6€¦ · Web viewDirectorate J. Audit of agricultural expenditure J.1. Coordination of horizontal questions concerning the clearance of accounts Brussels, 24 June 2011 D(2011)661767

D/661767/2011-ANN2-EN

EUROPEAN COMMISSIONDIRECTORATE-GENERAL FOR AGRICULTURE AND RURAL DEVELOPMENT

Directorate J. Audit of agricultural expenditureJ.1. Coordination of horizontal questions concerning the clearance of accounts

Brussels, 24 June 2011D(2011)661767/tt/file_convert/5f5a1d6f50ce405ed7626ff7/document.doc

SUMMARY REPORT

_______________________

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

________________

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

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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) No 1290/2005, 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)/211644 of 16 March 2011 on Decision No 35 was drafted, the Commission has concluded the investigations presented in this summary report.

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2. EXPORT REFUNDS

This proposal for a Commission clearance decision does not include any correction for this sector.

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3. SUGAR


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4. FRUIT AND VEGETABLES

6.1. 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 Member State: 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 Member State’s arguments remain identical, and legal references need not be repeated here.

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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.

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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 Member State’s arguments


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.

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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.


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.

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4.1.3. Position of the Commission before conciliation – first and second formal notification


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.

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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.


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 6 879 176.33.

(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.

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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 846 668.37 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 846 668.37

TOTAL 846 668.37

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6.2. 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 Member State: 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) 223296 dated 01.03.2011


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.

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4.1.7. Member State’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.

4.1.8. 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 3 027 219.07 EUR.

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4.1.9. Opinion of the Conciliation Body

In its report on Case 10/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.


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.

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4.1.10.1. 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 Articles 30 and 31 of Regulation (EC) No 1535/2003. 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.

4.1.10.2. 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 677 636.18 EUR. It is as follows:

Paying Agency Budget Item Correction

type Currency Correction amount

Financial Year 2007PT02 050208061511055 Flat rate 2% EUR 674 661.75

Financial Year 2008PT02 050208061511055 Flat rate 2% EUR 2 974.43

TOTAL 677 636.18

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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 Member State: 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


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.

All inspection reports shall be completed no later than 18 months after the end of the 12-month period concerned."

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Art.22 of the Reg. 595/2004 specifies:

"1. The controls referred to in Article 21(1) shall cover at least:

(a) 1 % of producers for the 12-month period 2004/05, 2 % of producers for the following 12-month periods;

(b) 40 % of the quantity of milk declared before correction for the period concerned;

(c) a representative sample of transport of milk between selected producers and purchasers.

The transport controls referred to in point (c) shall be carried out I in particular at unloading at the dairies.

2. Controls referred to in Article 21(2) shall cover at least 5 % of producers.

3. Each purchaser shall be controlled at least once in five years."

During both on-the-spot audit missions – LA/2006/08/IT and LA/2008/001/IT – the Commission auditors established that the Italian authorities failed to execute controls on time. Based on the data received from the Italian authorities the following control statistics were established:

Controls 2004/2005(deadline for controls: 31.09.2006)

Direct sales

Regionnumber of

late controls

total number of

controls

% of late controls

LAZIO 3 8 38%

PUGLIA 3 4 75%

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Deliveries at producers

Regionnumber of

late controls

total number of

controls

% of late controls

ABRUZZO 4 12 33%

PUGLIA 15 30 50%

Deliveries at purchasers

Regionnumber of

late controls

total number of

controls

% of late controls

ABRUZZO 1 4 25%

EMILIA ROMAGNA 1 52 2%

FRIULI VENEZIA GIULIA 1 4 25%

LAZIO 7 14 50%

MARCHE 1 2 50%

PUGLIA 9 11 82%

SARDEGNA 1 3 33%

VENETO 1 18 6%

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Direct sales

Regionnumber of

late controls

total number of

controls

% of late controls

CALABRIA 1 2 50%

LAZIO 1 7 14%

MARCHE 2 2 100%

PUGLIA 4 7 57%

VENETO 1 25 4%


Regionnumber of

late controls

total number of

controls

% of late controls

PUGLIA 3 64 5%


Regionnumber of

late controls

total number of

controls

% of late controls

ABRUZZO 1 2 50%

CALABRIA 2 4 50%


LAZIO 8 9 89%

PUGLIA 10 22 45%

SARDEGNA 1 2 50%

SICILIA 1 7 14%

VALLE D'AOSTA 2 5 40%

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Controls on direct sales

Regionnumber of late

controls

total number

of controls

% of late controls

CALABRIA 2 5 40%

MARCHE 2 2 100%

PUGLIA 6 10 60%

VALLE D'AOSTA 6 20 30%


Regionnumber of

late controls

total number of

controls

% of late controls

CALABRIA 5 10 50%

PUGLIA 59 68 87%


Regionnumber of

late controls

total number of

controls

% of late controls

CALABRIA 2 3 67%


MARCHE 1 1 100%

PUGLIA 9 21 43%

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The Regulation deems controls to be completed once an inspection report of the controls is available. The dates used to calculate the percentage of late controls specify the completion of a control by Italian authorities, not the receipt of control reports by AGEA, which is a favourable way for Italian authorities i.e. the sometimes long period is put aside.

The data used in the calculation was sent by Italian authorities in September 2009 in the reply to the minutes of bilateral meeting, which allowed the Italian authorities one additional year (from the last control period) to gather control reports.

5.1.2. Italy’s arguments

The Italian authorities do not substantially dispute the factual nature of the audit findings, and have supplied detailed data for analysis to establish the factual basis on which the dossier is to be assessed.


The guidelines in Doc VI/5330/97 provide that when the information resulting from an enquiry leads to the conclusion "that the Member State had failed to carry out adequate verification of the eligibility of claims paid" (or, in the case of the milk quota regime "verification of the veracity of declarations of milk deliveries/direct

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sales") and that where the amount of financial loss suffered by the EU cannot be determined, a flat-rate correction may be applied. The probable loss to EU funds (resulting from reduced revenue from the supplementary levy) must therefore be assessed by an evaluation of the risk to which they were exposed by the serious and persistent control deficiencies. The guidelines define two categories of control: key and ancillary.

"Key controls are those physical and administrative checks required to verify substantive elements, in particular the existence of the subject of the claim, the quantity, and the qualitative conditions including the respect of time limits …."

It is considered appropriate therefore, in the face of certain regional authorities' clear non-compliance with "key" controls to resort to the guideline in document VI/5330/97. "When all key controls are applied, but not in the number, frequency, or depth required by the regulations, then a correction of 5% is justified, as it can reasonably be concluded that they do not provide sufficient level of assurance of the regularity of claims and that the risk to the Fund was significant."

