Changes from report parliamentary committee draft to plenary report

Added28. Notes that, in 2022, 333 Recovery Orders were issued by the Commission on 293 contracts for a total amount of EUR 62,92 million;

Transparency and effectiveness of the monitoring and assurance systems

Change 18

Changed22.29. Notes withthe concernCourt’s observation that in 2022 the Commission and its implementing partners committed more errors in transactions relating to programme estimates and grants and to contribution and delegation agreements with beneficiary countries, international organisations and member state agencies;agencies than they did with other forms of support (such as those covering works, supply and service contracts); notes, in additionaddition, that out of the 99 transactions of this type examined by the Court, 46 contained quantifiable errors, which accounted for 86 % of the estimated level of error; notes that DG INTPA is currently reviewing its control strategy, including reporting requirements, and exploring potential remedial measures; asks the Commission to inform the discharge authority about its revised control strategy;

Change 19

Changed23.30. Notes that, according to the Court’s report, in 23 cases of quantifiable error and five cases of non-quantifiable error the Commission had sufficient information to prevent, or to detect and correct the error before accepting the expenditure; notes, moreover, that, according to the Court’s assessment, had the Commission made proper use of all the information at its disposal, the estimated level of error would have been 5,5 percentage points lower, compared to 2,4 percentage points lower in 2021; notes the Commission’s reply that most errors that could have been avoided are due to insufficient financial reporting provided by implementing partners in indirect management; notes the Commission’s commitment to review its control strategy, including reporting requirements and calls on the Commission to refer on the remedial measures taken;

Change 20

Changed24.31. Notes that, according to the Court’s report, 22 transactions containing quantifiable errors, contributing 2,3 percentage points to the estimated level of error, were subject to an audit or expenditure verification; notes, furthermore, that DG INTPA’s control system is based on ex ante checks, and that the information provided in the audit/verification reports describing the work actually done did not allow the Court to assess whether the errors could have been detected and corrected during these ex ante checks, as the reports do not cover 100%100 % of the reported expenditure, nor do they give sufficient detail to confirm whether the items where the Court identified errors had been part of the ex-ante checks; notes in this regard that the Commission is regularly updating the terms of reference for the expenditure verifications, in order to increase the completeness and clarity of reporting; calls on the Commission to refer to the discharge authority about the improvements achieved;

32. Underlines that the Court identified two spending areas where transactions are less prone to errors due to specific payment conditions: (a) budget support and (b) multi-donor projects implemented by international organisations and subject to the ‘notional approach’; notes that, in 2022, the Court audited two budget support transactions and eight ‘notional approach’ projects managed by international organisations;

Change 21

Removed26. Is concerned that, as in previous years, some international organisations provided only limited access to documents (e.g., in read-only format), which hindered the planning, execution and quality control of ECA audit and led to delays; notes that control issues were discussed with UN entities and the World Bank on several occasions, including in the context of joint technical reference group meetings and the EU-UN FAFA working group, and that Joint Technical Groups were set up to discuss regularly audit and control issues;

Added33. Highlights the role of local implementing partners and the need to ensure their support and capacity building; notes that with the phasing out of EDF projects, local know-how on dealing with Union funds should be maintained, with a view to using them for projects under the Neighbourhood, Development and International Cooperation Instrument (NDICI) - Global Europe instrument underlines that Union projects should be subject to evaluation, monitoring and reporting in order to determine their effectiveness and avoid unintended negative impacts;

Removed27. Notes that DG INTPA’s eleventh residual error rate (RER) study, carried out by an external contractor on its behalf in 2022, estimated the overall RER to be below the 2% materiality threshold set by the Commission for the seventh year in a row: 1,15% (1,14% in 2021);

Added34. Is concerned that, as in previous years, some international organisations provided only limited access to documents (e.g., in read-only format), which hindered the planning, execution and quality control of ECA audit and led to delays; notes that control issues were discussed with UN entities and the World Bank on several occasions, including in the context of joint technical reference group meetings and the EU-UN FAFA working group, and that Joint Technical Groups were set up to discuss regularly audit and control issues; notes furthermore that the Commission is working with the concerned International Organisations and has intensified communication with them on ECA’s access to documents; encourages the Commission to increase these efforts;

