D/661767/2011-ANN2-EN
/ EUROPEAN COMMISSIONDIRECTORATE-GENERAL FOR AGRICULTURE AND RURAL DEVELOPMENT
Directorate J. Audit of agricultural expenditure
J.1.Coordination of horizontal questions concerning the clearance of accounts
Brussels, 24 June 2011
D(2011)661767
Ad Hoc 36 EN
SUMMARY REPORT
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on the results of the Commission's inspections
in the context of the conformity clearance
pursuant to Article 7(4) of Regulation (EC) No 1258/1999
and Article 31 of Regulation (EC) No 1290/2005
CONTENTS
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1:Introduction
2:Export refunds
3:Sugar
4:Fruit and vegetables
5:Milk products
6:Intervention storage
7:Wine
8:Tobacco
9:Potato starch
10:POSEI
11:Livestock premiums
12:Area aids / Arable crops
13:Cross-compliance
14:Cotton, flax and hemp, silk worms
15:Olive oil and other oils and fats
16:Dried fodder and seeds
17:Rural development
18:Late payments
19:Other corrections
ANNEX I – Appeals to the Court of Justice, Conciliation Body procedure
ANNEX II – Table of corrections
1.Introduction
The European Commission’s audit procedure is a vital instrument for controlling common agricultural policy (CAP) expenditure, permitting the recovery of sums paid out without sufficient guarantees as to the legality of the payments or the reliability of the control and verification system in the Member States.
The Member States are responsible for making payments, charging levies and recovering all undue payments within the framework of the EAGGF (European Agricultural Guidance and Guarantee Fund) Guarantee Section and European Agricultural Guarantee Fund (EAGF). The clearance of accounts procedure requires the Commission to ensure, primarily by means of on-the-spot inspections, that the Member States have made correct use of the funds placed at their disposal by the EAGGF. Under Article 31 of Regulation (EC) No1290/2005, the Commission excludes expenditure by the Member States’ accredited paying agencies from Community financing if the expenditure concerned has not been effected in compliance with Community legislation.
The Commission recovers the amount misspent by the Member States concerned by means of compliance decisions, which constitute the final stage of investigations by the clearance of EAGGF account units. Each decision is accompanied by a summary report on the investigations completed which enables assessment of whether the Member States have been treated equally as regards the conclusions drawn.
Since summary report D(2011)/211644of 16 March 2011 on Decision No35 was drafted, the Commission has concluded the investigations presented in this summary report.
2.Export refunds
This proposal for a Commission clearance decision does not include any correction for this sector.
3.Sugar
This proposal for a Commission clearance decision does not include any correction for this sector.
4.Fruit and vegetables
4.1.Germany – Operational Programmes of Producer Organisations (POs)
Enquiry No: FV/2006/303/DE
Legislation:Regulations (EC) Nos 2200/96, 609/2001, 1432/2003 and 1433/2003
Dates of the mission:13-17.11.2006
Observation letter: AGRI 4987 of 21/02/2007
Reply of the MemberState:ELV 42.01.18 of 11/06/2007
Minutes of the bilateral meeting: AGRI 23621 of 17/09/2007
Reply to minutes of bilateral:ELV 42.01.18 of 23/11/2007
Conciliation letter:AGRI 27954 of 20/11/2008
Conciliation reference: 09/DE/390
Final letters: Ares(2010) 042108 of 27/1/2010 and Ares(2010)020145 of 14/1/2010
The present summary report is a continuation of the one which was submitted to the Committee on Agricultural Funds earlier, to be covered by Commission Decision 2010/399/EU of 15/7/2010 (OJ L 184, 17.7.2010, p. 6).In that respect, the Main findings and the Summary of the MemberState’s arguments remain identical, and legal references need not be repeated here.
4.1.1.Main findings
(a)Weaknesses in the control system concerning the recognition of POs
Significant weaknesses have been revealed in the control system on the recognition of POs in the Land Brandenburg.Two out of the three POs visited did not fulfil important recognition criteria.The Commission services established that at both POs the marketing of the production of the members was not carried out by the POs as required by EU legislation.In fact, the role played by the POs has been too limited in this context.The members or certain groups of members remained responsible for selling their produce.Furthermore, other functions related to marketing, which shall be carried out by a PO, remained with the producers.
