danièle Lamarque addressed the very topical issue of the EU’s external migration policy and the considerable challenges facing the EU in this regard. Discussions were wide-ranging, including the related financial concerns, specifically how the EU will respond in terms of funds and how national funds will be affected. It was agreed that the migration problem is now so wide, with so many different aspects and actors involved, that lack of appropriate coordination represents a significant risk. Furthermore, in such a complex area, the lack of a common understanding of the subject matter (with terms such as migration, refugees and asylum seekers often being used synonymously) needs to be addressed.

Overall, the Committee considered the visit to be a great success, with many important issues raised, and looks forward to future cooperation with the ECA.

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He also met with Yiannakis L. Omirou, President of the House of Representatives, and presented the annual report in a joint meeting of the Parliamentary Committees on Development Plans and Public Expenditure Control (Public Accounts Audit Committee), on Financial and Budgetary Affairs and on Foreign and European Affairs.

Presentation of the 2014 ECA Annual Report in CyprusBy Andreas Antoniades, head of private office

Lazaros S. Lazarou, ECA Member responsible for the statement of assurance, presented our 2014 annual report in Cyprus, from 16 to 19 November 2015. He presented the key findings and messages of the 2014 annual report, our contribution in addressing the current challenges to the European project and EU financial and budgetary matters concerning Cyprus. Furthermore, he made a briefing on our opinion on the European Fund for Strategic Investments (under the “Juncker Plan”)1 and on our special report on public procurement in cohesion2. Lazaros S. Lazarou, met with Nicos Anastasiades, President of the Republic of Cyprus.

“The report will be presented to the officials of the Cyprus Government“, the President of the Republic of Cyprus said.

1 Opinion No 4/2015 concerning the proposal for a Regulation of the European Parliament and of the Council on the European Fund for Strategic Investments and amending Regulations (EU) No 1291/2013 and (EU) No 1316/20132 Special report No 10/2015: Efforts to address problems with public procurement in EU cohesion expenditure should be intensified

Our annual report constitutes a useful tool in implementing the European and national budgets, for the Republic of Cyprus Government and the House of Representatives.

“I express my high appreciation for the presentation to the Cyprus Parliament of the key findings of the ECA annual report“, the President of the House of Representatives said.

In the context of his visit in Cyprus, Lazaros S. Lazarou had meetings with Harris Georgiades, Minister of Finance, the Auditor General, the Accountant General, and heads or representatives and staff of national authorities responsible for the management and audit of EU funds.

Lazaros S. Lazarou presenting our annual report to Yiannakis L. Omirou, President of the House of Representatives

Lazaros S. Lazarou presenting our annual report to Nicos Anastasiades, President of the Republic of Cyprus

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The presentation of our 2014 annual report received extensive media coverage in the Cyprus national news agency, the press and television, and radio stations. Lazaros S. Lazarou was invited to be a guest on the main news broadcast of one of the most popular TV stations in Cyprus (ANT1 TV), as well as on the morning news broadcast of the public TV station (CyBC1 TV).

TV studio – “ANT1 NEWS”, main news broadcast of 16 November 2015

TV studio – “CyBC1 MORNING NEWS”, morning news broadcast of 17 November 2015

Presentation of the 2014 ECA Annual Report in Cyprus continued

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“Famagusta – a European ghost town”, a photo exhibition at the ECA, from 30 November to 11 December 2015By Andreas Antoniades, head of private office

The opening of the exhibition was held on 30 November 2015, in the presence, of the ECA President and Members and, amongst others, the Mayors of Famagusta and Luxembourg cities, the Presidents of the European Court of Justice and the General Court, and Ambassadors.

Famagusta… a ghost town

In 1974, was looted, sealed and remains shut and uninhabited ever since. The term ghost Varosha, located outside the walled city, after its capture by Turkish troops on August 16, belongs to Swedish reporter Jan-Olof Bengston, who wrote in the Kvallsposten newspaper on 24 September 1977, of his visit to his country’s United Nations contingent at the port of Famagusta: “The road is full of cracks and bushes grow on the pavements. Today – September 1977 – the tables where breakfast is served are there, the laundry is hung out to dry and the lights are on. Varosha is a ghost town.”

Source: Cyprus Press and Information Office

From left to right: Chrysanthos Zannetos and Costas Hadjikakou; Famagusta Municipal Councillors, Koen Lenaerts, President of the European Court of Justice; Alexis Galanos, Mayor of Famagusta city; Lydie Polfer, Mayor of Luxembourg city; Vitor Caldeira, ECA President; Marc Jaeger, President of the General Court; Lazaros S. Lazarou, ECA Member

In his welcoming address, the ECA Member Lazaros S. Lazarou said:

“In addition to our contribution to European citizens through our audit work, we are pleased when we have the opportunity to contribute through social and cultural events such as this one.