Removed28. Stresses that, according to Court’s assessment, the RER study does not constitute an assurance engagement or an audit and is based on the RER methodology and manual provided by DG INTPA; stresses, furthermore, that, as in previous years, the Court has found limitations in the study; notes that the Court, by reviewing the calculation method used in the 2022 RER study, considered that the RER was underestimated and that the Court’s calculation yielded an RER of 1,35 % ; notes, furthermore, the Court’s opinion, as in previous years, that the RER methodology allows the contractor to rely entirely on the results of DG INTPA´s management checks, and that placing reliance on the work of other auditors is contrary to the purpose of an RER study;

Added35. Notes that DG INTPA’s eleventh residual error rate (RER) study, carried out by an external contractor on its behalf in 2022, estimated the overall RER to be below the 2 % materiality threshold set by the Commission for the seventh year in a row: 1,15 % (1,14 % in 2021);

Removed29. Notes that, from 2018, DG INTPA significantly reduced the scope of reservations (i.e., the share of expenditure covered by them) in the annual activity reports (AARs) and that, similarly, the 2022 AAR does not include any reservations; notes that the Court finds the lack of reservations in the 2022 AAR unjustified and considers that it results partly from the limitations of the RER study;

Added36. Stresses that, according to Court’s assessment, the RER study does not constitute an assurance engagement or an audit and is based on the RER methodology and manual provided by DG INTPA; notes that DG INTPA clarifies that the RER study is meant to be a key indicator for the estimated financial impact of residual errors, i.e., it measures the proper functioning of the internal control system and thus, demonstrates the Commission’s corrective capacity; stresses that, as in previous years, the Court has found limitations in the study; notes that the Court, by reviewing the calculation method used in the 2022 RER study, considered that the RER was underestimated and that the Court’s calculation yielded an RER of 1,35 %; notes, furthermore, the Court’s opinion, as in previous years, that the RER methodology allows the contractor to rely entirely on the results of DG INTPA´s management checks, and that placing reliance on the work of other auditors is contrary to the purpose of an RER study;

Removed30. Notes that DG INTPA estimates the overall amount at risk at payment to be EUR 83.3 million (1, 4 % of 2022 expenditure) and the overall amount at risk at closure to be EUR 71.7 million; notes, furthermore, that, the amount at risk at payment, DG INTPA estimates that EUR 11.6 million (19 %) will be corrected by its checks in subsequent years (this amount is known as the ‘corrective capacity’);

Added37. Notes that, from 2018, DG INTPA significantly reduced the scope of reservations (i.e., the share of expenditure covered by them) in the annual activity reports (AARs) and that, similarly, the 2022 AAR does not include any reservations; notes that the Court finds the lack of reservations in the 2022 AAR unjustified and considers that it results partly from the limitations of the RER study; notes the Commission’s reply that the absence of reservations is justified by the correct implementation of the RER methodology and instructions by its central services;

Removed31. Notes that DG INTPA’s 2022 Action Plan addressing identified control weaknesses and high risks include the improvement of the follow up of ECA/RER findings and that new versions of the RER manual and methodology were adopted in September 2022 to address issues raised in the previous Court’s observations; regrets, however, that the Commission does not accept the recommendation, included in the 2022 Court’s annual report, to improve the RER methodology and verify its proper application as it sees no necessity to change the methodology used for the RER study for the extrapolation of high-value items;

Added38. Notes that DG INTPA estimates the overall amount at risk at payment to be EUR 83,3 million (1,4 % of 2022 expenditure) and the overall amount at risk at closure to be EUR 71,7 million; notes, furthermore, that, the amount at risk at payment, DG INTPA estimates that EUR 11,6 million (19 %) will be corrected by its checks in subsequent years (this amount is known as the ‘corrective capacity’);

Added39. Notes that DG INTPA’s 2022 Action Plan addressing identified control weaknesses and high risks include the improvement of the follow up of ECA/RER findings and that new versions of the RER manual and methodology were adopted in September 2022 to address issues raised in the previous Court’s observations; notes the Commission’s reply that the amended rules avoid overreliance on previous control work, as it is now required that instances of reliance on prior control work should be monitored in the light of historical averages; notes furthermore that the Commission has fully implemented ECA’s recommendation from 2020 annual report to establish obligations for the RER study contractor to report to the Commission any suspected fraud against the Union budget during its work; regrets, however, that the Commission does not accept the recommendation, included in the 2022 Court’s annual report, to improve the RER methodology and verify its proper application as it sees no necessity to change the methodology used for the RER study for the extrapolation of high-value items;

