Changes from report parliamentary committee draft to plenary report

Added(xiii) require interest representatives in the Transparency Register to list their financial supporters by self-declaring that they are only representing their interests or the collective interests of their members and to propose an amendment to Annex II to the Interinstitutional Agreement of 20 May 2021 to require them to list their financial supporters in the EU Transparency Register, even if they state in that register that they are only representing the interests of their own members; urges entities already registered that have not listed their financial resources by self-declaration to declare them voluntarily before the interinstitutional agreement is amended;

Added(xiv) continue to support Member States in improving both the quality and the quantity of checks and to share best practices in the fight against fraud and corruption;

Added(xv) address the situation regarding late recovery orders and to take all necessary measures to recover the majority of the amount outstanding for the period 2014-2023, including implementation of corporate escalation mechanisms, and keep the discharge authority informed on the progress made in recovering the sums;

Added(xvi) reinforce the capacity of the Anti-fraud Architecture of the Union, including the provision of sufficient financial and human resources, and facilitate the cooperation between them;

Revenue

50. Welcomes that for 2023, the Court is also able to issue a clean opinion on the legality and regularity of revenue; at the same time, stresses that the problems with customs duties not being declared or being incorrectly declared (a customs gap) leading to a shortfall in collected import duties has been a persistent problem for many years and could potentially entail a loss of traditional own resources for the Union and for the Member States;

Change 29

Changed39.51. Notes with serious concern that the Court has examined the implementation of the Commission’s Customs Action Plan, which has the potential to lead to a significant reduction of the customs gap, and has again identified insufficient progress in the implementation of some actions from this plan; notes that the Commission, as part of this plan, proposed a customs reform in May 20232023, including the establishment of the EU Customs Authority and EU Customs Data Hub;

Change 30

Added52. Recalls that the Court has highlighted the risks to the EU's financial interests from inadequate or ineffective customs controls of imported goods; commends the efforts made by OLAF on the fight against Fraud linked to customs duties and VAT; underlines the rise of the ecommerce and the online platforms risks due to potential security and safety threats and risk of non-compliance with EU taxation and customs rules, product standards, intellectual property rights, prohibitions and restrictions;

53. Notes with concern that the Court revealed that the Commission did not charge late interest payments for six cases related to late corrections to GNI data by Member States where the Commission has expressed reservations; agrees with the Court that the Commission, as a matter of principle, ought to charge late interest payments in such cases in order to create an incentive for Member States to address the reservations within the deadlines;

54. Notes with satisfaction that the new own resource based on non-recycled plastic packaging waste generated by Member States in 2023 amounted to EUR 7,2 billion, equivalent to 4,0 % of the EU’s total revenue; further notes that the Court identified some problems related to the reliability and comparability of data; stresses that it provides an excellent example of a new own resource, as it creates positive incentives for Member States to reduce the volume of non-recycled plastic packaging while at the same time generating a new revenue stream for the Union;

Change 31

Changed42.55. Stresses that the Commission’s proposals concerning new own resources from 2021 comprising three elements, the first based on revenues from emissions trading (ETS), the second drawing on the resources generated by the EUUnion’s carbon border adjustment mechanism, and the third based on the share of residual profits from multinationals that will be re-allocated to EU Member States under the OECD/G20 agreement on a re-allocation of taxing rights (“Pillar One”) are obvious candidates for such new resources; at the same time, points out that other sources might also be considered if they should prove to be easier for Member States to approve; welcomes other initiatives that may lead to new own resources for the Union budget;

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

Change 32

Changed(i) increase focus and pressure on the implementation of the Customs Action Plan and not least the proposal for a significant customs reform from May 2023, including the establishment of the EU Customs Authority and EU Customs Data Hub; ensure that Member States implement effective, proportionate and dissuasive penalties for non-compliance with reporting obligations; initiate infringement proceedings in those cases where there is sufficient evidence that Member States are implementing a manifestly inadequate penalty system for breaches of the Directive on Administrative Cooperation 6 (DAC 6);

