Changes from plenary report to adopted text

119. Stresses with concern that the Court’s finding that the proportion of assurance packages with residual error rates of above 2 % reached a peak of 61 % of the expenditure in the Court’s sample in 2022 compared to 39 % in the previous year, reflecting the persistent shortcomings in the work of the audit authorities; stresses with concern that the Court’s audit results over the last six years demonstrate that the controls currently in place do not yet sufficiently offset the high inherent risk of error in cohesion, and that managing authorities do not always effectively prevent or detect irregularities in expenditure declared by beneficiaries; notes with concern that the errors found by the Court represent significant weaknesses in the audit authorities’ work on verifying the eligibility of expenditures and projects, and the compliance with internal market rules; notes that a part of the residual error rates recalculated by the Court above 2 % in the audited assurance packages are attributable to the aforementioned divergences;

120. Is concerned about the persistent shortcomings observed by the Court in the national audits, which can be due to inadequate scope, unclear documentation of audits and sample filtering performed by national audit authorities, as well as resource issues, such as inadequate funding and a lack of a skilled experts; stresses its concern that the Court observed weaknesses in a wide range of audits, for example cases of insufficient checks on information provided by beneficiaries on the eligibility of projects, on the compliance with internal market rules and on the risk of fraud and conflict of interest; notes that the Commission, on the other hand, considers the work of the majority of the audit authorities to be reliable and that only 10 out of 116 audit authorities need serious improvements; recalls its recommendations in the Parliament resolution of 21 November 2023 on possibilities to increase the reliability of audits and controls by national authorities in shared management;

121. Notes the Commission’s commitment to continue its close work with the audit authorities in order to strengthen their capacity to prevent and correct errors, to better document their audit work and therefore to contribute to the assurance process;

122. Notes the Court’s finding that, as a way to simplify expenditure, beneficiaries of cohesion policy funding used SCOs for 77 transactions, or 30% of its sample, applying either flat rates, standard sales of unit costs or a combination of both; stresses that SCOs are one of the most important measures to reduce administrative costs and burdens for the beneficiaries and thus, to facilitate the access of small beneficiaries to the funding and focus more on the achievement of the objectives while reducing the error rate; highlights that the Court considers that SCO’s are not always adequately implemented and shares the Court’s audit conclusion that SCOs should not result in an excessive financial benefit for a member state; on the other side SCO should in practice lead to real reductions of bureaucratic burden and not to an exhaustive ex-ante and ex-post control; notes that slight variations of prices in SCO estimates compared to the prices identified during ex-post controls should be acceptable;

123. Notes that, for the 2021-2027 programmes, the Commission has encouraged the use by programme authorities of the simplification measures foreseen under the CPR, in particular, the use of SCOs and financing not linked to costs (FNLC) schemes to tackle eligibility issues, ease management verifications and control the burden on beneficiaries; notes that, as a result of this effort, for the ERDF and the CF for example, 120 SCO schemes at programme level were adopted so far in 11 Member States and for Interreg programmes (EUR 5,7 billion of total contribution) as well as 4 FNLC schemes in 4 Member States (for EUR 1,2 billion of total contribution); underlines that urgently further simplification and flexibility is needed; calls on the Commission to find the right balance between necessary flexibility for slight price variations and on the other sider inappropriate intentional cost and price overestimations;

124. Is concerned by the Court’s finding regarding an ERDF programme in Slovakia aimed at renovating a public building’s interior space, despite the fact that under that program only energy-efficiency measures were eligible; notes the Court’s observation that this project should not have passed the evaluation phase, as in the application the threshold of at least 25 % of the expenditure for the project linked to energy efficiency was not met; notes similar cases identified by the Court that lack a Commission response;

125. Recalls that for the 2021-2027 period, Member States need to comply with certain horizontal or thematic enabling conditions of the CPR, which are prerequisite conditions for the effective and efficient implementation of the specific objectives of the funds; recalls that when enabling conditions are not fulfilled at the time of submission of a payment application to the Commission for the specific objective concerned, the related expenditure will not be reimbursed from the Union budget until the Commission is satisfied that the enabling condition has been fulfilled;