It is the wish of all of us that the ongoing negotiations for the resolution of the Cyprus problem come

to fruition soon and Famagusta is returned to its rightful owners. A comprehensive, viable and lasting solution will allow the people of Cyprus (Greeks, Turks, Armenians, Maronites and Latins) to live together without dividing lines and cooperate for peace and prosperity in Cyprus and in the wider region.”

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Alexis Galanos, the Mayor of Famagusta city, opening the exhibition

In opening the exhibition, the Mayor of Famagusta city Alexis Galanos referred to the history of Famagusta and the Turkish invasion and occupation of the city, and the rest of the occupied Cyprus. He stressed the importance of the opening of Famagusta, as a measure to restore mutual trust between Greek and Turkish Cypriots. He emphasised that this measure would create good prospects for the resolution of the Cyprus problem.

Furthermore, Alexis Galanos referred to the Middle East crisis, and the current issues of migration and terrorism, in the wider region. He expressed the view that Cyprus, as a full Member of the European Union, contributes to stability. The settlement of the Cyprus problem, as he said, would further enhance stability and assist Europe to exercise a more strategic role in the region.

From the photo exhibition

“Famagusta – a European ghost town”, a photo exhibition at the ECA, from 30 November to 11 December 2015 continued

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Gender equality in power and decision-making

By Rosmarie Carotti

R. C.: Jolante, you are the head of the team for the General Equality index report on the implementation of the Beijing Platform for Action in the EU. Which are EIGE’s priorities in the EU and in what are they different from the priorities identified by the UN World Conference on Women in 1995 which led to the adoption of the Bejing Platform for Action?

Jolanta Reingardė: The EU is committed to the Bejing Platform for Action which was adopted in 1995 and has a strategy for equality between women and men. There are five priorities in it: economic independence, equal pay for equal job of equal value, violence against women, equality in decision-making and gender equality in external actions of the EU.

Interview with Jolante Reingardė from the European Institute for Gender Equality (EIGE) 26 November 2015

Jolante Reingardė during the interview

EIGE’s vision is to make gender equality a reality for all women and men in the European Union and beyond. Following a request of Luxembourg, which holds the Presidency of the Council of the EU in the second semester 2015, EIGE presented in a report the current situation and trends as regards women’s and men’s engagement in political, economic and social decision-making in the period from 2003 to 2014.

Every country which has the presidency of the EU Council – at the moment it is Luxembourg – chooses an area from the Bejing Platform for Action and has to produce a progress report, to show where the EU stands. The EIGE prepares this report for the presidency because the EU committed itself not only to solving the problems but also to monitoring regularly the implementation of the Bejing Platform for Action.

Luxembourg chose women in power and decision-making as a topic because in this field Luxembourg was one of the countries at the bottom of the ranking.

R. C.: You are just back from the Luxembourg authorities. What was your role there?

Jolanta Reingardė: EIGE is working very closely with the Luxembourg authorities. EIGE collected the data and drafted the report. The Luxembourgish Presidency has now prepared conclusions for the Council on 7 December 2015 when ministers responsible for equal opportunities of all EU countries will come together and vote for these conclusions. The EIGE report will be annexed to the conclusions which are important because ministers will take a political commitment, recognise that the problem exists and set actions to solve it. EIGE not only once again speaks about problems but actually leads to political action.

R. C.: We learn that in the European Parliament and in the European Commission the percentage of women has surpassed 30% and the European Pact for Gender Equality 2011-2020 reaffirms

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the Council’s commitment to gender equality and also specifically seeks to promote women’s empowerment in political and economic life. Although we speak about equality, the accent always seems to be on women because they are more fragile. Is the under-representation of women only due to historical and cultural reasons or are there also omissions by women?

Jolanta Reingardė: I would like to stress it very clearly. In the EIGE report, “under-representation of women” has shifted to “over-representation of men”. We are not saying that the problem lies in women and we are not blaming men either because it is not about naming, blaming or shaming. We have to talk about structures, how they work, how cultures work and certain institutional practices.

The term leadership is often associated with masculine attributes, competitiveness, aggressiveness, staying after working hours. Women might have different priorities, they have family and children. This culture of understanding leadership sometimes prevents women from accessing this position. We are making distinctions between de jure and de facto. In the EU we have almost perfect legislation in terms of gender equality but we do not see de facto equality.

