Changes from report parliamentary committee draft to plenary report

Added33. Considers that both approaches serve different purposes and have their benefits, disadvantages, strengths, and weaknesses, and should be used to complement each other while understanding the differences and particularities, such as the different concepts of error and the risk categorisation used by each institution; considers the Court’s error rate to be an important indicator of compliance with the legality and regularity of the implementation of the Union budget; is concerned about the great divergence in the rates provided by the Court and the Commission in relation to the weaknesses identified on the Commission side; welcomes in this regard the Court’s findings, observations and recommendations as a very useful contribution to the further improvement of the budget management and implementation under different management modes and by all relevant stakeholders; deplores that the analysis of the risk alone neglects the real performance, the quality, the sustainability and the European added value of implemented projects; invites the Commission to cooperate with the Court with a view to increasing harmonisation and to providing for more comparable figures;

Added34. Notes that, on several issues, the Court’s and Commission’s findings are aligned, most notably concerning the main sources of irregularities in ‘Cohesion’, and the higher risks for market measures and rural development in ‘Natural resources and environment’; notes that specifically in ‘Cohesion’ some cases of eligibility errors identified and quantified by the Court are not necessarily considered to be ineligible by the Commission; the Commission does not see a legal basis to qualify the error as an irregularity to be corrected in line with the definition laid down in Article 2(36) of Regulation (EU) No 1060/2021 (‘the Common Provisions Regulation’ or CPR) and thus, the Commission cannot pursue financial correction procedures, and such errors would not enter into the Commission’s estimate of risk at payment;

35. Welcomes that the Commission improved its reporting on preventive and corrective measures to protect the Union budget from illegal and irregular expenditure; notes that the Commission clarified that the total amount reported in the Annual Management and Performance Report (AMPR) as financial corrections and recoveries (EUR 4,95 billion) includes preventive and corrective measures taken by the Commission and Member States; notes that the Commission reported EUR 734 million in net corrections and EUR 195 million in recovered undue payments from final recipients;

Change 18

Changed27.36. Notes that the Court, in the exercise of its mandate, does not investigate fraud but does take account of the risk of fraud; notes that the Court forwards to the EPPO suspicions of criminal offences falling in its competences and to OLAF suspicions of fraud, corruption or other illegal activity affecting the Union’s financial interests identified while performing its audits; notes that, in 2022, the Court reported 14 cases of suspected fraud to OLAF, and in parallel reported 6 of these cases to the EPPO, resulting so far in 26 OLAF investigations and 3 EPPO investigations;

Budgetary and financial management

Change 19

Changed28.37. WelcomesHighlights that in 2022, 98,5%98,5 % of the available commitment appropriations were used (EUR 179,4 billion out of EUR 182,2 billion); notes that the available appropriations were higher than the MFF ceiling of EUR 179,9 billion due to the use of special instruments, justified by unforeseen events, using all flexibility available under the MFF; notes that 98,1%98,1 % of payment appropriations were used (EUR 167,3 billion of EUR 170,6 billion available); commends the Commission and the budgetary authority for its decisive and flexible budgetary response to the challenges faced in 2022;

Change 20

Changed29.38. Notes with concern that the total outstanding commitmentscommitments, which represent future debts if not decommitted, reached an all-time high of EUR 450 billion in 2022, caused by both increased commitments related to NGEU (with all National Recovery and Resilience Plans adopted in 2022) and the slow start of the implementation of the 2021-2027 programming period; notes that the Commission expects this amount to further increase in 2023,2023 towards EUR 460 billion, and foresees a decrease from 2024 to 2027 when committed amounts for both NGEU and the 2021-2027 programming period should be paid out; notes that approximately EUR 90 billion of loans will not be used and recalls that the Commission and Member States are currently behind schedule for payments established in the implementing decision approving their national recovery and resilience plans (RRPs); notes that commitments under MFF are still increasing and will continue to rise in the coming years due to the slow start of the programming period with payments following even later;

Change 21

Added39. Highlights that the time available for implementing shared-management funds under the 2021-2027 MFF is shorter than under previous MFFs because of the n+2 rule for the last year of the period; is aware of the challenges in relation to managing and controlling the combined MFF and NGEU funds due to their volume and the different managing, programming, implementing and controlling mechanisms; notes with concern the significant differences in absorption rates per Member State; regrets the insufficient initiatives taken by the Commission, in conjunction with the Member States, to increase the absorption capacity of the programs and thus bring about a sharp and lasting reduction in outstanding commitments; demands the Commission takes all the necessary measures and administrative support to the Member States needed especially to improve their absorption capacity;