126. Recalls that on 15 December 2022, based on a Commission proposal, the Council adopted Implementing Decision (EU) 2022/2506 on measures for the protection of the Union budget against breaches of the principles of the Rule of law in Hungary; stresses that the decision was based on the Commission’s concerns regarding severe issues related to the public procurement system in Hungary; welcomes the temporarily suspension of 55 % of commitments for certain cohesion policy programmes for the period 2021-2027; notes that the Commission has been monitoring the implementation of the remedial measures proposed by Hungary in the framework of the ‘Conditionality Regulation’; notes that in December 2023, the Commission reassessed on its own motion the situation in Hungary and concluded that the Union’s budget remains at the same level of risk as there are still commitments that were neither correctly nor timely fulfilled;

127. Notes that in December 2022, the Commission concluded that Hungary was not fulfilling the horizontal enabling conditions under the CPR on the Charter with regard to judicial independence and the provisions of several laws posing serious risks to LGBTIQ+ rights, academic freedom and the right to asylum; strongly regrets the Commission decision of 13.12.2023 considering that Hungary has fulfilled the horizontal enabling condition related to the judiciary independence, thus enabling the Hungarian authorities to submit reimbursement claims of up to EUR 10.2 billion without adequate control mechanisms or public procurement procedures in place to guarantee sound financial management and the protection of the Union budget; believes that this decision politically contradicts the prolongation of the measures adopted under the Conditionality Regulation and expresses its disappointment that Parliament was not adequately informed during the process; reiterates its concerns regarding the judicial independence, even after the recent reforms, as expressed in its Resolution of 18 January 2024 on the situation in Hungary and frozen Union funds;

128. Reiterates the need of treating as a single, integral package all the measures required for the release of Union funding under the Conditionality Regulation, the CPRs and the RRF Regulation; stresses the importance of the protection of the Union financial interests also for disbursement of pre-financing;

130. Stresses that the Court, OLAF and the EPPO should have access to a single integrated IT system for data-mining and risk-scoring provided by the Commission, in a proportionate manner, within the exercise of their respective competences, as is envisaged in the recast of the Financial Regulation;

131. Highlights the importance of the legality and regularity of cohesion spending as well as the crucial role that managing and audit authorities play in this respect; recalls the need to simplify and rationalise audits, concentrating on what is necessary to fight against fraud; recalls, in addition, that according to the 21-27 Common Provisions Regulation, Member State authorities should report all cases of suspected or established fraud related to Union-funded projects that they identify, and that they should report these cases even if they detect them before declaring expenditure to the Commission;

132. Highlights the significant role of the European Anti-Fraud Office and the European Public Prosecutor’s Office (EPPO) in protecting the Union budget; calls on all Member States to join the EPPO; reminds that, in her appearance before the Committee on Regional Development on 25 May 2023, the European Public Prosecutor noted that the management and control system for Union expenditure currently in place is not designed to detect fraud and that audits or administrative investigations rarely detect financial crime, which often has a cross-border dimension; stresses the need to provide the EPPO with the necessary means to carry out its duties; is of the opinion that a strengthened EPPO would make it possible for the legislator to further simplify the regulatory framework for cohesion in order to improve the implementation of the funds;

133. Requests OLAF to carry out a thorough investigation on the possible misuse of Union funds through Erasmus+ and the European Solidarity Corps by networks of associations that present false projects, with the aim of verifying recent reports on this matter by some national agencies, measuring the scale and importance of such cases of fraud, and analysing their treatment by competent authorities in the Member States;

Recommendations

134. Calls on the Commission to:

(i) proactively engage in constructive dialogue with the Court to overcome the growing number of situations where the Commission’s official response to the Court’s findings is to ‘agree to disagree’ and continue its cooperation with the Court in order to align the results of their estimated error rates and the interpretation of legal texts;

(ii) match the Court’s findings concerning Member States’ declarations with the information coming from the Commission’s risk at payment and risk at closure exercise on managing authorities to identify error hotspots that need to be addressed with urgency;

(iii) continue its close work with the audit authorities in order to strengthen their capacity to prevent and correct recurring errors, to better document their audit work and therefore to contribute to the assurance process;

(iv) improve and strengthen Member States' management and control system to ensure member states declare only eligible expenditure to the Commission;