R. C.: You talk about equal opportunity for women, but you do not really analyse equality of outcome, the quality of the work delivered by men and women. Are there statistics and studies showing that organisations are functioning better with the work of women?

Jolanta Reingardė: There is massive evidence for that. The World Bank recently released a report saying that there is a 26% difference of return on investment of capital between companies which have women on the board and companies which do not have women. And a large share of women in decision-making in banks can decrease the proportion of high-risk decisions.

We all know the outcome of the financial crisis globally. Could it have been different if there had been women in power? There is evidence which says that because women take decisions in more socially responsible way.

Besides, an organisation which respects gender diversity is more attractive and generates greater job satisfaction among staff. There is more productivity and efficiency.

R. C.: So far, when the discussion comes to gender equality, quotas are proposed. What is your opinion on quotas? Are they the right answer?

Jolanta Reingardė: The EU legislation says that gender equality has to be mainstreamed into the different policies and proposes positive actions. If there is an area where one sex is under-represented, it is fully legitimate to apply positive actions, meaning quotas. In countries which in the last ten years had binding or voluntary quotas, the percentage of women increased by 10%. But some countries like Sweden where there already is a high representation of women might be against quotas, because none of the women there would like to be a “quota woman”.

I think that EIGE and the EU feel that quotas are a legitimate means, but will not solve the problems on its own. There have to be other targeted measures like debates, work with cultural institutions and media, evaluation and monitoring.

R. C.: Let’s get to men who seem under-represented in the EIGE report. From what do they suffer? Why do they need to be included into the gender equality programme?

Jolanta Reingardė: Gender equality does not mean that someone has to have an advantage at someone else’s expense. We have to understand that at the moment in the EU men have more advantages than women on average. The fact that we need more women in decision-making and that we need an equal representation is beneficial for everybody. We are still operating in a patriarchal structure which works at the disadvantage of everybody because human potential is not fully exploited. The fact that society is not equally represented as it should has a personal price and a price for the organisation. The present culture of men working over-time falls negatively back on them, may cause health problems and leave not enough time for their family.

Gender equality in power and decision-making continued

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Men have to understand that it is not a battle that women have started against them; gender equality is beneficial for everybody.

R. C.: There are however biological differences and that there are jobs where the physical strength makes that the work can better be executed by men.

Jolanta Reingardė: We are not denying biological differences and that there are certain professions where male workers can do better but I will never agree on inequality of salary between the two genders for work which is equally valuable. When you compare the salaries between man and woman you still find huge differences. Why are jobs by women, for example in education, for health, less paid than those by men?

R. C.: Do you have concrete suggestions for the ECA on how to improve “equality of opportunity” and “equality of outcome”?

Jolanta Reingardė: Legislation is needed at national and European level but legislation will not solve all the problems. Organisations also have to do something. We have to start with a political commitment at the highest level and then think about actions, but in a structured way and not on an ad hoc basis. A plan could define the actions with the targets to achieve. Then here is the need for willingness to evaluate and monitor with clear responsabilities and a time frame.

The actions to take are often linked to human resources like recruitment, re-classification, promotion, and training. Does the organisation

have an anti-harassment policy? Do people openly talk about it? How flexible is the work? Here, do not think only about flexibility for women. An organisation has to promote flexibility for men as well. There are organisations which provide temporary facilities where women and men can bring their children to work. Mostly women go on parental leave but this again is not for women only because today too many women pay a high price for career breaks which impact on their pension.

If the ECA, as a European institution, starts implementing all that, it will disseminate good practices down to the national level.

R. C.: You said that it would be very important in an organisation to have an action plan with targets and responsibilities, monitoring and evaluation. Evaluation could be external and internal and you mentioned gender auditing. What do you mean by that?

Jolanta Reingardė: I mean an external evaluation of the institution’s action plan for gender equality, how it was implemented, what the outcomes were. The EIGE asked for a gender audit and it helped to set up another plan. Another example is Finland. They have a national legislation that states that state-owned organisations need to have an equality plan. There has to be an external evaluation and there even are sanctions for non-compliance with the legislation. Other countries, like my country Lithuania, also have a law on equal opportunities but although gender equality planning is a duty for the public sector there are no implementing provisions.

22Meeting of Chamber I Members with ENVI Committee Coordinators 25 November in Strasbourg

By the private office of Augustyn Kubik, Dean of Chamber I

Environment is a cross – cutting issue which arises in many special reports. Reports on the environment are produced mainly, but not only, by Chamber I. In recent years, the ECA has published a considerable number of interesting reports, prepared by different Chambers, which touch upon (among others) biodiversity, greenhouse gas emissions, integration of water policy objectives with the CAP or the emissions trading scheme. The list of ongoing and planned environmental audits is also promising. As an example: in the near future we are intending to produce a Landscape Review on EU energy and climate and a report on EU biofuels or Natura 2000.