Fraud prevention, detection and correction

Change 22

Changed32.40. Notes that, since 2014, DG INTPA has developed and implemented its own anti-fraud strategy on the basis of the methodology provided by the European Anti-Fraud Office (OLAF);(OLAF) regretsand that the strategy has been updated three times since its entry into force; notes that DG INTPA decided to postpone the mid-term assessment of its anti-fraud strategy (initially planned in 2022) due to several ongoing auditing and updating exercises led by the IAS, ECA and OLAF; notes, moreover, that DG INTPA implemented 90%90 % of the accompanying action plan, and that all actions have been implemented within the deadlines announced, apart from exploring with OLAF the possibility of circulating anonymised examples of fraud cases within the Commission internal network, which was implemented in 2023;

Change 23

Changed33.41. Notes that DG INTPA also contributed to the Commission anti-fraud strategy and followed up to OLAF’s financial recommendations issued in 2018-2022 resulting in the closure of only 24%24 % of financial recommendations and the follow-up of 76%76 % of financial recommendations; notes, moreover,welcomes, the results achieved during 2022, such as the entry into force of new internal guidelines on the handling of fraud-related information, reinforced appointing system of DG INTPA’s anti-fraud network, launch of external awareness actions towards DG INTPA's implementing partners and beneficiaries ,beneficiaries, continued update of all internal webpages, manuals and databases, and annual note to all staff on professional ethics standards, fraud prevention and detection, and rules for disclosure of information;

42. Notes that, at the end of 2022, DG INTPA was aware of 24 on-going investigations, and was informed by OLAF of the closure of 6 investigations with financial and/or administrative recommendations, 7 without recommendation, and the transfer of 2 cases to the European Public Prosecutor’s Office; notes that DG INTPA systematically transmitted all cases of suspected fraud or irregularity to OLAF and followed closely all financial recommendations notified by OLAF;

43. Notes that the first priority objective of DG INTPA’s anti-fraud strategy 2021-2024 is to increase internal and external awareness on fraud-related issues, including through training opportunities; regrets however that the Court ECA found a lack of fraud prevention training in their mission to four delegations (staff had not received training in fraud prevention training in the past 5 years);

Change 24

Changed36.44. Welcomes the fact that DG INTPA has optimised the use of the Early Detection and Exclusion System (EDES) as a fraud-sanctioning tool and enhanced the anti-fraud measures related to budget support;

Union budget support

Change 25

Changed37.45. Notes that the budget support payments made under EDF in 2022 amounted to EUR 105.2105,2 million;

Change 26

Removed38. Hightlights that, in the past 3 years, EU budget support has provided payments of EUR 6 billion overall – EUR 3 billion in 2020, EUR 1.2 billion in 2021 and EUR 1.8 billion in 2022; notes, furthermore, that budget support accounted for 15 % of the European Commission’s payments within the framework of the Neighbourhood, Development and International Cooperation Instrument – Global Europe (NDICI – Global Europe), the Instrument for Pre-accession Assistance (IPA III), the decision on the overseas association including Greenland (DOAG) or under predecessor instruments;

Added46. Notes, for the sake of comparison, that Ukraine came out as the third budget support portfolio in 2022, with nearly EUR 800 million of ongoing operations;

Removed39. Notes that in 2022, the European neighbourhood became the largest recipient of budget support (38 %), followed by sub-Saharan Africa (24 %), Asia (18 %), the western Balkans (8 %), Latin America (6 %), the Caribbean (2 %), overseas countries/territories (2 %) and the Pacific region (2 %), and that by contract type, sector reform performance contracts (SRPCs) outweigh state- and resilience-building contracts (SRBCs) and SDG contracts (SDG-Cs), with 74 % of the portfolio in value compared to 24.5 % and 1.5 % respectively;

Added47. Highlights that, in the past 3 years, EU budget support has provided payments of EUR 6 billion overall – EUR 3 billion in 2020, EUR 1,2 billion in 2021 and EUR 1,8 billion in 2022; notes, furthermore, that budget support accounted for 15 % of the European Commission’s payments within the framework of the Neighbourhood, Development and International Cooperation Instrument – Global Europe (NDICI – Global Europe), the Instrument for Pre-accession Assistance (IPA III), the decision on the overseas association including Greenland (DOAG) or under predecessor instruments;

Added48. Notes that in 2022, the European neighbourhood became the largest recipient of budget support (38 %), followed by sub-Saharan Africa (24 %), Asia (18 %), the western Balkans (8 %), Latin America (6 %), the Caribbean (2 %), overseas countries/territories (2 %) and the Pacific region (2 %), and that by contract type, sector reform performance contracts (SRPCs) outweigh state- and resilience-building contracts (SRBCs) and SDG contracts (SDG-Cs), with 74 % of the portfolio in value compared to 24,5 % and 1,5 % respectively;