The guidelines apply the rate of correction to "that part of expenditure at risk". However, as supplementary levy is a negative expenditure or "recette affectée", it is not possible to exercise a flat rate correction on any expenditure actually incurred – rather "the expenditure at risk" in this case is the amount of levy potentially not collected as a result of the control deficiency. The Commission Services have therefore determined the level of risk as follows:

- as the risk relates to possible under declaration of the quantity of milk delivered or sold directly, the flat rate is applied to the quantities of milk deliveries / direct sales declared by Italy

- it is then determined if the addition of the quantity resulting from the flat rate calculation to the quantity actually declared leads to an excess of deliveries/direct sales over the national milk quota. As the risk of under declaration is clearly greater in a Member State which is close to or above quota, the effect of the flat rate increase therefore reflects the degree of risk.

- the financial consequence of the calculated increase in the excess over quota is the amount of (extra) supplementary levy that this would engender.

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Furthermore, when assessing the appropriate level of flat rate correction, it must not be overlooked that Italy was warned of the potential problem (Enquiry LA/2004/01 Article 8 letter – ACIU.2004.503 of 11.10.2004) and as highlighted by document 5330/97- "failure to perfect controls becomes more serious if the Commission has already notified it of the improvements it considers essential to protect Community funds against fraud and irregularity."

In summary, to assess Italy's non-compliance, the Commission Services adopt the same reasoning for a flat rate correction as that laid down in guideline document 5330/97. However, on the grounds that in the case of 'negative' expenditure there is a risk of under-declaration, the percentage is being applied to the quantity of milk actually declared as delivered or subject to direct sales, and the financial correction is limited to the quantity in excess of quota.

In the case of Italy, both delivery and direct sales national quotas were exceeded for the 2003/04 and 2004/05 milk campaign and therefore, the full correction to the quantities declared will be in excess of the quota and will be liable to additional levies in its entirety. In case of 2005/06 and 2006/07 only delivery quota was exceeded and the amount of correction for direct sales does not bring the production over quota for direct sales, therefore the full correction will be applied only to the quantities delivered and no correction will be applied for direct sales.

Regionalisation of the correction - Document VI/5330/97 provides that

"When there is reason to suppose that the deficiency is limited to that of a department or region's application of the control system adopted by the Member State, the correction should be limited to the expenditure controlled by that department or region."

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It is considered, therefore, that the calculation should be based on total quantities of milk delivered in respect only of those regions which have been "the worst offenders" in terms of controls not yet terminated within the deadline, where the risk of incorrect declaration would certainly be greatest, especially for the periods of time involved.

For the regions, where the level of late controls was below 30% no correction will be applied. For the regions where the level of late controls was between 30% and 50% a correction of 2% will be applied. For the region where the level of late controls exceeded 50% a correction of 5 % will be applied.

Recurrence - Document AGRI/60637/2006 provides that:

‘In order to ensure that flat-rate corrections are applied, as provided for in document VI/5330/97, when the actual level of irregular payments and thus the amount of financial losses suffered by the Community cannot be determined, the following percentages will serve as a guide:

- in the event of a previous correction of 2%: a rate of at least 3% over the new period concerned, this rate possibly rising to 5% where it may reasonably be concluded that persistent weaknesses in ancillary controls will reduce the efficiency of key controls;

- in the event of a previous correction of 5%: a rate of 10% over the new period concerned;’

Regions of Puglia, Trento and Abruzzo were corrected for late completion of controls on deliveries and direct sales for 2002/03 milk campaign (enquiry LA/2004/01). The region of Lazio was corrected for late completion of controls on deliveries for the same campaign.

Therefore the rule of recurrence will be applied for these regions.

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Calculation of the correction

The quantities of milk produced, and on which the financial correction is based, are taken from the information provided by the Italian authorities in their e-mail of 15 September 2009 in the reply to the minutes of bilateral meeting.

Deliveries

Milk year Type of control Region Correction EUR

2004/05 At producers Abruzzo 1.433.721

Puglia 10.795.362

At purchasers Lazio 14.238.138

Marche 739.456

Puglia 10.795.362

Sardegna 1.501.436

2005/06 At purchasers Abruzzo 2.647.097

Calabria 916.827

Friuli Venezia Giulia

1.603.613

Lazio 12.955.974

Puglia 5.214.971

Sardegna 3.592.277

Valle d'Aosta 212.754

2006/07 At producers Calabria 845.921

Puglia 9.761.988

At purchasers Calabria 845.921

Friuli Venezia Giulia

3.708.423

Marche 661.562

Puglia 4.880.994

2004-2007 All Total 70.829.520

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Direct sales

The quantities of milk produced are taken from the information provided by the Italian authorities in their e-mail of 02/02/2006 at the request of the Commission services.

The correction therefore amounts to 82.862 EUR for direct sales in respect of milk year 2004/2005.

Total correction proposed comes to -70.912.382 EUR

5.1.4. Conciliation

Italy requested conciliation in respect of that part of the correction relating to the region of Lazio.

In the conclusions to its final report in case 10/IT/445 dated 11 October 2010, the Conciliation Body ‘invites the Commission services to re-examine their proposed financial correction with regard to the observations made below in points 6.3 and 6.4.’

In its observations the Conciliation Body notes that Italy's conciliation request relates to only 3 of the 4 correction proposals in respect of the region of Lazio. The Body raises two issues for clarification by the Commission services:

At point 6.3, the Body observes that the Commission services have not motivated their choice of increase to 5% (as opposed to the alternative 3% possible in accordance with document AGRI/60637/2006);

At point 6.4, the Body is not able to understand the proposal of a 10% correction for campaigns 2004/2005 and 2005/2006, which it feels may not fully respect the guidelines of document AGRI 60637/2006, and considers that the position, if it is to be maintained, requires additional reasoning.

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DG AGRI concludes from the Conciliation Body's observations (point 6.1) that only corrections involving the region of Lazio are involved in this conciliation procedure.

As concerns the Conciliation Body's observations at points 6.3 and 6.4 on the levels of correction and the application of the principle of recurrence, it has to be noted that the Italian authorities did not themselves raise the particular issues now raised by the Conciliation Body.

Doc AGRI/60637/2006 on recurrence allows that ‘The increase will be calculated according to the risk of financial loss. Application will not be automatic, but with due consideration being given to the seriousness of the deficiency and to any factors limiting the risk.’

As regards point 6.3, and as notified in the letter of 24.03.2010, document AGRI/60637/2006 is clear that ‘the following percentages should serve as a guide’ and that 'this rate could rise to 5% where it may reasonably be concluded that persistent weaknesses in ancillary controls will reduce the efficiency of key controls’.

Given that the established long-running deficiency relates not to an ancillary (secondary) control but to a 'key' control, the choice of 5% instead of 3% is rather obvious and automatic. Furthermore, there has been a history of fraudulent and otherwise irregular activity in the sector which it is reasonable to conclude has been exacerbated by the defective control regime.