To make best use of this work, the Members of Chamber I decided to meet the MEPs / Coordinators of the Environment, Public Health and Food Safety Committee (ENVI) and discuss potential closer cooperation. The meeting took place at the end of last month in Strasbourg and allowed the Members of Chamber I, who were supported by Kevin Cardiff (CEAD) and Ville Itälä (MIR), to present the details of existing and future environment-related reports by the ECA.

The discussion, inspired by the presentations, was lively and highlighted issues of special interest to the MEPs, among others the effectiveness of greening payments and the problem of waste in the Baltic Sea, but also triggered questions about the ECA's planning system. As a conclusion it was agreed to organise meetings between the ECA and the Committee on a regular basis and to focus the discussions on the results of particular Special Reports.

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ACP–EU Energy Facility support for renewable energy in East Africa

Special Report N°15/2015

In 2004, nearly two billion people did not have access to adequate, affordable and sustainable energy services, which are key in order to make firm progress towards development objectives. Created in June 2005, the ACP–EU Energy Facility aims to promote access to modern energy services for the poor in rural and peri-urban areas, with a strong focus on sub-Saharan Africa and renewable energy. In this report, we conclude that the Commission was mostly successful but could have done better in using the ACP–EU Energy Facility to increase access to renewable energy for the poor in East Africa. We make a number of recommendations for selecting projects more rigorously, strengthening their monitoring and increasing their sustainability prospects. This report was published on 3 December 2015 and is available on our website www.eca.europa.eu.

FocusEFOCUS

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Improving the security of energy supply by developing the internal energy market: more efforts needed

Special Report N°16/2015

This audit sought to determine whether implementation of internal energy market policy measures and EU spending on energy infrastructure have provided security of energy supply benefits effectively. The EU’s objective of completing the internal energy market by 2014 was not reached. Energy infrastructure in Europe is generally not yet designed for fully integrated markets and therefore does not currently provide effective security of energy supply. Financial support from the EU budget in the field of energy infrastructure has made only a limited contribution to the internal energy market and security of energy supply. This report was published on 16 December 2015 and is available on our website www.eca.europa.eu.

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The ECA says: Hello to: Andras BARTAL Paulo BRAZ

Goodbye to: Fernando PEREZ ABADSylvain RAVAGLI

EFOCUS

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FocusEFOCUS

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Review of the risks related to a results-oriented approach for EU development and cooperation action

Special Report N°21/2015

In our review, we identified nine key risk areas related to a results-oriented approach for EU development and cooperation action.

Our review showed that these risk areas had been correctly identified by the Commission. It also showed the interest in the Commission's initiatives to improve EU development and cooperation results.

Nevertheless, further actions remain to be taken in order to make these initiatives fully effective. We formulate a number of recommendations in this regard. This report was published on 16 December 2015 and is available on our website www.eca.europa.eu.

Commission’s support of youth action teams:redirection of ESF funding achieved, but insufficientfocus on results

Special Report N°17/2015

In 2012, youth action teams composed of experts from the competent national authorities and from the Commission were established for the eight Member States experiencing particularly high levels of youth unemployment. The action teams had the objective of helping these Member States make the best use of EU structural funding by directing unallocated funds (including European Social Funds of around 10 billion euro) from the 2007–2013 programming period to projects that supported job opportunities for young people and facilitated access to funding by small businesses.

Through this audit the Court assessed the extent of the redirection exercise in relation to the unallocated ESF funding and the contribution made by the youth action teams in this regard in helping national authorities reallocate funds to projects that would make the ‘biggest difference in the shortest time’.

This report was published on 16 December 2015 and is available on our website www.eca.europa.eu.

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By Amita Patel, Principal Auditor

The Landscape review

The Landscape review The Landscape review takes stock of what the ECA had said in its reports and opinions, and presents it in one easily accessible and readable document. The reporting ECA Member was Dr Ludborzs and Dean of CEAD Chamber.

We knew in advance that 2014 was going to be an exceptional year – there was going to be a new European Parliament and a new Commission, and the start of the new 7 year spending cycle (MFF 2014-2020). We wanted to publish a document addressed at new MEPs and new Commissioners, explaining to them the main risks to the financial management of the EU budget that we had identified in the course of our work, a sort of ‘Dummies guide to the EU finances’.