(v) ensure that audit authorities have appropriate methods in place to check self-declarations by means of identifying good practices and issuing a guidance to Member States;

(vi) carry out specific targeted checks as part of the closure audits to ensure that Member States have applied the necessary financial corrections for errors detected;

(vii) pay particular attention in its audits to the risks linked to the flexibilities introduced with the CRII/CRII+ amendments; launch an immediate review of spending under these programmes to identify and correct systemic issues which have led to an abrupt increase of the error rate;

(viii) continue its support to Member States and at the same time prepare an action plan on how to best avoid the administrational over-burden towards the end of the MFF that will come on top of the planned RRF eligibility period, given the completion of the 2014-2020 programming period and the implementation of the current one, in particular by supporting administrative capacity building;

(xii) work, in order to achieve a successful uptake of SCOs, in parallel with all stakeholders, on methodological and assurance harmonisation so that there is sufficient predictability for the beneficiaries on how those options are expected to be implemented; and ensure that audits do not lead to further bureaucratisation of implementation and an unnecessary audit burden on beneficiaries; ensure SCOs are not implemented in a way that Member States gain excessive financial benefit, while guaranteeing an appropriate flexibility in the cost and price estimations;

(xiii) work together with Member States' audit authorities to ensure that the specific risk of double funding, especially with the RRF financing, is reduced by adequate national controls and audits; insists that the Commission performs thematic or compliance audits tailored to target high-risk areas and Member States; and

(xiv) establish a comprehensive mechanism for the use of cohesion funds in the event of exceptional or unforeseen circumstances using guiding provisions on its scope, funding availability, governance, audit and control, and application; underlines that such use for exceptional circumstances should be restricted to specific and well defined situations, limited in time and scope and with an increased degree of controls to mitigate risks;

(xv) calls on the Commission to re-assess its decision to “unfreeze” EUR 10.2 billion of cohesion funds to Hungary and to refrain from disbursing any funds until the relevant legislation has been implemented and the adopted measures have proven to be effective in practice;

(xvi) make the use of IT tools such as EDES and ARACHNE mandatory and systematic for all Union funds including shared management and ensure better use of new technology in order to increase controls and protect the Union budget against fraud and misuse of funds in the context of the concluded revision of the Financial Regulation;

(xvii) grant the Court, OLAF and the EPPO access to a single integrated IT system for data-mining and risk-scoring provided by the Commission, in the terms agreed in the recast of the Financial Regulation;

(xviii) report on the early preventive system audits (EPSA) performed at the beginning of the programming period, in order to confirm the effectiveness of the control systems in the Member States, including the system in place to prevent irregularities;

(xix) report to the discharge authority how the use of flexibility measures in cohesion policy, that have improved absorption, has affected the structural cohesion objectives of convergence and cohesion;

Culture and education

135. Welcomes the Commission’s and the European Education and Culture Executive Agency’s (EACEA) efforts to adapt Erasmus+, the European Solidarity Corps and Creative Europe to a changing reality, for instance by reviewing upwards individual support rates for grants to safeguard their inclusive character, extending application deadlines and project duration, and a voluntary refocusing of activities on Ukraine, and expects more efforts to further reinforce inclusion measures and support to facilitate the participation of vulnerable groups;

136. Appreciates that the Commission and the EACEA managed to achieve nearly full budget execution for Erasmus+ and full budget execution for the European Solidarity Corps in 2022, making it even necessary to redeploy credits from other programmes to cover payment needs; notes the challenges to the payment implementation of Creative Europe in 2022, with some EUR 50 million having been deferred to 2023 as a result of operational issues and delays in the granting processes; recognises DG Education, Youth, Sport and Culture’s (DG EAC) and the EACEA’s efforts to limit the impact of these delays and return to a normalised pace in 2023;

137. Reaffirms the need for increasing further the budgetary envelopes of the EU’s youth, cultural and educational programmes, in particular to increase the outreach to and involvement of young people, artists and professionals with fewer opportunities and to support citizenship education; in this respect, requests the Commission to continue cooperating closely with the Member States;

138. Welcomes the fact that, thanks to a EUR 3 million reinforcement of the 2022 European Year of Youth at the Parliament’s insistence, a number of actions under the Year could be strengthened, such as solidarity projects, volunteering and networking activities; underlines that the successful results of the Year should now be sustainably implemented to ensure its lasting legacy;