Change 33

Added(ii) insist on the importance of intensifying and diversifying the International customs cooperation with trade partners and stresses the need to strengthen the fight against cross-border tax and customs fraud in the context of the expansion of e-commerce;

▸5 unchanged paragraphs

(iii) create incentives for Member States to address reservations related to corrections of GNI data by Member States within the deadlines by charging late interest payments;

(iv) continue work towards the introduction of additional new own resources;

Single market, Innovation and Digital

57. Notes that the budget for the programmes under MFF heading 1 ‘Single Market, Innovation and Digital’ was EUR 25,3 billion (13,2 % of the Union budget) distributed as follows: EUR 15,3 billion (60,5 %) for Research, EUR 4,1 billion (16,1 %) for Transport, Energy and Digital, EUR 2,3 billion (9,1 %) for the InvestEU Programme, EUR 2,2 billion (8,7 %) for Space, and EUR 1,4 billion (5,6 %) for other areas;

58. Notes that the Court has examined 127 transactions covering the full range of spending under this MFF heading, notably the Horizon 2020 programme (90 transactions), Horizon Europe (7 transactions), the Connecting Europe Facility (CEF), space programmes and financial instruments, and also that it has reviewed the European Climate, Infrastructure and Environment Executive Agency’s (CINEA) ex ante control system for CEF grants in the transport and energy sectors and the regularity information given in the annual activity reports of the Directorate-General for Research and Innovation (DG RTD) and the European Health and Digital Executive Agency (HaDEA);

Change 34

Changed46.59. Notes that the Court estimates that the level of error in spending on ‘Single Market, Innovation and Digital’ in 2023 was material at 3,3 %; notes the Court’s observation that research and innovation expenditure is most affected by error, particularly in the area of personnel costs; further notes that the Commission estimates the risk at payment as 1,4 % for this heading, which is in the lower half of the range of the Court’s estimate; is concerned by the Court’s conclusion that the Commission’s risk at payment for this heading isremains an underestimate;underestimate, because of weaknesses identified by the Court in the Commission’s ex post audits in this area since the financial year 2019;

60. Notes with concern that 39 (31 %) of the 127 transactions that the Court examined contained errors; is deeply concerned that for seven cases of quantifiable errors made by beneficiaries, the Commission (or the auditors contracted by the beneficiaries) had sufficient information to prevent, or to detect and correct the error before accepting the expenditure, and thus, had the Commission made proper use of all the information at their disposal, the estimated level of error for this chapter would have been 1,4 percentage points lower; highlights that this points to weaknesses in the Commission’s controls;

Research and innovation

Change 35

Changed48.61. Highlights the importance of EUUnion research and innovation (R&I) funding programmes for the scientific, societal, economic and technological development of the Union, reducing inequalities, achieving the green and digital transitions and decreasing the Union’s energy dependency on Russia; recalls that Horizon Europe is the most significant research and innovation programme in Europe, with a total budget of EUR 95,5 billion for 2021-2027, including EUR 5,4 billion from the NGEU instrument; notes that the RRF has allocated around EUR 48 billion in investments to R&I; underlines that in order to enhance the Union’s competitiveness and close the innovation gap, additional funding for R&I is needed, taking into account the Draghi report’s pertinent recommendations; highlights, in particular, the need to increase defence-related R&I spending due to the current geopolitical conditions, which could serve as an important component of the innovation policy strategy;

Change 36

Changed49.62. Notes that its predecessor, Horizon 2020, with a budget of EUR 75,6 billion funded more than 35 000 projects between 2014 and 2020 and its calls attracted over a million individual applications from 177 countries; further notes that in her hearing for the 2023 discharge, Commissioner Ivanova underlined the EU added value of EU R&I funding programmes, explaining that the final evaluation of Horizon 2020 estimated that, for each euro of costs linked to the programme five euros worth of benefits would be generated for society by 2040; deeply regrets that 74 % of proposals assessed as high quality by independent experts could not be funded due to budget constraints; notes that an additional EUR 159 billion would have been needed to fund all high-quality proposals; stresses the importance of ensuring sufficient funding for EUUnion research and innovation, not the least to increase the Union’s competitiveness and prosperity, in line with the EUUnion’s strategic agenda for 2024-2029;