This LR is not the first attempt that the ECA had made for this kind of report – its opinion 1/2010 was about improving the management of the EU budget, and in the lead up to the MFF negotiations, the ECA had also made a response to the Commission’s communication “Reforming the budget, changing Europe”.

The LR is based largely on ECA’s outputs (special reports, annual reports and opinions), and it reflects its accumulated experience and knowledge.

Amita Patel,

It does not include any recommendations, but aims to be a basis for dialogue and consultation with stakeholders, and an instrument to raise awareness and foster reflection.

It consists of an executive summary, a more detailed report providing background, and seven factsheets – one each on revenue and procurement, and one on each of the five MFF headings, being the main categories of expenditure.

The advantage of us doing this was that due to our experience and knowledge, we have an overview of EU finances that others outside the Commission do not necessarily have. We see information that is not easy to find, even if it is in the public domain. And the main advantage was that with the LR we could summarise and put all the relevant information in a context in one relatively concise document.

We went to great pains to write the report in plain language, and to use graphics to convey complex information. When published, it got mixed reactions:

- Within the house some considered that the messages could be construed as political, and we were venturing beyond our call of duty; others considered it a useful document that gave an overview of the main areas of the budget; Yet others considered that it was too long, forgetting that outsiders do not have access and the overview that we have, and disregarding the fact that distilling information can lead to a point where the published document is only meaningful to insiders – while the point of our LR was precisely opposite, to give interested but not necessarily informed readers an overview of the main risks.

26 The Landscape review continued

- The secretariat of the Committee on Budgetary Control Committee (the European parliament civil servants that prepare the meetings for the MEPs and the Budget Committee) were frank, considering it yet another document with nothing new in it, bashing the Commission. However, the chair of the Committee (Mrs Inge Gräßle) appreciated the document [Hearsay: she wanted all MEPs to read it], and we could see that it influenced the speeches made in the discharge procedure in 2015.

The Commission itself was not consulted early enough in the publication process. Although the LR was a synthesis of all our previous reports, the information was presented differently, and it did include new factual information taken from Commission documents. We missed an opportunity to build bridges with officials in the Commission.

Taken together, what comes out of the LR summary is that we need to pay more attention to balanced reporting, and to include sufficient background information on the audited subject matter.

To show a balanced view of the EU, and to put the spending in context, we included information on the EU’s achievements.

In the last two decades, the EU has met the challenges of:

° integrating 16 new countries;

° it has introduced the euro, and made a concerted response to global financial crisis and the sovereign debt crisis in Europe.

° While some work needs to be done to deepen the internal market, it has been established with little budgetary spending.

°And EU funds have contributed to the creation and consolidation of structures and networks that bring EU citizens and organisations closer to each other.

However, the crisis has raised challenging questions about the role and development of the EU, and what it means to be part of the EU.

The main business of the EU is in making and regulating policies. But as the presence and powers of the EU have increased, there is a tendency to assume that it has budget to match. This is not actually the case.

The EU budget itself is a relatively small amount of money that national governments make available to spend at the EU level, and is not like the budget of a member state.

It represents 1% of the EU-28 combined GNI, and 2% of their expenditure. And it is but a tiny fraction compared to the 5000 billion € of state aid used to support the financial sector in the period 2008-2014.

Member States contributions are pooled and redistributed to help achieve the EU’s Treaty aims and policy objectives, and the EU budget spending should be aligned in order to achieve the Europe 2020 goals, which are priorities to boost growth and create jobs.

However, the manner in which these contributions are calculated is complex, and is not transparent. The main problem is how much each Member State contributes to the budget.

And although 80% of the resulting budget is pre-allocated to Member States, and 88% of the spending is for their direct benefit (the remaining 12% is for external actions and administrative

The EU’s achievements

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expenditure), we see an increasing reluctance on the part of the Member States to finance the budget.

The nature of the contributions from Member States has changed, and the traditional own resources are an increasingly small part of the resources. In this crisis period, with austerity and other pressures on national budgets, Member States are beginning to question what their contributions are used for, and are developing the ‘net return mentality’ rather than of solidarity within the Union.

The earmarked annual envelopes reinforce a culture which concentrates on net balances and redistribution of the EU budget rather than on considering how common EU resources can be best invested and used for the common good.

However, ‘net balances’ are simplistic because they also ignore that money maybe flowing back to Member States in different ways than just

through allocations. For example, monies allocated in a particular country may be used to build infrastructure – and the companies awarded the construction contract may well be from another Member State.

So if we go back to our comparison of the EU budget with the EU GNI and public expenditure of all the Member States together, a very different picture would emerge if we compared:

- the EU budget with the budgets of individual national budgets;

- the amount of the Member State contributions and the budget pre-allocated to individual Member States;

- individual Member State contributions and state aid provided by it to the financial sector during the crisis.