139. Notes the continued frontloading of the Creative Europe budget in 2022 for mitigating the persisting impact of the COVID-19 pandemic on the cultural and creative sectors; notes that, thanks to this frontloading, a higher number of European cultural cooperation projects could be selected in 2022 than ever before; is, however, concerned that the frontloading of 2021 and 2022 may lead to a shortage of funding from 2023 and deplores that the programme as a whole remains underfinanced in relation to the objectives to be achieved, notably given its high subscription rate;

140. Notes with concern the persisting challenges in 2022 with the e-Grant tools for beneficiaries of calls managed by the EACEA; strongly urges the Commission and EACEA to address these IT issues once and for all to avoid repercussions on target achievement, to reduce the risk of errors and to simplify procedures; believes that a more efficient and accessible IT infrastructure would also facilitate small beneficiaries’ access to programme resources;

141. Notes the positive development in the EACEA’s staffing situation, with a significant increase of staff by the end of 2022;

Natural resources

142. Notes that the budget for the programmes under MFF heading 3 ‘Natural resources’ was EUR 58,3 billion (29,7 % of the Union budget) distributed as follows: 65,9 % for direct payments under the European Agricultural Guarantee fund (EAGF), 26,2 % for the Agricultural Fund for Rural Development (EARDF), 4,7 % for market-related expenditure under the EAGF, 1,8 % for Maritime and Fisheries, 0,9 % for Environment and Climate (LIFE), and 0,5 % for other areas; notes that as of 31 December 2022, under MFF heading 3 ‘Natural Resources and Environment’ the final adopted budget commitments appropriations were EUR 56 681,11 million and 98,92 % of them were implemented (EUR 56 069,86 million); notes further that the final adopted budget payment appropriations amounted to EUR 55 826,77 million and 98,89 % of them were implemented (EUR 55 205,48 million);

143. Notes that 2022 was the second and last year of the transitional period during which funds from the Common Agricultural Policy (CAP) 2021-2027 budget allocation and an additional EUR 8 billion of externally assigned revenue from the NextGenerationEU funds for the European Agricultural Fund for Rural Development Fund (EAFRD) could be committed by Member States in anticipation of the entry into force of the new CAP on 1 January 2023 and that the related payments by Member States to farmers and other CAP beneficiaries can be made until 31 December 2025;

144. Notes that, in the financial year 2022, there were more than 5,9 million beneficiaries of direct support schemes, around 3,5 million beneficiaries of rural development measures and some 0,11 million beneficiaries of market measures; stresses that the resilience of the Union farmers and food system has continued to ensure food security in the Union and beyond, despite the challenges they faced in 2022;

145. Notes that Russia’s unprovoked war of aggression against Ukraine triggered, among other actions, the activation of the crisis reserve in the form of a support package that amounted to EUR 500 million, out of which EUR 350 million was made available for affected producers from the reserve and another EUR 150 million from the EAGF; welcomes the high execution rate (above EUR 492 million) and the fast implementation; notes that Member States were given flexibility in deciding on the sectors they considered most hit by the market disturbance and also the types of aid schemes, which determined the control system applied;

146. Notes that the Court has examined a sample of 218 transactions covering the full range of spending under this MFF heading; notes that the Court also examined the regularity information given in the annual activity reports of the Directorate-General for Agriculture and Rural Development (DG AGRI) and the Directorate-General for Climate Action (DG CLIMA), as well as selected systems in 17 Member States and the United Kingdom; notes that the Court estimates the level of error for ‘Natural Resources’ to be 2,2 % (1,8 % in 2021) and that the majority of the errors found affected rural development transactions; notes that DG AGRI estimates a risk at payment of 1,76 %;

147. Notes that the Court found 21 quantifiable errors in rural development, 7 in direct payments, 2 in expenditure related to market measures and 2 in non-CAP expenditure; is reassured by the fact that the Commission stated that 8 of the quantifiable errors have a financial impact below EUR 100 (over-declaration of areas) and for most of them, the amount misspent is below EUR 1 000;

148. Notes that the majority of errors found by the Court were related to the provision of inaccurate information on areas or animals (42 %) and ineligible beneficiary, activity, and project, expenditure; notes with concern, as in 2021, that the Court found in several cases that the Member State authorities and the Commission had sufficient information to prevent, or to detect and correct the error before accepting the expenditure and that, had the Member States' authorities and the Commission made proper use of all the information at their disposal, the estimated level of error for this chapter would have been 1.3 percentage points lower;

149. Recalls that both the Commission and Member States are responsible for addressing fraud in CAP spending; Points out that anti-fraud measures should remain a high priority for the Union and Member States as fraud prevents Union resources from achieving the policy objectives.