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As regards point 6.4, the correction level reflects the fact that the failure in terms of late controls was much more serious than previously. For both campaigns 2004/2005 and 2005/2006 the failure automatically fell into the higher correction "bracket" fixed in the earlier enquiry (correction decided in 2008 as referred to by the Conciliation Body). I.e. the late controls on deliveries at purchases represented 50% for 2004/2005 and the extremely significant 89% for 2005/2006.

Therefore, it is not a question of passing directly from 2% to 10%, as the Conciliation Body implies, but rather assessing the base correction at 5% instead of 2% because the established deficiency / non-compliance for campaigns 2004/2005 onwards was much worse than previously found1. In particular in this context, it is recalled that the finally decided flat rate correction level of 2% for Lazio was reached after conciliation and, furthermore, took account of the 'extended' reporting period allowed exceptionally to facilitate conciliation in this first case of its kind. However, the basis for the initially proposed correction for Lazio was, indeed, 5% and it is not now appropriate to allow double benefit from the relaxation of the reporting rules afforded by DG AGRI in the earlier enquiry.

1 As notified in the final letter of the previous enquiry, where a 2% correction resulted "For Lazio, of the 32 controls scheduled for deliveries, 22 were carried out on time".

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Finally, the regionalised approach used to calculate financial consequences is undoubtedly to Italy's advantage, and not to apply the presently proposed flat rate correction of 10% for Lazio would effectively result in the non-application of the recurrence guidelines. Furthermore, and even if one set aside the ‘recurrence’ aspects, the control regime, whereby about two thirds of controls were made late over a two year period, must consequently be qualified in accordance with document VI/5330/97 as "applied so poorly or so infrequently that they are completely ineffective in determining the eligibility of the claim or preventing irregularity, then a correction of 10% is justified, as it can reasonably be concluded that there was a high risk of wide-spread loss to the Fund".

The proposal is therefore wholly logical and compliant with guidelines.

In the light of all of the above observations and clarifications, and particularly because the Conciliation Body does not seem to have recognised any particular merit in the Italian authorities’ request for conciliation, DG AGRI maintains its original proposal to correct 70.912.382 EUR.

Budget Year Budget Item Correction type Currency Correction amount

2005 050301072071140 Flat rate EUR -28.708.113

2005 050301072071150 Flat rate EUR - 82.862

2006 050212072071141 Flat rate EUR -27.143.513

2007 670300002071142 Flat rate EUR -14.977.894

Total -70.912.382

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6. INTERVENTION STORAGE


30

7. WINE

6.3. Greece – Aid relating to the system for the restructuring and conversion of vineyards, distillation and for specific uses of musts.

Enquiry No: VT/VI/2005/07/GR

Legislation: Regulations (EC) Nos 1493/1999,

1623/2000, 1227/2000, 1282/2001, 2729/2000, 2392/1986

Date of the mission: 22 June to 1 July 2005

Observation letter: AGRI 32829 of 22.12.2005

Reply of the Member State: No 23626 of 21.2.2006Minutes of the bilateral meeting: AGR 3206 of 2.2.2007

Reply of the Member State: No 42398 of 3.4.2007

Formal communication: Ares(2010)72427 – 10.2.2010Conciliation reference: Final report, Case 10/GR/436 of 4.10.2010

Final letter: Ares (2010)347193 of 30/03/2011

7.1.1. Main observations

(a) With regard to the vineyard register, the delay in its establishment and the delegation of its management to external organisations and companies other than the paying agency constitutes a major obstacle to the use of the only reliable tool for managing and/or checking the wine-growing potential. For want of autonomous and direct access to the register database – largely due to the lack of adequate IT equipment – the administrative department responsible for the checks is not able to make appropriate use of it.

(b) As far as aid for musts and distillations is concerned, the main observation concerns the shortcomings in or absence of reliable checks conducted on the products’ eligibility, given that in Greece there are dual-purpose grape varieties, some of which are not eligible as they do not belong to the wine sector.

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As for the obligatory distillation or the withdrawal of the by-products of wine-making, in this second case, the checks are not such as to guarantee that the conditions set out by the abovementioned Community legislation are met.

(c) As far as the restructuring and conversion of vineyards is concerned, the shortcomings in the checks of areas concerned, particularly in measuring them, does not guarantee the sums of Community aid awarded are correct. Furthermore, the method used by the Greek authorities to calculate the aid (not paid as a flat rate, but on the basis of invoices presented by the beneficiaries) does not ensure the reality and correctness of all the sums presented with the request for aid by the beneficiaries of this measure.

7.1.2. Summary of the Member State’s arguments

(a) With regard to the vineyard register, the Greek authorities emphasised that the register was set up in November 2003 and the tender for updating and managing the database was published in April 2004, but owing to procedural difficulties the update was not operational at the time of the enquiry.

(b) With regard to the distillations and use of musts, the Greek authorities accept the observations made but stress the major efforts made to resolve this problem after the inspection visit.

On the subject of the checks on the alcohol content of the withdrawn by-products, while accepting the observation, the Greek authorities consider the situation less serious than presented by the auditors.

In relation to the lack of checks on the eligibility of wine obtained from dual or triple purpose varieties, the Greek delegation indicated that cross-checks had been established.

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(c) As far as the restructuring and conversion of vineyards is concerned and in particular the quality of the checks of the areas affected by the restructuring, the Greek delegation accepts that the Commission’s auditors revealed certain problems, even if the Greek officials consider that a certain tolerance should apply with regard to the measuring.

As for the particular aspect with regard to the restructuring of parcels cultivated with the sultana variety, the Greek authorities stressed that the Greek standard (which the Commission considers not to be in compliance), which provides for a 25% reduction in the area restructured, has in fact never been applied and could not produce an effect justifying a financial correction.


Management of the Community vineyard register and wine-growing potential

Before the inspection visit, the Commission had been assured that the vineyard register was operational. This was not the case. The delay in its establishment and the delegation of its management to external organisations and companies other than the paying agency constitutes a major obstacle to the use of the only reliable tool for managing and/or checking the wine-growing potential. For want of autonomous and direct access to the register database – largely due to the lack of adequate IT equipment – the administrative department responsible for the checks is not able to make appropriate use of it.

Distillations and aid for using musts

The key point of the check is the eligibility of products that are distilled or that benefit from aid for enrichment. Considering the fiscal aspects of the alcohol obtained from distillation and the (dangerous) nature of the product, the lattter is relatively well regulated.

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(1) The problem of products’ eligibility for the aid schemes is not, in Greece, purely theoretical, given the existence of numerous dual-purpose varieties which could sometimes benefit under several aid schemes (such as the sultana variety). The only products eligible for distillation and other measures provided for by the CMO are products obtained from grapes from eligible varieties and vineyards (see, in particular, Title II, Chapters I and IV of Regulation (EC) No 1493/1999).