63. Notes the late adoption of the Horizon Europe legal bases in 2021 and welcomes that the Commission managed to reach close to 100 % budget implementation in 2023; notes that the number of grant agreements signed by the end of 2023 was 10 674 and a further two framework agreements were signed;

64. Notes with concern that the Court found errors relating to ineligible costs in 30 of the 97 research and innovation transactions in its sample, and that these errors represent 71 % of the Court’s estimated level of error for this heading in 2023; reiterates its concern that after 9 years of implementation of the Horizon 2020 programme, the calculation of personnel costs remains a major source of errors, as 22 of the 30 research transactions with quantifiable errors in the Court’s sample (around 73 %) are affected by the incorrect application of the methodology for calculating personnel costs; acknowledges both the Commission’s and the Court’s continued efforts to remedy this situation; welcomes that the Commission has accepted the Court’s recommendations to enhance beneficiaries' compliance with the daily-rate rules and to ensure clarity concerning daily-rate rules in Horizon Europe documents;

Change 37

Changed52.65. Underlines the importance of simplifying the rules and procedures governing EUUnion R&I funding; notes that in 2023 the Commission has continued the roll out of simplified cost options such as lump sums and unit costs in Horizon Europe; further notes the remarks made by the Director-General for Research and Innovation in the exchange of views with the CONT Committee that the Commission intends to increase the disbursement of Horizon Europe funds through lump sums to 50 % by 2027; welcomes that the Commission, taking the Court’s recommendations issued in its annual reports for 2022 into account, will further specify the requirements defining the proper implementation of lump sum grants, including the elements of each work package triggering payment, and will also provide detailed guidance to those involved in assessing the implementation of projects; further notes that, as described in the Commission’s assessment of Lump Sum Funding in Horizon 2020 and Horizon Europe 2018-2024, beneficiaries would welcome more clarity on how lump sum grants would be audited; is concerned that the ex post audit strategy for Horizon Europe is not yet developed;

Change 38

Changed53.66. Stresses the crucial role of the private sector in addressing the innovation gap in the Union and improving the Union’s competitiveness and prosperity; believes, in particular, that it is imperative to continue to promote and facilitate as much as possible the participation of small and medium-sized enterprises (SMEs)SMEs in Union R&I funding programmes; notes the Court’s conclusion that SMEs and newcomers are more prone to making errors than other beneficiaries since they lack the experience and resources to administer the funds; welcomes the efforts made by the Commission to specifically support SMEs,SMEs specifically, for example through information campaigns, contacts with the system of National Contact Points and the dedicated helpdesk of the Research Enquiry Service; considers that the simplification of rules and procedures can beis anthe importantmajor driver for increased participation of SMEs;

Energy, Transport and Digital

Change 39

Changed54.67. Highlights the importance of EUUnion investments in the development of high performing, sustainable and efficiently interconnected trans-European networks in the fields of transport, energy and digital services and notes that the Connecting Europe Facility (CEF), with EUR 4,1 billion of expenditure in 2023, is a key EUUnion instrument in delivering these objectives;

Change 40

Removed55. Notes with concern that the Court found two errors in CEF projects in its 2023 sample, and that one of these relates to a serious breach of EU public procurement rules, and has led to the contract being awarded to a consortium that did not fulfil the selection criteria and that this error contributed 28 % to the estimated error rate for heading 1;

Added68. Draws attention to the need to simplify the application procedures under the Connecting Europe Facility for Transport (CEF-T) in order to enable greater participation of smaller entities and local initiatives in the development of European transport infrastructure; regrets that the CEF-T budget does not cover all the needs for sustainable transport investments and that most of the CEF-T budget has already been allocated, leaving a funding gap until 2027;