Added40. Underlines that the Commission’s projections for the reduction of the outstanding commitments are based on the assumptions that Member States effectively make more efforts to accelerate the absorption of the 2021-2027 shared management funds and that automatic technical adjustments of payments ceiling are sufficient to cover the payments needs; is concerned that these two assumptions may not be fulfilled hence creating a very dangerous situation for the Union budget;

41. Notes the Court’s warning that for the 2021-2027 shared management funds under the CPR, the decommitment risk has risen significantly due to a series of factors, namely the slow start because of the late adoption of sector-specific regulations, the prioritisation of the remaining European Structural and Investment (ESI) Funds and NGEU funding, the fact that those funds have a shorter payment timeframe by one year compared to the previous MFF period and the overlap with NGEU payments until 2026; stresses, therefore, the Court’s 2021 recommendation for the Commission to ensure that there is additional advisory support to national authorities so all bodies responsible for managing and controlling these funds can ensure sound financial management;

Change 22

Removed31. Notes that Union debt increased from EUR 236,7 billion in 2021 to EUR 344,3 billion in 2022; notes that of the entire debt, only the share of NGEU non-repayable support (EUR 185,6 billion, 53,9 %) creates interest rate risk for the Union budget; notes that, due to growing market interest rates, the cost of new NGEU funding rose from 0,14 % in the second half of 2021 to 1,24% in the first half of 2022, and a further increase to2.60% in the second half of 2022, resulting in EUR 0,5 billion of interest payments for NGEU in 2022, and a considerable increase was projected for 2023; recalls that the repayments of NGEU borrowing should start in 2028 and must be completed by 2058, which will require sufficient financial resources;

Added42. Welcomes the vital role played by NGOs in representing civil society and in promoting and defending the values enshrined in the Treaties and the Charter of Fundamental Rights of the European Union (‘the Charter’) while implementing programmes and projects financed by the Union budget in full respect of the Union’s financial rules and the protection of the Union’s financial interests; calls to ensure that all Union funding beneficiaries, including NGOs, that have misused or misappropriated Union funds, or engaged in activities contrary to Union values, including inciting terrorism, hate speech, supporting or glorifying violence, political and religious extremism are listed in the Early Detection and Exclusion System (EDES) and blocked from access to Union institutions and funding programmes; considers that fraud, conflicts of interest, double funding, corruption and money laundering or embezzlement must be prevented and tackled in all situations and for all beneficiaries irrespective of their nature and legal status (as noted in Parliament resolution of 17 January 2024 on the transparency and accountability of non-governmental organisations funded from the Union budget ); calls on the Commission to implement the recommendations of that resolution;

Added43. Notes with concern that Union debt increased from EUR 236,7 billion in 2021 to EUR 344,3 billion in 2022; notes that of the entire debt, only the share of NGEU non-repayable support (EUR 185,6 billion, 53,9 %) creates interest rate risk for the Union budget; notes that, due to growing market interest rates, the cost of new NGEU funding rose from 0,14 % in the second half of 2021 to 1,24% in the first half of 2022, and a further increase to2.60% in the second half of 2022, resulting in EUR 0,5 billion of interest payments for NGEU in 2022, and a considerable increase was projected for 2023; is concerned about the strong increase in interest rates since 2020 resulting in a higher financial burden for the annual budget; recalls that, in addition, the repayments of NGEU borrowing should start in 2028 and must be completed by 2058, which will require sufficient financial resources; notes that the maximum utilisation of the Union budget in 2022, using all available flexibility, does not allow any repayment of debts, unless cuts are made in other areas of Union expenditure; calls on the Members States to develop and agree on a repayment plan out of new own resources without damaging the new MFF;

44. Notes that since December 2022, the Commission has a new debt management strategy in place, namely a “diversified funding strategy” which consists of the techniques and funding instruments used by sovereign issuers; recalls the Court’s Special Report 16/2023 on NGEU debt management that concluded that the Commission quickly established its debt management system, allowing for a timely start of borrowing operations, that met all regulatory requirements concerning debt portfolio and risk management;

Change 23

Added45. Supports the Court recommendation that the Commission should act more proactively to ensure the tools available to mitigate the exposure risks have sufficient capacity;

46. Notes that the total exposure of the Union budget because of guarantees and contingent liabilities for loans rose to EUR 248,3 billion, of which EUR 57,8 billion for an additional safeguard has been created through the Common Provisioning Fund (‘CPF’); notes that higher interest rates also require a higher provisioning rate in the future;