(2) According to the mission findings, it could not be said that the checks were likely to ensure the eligibility of the grapes used in wine-making. The traceability between the parcel (or at least the area) of origin and the grapes supplied/processed was not established in the majority of cases. Moreover, in many cases producers have no interest in ensuring this traceability. Producers of downmarket bulk wines (including retsina) are looking for raw materials at low cost and naturally turn to producers of varieties intended to be marketed fresh or dried.

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(3) In this connection, some of the grapes are sold directly by the producers and therefore accompanied by the harvest declaration. When the grapes are sold through an intermediary, the traceability becomes very difficult or even impossible. In this case, it is up to the wine-producer to provide proof of the eligibility of the grapes used to make the wine which benefits from Community financial assistance. (Eligibility for distillation and enrichment of wines involves the submission and conformity of the declarations referred to in Article 18 of Regulation (EC) No 1493/1999 and in the relevant provisions of Regulation (EC) No 1282/2001 - see in particular Article 12 thereof.)

(4) The inspectors noted the delivery of varieties at risk (dual or triple purpose varieties, such as sultana or rozaki) for all the producers (cellars) visited, without being able to assure themselves that these varieties could be considered as eligible for wine-making, taking into account the relevant restrictions imposed by the arrangements referred to in Article 28 of Regulation (EC) No 1493/1999. Note that under those arrangements, the quantities produced in excess of the threshold for the ‘quantity normally produced’ (QNP) must be distilled and may not be put on the market.

(5) During the mission, a plethora of on-the-spot checks which hardly ever give reasonable assurances of the results of the check were noted (for example, samples of the wine delivered for distillation were not taken on receipt of each delivery but at the end of all the deliveries). This way of proceeding does not make it possible to comply with the relevant provisions of Regulation (EC) No 1493/1999 and in particular Articles 34 and 36, in association with the provisions made in points C and D of Annex V. Similarly, the wines delivered for distillation do not comply with the provisions of Article 65(8) of Regulation (EC) No 1623/2000 in particular, as the checks and analyses are applied only to the totality of the batches delivered and not to each of the batches.

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(6) As for the obligatory distillation of by-products:

Distillation mainly concerns the sediments, the marc generally being subject to ‘withdrawal under supervision’

In reality, the withdrawal of marc under supervision merely consists of a few analyses (which do not cover all the marketing years and which are not exhaustive) to determine the average alcohol strength (according to the information received, the analyses are performed on only a dozen or so batches per region and at undefined intervals). There is no evaluation of the quantities withdrawn or what they are used for - apparently their producers keep the marc from the wine-making process to use as organic fertiliser or for producing Tsipouro (a spirit made from marc) in stills. .

the withdrawal ‘under supervision’ of the by-products (marc) is thus not a means of certifying either the quantity or compliance with the minimum alcohol content, either at individual or aggregate level.

Restructuring and conversion of vineyards

This raises a series of problems in Greece linked to both the national legal framework, the management system and the shortcomings of the on-the-spot checks:

The national legal framework, through Interministerial Decision No 245225 of 12 June 2003, authorises vineyards planted with the sultana variety which is eligible for per-hectare aid under the ‘dried grapes’ scheme to be replanted with wine grape varieties. The Decision provides that in this case, the restructured vineyard has its surface area reduced by 25%. Apart from the fact that the inclusion of grape varieties that benefit from per-hectare aid (Regulation (EC) No 1621/1999) is not in line with Regulation (EC) No 1493/1999 as they are outside the scope of the latter, it should be noted that in no case was the 25% surface area reduction applied.

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Greece’s chosen method for managing the scheme takes an action-based approach. Each of the actions defined (grubbing-up, preparing the ground, replanting, grafting-on, etc.) is managed, and the payment procedure applied to each action, separately. The regulation does provide for this approach and from this point of view it does not pose any problem. Rather, the choice is guided by the stakeholders' refusal to use the system of bank guarantees (because of the cost), but this choice also entails an obligation for the beneficiaries to justify the costs incurred. This obligation poses a series of subsequent questions about the actual costs incurred. For example, for several of the beneficiaries visited during the mission, the iron stakes reused, the number of plants used or even the cost of labour did not justify the total amount of aid awarded.

The shortcomings in the on-the-spot checks raise the problem of the reliability of the services that have been made responsible for the checks. The discrepancies between the surface area for which the aid is claimed and the findings from our visit call the reality and/or the reliability of the checks into question, particularly as the choice of management led the inspection authorities to measure the surface area as many times as the number of actions planned.

The on-the-spot visits showed that for some restructuring and replanting operations, the only change made was the change of rootstock (without a change in variety and/or without any change of the training method having been subject to a check, beyond the producer’s declaration) - see Article 11 of Regulation (EC) No 1493/1999 and Article 12 of Regulation (EC) No 1227/2000 on this subject.

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7.1.4. Conciliation

On the basis of the information available to it, and having listened to both parties, the Body notes that reconciling the Commission's position with that of the Greek authorities would be difficult in view of their contradictory declarations. It regrets that the parties did not succeed in decreasing the gap between their respective views of the factual circumstances of this case.As the Greek authorities have pointed out, the Body notes the existence of a time lapse of almost three years between their reaction to the minutes of the bilateral meeting and the conciliation letter from the Commission services. Even if this time period seems exceptionally long, which the Body regrets, it it is unable to draw any particular conclusions as it is not competent for legal questions.

The audit mission took place in June 2005 and the corresponding ‘Article 8’ letter refers only to the financial years 2004 and 2005. Furthermore, the minutes of the bilateral meeting explicitly state: ‘(...) financial corrections may be proposed for the measures concerned for the period under enquiry. '.

As mentioned above, this period concerns only the 2004 and 2005 financial years. Moreover, in the same minutes, on the subject of the vineyard register, the Commission services announce that they will have the improvements notified by the Greek authorities in their letter of 21 February 2006 examined ‘in a forthcoming on-the-spot check.’

As the Commission services informed the Greek authorities that the period covered by the enquiry concerned only the 2004 and 2005 financial years and they informed the Greek authorities of their intention to examine the improvements that they had made to their system in a forthcoming on-the-spot check, the Body deduces that the new enquiry made by the Commission services corresponds to the audit conducted in 2008.That audit would normally have allowed the many other improvements to be assessed, improvements which the Greek authorities claimed to have made in their inspection procedures since the 2005 audit. The improvements implemented from 2006 onwards could not of course have been examined by the Commission services during their 2005 audit.In these circumstances, the Body considers that it would make more sense to integrate the proposed corrections relating to 2006 and 2007 after the 2008 audit if this audit should confirm the observations made by the Commission in 2005.

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Consequently, the Body suggests that the Commission abandon, in this file, the proposed financial corrections for 2006 and 2007 and postpone their examination to the point when they draw conclusions from the 2008 audit.

7.1.5. Commission position

After analysing the final report from the Conciliation Body, DG AGRI notes that in its opinion the latter does not dispute the sound basis of the correction proposed by the Commission or the reasons justifying that correction, but it invites the Commission to review the financial years on which the correction is based.