The Multiannual Financial Framework

28 The Landscape review continued

When the ECA started the Landscape review, the MFF negotiations were still on going.

Because of the way in which the Member States reported on the budget amounts during the negotiations, and to avoid confusion due to different figures being reported, the ECA wanted to show clearly the amounts for commitments and payments budgets over the next seven years.

The diagram shows that the Commission is authorised to commit up to € 960 billion, likened to a credit card spending limit, but it can only pay out € 908 billion euro (at 2011 prices).

This latter amount is de facto the cash that Member States will put on the table.

Because the payment budgets have been consistently lower than the commitment budgets, these accumulated differences represent approximately € 326 billion as at the end of 2013.

Risks to the financial management of the EU budget

Another way of looking at this is that if the EU had to shut shop on 31 December 2013, it would have had to find € 326 billion to pay out its commitments.

The main elements of this € 326 billion are:

RAL Commitments made as yet unpaid € 222.4, most of which are for cohesion spending

EU pension & employee benefits of € 45.8

Payables (charges and cost claims from Member States) € 48.6

Another thing to remember about the payments budget is that it specifies the amounts that can be paid against the budget lines.

So there could be the situation that the Commission has cash, but cannot make payments because it does not have the approved appropriations for making the payments against these budget lines.

The risk that the budget will not be accounted for properly in the accounts is generally not a problem.

As regards that the risk that the budget is not spent as intended, for the purposes and according to the rules established by the budgetary authority,

the ECA has always given a negative opinion on the legality and regularity of budget spending (transactions) because, with the exception of revenue and administrative expenditure, the level of error is above an acceptable level – the acceptable level being the 2% materiality level set.

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The last two risks should in fact be combined risk.

So in addition to the above four high level risks, the ECA auditors were inspired by SIGMA’s framework for risk identification (which is a joint OECD and EU initiative for improving governance and management).

Annex 1 to the Landscape review provides a detailed list of the approximately 80 types of external, financial and activity risks that may occur in spending the EU budget.

For too long the emphasis has been on spending the EU budget according to the rules established for its use, without paying sufficient attention to whether it provides value for money and results in EU added value.

EU added value is the concept that clear and visible benefits arise for the EU and for its citizens which could not be achieved by spending only at the national, regional or local levels.

This concept can cause a dilemma – because even if there is little or no EU added value, spending money creates the multiplicator effect, and may also contribute to building up administrative capacity in the Member states.

Also, spending the budget does not necessarily bring immediate benefits, which may only be seen in later years. There are also other intangible benefits – for example, EU funding in a designated geographical area may also attract other investors.

Inherent risk in spending

Inherent risk is high in spending a complicated budget in a complex environment.

The Commission’s staff working paper: “a budget for Europe 2020”, which was prepared for the MFF negotiations, recognised that “there are many separate programmes, projects and actions serving similar objectives, to which different management and control rules apply. Multiple funding sources occur across various policy areas”.

There are over 30 policy areas. And thousands of projects are funded using an array of instruments – grants, subsidies, loans, guarantees, direct budget support to countries outside the EU, financial instruments and other innovative products to leverage EU funds.

It is quite ironic that a large part of the external aid provided to third countries takes the form of direct budget support, that is, contributions to the

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budgets of the countries concerned, whereas aid provided to the EU Member States comes with many conditions and constraints.

For example, some Nordic countries (SE, FI) are questioning the manner in which the whole budget system is set up, considering that budgetary transfers may be an alternative to making contributions to the EU budget which are then redistributed back to them, and to be used only if national co-financing is available to finance projects that would not necessarily be financed from the national budget.

Spending involves actors from 33 Commission departments and 7 horizontal services,

30 plus agencies, joint undertakings with other countries and with the private sector,

central, regional and local authorities in the Member States,

civil organisations,

international organisations,

third countries, the EIB and other bodies in which the EU participates.

But when programmes, projects and actions benefit from a rage of funding from various sources (EU and national budgets, EIB and others), total costs may not be apparent.

Moreover, as each source of funding will have its own governance and reporting arrangements, this has sound financial implications for Member States providing money through the various channels.

For shared management expenditure, except for agricultural spending, the Member States must finance part of the costs themselves, and EU funds are only available if national funds are also available. This may slow down the implementation of EU funded programmes in Member States where as a result of austerity programmes, the MS co-financing is not available.

Because of the n+3 rules, Member States and others charged with spending the budget may focus on using it within the time period, at the expense of using it properly or effectively, rather than losing it.