Change 24

Removed34. Notes that the exposure of the Union budget to Ukraine increased in 2022 to EUR 15,6 billion, with related provisions notes that for the MFA+ support to Ukraine with a value of EUR 18,0 billion, agreed at the end of 2022 and disbursed throughout 2023, no provisions were required in the CPF; draws attention that possible losses related to MFA+ will have to be covered by future Union budgets or by the budgetary ‘headroom’ between the MFF ceiling and the own resources ceiling;

Added47. Notes that in 2022 the Commission changed the disclosure of contingent liability in its consolidated accounts, making the comparison of year by year extremely complex and long; invites the Commission to report more clearly on its annual account, in order to facilitate conclusions and analysis also in view of the discharge procedure;

Added48. Notes that the exposure of the Union budget to Ukraine increased in 2022 to EUR 15,6 billion, with related provisions; notes with concern that for the MFA+ support to Ukraine with a value of EUR 18,0 billion, agreed at the end of 2022 and disbursed throughout 2023, no provisions were required in the CPF to cover the risks of default, posing a serious risk to the Union budget as expressed in the Opinion 07/2022; draws attention that possible losses related to MFA+ will have to be covered by future Union budgets or by the budgetary ‘headroom’ between the MFF ceiling and the own resources ceiling; invites the Commission to provide additional measures to protect the Union budget from future losses related to the MFA+;

Added49. Notes that during 2022 consumer price inflation increased significantly, affecting the Union budget in several ways, by reducing the relative size of the Union budget and reducing the efficiency of the Union funds to achieve the objectives to the same extent as initially planned; considers that high inflation affects the proportion of revenue from different sources, with a net reduction of the share of the GNI-based own resources; strongly supports the Court recommendation to the Commission to assess the impact on the Union budget of increasing inflation in order to proactively apply mitigating measures;

Added50. Welcomes the online based transparency platforms developed and maintained by the Commission which provide data on the implementation of Union spending programmes and allow to search through the recipients Union funding and projects, such as the Financial Transparency System, giving information about Union funding under direct and indirect management, the RRF Scoreboard, the Cohesion Open Data Platform and Kohesio platform;

Added51. Notes the Commission’s methodology for tracking gender aspects of expenditure as of 2023; recalls that only 2% of the Union’s budget was assessed as having a principle objective of improving gender equality; calls on the Commission to improve this score by mainstreaming gender from the start of programme design; reiterates that further detail is needed so that the majority of spending (73%) currently assessed as 0* ‘potential to contribute to gender equality’ can be fully understood; notes with concern that Special Report 10/2021, published by the ECA confirmed that the Union’s budget cycle does not yet adequately take gender equality into account since key elements, such as gender analysis, gender-related objectives, indicators and accountability through reporting, are largely missing;

Added52. Repeats its calls for a dedicated budget line for gender equality, in particular within the Daphne programme in the light of the crisis of gender-based violence facing the Union; stresses the importance of strengthening the specifically dedicated Daphne initiative by increasing its resources, in particular measures that aim to combat all levels and all forms of gender-based violence against women and girls and domestic violence in line with Article7(6) of Regulation (EU) 2021/692 and to properly support victims; stresses, in addition, the importance of using European Structural and Investment Funds such as the European Social Fund Plus (ESF+) to promote gender equality, women’s employment, women's empowerment, entrepreneurship, leadership and management roles, as well as long-term care facilities; notes that a study requested by FEMM committee shows that men are often favoured over women and marginalized groups when it comes to the design of subsidies and support under the Fit for 55 package, as well as in other policies, programmes and funding for the green transition;

Recommendations

53. Strongly supports the recommendations of the Court in its Annual Report on the implementation of the budget for the financial year 2022 (‘Annual Report for the 2022 financial year) as well as in related special reports; calls on the Commission to implement them without delay and to keep the discharge authority informed on the progress of the implementation;

Change 25

Added54. Calls on the Court of Auditors to:

Added(i) differentiate the types of errors and to make more transparent the rate of errors caused by severe misuse, fraud or other criminal activities and the errors caused by administrative oversight or inaccurate application of rules;

Added(ii) to assess more intensively also the quality, the European added value, the sustainability, the performance and the practicability of the implemented projects;

55. Calls on the Commission, in particular, to:

Change 26

Changed(i) continue its discussionsengage with the Court in order to increase understandingunderstanding, convergence and convergencecomparability of the way bothtwo dealapproaches withto theaddress irregularities;