Specifically, the Conciliation Body asks that the financial corrections be applied only to the 2004 and 2005 financial years in the context of the present clearance of accounts procedure and to treat the 2006 and 2007 financial years separately in the context of an enquiry after those dates.

The Commission services have included the 2006 and 2007 financial years in their proposed financial correction on the basis that in 2005 the Greek authorities had launched a public invitation to tender aimed at ‘improving the working of the vineyard register’, proof that the latter did not work in a satisfactory manner. As this invitation to tender was cancelled by the national court, the Greek authorities did not follow up this project, or at least did not do so before 2008. The Commission considered this point of fact as sufficient to include the financial years 2006 and 2007 in the period to be covered by the clearance of accounts procedure.

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Nevertheless, the Commission can accept the Conciliation Body's request and consequently apply the financial corrections to the 2004 and 2005 financial years alone.

The final correction amounts to EUR 2 917 742.48, calculated as follows:

Financial year Budget Item Measure concerned

Total expenditure by measure (€)

Correction rate

Amount corrected (€)

05020903611Distillation Article 29 (& crisis) 2 527 571.44 10% 252 757.14

05020903612 Distillation Article 27 289 789.26 10% 28 978.93050209051630 Aid for musts 3 416 499.81 10% 341 649.98050209071650 Restructuring 7 139 643.74 10% 713 964.37

2004 Total 2004 1 337 350.42

05020903611Distillation Article 29 (& crisis) 4 719 482.01 10% 471 948.20

05020903612 Distillation Article 27 416 460.69 10% 41 646.07050209051630 Aid for musts 3 710 614.34 10% 371 061.43050209071650 Restructuring 6 957 363.64 10% 695 736.36

2005 Total 2005 1 580 392.06

Total 2004 and 2005

2 917 742.48

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8. TOBACCO


41

9. POTATO STARCH


42

10. POSEI


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11. LIVESTOCK PREMIUMS

11.1. FRANCE

Enquiry No: AP/2006/07/FR

Legislation: Reg. 1254/1999, 2342/1999, 2419/2001, 1782/2003, 796/2004 and 1760/2000

Date of mission: 24.-28.04.2006

Observation letter: AGR 18370 dated 14.07.2006

Reply of the Member State: 5.10.2006


Minutes of the bilateral meeting: ARES(2009)200390 dated 07.08.2009

Reply to the minutes of bilateral: SS/cf nº 3108 AGRAP-RP/835/09 dated 18.11.2009

Conciliation letter: ARES(2010)283959 dated 27.05.2010

Conciliation reference: 10/FR/451

Conciliation Body's opinion: Ares(2010)918471 dated 08.12.2010

Final letter: ARES(2011)149060 dated 10.02.2011


11.1.1.1. Notification of movement

DG AGRI considers that the situation with regard to adherence to the notification periods remains worrying in France at least up to 2007. The figures provided by the French authorities show that the notification periods were adhered to in only 83.2% of cases in 2006 and 83.6% of cases in 2007, albeit that most late notifications do not involve late notifications during the retention period.

The French authorities stress that the notification periods are constantly improving and that they are actively working to reduce them. Since 2007, the date on which the notification is received has been recorded in the BDNI (national identification and registration database) and the rate did not vary significantly in 2007.

Nonetheless, DG AGRI considers that it is absolutely necessary to maintain a high rate of on-the-spot checks in accordance with Article 26(2)(b) and 26(3) of Regulation (EC) No 796/2004. The 2006 and 2007 statistics show a decrease in the rate of checking (respectively 7.04% and 6.83%), such that the rate is not sufficient to cover the risks linked to the unsatisfactory situation regarding notifications in France (the checking rates in 2004 and 2005 were respectively 13.7% and 9.88%). The French authorities point to the fact that the definitive checking rates for a given year are higher than those mentioned in the statistics issued on 15 July in accordance with Article 76 of Regulation (EC) No 796/2004.

As regards the French authorities' only imposing "eligibility" and "cross-compliance" penalties where the absence of notification is registered on the day of the on-the-spot check, DG AGRI maintains its position, namely:

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As regards eligibility, since 1999, a notification of movement during the retention period for a requested animal must lead to penalities in accordance with the interpretation of Article 138 of Regulation (EC) No 1782/2003, whether the irregularity is observed from a crosscheck with the database or from an on-the-spot check.

As regards cross-compliance, adhering to the 7-day notification period is a requirement of Regulation (EC) No 1760/2000 and must therefore be checked exhaustively during on-the-spot checks. Any delay in notification detected through cross-checking with the database or during an on-the-spot check should be taken into account for a possible penalty.

The French authorities carry out a verification by sampling those entries in the register that do not involve any absence or delayed notification, which must be subject to a systematic check. DG AGRI considers that the system as applied in France does not comply with Article 138 of Regulation (EC) No 1782/2004. This is because some ineligible animals (those for which notification was not given within the periods stipulated during the retention period) were paid for and not penalised.

11.1.1.2. The notion of obvious error

The application of the notion of obvious error does not appear to comply with Article 12 of Regulation (EC) No 2419/2001 and point 2 of Commission working document AGR 49533/2002 on the notion of obvious error. In this document, it is clearly stated that 'Errors detected as a result of crosschecks of aid applications with independent databases (e.g. land registers) may not be considered automatically or systematically as obvious errors'.

Concerning the cases verified by DG AGRI, the French authorities consider that there was no intention to cheat on the part of the farmer.

Nonetheless, DG AGRI was able to determine that animals discovered to be in error following a crosscheck were not paid for but that no penalty was imposed.

11.1.1.3. Verification of supporting documents

This point concerns the special male bovine premium and the slaughter premium.

During the on-the-spot checks observed by DG AGRI in 2006, the automated list from the PACAGE application was not available. Moreover, the French authorities have not been able to provide the number of cases where a check revealed the absence of supporting documents submitted over the previous twelve months.

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According to the French authorities, the purpose of the on-the-spot check is to verify the accuracy of the entries in the livestock register by checking supporting documents. The French authorities have provided a circular regarding on-the-spot checks and the instructions for document checks as well as figures concerning the number of animals covered by the special male bovine premium noted as non-established for the holdings subjected to on-the-spot checks. The figure amounts to 1.1% of the number of animals claimed for under the special male bovine premium and checked onsite.

DG AGRI notes that the implementation of procedures was not systematic in 2006 and that the figures provided by the French authorities did not make it possible to determine whether the animals covered by the special male bovine premium and recorded as non-established were present during the on-the-spot check or whether they were animals taken out on the day of the on-the-spot check but present over the previous twelve months.

DG AGRI considers that the checks are not implemented in compliance with Article 25(2)(b) of Regulation (EC) No 2419/2001 and Article 35(2)(b) of Regulation (EC) No 796/2004.