And the pressure to spend without sufficient regard to achievement of expected results may bring poor value-for-money from EU funds.

The Landscape review continued

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Poor value-for money could result from weakness in the preparation, execution and monitoring of the actions e.g. if the purpose of the funding is not clear, or there is no preliminary evaluation, or assessment of the actual funding needed; or/and if there is a lack of information about what was actually achieved and the benefits it brings.

It may result in actions being funded that would have been funded anyway (deadweight), or funding of projects with costly, unnecessary features.

Inadequate needs assessment combined with unclear, general or too many objectives:

SR 17/2009 – Vocational training for women – on which men participated because there were insufficient women

SR 7/2013 Globalisation adjustment fund EU added value in reintegrating redundant workers – EU support for the unemployed was getting good results – but these EU funded activities were offering much better support than what was being offered through similar nationally funded activities

SR 22/2012 European integration fund and European refugee fund – activities for the integration of refugees are not much different from actions for the integration of immigrants, but MS have to draw artificial lines in order to identify which beneficiaries are supported by EU funding.

SR 7/2012 on the Wine CMO – because of unclear rules, grubbing up measures aid was paid to farmers who had recently received support for upgrading and modernising their production rather than targeting less viable vineyards

SR 16/2012 single area payment scheme - some evidence that subsidies did not reach the intended beneficiaries, being absorbed by higher land rentals and land prices. Until recently, direct payments being paid to entities and persons who were not farming.

SR in rural development, all applicants being given support although there were selection criteria, for the simple reason that funds were available.

Costly, unnecessary features:

SR 5/2013 – EU cohesion policy spending on roads – motorways being built where a dual carriage way would have suffices, or over the top barriers to stop noise pollution

SR 4/2012 – transport infrastructures in Seaports: seaports were being developed in areas where there is insufficient demand and insufficient connections and infrastructure to allow optimal use of the ports, and too many ports being developed

SR 3/2009 waste water facilities – not designed with demand in mind – so some were much bigger than were required, and a few were smaller than the needs

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SR 12/2011 capacity of fishing fleets to available fishing opportunities – fisheries expenditure which on the one hand gives support for modernising fishing fleets – building better and bigger boats, with more efficient means to have bigger catches, while at the same time trying to reduce fishing by imposing quotas

SR 10/2011 School milk and fruit – funding activities which would have been done by MS anyway, EU added value questionable

Incomplete information / inadequate monitoring

SR 21/2012 cost effectiveness of cohesion policy investments in energy efficiency – use of

performance indicators was mandatory, but the type of indicator was not prescribed. Consequently, managing authorities in the MS used different measurement methods and units. As a result, the energy efficiency measurements were not comparable between MS, and could not be aggregated across the EU.

Incidentally, energy efficiency is also an area where political commitment is not necessarily backed up by measures adoptee and the resources allocated, so the achievement of the policy is disadvantaged from the start.

Challenges to good quality EU expenditure By John Sweeney

Eligibility rules

In some budget areas there are too many layers of rules, with conditions dispersed throughout many legal texts, or unclear conditions. This may lead to differing interpretations and thus inconsistent application of rules.

Public procurement

Many of the errors that the ECA finds relate to the poor application of procurement rules and

procedures. For example, the ECA’s compliance audits have revealed consistently high levels of error concerning compliance with public procurement procedures in the Cohesion area. In 2012, for example, the quantifiable errors related to non-compliance with EU or national public procurement rules accounted for 52% of the estimated error rate of the regional policy, and for 26% of the estimated error rate of the employment and social affairs area.

Capacity of Member States’ authorities to manage and spend EU monies

The Landscape review continued

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The availability of monies brings prosperity, just by the fact that funds are spent, and helps to build capacity. However, the fact that monies are spent by those with differing capacity increases the risk of errors occurring, as well as the risk of poor quality spending.

It may slow down the implementation of EU funded activities and projects (the absorption of EU funds) and affect the quality of regulatory activities and hamper the exchange of information between the Commission and Member States.§

Coordination of EU and national budgets with pressure to use EU funds

The annual nature of the EU budget can cause problems with the funding of actions that are carried out over a number of years. Moreover, the EU and national budgetary processes are separate.

For areas of “co-financed expenditure”, austerity measures in Member States may result in national funds being significantly reduced or not being available at all to carry out the actions.

Because of the emphasis on spending the EU budget (“use it or lose it”) those managing the activities and projects may focus on compliance with the conditions for getting and using the money, regardless of the results achieved.

Financial management may largely focus on spending the budget available.