Change 27

Removed(ii.) continue to simplify rules and procedures without compromising the quality of the controls;

Added(ii) undergo an ex-post evaluation of the reliability of their own estimation of the risk at closure for the financial year for which the programs were closed and presents the results of such an evaluation to the Discharge authority;

Added(iii) continue to simplify rules and procedures without compromising the quality of the controls; and continue to digitalise audit procedures;

(iv) step up efforts to improve transparency in the use of funds, including as regards information on final beneficiaries;

Change 28

Changed(iv)(v) continue to support the administrative capacity of Member States’ authorities; identify ways to help member states accelerate the use of Union funds, and reducing the level of outstanding commitments, notably in shared management funds under the Common Provisions Regulation;

Change 29

Changed(v)(vi) report as part of its disclosure on contingent liabilities and what the annual exposure of the Union budget is, arising from budgetary guarantees and from financial assistance to third countries;countries, making public its estimate of total annual exposure;

Change 30

Removed(vi) continue monitoring the possible risk of corruption and fraud across all funds, using feedback from investigations by the EPPO and OLAF;

Added(vii) provide sufficient measures to protect the Union budget from the different risks identified in particular the RAL, the increasing debt, the increased budget exposure including to Ukraine, the increasing inflation etc;

Added(viii) continue monitoring the possible risk of corruption and fraud across all funds, using feedback from investigations by the EPPO and OLAF; and encourage the systematic use of Archane and EDES databases systems;

Added(ix) ensure the protection of the Union budget by making general and systematic use of digital and automated systems for reporting, monitoring and audit and urgently establish a compulsory integrated and interoperable system building on, but not limited to, existing tools and databases in the context of the concluded recast of the Financial Regulation;

Added(x) modify and improve the Recovery and Resilience Scoreboard as well as the respective Commission RRF website to ensure that the implementation, the performance and fulfilment of indicators are regularly updated, accurate and, clearly structured and transparent;

Added(xi) ensure that the outcome of the audits is transparent;

Added(xii) ensure that all Member States use the systems and central registers to report on beneficial owners and final beneficiaries;

Added(xiii) assess the impact on the Union budget of high inflation continuing over several years and identify tools to mitigate resulting key risks;

Performance of the Union budget

56. Notes the re-integration of the Court’s work on performance of the Union budget into its Annual Report; regrets to note that the content of the related chapter is of considerably less depth than the previous year’s annual report on performance; regrets in particular that the link to the Sustainable Development Goals has become much less evident in the current set-up; notes that the Court’s work on performance as included in its 2022 Annual Report lies primarily in summarising the findings from Special Reports;

Change 31

Changed38.57. Notes that the Court has followed upfollowed-up on the implementation of 213 of its recommendations made in 2019, out of which 179 were addressed to the Commission; notes that four of the 179 recommendations were not yet due for implementation by the time the follow-up review was carried out and that, of the remaining 175 recommendations, the Commission has fully implemented 101 (58 %), 26 in most respects (15 %), 24 in some respects (13 %), and has not implemented 17 (10 %) of them at all, the Court being unable to conclude in 7 cases (4 %) where the auditee had not accepted them or it was too early to assess the implementation;

Change 32

Changed39.58. Considers the overview of special reports, which spans the largest part of chapter three of the Court’s Annual report, gives a good overview of reports presented by the Court that relate to 2022 strategic areas but is limited and incomplete in terms of the content of those reports and the replies provided by the auditees;areas; considers thata andeep analysis of the performance of the Union budget requirescould morebe thanan aadded follow-upvalue ofto the auditor recommendations, despite their undeniable value in termsfollow-up of budgetarythe control;auditor recommendations; notes the issue of timing concerning to the publication of the AMPR;

59. Notes that the Commission publishes the ‘Programme Performance Statements’, which is an overview of the performance information of the programmes of the 2021-2027 Union budget, and the ‘Horizontal priorities’, a section on how the Commission tracks and reports on what is spent on green budgeting, gender equality mainstreaming, digital tracking and the sustainable development goals;

Change 33

Changed41.60. Notes the Court’s review 06/2023 on the Commission’s 2022 AMPR for the Union budget and its conclusion that Volume I of the 2022 AMPR followed the Commission’s corporate management board strategic guidance when it presented the facts and achievements concerning budgetary management for 2022, and notes that there was scope to improve the quality of performance data; notes the Commission’s replies to written questions on an IAS audit intoon datathe qualityCommission’s control system in relation to the reliability of performance information and the reassurance given that the identified issue is being dealt with;