Added69. Recalls that the Russian war of aggression against Ukraine and the resulting sanctions imposed on Russia continued to adversely impact the Union’s transport sector in 2023, leading to traffic shortages, supply chain bottlenecks, and the necessity to bypass traditional routes, thereby extending journey times and increasing costs; points out that the Eastern border regions, especially in the Baltic states, Finland, Poland, and Romania, have been particularly affected by economic losses and a halt of cross-border mobility as a consequence of the Russian aggression; calls on the Commission to introduce targeted measures, including in the next MFF, to facilitate recovery of the affected regions;

Added70. Calls on the Commission to conduct a comprehensive review of the funding allocated to the cross-border and multi-country infrastructure projects, facing significant implementation challenges, financial difficulties, or delays, such as Rail Baltica; points out that this review should address inefficiencies in planning and management as well as escalating construction costs that threaten project timelines and objectives; reiterates that greater transparency in the management of public funds increases citizens’ trust in the Union institutions;

Added71. Notes with concern that the Court found two errors in CEF projects in its 2023 sample, and that one of these relates to a serious breach of the Union’s public procurement rules, and has led to the contract being awarded to a consortium that did not fulfil the selection criteria and that this error contributed 28 % to the estimated error rate for heading 1;

▸4 unchanged paragraphs

72. Is deeply concerned by the Court’s findings in relation to the European Climate, Infrastructure and Environment Executive Agency’s (CINEA)ex ante control system for CEF grants in the transport and energy sectors, in particular the Court’s conclusion that while the strategies for both CEF1 (2014-2020) and CEF2 (2021-2027) are based on a sound analysis of risks and past irregularities, the guidelines for ex-ante checks on procurement were not detailed enough; fully supports the Court’s recommendation that the Commission should further develop these guidelines;

Recommendations

73. Calls on the Commission to:

(i) secure the provision of adequate resources to support high-quality research and innovation project proposals with an EU added value in the short-term through the 2026 draft budget and in the medium-term through the Commission’s proposal for the next Multiannual Financial Framework;

Change 41

Changed(ii) continue to simplify rules and procedures in line with the new financial regulation, to support training sessions and user-friendly, consistent and practical information for applicants in Member States, in particular for SMEs, new applicants, spin-offs, start-ups, regional NGOsCSOs or local action groups;groups and to encourage applications from beneficiaries in Member States with more limited participation, as well as from smaller entities;

▸8 unchanged paragraphs

(iii) continue to apply simplified rules and procedures, digitalisation measures and simplified cost options (SCOs) while addressing, in particular, the risk of irregularities and fraud and the costs of controls, and finalising the ex post audit strategy for Horizon Europe as soon as possible;

(iv) further specify the requirements for defining proper implementation of lump sum grants, taking into account the Court’s pertinent recommendations from its 2022 Annual Report, and verify the actual implementation of projects using lump sums;

(v) undertake a thorough analysis of procurement errors found and further develop the guidelines describing the extent of the checks to be performed for ex ante controls on procurement for CEF projects, as recommended by the Court;

Cohesion, Resilience and Values

74. Notes that the budget for the programmes under MFF heading 2 ‘Cohesion, resilience and values’ was EUR 73,3 billion (38,4 % of the Union budget) distributed as follows: 47,8 % for the European Regional Development Fund (ERDF) and other regional operations, 18,9 % for the European Social Fund (ESF), 9,8 % for the Cohesion Fund (CF), 3,8 % for Erasmus+, 2,1 % for CEF Transport, and 3,8 % for other areas;

75. Notes that the Court has examined a sample of 238 transactions covering the full range of spending under MFF Heading 2; notes with concern that the Court’s estimated overall level of error in expenditure under this heading in 2023 increased to 9,3 %, which is significantly above the materiality threshold; draws attention to the marked increase in the overall level of error estimated by the Court in 2023 compared to previous years (6,4 % in 2022, 3,6 % in 2021);