11.1.1.4. Electronic register and notification by Minitel

DG AGRI maintains its view that the farm register of a farmer who uses Minitel (an electronic communication technique used in France) does not comply with Article 8 of Regulation (EC) No 911/2004, notably because notifications by Minitel do not leave written proof of movements such as duplicate copies and cannot be seen onscreen. It is therefore not possible to reconstruct the register on a given date (impossible to trace the movements and to know the inventory of animals on a prior date or a control date). This shortcoming makes it impossible to comply with all the regulatory requirements pertaining to on-the-spot checks as set out in Article 35(2)(b) of Regulation (EC) No 796/2004.

11.1.1.5. Visit to the slaughterhouse and consultation of the BDNI (national identification database)

This point concerns only the slaughter premium.

The tools available do not make it possible to consult the BDNI when entering passport data into the slaughterhouse's system, i.e. prior to slaughter. Only an a posteriori connection is possible.

DG AGRI considers that the possibility of consulting the BDNI when entering passport data into the slaughterhouse's system is an important element of effective checking.

The French authorities have explained that the decree allowing the exchange of data from the BDNI is in the process of being adopted.


Arguments of the French authorities are included under the respective findings

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On the basis of the findings and considering all the explanations provided by the French authorities, the Directorate-General for Agriculture and Rural Development maintains its view that the shortcomings of the key checks persist, in particular:

– the verification of the eligibility conditions and the failure to impose penalties in cases of non-compliance with the notification period for movements of animals during the retention period,

– the unsatisfactory checking of the movements on the basis of the flock register in cases where Minitel is used for the notification of movements, which affects part of the population of the animals declared,

– the application of the notion of obvious error,

– the verification of supporting documents,

– access to the BDNI for slaughterhouses.

These shortcomings have resulted in a risk for the Fund for claim years 2004, 2005 and 2006 and the Directorate-General for Agriculture and Rural Development considers that, in accordance with document VI/5530/97, a flat-rate correction would be best for covering this risk.

In accordance with document VI/5330/97, 'when all key controls are applied, but not in the number, frequency, or depth required by the regulations, a correction of 5% is justified, as it can reasonably be concluded that the controls do not provide a sufficient level of assurance of the regularity of claims, and that the risk of loss to the EAGGF was significant.'

However, the risk for the Fund is considered to be limited by the fact that the on-the-spot checks carried out during the mission have detected a limited number of animals in error.

Accordingly, DG AGRI proposes that the correction be set at 2% of the bovine premiums at the national level for claim years 2004, 2005 and 2006.

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The total amount of corrections proposed for each financial year is as follows:

Paying Agency Budget Item Correction

type Currency Correction amount

Financial year 2005FR06 050302032120032 flat rate 2% EUR 13 572 845,92FR06 050302052122070 flat rate 2% EUR 7 554 360,53FR06 050302072124009 flat rate 2% EUR 7 144 282,26FR06 050302082125063 flat rate 2% EUR 4 858 913,51FR06 050302112128044 flat rate 2% EUR 1 688 335,99

Financial year 2006FR06 050302062120033 flat rate 2% EUR 13 664 169,73FR06 050302072121122 flat rate 2% EUR 7 012,11FR06 050302082122077 flat rate 2% EUR 7 423 596,44FR14 050302102124031 flat rate 2% EUR 6 421 712,79FR14 050302112125079 flat rate 2% EUR 4 833 305,22FR14 050302122128045 flat rate 2% EUR 1 708 930,04

Financial year 2007FR14 050302062120036 flat rate 2% EUR 13 950 491,98FR14 050302072121123 flat rate 2% EUR 24 893,77FR14 050302082122078 flat rate 2% EUR 6 644,14FR14 050302102124033 flat rate 2% EUR 3 361 138,54FR14 050302112125082 flat rate 2% EUR 12 975,22FR14 050302122128045 flat rate 2% EUR 3 753,39

Financial year 2008FR17 050302062120036 flat rate 2% EUR - 3 278,66FR17 050302072121123 flat rate 2% EUR 36,49FR17 050302082122076 flat rate 2% EUR 213,89FR17 050302102124033 flat rate 2% EUR 2 944,35FR17 050302992125082 flat rate 2% EUR 742,52FR17 050302992128045 flat rate 2% EUR - 204,36TOTAL 86 237 815,81

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In the conclusions to its final report, the Conciliation Body notes:

"6.2 According to the French authorities, the notification of movements of animals by the Minitel tool enables the reconstruction of the flock register at any given date, including the timeline of all movements. The Commission appeared to consider this situation to be impossible. Insofar as this is a straightforward factual question regarding a procedure approved by the Commission, the Body suggests that the two parties clarify the situation of the electronic register that collects data from Minitel and the possibility of reconstructing the flock register of the holding.

The absence of a paper version on the holding does not however comply with the requirements of Article 8 of Regulation (EC) No 911/2004. However, if the electronic register enables the register to be reconstructed prior to the on-the-spot check, it might be supposed that the risk for the Fund is virtually non-existent.

6.3 As regards the request of the French authorities to exclude expenses incurred under the premium for maintaining suckler cow herds from the basis of the proposed financial correction, the Body considers that statistical information provided by the French authorities on the number of rights to animal premiums held by each breeder and the number of animals potentially eligible on his or her holding enables an approximation of the actual risk incurred by the Fund for this premium. The Body therefore suggests that the Commission pursues dialogue with the French authorities with a view to examining the possibility of determining a one-off correction for the premium for maintaining suckler cow herds.'


As regards the conclusions of the Conciliation Body, DG AGRI stresses that:

Item 6.2: the farm register of a farmer who uses Minitel does not comply with Article 8 of Regulation (EC) No 911/2004, notably because notifications by Minitel do not leave written proof of movements such as duplicate copies and cannot be seen onscreen.The circular for the on-the-spot checks of bovine holdings for 2005 referenced as DGAL/SDSPA/N2005-8065 does not allow all the key checks provided for in Article 35(2)(b) of Regulation (EC) No 796/2004 to be carried out, in particular the check on entries in the register and notifications in the digital database through the sampling of supporting documents.

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Item 6.3: DG AGRI considers that the supporting documents submitted are not sufficient to exclude the premium for maintaining suckler cow herds from the correction. This is because notification of movements of all bovines is an important element for the reliability of the database and for determining the number of eligible animals. The replacement of eligible animals and notification of this replacement must also be done within the periods mentioned in Article 58(2) of Regulation (EC) No 796/2004. The estimate of the risk provided by the French authorities cannot be used as a basis for calculating the correction of the premium for maintaining suckler cow herds since it covers only part of the risk (livestock rearing with less than one animal in reserve).

On the basis of the observations and explanations of the French authorities, the DG for Agriculture and Rural Development maintains its view that the general checking environment was not satisfactory and that there was a risk for the Fund, mainly concerning the late entry into the database of movements of animals for claim years 2004, 2005 and 2006.