(b)Weaknesses in the control system concerning operational programmes
Ineligible expenditure:charges for planting fruit trees
At one PO, in addition to the purchasing cost of the plants, the costs for planting (e.g. preparation of the soil, wire support, personnel cost) have been also included in the operational programme as lump sums.These amounts were said to be based on an independent analyses.On this data a 20% deduction was applied resulting in a lump sum of EUR 1,50 per tree.The representatives of the PO argued that these costs were an integrated part of the costs for plants.
The Commission services pointed out that Annex 1 of Regulation (EC) No 1433/2003 envisages the "costs of plants in the case of perennial crops" and does not envisage lump sums.Those services took the opinion that lump sums therefore may not be utilised if they were not explicitly mentioned in the Regulation.Furthermore, personnel costs are only permitted in actions linked to point 4 (a) or (b) of Annex I of Regulation (EC) No 1433/2003, which were not applicable in the given case.
Overstatement of the Value of Marketed Production (VMP)
The audit mission revealed that at one producer organisation the VMP was wrongly calculated for a given programme year (2004) as it included one member's production which, in part, should not have been considered.
In particular, the VMP reference year for this programme year was 2002 and it included the turnover of the Polish members as from May 2002.In fact, the Polish members were said to be active members only as from October 2004, it was also established that the PO has commenced with the marketing of this member's production as from that time of the year, i.e. in a period when production was nearly over.
4.1.2.Summary of the MemberState’s arguments
(a)Weaknesses in the control system concerning the recognition of POs
The German authorities maintained their position that the two POs concerned fulfilled the recognition criteria.Historical particularities with which POs in the East were faced, were highlighted.Furthermore, it was stressed that the entities were specialised POs handling sensitive products which required to be close to the customer, i.e. the POs were bound to have a decentralised structure.
The German authorities also did not see incompliance with Community law as far as tasks to be performed by a PO were concerned.
Moreover, the German authorities argued that EU law permits outsourcing and that POs can therefore delegate the work to the producers themselves (or to their marketing agents).According to those authorities this implied that individual producers could remain responsible for the storage, packaging, sale, invoicing, bookkeeping etc. of their produce.
(b)Weaknesses in the control system concerning operational programmes
Ineligible expenditure:costs incurred for planting fruit trees
The German authorities argued that these costs formed an integral part of the costs for plants, and that investments of individual holdings are eligible for funding in accordance with point 17 of Annex I to Regulation (EC) No 1433/2003.Moreover, the German authorities did not consider the amounts applied as lump sums in the strict sense as, in their opinion, they were based on real values and had been differentiated by the type of the tree.
Overstatement of the Value of Marketed Production (VMP)
The German authorities maintained their position that the membership of the Polish producers and their inclusion in the operational programme were possible as of 01.05.2004, date of the accession of Poland to the EU, thus the relevant VMP could be taken into account as of 01.05.2002.Further to these arguments the German authorities claimed during the bilateral meeting that the marketing of the Polish production took place before in the period concerned via a subsidiary of the PO situated in Poland.
4.1.3.Position of the Commission before conciliation – first and second formal notification
(a)Weaknesses in the control system concerning the recognition of POs
The Commission services remained of the opinion that the two POs concerned did not market the production of their members as required by EU legislation. In the Commission’s view, the Community rules require POs to play an active role in marketing their members’ produce.Even if they are not required to actually perform all the sales operations, they should have a concrete role as intermediaries and an active role in setting sales prices.
In the given organisations, the Commission services established that nearly all tasks of the POs were carried out by the members themselves.No significant change compared to the former (traditional) structure had taken place.
Furthermore, with regard to the argument of outsourcing, the Commission services clarified that POs have the option either of (i) carrying out their task themselves with their own (or hired) equipment and their own staff or contractors or (ii) entrusting it to one or more third parties, normally under contract.Such third parties are usually specialists in the relevant field.However, the Commission services could not accept that such "delegation" of work resulted in the producers remaining responsible for the storage, packaging or sale of their own products instead of transferring this work to their producer organisation, as envisaged by EU legislation.
In addition, based on supplementary information requested from the German authorities, the Commission services found that a third producer organisation showed also weaknesses in recognition.