76. Is concerned about the Court’s observation that the significant additional resources made available under the Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU), the approaching end of the eligibility period for 2014-2020 programmes (31 December 2023), and parallel implementation of the NGEU programme have put additional pressure on Member State’s administrations, increasing the risk of errors; is in particular concerned by the practice of reducing Member States’ co-funding, as is the case under REACT-EU, the Coronavirus Investment Initiative (CRII) and CRII+, which reduces the ownership and associated incentives for properly overseeing expenditure; notes from the Commission replies the acknowledgement that some authorities may have carried out less effective controls and verifications due to the heavy overload and increasing pressure of parallel implementation of 2014-2020 programmes and of additional funding under NGEU;

77. Notes the Court’s analysis of transactions with additional funding through REACT-EU and flexibility through CRII+ and Cohesion’s Action for Refugees (CARE) and their contribution to the estimated levels of error; notes in particular the conclusion that errors found in 100 % EU-funded priorities contributed 5,0 % to the total estimated level of error of 9,3 %; is concerned that increasing flexibilities, without either decreasing requirements or increasing preventive checks and controls at the same time, contributed to the high error rate;

Change 42

Changed62.78. Notes the Court’s Review 0303/2024 “An overview of the assurance framework and the key factors contributing to errors in 2024-20202014-2020 cohesion spending” whichthat provides a multi-annual overview covering six years of audit results, including an assessment of management and control issues, aiming to strengthen the assurance model; is concerned by the Court’s conclusion thatthat, although the assurance framework for cohesion policy has helped to reduce the level of error, it has not been effective in bringing the overall level of error below the materiality threshold of 2 %; is worried that the Commission can rely only to a limited degree on the work of the national audit authorities, because of the systematic weaknesses; supports the Court’s recommendation to the Commission to strengthen the implementation of the assurance framework for the 2021-2027 cohesion spending; reminds the Commission of the discharge authority’s call to work closely with the Member States to improve the management and control system for Union expenditure to reduce the high error rate to below the 2 % materiality threshold;

79. Notes the Court’s observation in its review on the reliability of the work of key actors in the control system for cohesion policy; is concerned by the Court’s finding that during a 6-year period managing authorities, the first line of defence for detection and prevention of errors, are not sufficiently effective in mitigating the inherent high risk of error in cohesion policy; considers it even more worrying that the Court found that the second line of defence, the Member States’ audit authorities, are not able to determine the correct error rate for the packages of expenditure they audit and provide assurance on, since the Court detected additional errors in at least 39 % of these packages; notes that these errors have been detected and reported by the Court annually for more than 6 years and that there is therefore a systemic issue;

Change 43

Changed64.80. Notes the Court’s categorisation of errors found in cohesion expenditure, with ineligible expenditureprojects accounting for 29 %, ineligible costs for 26 % and serious non-compliance in public procurement procedures accounting for 21 % of errors and ERDF and CF related expenditure accounting for the largest share of errors (80 %); notes that expenditure under the ESF+, YEI and FEAD are proportionally less affected by error, as they together account for 16 % of errors, while they together account for around 20 % of the budget under this heading;

81. Notes the study commissioned by the Committee on Budgetary Control on ‘Lessons learned from the implementation of crisis response tools’ that shows that absorption of uncommitted cohesion resources was supported by the flexibilities introduced under CRII and CRII+; is concerned by the finding of the researchers that quality of fast-tracked projects might not have reached the same level as investments before the pandemic; is further concerned by the researchers’ observation that the risk of low-quality projects is entirely borne by the Union Budget, because of 100 % EU-funding in CRII, CRII+ and REACT-EU; considers that 100 % EU-funding might help absorption, but that absorption is not a goal in itself;

Change 44

Removed66. Notes the public discussions on the post-2027 multiannual financial framework that may indicate a shift towards a performance-based model, coupling investments and reforms, and a desire to simplify rules and procedures; warns that any decision on the future design of spending programmes must not be to the detriment of oversight and control of Union expenditure in terms of transparency and information at Union level about non-compliance with rules and regulations; considers that the errors identified by the Court and the way the Commission handles those errors are also an indication of a properly functioning management and control system and notes that both institutions stated their commitment to improve the system and bring down the error rate;