These shortcomings concern the key checks for which a 5% flat-rate correction is applied across the board in accordance with document VI/5330/97. During the on-the-spot checks, the number of animals detected to be in error for all bovine premiums was relatively limited. Thus, DG AGRI took the view that a flat-rate correction of 2% of the expenses for bovine premiums was the best way to cover the risk for the Fund.

The DG AGRI maintains the financial correction of EUR 86 237 815.81.

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12. AREA AIDS / ARABLE CROPS

12.1. CYPRUS

Enquiry AA/2007/01 AA/2007/31Mission dates 8-12.10.2007 NAObservation letter 20.02.2008 19.03.07 Reply Member State 20.04.2008 25.05.2007Invitation bilateral meeting 11.12.2008Conclusions bilateral meeting 10.03.2009Reply Member State 7.05.2009Conciliation letter: 18.06.2010Conciliation reference: 10/CY/441Conciliation Body's opinion: NA – request withdrawnFinal letter: NA


12.1.1.1. LPIS deficiencies

The mission showed that the area recorded in the LPIS-GIS as maximum eligible area for SAPS payments (cf. art.2 of R.796/2004) was materially overstated. This resulted from the older images used at the creation and an incorrect definition/delimitation of the eligible areas during inter alia the on-the-spot checks.At the same time the deficiencies in the on-the-spot checks performed makes that the information is not appropriately updated.

Furthermore, the LPIS-GIS does not include the rural landscape features which Cyprus wants under art.30(3) of R.796/2004 to include within the eligible area for SAPS payments.

To remedy the situation the Cypriot authorities instigated an updating the LPIS-GIS with new imagery acquired in 2008.

This work allowed the calculation of any amounts paid unduly in the claim years 2005, 2006 and 2007, both for 1st pillar and area based 2nd pillar payments.

12.1.1.2. On-the-spot checks

1. Level of on-the-spot checks

Considering the level of irregularities the Cypriot authorities had to increase the level of on-the-spot checks in claim year 2005, 2006 and 2007. Although there was an increase in the number of farmers subject to an on-the-spot check from 7.6% (2005) to 13.5% (2006) and to 20% (2007), the DG AGRI maintains that in view of the overall level of "area not found" in each of these years 15%(2005) and 12.5%(2006) a higher level of on-the-spot checks was required to ensure compliance with Art.26 of R.796/2004.For claim year 2007, the information supplied indicated that the relevant provisions were met.

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2. On-the-spot checks with Remote Sensing

The audit mission revealed a significant number of discrepancies in area measurement indicating insufficiencies in the quality of the on-the-spot checks by remote sensing.

3. Limitation of parcel measurement

In view of the level of anomalies established, showing an inherent problem with the correctness of the information in the LPIS-GIS, the DG AGRI maintains that limiting measurement to 50% of the parcels claimed as provided under Art.29 of R.796/2004, in the claim years 2005 and 2006 cannot be considered good control practice.

4. Acceptance of "ineligible land"

The on-the-spot checks showed that inspectors did not follow the Cypriot definitions on eligibility of land for SAPS and were very lenient as regards the acceptance of agricultural land as being eligible, which is not compliant with the definition of agricultural land as laid down in cf. art.2(1), 2(2) and 2(2a) of R.796/2004 and art.143b of R.1782/2003.

Moreover, it was found that at the time of the initial on-the-spot check (and at the time of the re-performance) the land accepted for payment had not been maintained i.e. was respecting the detailed (Cypriot) and EU-standards referred to in Annex IV of R.1782/2003.

Consequently, the DG AGRI is of the view that the on-the-spot checks were not carried out to the standards required by Art.23, Art.29, Art.30 and Art.32 of R.796/2004. This lead to a situation that land has been accepted for payment that is not in line with the definition of agricultural land as laid down in cf. art.2(1), 2(2) and 2(2a) of R.796/2004 and art.143b of R.1782/2003.

In the overall evaluation of the risk these findings have created it has to be considered that the remedial action taken on the LPIS-GIS will address also the majority of the weaknesses in the on-the-spot checks. The residual risk for any weakness not detected or not covered by subsequent action taken in the context of the LPIS-GIS improvement is considered not material.


The Member State agreed that the area recorded in the LPIS-GIS as maximum eligible area for SAPS payments was materially overstated as was clearly evidenced in the study.

The Member State generally agreed the findings but indicated that the risk created should be weighed off taking into account the LPIS-GIS study.

52

With regard to the sanctions and the risk to the Fund, the Cypriot authorities are of the view that "the non-calculation of reductions and exclusions as part of calculating the risk to the Fund is because that would constitute multiple application of sanctions. If farmers in Cyprus were controlled based on the “correct” eligible areas, derived from the updated eligible areas, they would have been sanctioned in 2005 once and from 2006 onwards they would have claimed the correct eligible areas. Since these sanctions will be applied in 2009 for the first time based on the updated eligible areas, then for the previous years 2005, 2006, 2007 and 2008 the only risk to be calculated is the amount associated based on the difference of eligible areas and not the reductions and exclusions"


On the basis of the findings and considering all explanations provided by the Cypriot authorities, DG AGRI maintains that the weaknesses established in the functioning of several key controls generated a risk to the Fund.

In accordance with Document VI/5330/97, Cyprus has calculated the risk for the Fund.

DG AGRI considered this calculation of the risk only partially satisfactory.Firstly, the audit mission in 2009 showed that for some parcel the evaluation was incorrect, leading to an understatement of the risk. On the other hand the amounts are for some overstated.Secondly, the amounts calculated did not include the sanctions to be applied.

By their letter dated 19.04.2010, the Cypriote authorities provided a more accurate calculation of the risk corresponding including the sanctions that should have been applied under Art.73 of R.796/2004.

Consequently, the corrections are:

Claim year 2005 2005 2006 2006 2007Financial year 2006 2006 2007 2007 20081st pillar 757,074.89 CYP 1,781,842.45 € 1,656,910.66 €2nd pillar 438,582.49 € 440,814.92 € 143,413.65 € 276,215.38 € 582,867.03 €

Sanctions % 110.25% 110.25% 110.91% 110.91% 115.26%% farmers could detect the anomalies 34.04% 34.04% 29.02% 29.02% 34.88%Sanctions 1st pillar 284,123.39 CYP 573,505.27 € 666,122.62 €Sanctions 2nd pillar 164,596.06 € 165,433.87 € 46,159.23 € 88,902.91 € 234,328.21 €

TOTAL for 1st pillar

1,041,198.28 CYP 2,355,347.73 € 2,323,033.28 €

TOTAL for 2nd pillar 603,178.56 € 606,248.79 € 189,572.88 € 365,118.29 € 817,195.24 €GRAND TOTAL (in CYP)

1,041,198.28 CYP

GRAND TOTAL (in EUR) 603,178.56 € 606,248.79 € 2,544,920.61 € 365,118.29 € 3,140,228.53 €

Exchange rate used 1 EUR = 0.585274 CYP

53

Opinion of the Conciliation Body

The Cypriot authorities referred the case to the conciliation body, but withdrew their request when DG AGRI informed Cyprus it would accept the revised calculation of the risk stemming from the non-application of sanctions.