150. Notes the Commission’s statement that the 2023-2027 CAP delivery model aims to simplify rules and to emphasise the use of new technologies, such as the Area Monitoring System, that will help reduce errors; notes that, together with errors made by the farmers, the Land Parcel Identification System (LPIS) is the basis for the geospatial aid application and recalls the significant potential benefits of technologies for monitoring area aid for farmers, administrations and the environment;

151. Notes the example of an incorrect declaration of agricultural activity presented by the Court in its annual report, quoted in several media outlets as the “lemon trees’ case”, where a farmer declared to cultivate permanent crop, where in reality the plot was not cultivated for several years; notes the financial impact of this error was EUR 8 349,06 as reported by the Commission, along with the corrective actions taken by the responsible national authorities, including the recovery of the claimed amount; commends the thorough audit work of the Court and the Commission and the swift follow-up by the paying agency concerned; stresses though that this case should not be understood as an rare and individual coincidence but rather as a risk of systematic way allowing for fraudulent way to receiving the Union funds and should thus not be underestimated;

152. Notes that SCOs are applied across the CAP, including in rural development where eligibility conditions are more complex and the risk of error is higher, and that there is still potential to simplify measures that are not based on area or animal declarations, where Member States can decide whether to reimburse actual costs or pay according to predefined outputs; notes that the Commission reports almost 92 % of Rural Development Programmes make use of SCOs; calls on the Commission to disclose the amount disbursed through SCOs;

153. Recalls that the CAP assurance model includes the first level controls by the paying agencies, the audit work carried out by the independent certification bodies that provide annual opinions on the legality and regularity of the expenditure of paying agencies, and the Commission's work through the clearance of accounts; welcomes that, despite some inconsistencies due to the different update schedules of the control and payment datasets, the Court found that the selected paying agencies’ systems reliably calculated the aid payments, which is a testament to the overall quality and coherence of the Member States’ control statistics and payments data reported to the Commission;

154. Welcomes the increased interest in and use of the integrated IT tool for data mining ARACHNE by the Member States, with 13 Member States using the tool for at least some measures, and five Member States participating in a general introduction workshop on ARACHNE; regrets the fact that the use of the integrated IT tool for data mining ARACHNE by the Member States, is not compulsory; notes the obstacles reported by Member States and the continued efforts of the Commission to improve ARACHNE; regrets the selective adoption of ARACHNE by Member States;

155. Notes that, in 2022, the Commission reported an implementation rate of 99,69 %, for commitments under the European Maritime, Fisheries and Aquaculture Fund (EMFAF), a marked improvement from the 15,98 % implementation rate of EMFAF in 2021; notes, however, that 94,76 % from the EUR 1 135,74 million committed appropriations in 2022 and 97,06 % from EUR 148,12 million in 2021 remained unpaid at the end of the corresponding year; notes further that the implementation rate of the authorised payment appropriations for EMFAF in 2022 was 99,99 % and for EMFF in 2021 was 86,55 %;

156. Notes the Court’s Special Report 09/2023 on securing agricultural product supply chains during COVID-19 and its conclusion that the Commission’s response to the threat posed to agricultural product supply chains by the COVID-19 pandemic was appropriate in most respects but insufficiently targeted; recalls that direct support, with a budget of EUR 712 million, was implemented quickly through reallocation of unused funds from EAFRD, which resulted in this measure mostly being taken up by the Member States with a significant portion of the EAFRD budget unused at the end of 2019; recalls further that 5 of the 14 member states made the Union funding available to all farmers that suffered losses, whereas the other 9 targeted selected sectors and supported beneficiaries irrespective of whether they had suffered losses;