Added82. Stresses that, in its most recent discharge opinions, the Committee on Regional Development called for additional advisory support from the Commission to national, local and regional authorities to avoid a situation of administrative overload; recognises the Commission’s efforts but, observes that, regrettably, these have not been sufficient to mitigate the risk of error; warns that a similar administrative overload might occur at the end of the RRF eligibility period and the final years of the MFF; underlines the need to address the insufficient administrative capacity of national, local and regional authorities as a matter of urgency; calls on the Commission, in this regard, to provide them with clear guidance, and to increase its support for administrative capacity building, including through staff training, best practice sharing, peer-to-peer reviews and technical assistance to ensure effective fund management;

Added83. Notes the public discussions on the post-2027 multiannual financial framework that may indicate a shift towards a performance-based model, coupling investments and reforms, and a desire to simplify rules and procedures; calls on the Commission to prioritise the financial responses to the current threats resulting from the geopolitical situation; warns that any decision on the future design of spending programmes must not be to the detriment of oversight and control of Union expenditure in terms of transparency and information at Union level about non-compliance with rules and regulations; considers that the errors identified by the Court and the way the Commission handles those errors are also an indication of a properly functioning management and control system and notes that both institutions stated their commitment to improve the system and bring down the error rate;

84. Notes, as in previous years, the Court’s observation that the Commission’s desk reviews, to review and assess the work of audit authorities, are aimed at checking only consistency of regularity information, and that they are therefore too limited to confirm the residual error rate reported by the national authorities in their assurance packages; notes the Commission’s reply that it complements its desk review with on-the-spot audit work covering the programmes and assurance packages, which enables it to establish a reasonable and fair estimate of the error rates for each programme; considers that the Court’s observation is about the scope of the desk reviews and the fact that they are only aimed at consistency and therefore too limited to provide the Commission with information that is sufficiently reliable;

85. Is concerned about the persistent shortcomings observed by the Court in the work of national audit authorities as visible in the weaknesses identified in the assurance packages, with a residual error rate above the materiality threshold for more than 60 % of the value of assurance packages audited in 2023; stresses with concern that managing authorities consistently do not effectively succeed in preventing or detecting irregularities in expenditure declared by beneficiaries and that this reduces the extent to which the Commission can rely on their work;

Change 45

Added86. Reminds that in shared management, it is the Commission’s responsibility to make sure that Member States set up management and control systems that function effectively during the implementation of programmes; is worried that both the Commission and the Court have identified that not all Member States’ management and control systems function effectively, thus negatively effecting the reliability of the Commission error rates, as they rely on these national systems, which do not work effectively; calls into question the possibility for the Commission to continue to rely on national systems;

87. Considers that for the single audit approach to work well, and in order to achieve reduced administrative burden for beneficiaries and managing authorities, adherence to audit standards at all levels of control and audit is of essential importance; is therefore worried by the Court’s finding in its annual report that essential supporting documents about compliance with eligibility conditions were not presented by programme authorities and beneficiaries, and also by the finding by the Court presented in its review that insufficient documentation of audit work from audit authorities limits the reliance that can be placed on audit work of national audit authorities;

Change 46

Changed70.88. Recalls that following Article 15 of Regulation (EU) 2021/1060 of the European Parliament and of the Council (CPR) for the programming period 2021-2027, Member States need to comply with horizontal and thematic enabling conditions, which need to remain fulfilled and respected throughout the implementation period 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; recalls the strong regrets of the discharge authority within relation to the Commission decision of 13 December 2023 considering that Hungary fulfilled the horizontal enabling condition related to judicial independence that enabled the Hungarian authorities to submit reimbursement claims of up to EUR 10.2 billion; notes with concern that since the release of these funds, the Hungarian government has not taken steps to reinstate the independence of the judiciary but on the contrary; reiterates its worries about the lack of adequate control mechanisms or unreliable public procurement procedures 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 Regulation (EU, Euratom) 2020/2092 (the ‘Conditionality Regulation’);