(b)Weaknesses in the control system concerning operational programmes
Ineligible expenditure:costs incurred for planting fruit trees
The Commission services confirm their opinion that the costs incurred for the planting of the trees were ineligible.
Overstatement of the Value of Marketed Production (VMP)
The assumption made during the bilateral meeting that the marketing of the Polish production took place before October via a subsidiary of the PO situated in Poland was not substantiated.In fact, in 2004 it was a contractual agent that marketed the majority of the Polish production.The Commission services concluded that the aid was not capped at 4,1 % of the VMP.
(c)The financial consequences
(i) First formal notification
The Commission services proposed to exclude from funding a part of the expenditure declared to the EAGGF, Guarantee section under the operational programme measure.The proposed financial correction amounted to EUR 6 879176.33.
(ii) Second formal notification
In the first letter proposing the financial correction the German authorities were made aware of the fact that the Formal notification closed enquiry FV/2006/303 only as regards expenditure paid up to 15 October 2007 as far as weaknesses in recognition were concerned.
However, the enquiry remained open as regards expenditure for the operational programme year 2007 paid after 15 October 2007 (i.e. aid payments in the financial year 2008).The German authorities were also informed that for this period a separate Formal notification would be transmitted at a later stage.
In its second formal notification therefore, for the period concerned, the Commission services proposed to exclude from financing a part of the expenditure for recognition-related weaknesses on a punctual (one-off) basis.The total expenditure incurred by the three POs in the period concerned was intended to be excluded from Community funding.
The proposed financial correction amounted to EUR 846 668.37.
4.1.4.Conciliation
No conciliation was requested by Germany after the second formal notification.
4.1.5.Final Commission position
The Commission services maintain that the whole of the expenditure incurred in respect of the three POs in question should be excluded from EU financing up to and including the marketing year 2007 and paid after 15 October 2007.The amount proposed for exclusion from Community funding is 846668.37 EUR.It is as follows:
PayingAgency / Budget Item / Correction type / Currency / Correction amount
Financial Year 2008
DE07 / 05 02 08 03 1502 013 / Punctual / EUR / 846668.37
TOTAL / 846668.37
4.2.Portugal – Aid scheme for products processed from fruit and vegetables (tomatoes)
Enquiry No:FV/2008/311/PT
Legislation:Regulations (EC) Nos 2200/96, 2201/96, 1432/2003, 1433/2003 and 1535/2003
Dates of mission:7-11.4.2008
Observation letter:AGR 14417 dated 16.6.2008
Reply of the MemberState:70/GPRC/ARCO/2008 dated 18.8.2008
Invitation to bilateral meeting:AGRI 25656 dated 23.10.2008
Reply to invitation:310/DAD/UVHF/2008 dated 4.12.2008
Bilateral meeting:3.12.2008
Minutes of the bilateral meeting:AGR 1997dated 28.1.2009
Reply to minutes of bilateral:49/GPRC/ARCO/2009 dated 2.5.2009
Conciliation letter:Ares(2010)263769 dated 18.5.2010
Request for conciliation:016732/2010 dated 18.5.2010
Conciliation reference:10/PT/450
Conciliation Body's opinion:Ares(2010) 908172 dated 6.12.2010
Final letter:Ares(2011) 223296dated 01.03.2011
4.2.1.Main findings
Anomalies in the ratio between raw materials and finished products are an indicator for deliveries of phantom quantities.Those anomalies can only be assessed properly when calculated on a daily basis using data from reliable records.
Visits to 2 processors revealed that daily processing yields had not been established as required by Art. 30(1) in conjunction with Art. 31(2)(c) of Regulation (EC) No 1535/2003.
4.2.2.MemberState’s arguments
Throughout the clearance procedure, the Portuguese authorities argue that it is impossible to calculate reliable daily processing yields for various reasons:tomatoes are processed on a continuous basis;there may be processing losses;within a single factory there are often different processing lines for different end products.For those reasons, it would be possible to establish a processing yield only at the end of the marketing year, and to compare between marketing years.
During the bilateral meeting, the Portuguese authorities submitted an analysis of processing yields obtained at 3 processors (the 2 visited plus an additional one) during marketing year 2006/2007.In their view, these yields could be qualified as ‘normal’.For 7 other processors, scant data was provided.