Impact of annual EU budgets on activities and cash-flow management

Member States’ authorities, other intermediaries and beneficiaries may receive cash advances (“pre-financing”) to start up their activities. Unnecessarily long periods of pre-financing can increase the possibility of error and loss, and make it especially difficult to re-orientate activities to achieve objectives.

It was already said that because the payments budgets are consistently below the amount that the Commission is authorised to spend (commitments), the long term accumulated differences of € 326 billion will have to be financed, and it affects the Commission’s ability to meet all requests for

payments in the year in which the requests are made.

The problem is not just one whether the Commission has cash available to make payments – it’s also the fact that payment appropriations are specified in the budget, and generally own resources required are anticipated on a monthly basis (1/12th). However much the Commission asks for MS to provide details of anticipated payments, there can still be requests for payments from MS that were not anticipated.

It’s also quite possible that the Commission may have the necessary cash to make payments, but it cannot pay because the payment appropriations (budget) is not available due to the specified nature of the budget payment appropriations.

Benefits from spending from the EU budget

Expenditure from the EU budget within the Union should offer clear and visible benefits for the EU and for its citizens which could not be achieved by spending only at national, regional or local level.

EU added value has been a recurring theme in recent special reports and annual reports including the 2014 annual report where the ECA noted that EU added value is given little prominence in Commission reporting.

The way forward

The start of the new multi-annual financial framework in 2014, the introduction of related implementing legislation and the new financial regulation, all provide opportunities for simplifying and improving the financial management of the EU budget.

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Prioritise activities

The Commission, with the support of the European Parliament and the Council, should prioritise spending on activities where there is European added value, such as areas where the Commission has sole competence, cross border actions, projects promoting common interest and European networks.

Performance management

The changes proposed for the shared management arrangements in the 2014 – 2020 MFF remain fundamentally focused on expenditure rather than on the results achieved. Furthermore, their success will depend on how well they are implemented by both the Commission and especially the Member States.

Budgetary management

For budgetary management purposes, the Commission needs to improve and publish its long term cash flow forecast, in order to better anticipate the monies required from Member States and to ensure that the necessary payments can be met from approved annual budgets. The Commission should also benchmark unit costs of activities and programmes that it co-finances across the MS, allowing public bodies to better compare and

monitor the value for money of their spending programmes.

Benchmarking by the ECA

SR 5/2013 cohesion policy spending on roads – benchmarking costs of building materials used

SR 24/2012 – EU solidarity Fund response for earthquake in Italy – benchmarking of costs of the temporary housing with housing costs from architect’s reference book

SR 3/2009 – standards in third countries and their implementation

Control arrangements and the work of others

The Commission and Member States should both ensure that control arrangements are well implemented and effective.

This was found to be problematic in the past by the ECA:

SR 7/2010 – agriculture – clearance of accounts procedure and Member States inspections

SR 16/2013 – cohesion – taking stock of the single audit and the Commission’s reliance on the work of national audit authorities in cohesion

The Landscape review continued

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SR 3/2012 Member States management and control systems

While the ECA is looking at ways in which it can use the work of others, it is constrained by the rigour required by the standards.

Mid-term review of the MFF

The reflections need to start early. Firstly, on how to build on the opportunities presented in the TFEU (Article 311 (3)) which allows for the creation of new sources of EU revenue and how to ensure that the part of the EU budget funded by Member States is done so in an equitable, transparent, cost-effective and simple way, based on each Member State’s ability to contribute.

Secondly, as long as the current system is driven by reserved national allocations rather than the results to be achieved, the effectiveness of EU spending cannot be assured.

Proposal for reflection

1. Review all commitment budget lines for low used, overlapping spending

2. Do the payment appropriations need to be specified in the budget? Sufficient for commitments budget to be specified?

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© European Union, 2016 Reproduction is authorised provided the source is acknowledged/Reproduction autorisée à condition de mentionner la source

EUROPEANCOURTOF AUDITORS

ISSN 1831-4112

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Main Contents

03 VISIT OF THE AUDITOR GENERAL OF THE REPUBLIC OF LITHUANIA TO THE ECA

06 INTERVIEW WITH DR ARŪNAS DULKYS, AUDITOR GENERAL OF LITHUANIA

11 SPECIAL REPORT N° 17/2015 COMMISSION’S SUPPORT OF YOUTH ACTION TEAMS: REDIRECTION OF ESF FUNDING ACHIEVED BUT INSUFFICIENT FOCUS ON RESULTS

14 VISIT BY THE LITHUANIAN PARLIAMENTARY COMMITTEE ON EUROPEAN AFFAIRS

@EUAuditorsECA