49. Recalls that the Court’s regularity audit cannot cover what happens beyond the moment the Commission pays budget support to the recipient country, since these funds then merge with that country’s own budget resources;

Change 27

Removed41. Notes that in 2022 the two largest budget support recipients were Morocco and Tunisia; recalls that Tunisia denied entry to an official delegation of the European Parliament Foreign Affairs Committee in September 2023 and has been the first country to ever do so; recalls that Morocco is at the centre of the Qatargate scandal and that a senior member of the Moroccan royal family features prominently in the Pandora Papers; urges therefore for the EDF support to these countries to be substantially lowered until all concerns regarding human rights abuses, corruption and tax evasion have been properly addressed;

Added50. Notes that, in 2022, the largest recipients of EDF payments were Mozambique, Sudan and Democratic Republic of Congo, while the sectors with the highest funding were government and civil society, agriculture, energy and social infrastructures and services; notes that the implementation of the EDF concerns countries that are facing aggravating impacts of climate change, biodiversity loss and food insecurity and are weakened by rising debt, new and forgotten humanitarian crises and conflicts, generating growing inequality and poverty; calls for the EDF to be conditional when there is evidence of human rights violations and to be checked against corruption and tax evasion;

Removed42. Notes that Ukraine came out as the third budget support portfolio in 2022, with nearly EUR 800 million of ongoing operations;

Added51. Calls for stronger coordination between the Commission, the EEAS and the EU delegations to facilitate discussions and cooperation with relevant local actors on the ground in order to identify the projects that best meet development effectiveness objectives;

Added52. Notes that local, non-governmental actors are well placed partners to deliver Union assistance for people in need, notably in remote areas; highlights that a strengthened Union engagement with these organisations could accelerate efficiency of development cooperation;

Follow-up to the 2021 discharge

53. Notes from the Commission follow-up report to the 2021 discharge that the digitalisation of controls in external action is ongoing, with the view to adopt the corporate practices and tools and that the upcoming transition to the corporate eAudit will facilitate a more systematic and integrated monitoring of findings from audits and verifications facilitating thus a more holistic follow-up process;

54. Notes that joint trainings with UN staff have resumed in 2023, and the Commission has agreed with the UN to set up Joint Technical Groups to discuss regularly audit and control issues and that the Commission will continue to take action to find practical and long-term solutions to these issues;

Change 28

Changed45.55. Notes that in 2022, DG INTPA assessed the systemic findings in expenditure verifications of actions implemented by 20 (twenty) globally operating International Organisations whose audit task management is centralised and that it shared its findings, as well as proposed mitigating measures, with relevant HQ and Delegation staff in January 2023;

Change 29

Changed46.56. Notes that the Commission and its partner institutions (including development financial institutions and development agencies) actively engage with local private sector organisations to discuss challenges and opportunities to increase access to finance through financial instruments such as blended finance operations, and that policy dialogue is held in partnerships with partner countries through the European UnionEU Delegationsdelegations and National Investment Forums; stresses the importance of private sector mobilisation for closing the development financing gap and achieving the SDGs;

Change 30

Added57. Welcomes the Global Gateway strategy as a concerted Union response to global challenges; is of the opinion that in times of new geostrategic challenges, Union foreign and security policy and development cooperation actors must coordinate better in order to increase the Union’s presence and visibility worldwide by means of hard and soft infrastructure investment that creates national value in partner countries through cooperation with the private sector and development financing institutions, in line with the SDGs;

Added58. Recalls that global crises have generated and expanded inequalities both within and between countries, undermining social cohesion and, in this context, welcomes the development of an Inequality Marker (I-Marker) to create a sound reporting and benchmarking system on the contribution of all interventions to reducing inequalities;

▸7 unchanged paragraphs

59. Echoes the recommendations to the Commission made by the Court:

a) to check that accounting balances for closed EDFs are cleared in a timely manner;

b) to ensure that pre-financing and invoices are cleared in a timely manner in the annual accounts;

c) to take measures to improve EU delegations’ controls systems for the clearing of pre-financing;

d) to reiterate the obligation to comply with VAT rules and carry out appropriate checks;

e) to strengthen ex ante controls before accepting expenditure;

f) to improve the RER methodology and verify its proper application.