4.2.3.Position of the Commission before conciliation
On the basis of the findings and considering all explanations provided by the Portuguese authorities, the Commission services maintained that the processing yields established – a key control – are not adequate:
(a)as regards the 3 processors for which a detailed calculation was ultimately available, a 5% financial correction was considered excessive;as the risk for the Fund was limited, a 2% financial correction was appropriate;
(b)as regards the 7 processors for which no in-depth analysis had been provided, a 5% financial correction was proposed.
For marketing year 2006/2007, the Commission services applied the above-mentioned flat rates to the Portuguese expenditure broken down between the 2 groups of processors on the basis of quantities processed.
As no analysis of processing yields was available at all for marketing year 2007/2008, a 5% financial correction was proposed for all expenditure for the measure.
The total financial correction thus amounted to 3027219.07 EUR.
4.2.4.Opinion of the Conciliation Body
In its report on Case10/PT/450, the Conciliation Body, having examined the file submitted to it and having consulted both the Commission and the Portuguese authorities, feels that the two parties could reconcile their positions by continuing their dialogue
Apparently for the 2006/07 marketing year the Portuguese authorities will be able to provide the Commission with the same information that led it to propose a correction rate of 2% instead of 5% for some processing companies for the 2007/08 marketing year.
Furthermore, the Portuguese authorities also claim to have given the Commission all the necessary elements to allow compliance with the daily yield checking requirement for all companies for the 2007/08 marketing year to be verified.The Portuguese authorities concede that the presentation of this data could have created some confusion.
The Portuguese authorities indicated, during talks, that they could accept a flat-rate correction of 2% for the 2006/07 marketing year expenditure and a one-off correction for the 2007/08 marketing year expenditure if the information provided reveals unjustified anomalies.
4.2.5.Final Commission position
Having analysed in detail the Conciliation Body’s report and the new information submitted by the Portuguese authorities following the Conciliation procedure, the Commission decided to revise its proposal of a financial correction.
4.2.5.1.Considerations on the opinion of the Conciliation Body
The Commission considers that the data submitted by the Portuguese authorities after their consulation with the Conciliation Body show that, for the 2007/08 marketing year, the processing yield had indeed been verified on a daily basis, in accordance with Articles30 and 31 of Regulation (EC) No1535/2003.Therefore there is no need to apply a financial correction for the 2007/08 marketing year
For the 2006/07 marketing year, the additional data referred to above show that processing yield had indeed been checked, but only a posteriori.
4.2.5.2.Even if the calculations showed that there was no loss to the Fund, the Commission estimates that this calculation should have been made during the checks for that marketing year.As the risk of potential fictitious deliveries was not checked in the desired time, the correction applied to the total expenditure for this marketing year is still 2%.
The total correction amounts to 677636.18 EUR. It is as follows:
Paying Agency / Budget Item / Correction type / Currency / Correction amountFinancial Year 2007
PT02 / 050208061511055 / Flat rate 2% / EUR / 674661.75
Financial Year 2008
PT02 / 050208061511055 / Flat rate 2% / EUR / 2974.43
TOTAL / 677636.18
5.Milk products
5.1.Italy
Enquiry Nos:LA/2006/08/IT and LA/2008/001/IT
Legislation:Reg Nos. 1788/2003 and 595/2004
Date of mission:18-22 September 2006 and 3-7 March 2008
Observation letters:AGRI 009884 dated 17 April 2007 and AGRI D/20272 dated 20 August 2008
Reply of the MemberState:ACIU.2007.461 dated 22 June 2007 and ACIU.2008.1530 dated 27 October 2008
Bilateral meeting: 15 January 2009
Minutes of the bilateral meeting:Ares (2009)161355 of 8 July 2009
Reply to minutes of bilateral:ACIU 2009 1230 of 15 September 2009
Conciliation letter: Ares155172 of 24 March 2010
Request for conciliation:11.05.2010
Conciliation reference: 10/IT/445
Final letter:Ares(2010)979992 dated 21.12.2010
5.1.1.Main findings
Art. 19 (3) of the Reg. 595/2004 specifies:"Controls shall be deemed to be completed once an inspection report of the controls is available.