61. Welcomes that the Commission has included information in its AMPR on green budgeting, digital tracking and the gender-equality dimension in the Union budget; notes that the number of programmes for which the contribution to gender equality is unknown decreased to 72 %; supports the Commission’s position that this figure needs to be reduced further;

Change 34

Added62. Recalls the findings of the Court’s Special Report 09/2022 “Climate Spending in the 2014-2020 EU budget”; notes in addition the Court’s Special Report 26/2023 on the Performance monitoring framework in the RRF; concludes that the Court identified in both Special Reports issues with the method the Commission presents performance information, both in the MFF and the RRF; notes in particular that disclosure about shortcomings in the performance monitoring methodologies show weaknesses in particular because of mixing estimates with actual numbers of achieved results and realised projects or blending budgeted amounts with actually paid amounts; considers that performance data presented by the Commission should not include estimations but only figures of realised actions; remains concerned about the Court’s finding that limited improvements are expected in the 2021-2027 climate reporting; regrets that the Commission has not yet addressed weaknesses in the reported figures of their new methodology;

Revenue

63. Notes that the revenue of the Union budget comprises own resources, external assigned revenue and other revenue; notes that in 2022 the Gross National Income (GNI)-based own resource accounted for EUR 103,9 billion (42,3 %), external assigned revenue accounted for EUR 62,2 billion (25,4 %), traditional own resources (TOR) accounted for EUR 25,9 billion (10,6 %), contributions and refunds connected with the Union agreements and programmes accounted for EUR 20,9 billion (8,5 %), value added tax (VAT)-based own resource accounted for EUR 19,7 billion (8,0%), non-recycled plastic packaging waste-based own resources accounted for EUR 6,3 billion (2,6 %), and other revenue accounted for EUR 6,4 billion (2,6 %);

64. Notes the Court’s Special Report 25/2022 on verification of Gross National Income (GNI) for financing the Union budget; recalls that the GNI data reported by Member States are the basis for calculating the Member States’ contributions and considers it therefore essential for the Commission to improve the efficiency in the verification cycle following the recommendations of the Court; welcomes the Court’s conclusions that the verification process of the GNI data carried out by the Statistical Office of the European Union (Eurostat) was effective; welcomes that Eurostat has prepared an action plan to address the recommendations with a view to implementing them after the 2020-2024 cycle;

Change 35

Removed45. Welcomes the Court’s conclusion in its Annual Report for 2022 that the level of error in revenue transactions was not material and that the systems for managing the revenue are generally effective; is worried by the weaknesses identified by the Court in certain Member States’ accounting and management of TOR, and in the Union action taken to reduce the customs gap and ensure that TOR is complete; welcomes the actions undertaken by the Commission and Member States in that regard;

Added65. Notes that the Union budget needs to respond to multiple challenges with additional financial programmes, such as the NGEU recovery instrument; notes that for 2022, the revenue from traditional own resources remained relatively stable, while budgetary guarantees for borrowing and lending operations were a substantial part of revenue; recalls in that regard Parliament’s resolution of 10 May 2023 on own resources: a new start for Union finances, a new start for Europe;

Added66. Welcomes the Court’s conclusion in its Annual Report for 2022 that the level of error in revenue transactions was not material and that the systems for managing the revenue are generally effective; is concerned by the weaknesses identified by the Court in certain Member States’ accounting and management of TOR, and in the Union action taken to reduce the customs gap and ensure that TOR is complete; welcomes the actions undertaken by the Commission and Member States in that regard;

67. Notes from the Annual Report on the Protection of the Union financial interests (PIF Report) that in 2022, the number of fraudulent irregularities relating to TOR (454) fell by 6,8 % and non-fraudulent irregularities (4 207) rose by 9,4 % compared to the 5-year average for 2018-2022; notes that most fraudulent cases reported in 2022 relate to incorrect value and incorrect classification or misdescription of goods, while smuggling remains one of the primary modus operandi; notes that most fraudulent cases are detected by inspections by national anti-fraud services together with customs release controls; notes that the recovery rate is currently 48 %, although it can be expected that it will go up in the future due to the length of the process;

68. Notes the summary of waivers of recoveries and established amounts receivable in Annex 9 of the 2022 AMPR; notes that the total general value of waived recoveries was EUR 40,4 million, an increase of 28 % in comparison with 2021 (EUR 31,4 million) and considers this is a loss of revenue for the Union budget;