Not applicable.

54

12.2. CYPRUS

Enquiry AA/2008/04Mission dates 10-14.11.2008Observation letter 30.01.2009Reply Member State 30.03.2009Invitation bilateral meeting 09.12.2009Conclusions bilateral meeting 8.3.2010Reply Member State 5.05.2010Conciliation letter:Conciliation reference: Not requestedConciliation Body's opinion: NAFinal letter: NA


The audit showed that the maximum eligible area for SAPS payments (cf. art.2 of R.796/2004) recorded in the LPIS-GIS was materially overstated. This resulted from older images being used at the creation and an incorrect definition/delimitation of the eligible areas during inter alia the on-the-spot checks in the years prior to claim year 2008.Consequently, the cross-checks to establish eligibility of areas claimed for aid (cf. Art.24 and Art.30 of R.796/2004) are not effective. This created a risk for the Fund for claim year 2008.

To remedy the situation the Cypriot authorities instigated an updating of the eligible area in the LPIS-GIS with new satellite imagery acquired in 2008. This update was completed by April 2009.In 2009, the new area has already been used as information to the farmers as well as for calculation of payments.

As regards the estimation of the risk for the Fund concerning claim year 2008, a procedure for retro-active recovery was implemented by the Cypriot authorities.

With regard to the sanctions, the Cypriot authorities are of the view that if the system had operated correctly as from the start the farmer would have declared correctly. Therefore, in accordance with Art.68 of R.796/2004 they believe the risk for the Fund to be limited to the area "overpaid". This view is not agreed by DG AGRI.

55

Consequently, the Cypriot authorities, as was the case for the previous claim years, calculated the sanctions for those cases where the farmer could reasonably have detected the error in the information supplied by the administration and therefore sanctions had to be applied. (cf. Art.73 of R796/2004)


Integrated in the point "findings".


On the basis of the findings and considering all explanations provided by the Cypriot authorities, DG AGRI maintains that the weaknesses established in the functioning of several key controls have generated a risk to the Fund.

In accordance with Document VI/5330/97, Cyprus calculated the potential risk for the Fund for claim year 2008. Albeit not precisely representing the risk, DG AGRI is of the view that this calculation is a better evaluation of the risk for the Fund than the application of the flat rate correction that would need to be applied according to document VI/5330/97, considering the gravity of the findings.

This is detailed as follows:

Pillar Budget PostAmount of

over-declaration

Penalties Total

1st 050301020000005 1.107.274,86 367.220,67 1.474.495,532nd 050405012121001 138.431,20 45.909,83 184.341,03

Total 1.245.706,06 413.130,50 1.658.836,56


Not applicable.


Not applicable.

56

12.3. DENMARK

Enquiry No: AA/2006/05Mission Dates 3-7 July 2006Observation letter 22.02.2007Reply Member State 20.4.2007Invitation bilateral meeting 04.02.2008Conclusions bilateral meeting 16/06/2008Reply Member State 18.8.2008Conciliation letter: 08/02/2010 and 20/07/2010Conciliation reference: NA – request withdrawnConciliation Body's opinion: NAFinal letter: NA


12.3.1.1. Weaknesses in the LPIS-GIS

To be effective for the cross-checks required by Art.24(1)c of R.796/2004, it is essential that the information in the LPIS-GIS to be implemented as from 1.1.2005 (cf. Art.20 of R.1782/2003) is accurate as regards the identification of the parcels, and the eligible area of the reference parcels. This requires that (in principle) reference parcels are stable and that the information as regards their boundaries, the total area and the area of ineligible features is correct and up-to-date. In particular, the identification of land cover change involving non-agricultural, wooded, built-up or non-arable areas must be carried out effectively and the LPIS-GIS updated.

Despite the procedure in place, the mission showed that this procedural set-up has not adequately functioned in all cases: boundaries of reference parcels do not follow the physical delimitations in the field; features of >1.000 m² are not digitised and no information is kept on individual ineligible features and are thus not deducted; land which cannot be considered as arable land as defined in Art.2(1) of R.796/2004 is recorded as eligible land.

That the LPIS-GIS does not provide up-to-date information on areas of eligible land renders the cross-checks to be carried out as per Art.23(1) and Art.24(1)c of R.796/2004 ineffective, leading to undue payments on ineligible areas.Furthermore, as Denmark had opted for the hybrid regional model, there is a risk that farmers have been incorrectly attributed entitlements.

57

12.3.1.2. Weaknesses in the on-the-spot checks

The re-performed on-the-spot checks showed differences with the area accepted for payment. The reasons for these differences are:

1. Failings in the control procedure: e.g. the measurement via ortho-photo is not following the edge of the parcel visible on the ortho–photo. The procedure is based on the incorrect LPIS-GIS information.

2. As part of the 50% measurements to be performed under Art.27 of R.796/2004, use is made of an already performed GPS or screen measurement on an earlier occasion. This procedure is not in line with Art.23 and Art.30 of R.796/2004 as it does not lead to correct measurements.

3. Areas had been accepted which cannot be considered as compliant with applicable legislative provisions set out in Art.5, Art.54 and Art.56 of R.1782/2003 and in Art.2(1), Art.(2) and Art2(2a) of R.796/2004, or even with national control instructions.This non-compliance is due to unsuitability of land (marshy, steeply sloped, ineligible sections – too narrow) and non-compliance with the definition of "arable land" in Art.2 of R.796/2004 (seriously/ fully overgrown with high weeds/nettles shrubs, in some cases giving the strong impression of having been abandoned)Furthermore, in 2005 areas of pastureland had been accepted for their full area when they had < 50 % of the surface of permanent grassland covered by grass.

Consequently, the on-the-spot checks performed cannot be considered in compliance with Art.23 and Art.30 of R.796/2004. This non-compliance creates a risk for irregular payments, in particular when it is combined with the deficiencies in the LPIS-GIS.


12.3.2.1. LPIS

The Member states agrees the findings but refered to the remedial action taken and the analysis of the results showing a marginal impact (due to the fact that farmer do not declare all ineligible land reported as eligible in the LPIS-GIS).

58


In respect of the "set-aside" areas the Danish authrities repeated that it does not take long for uncultivated areas to become overgrown with e.g. nettles. Keeping uncultivated land free of nettles requires monthly mowing. The maintenance standard, which is advocated by DG AGRI, does not make sense and is harmful to the environment.

As to the maintenance of the land in a situation where land can remain "untouched" for 5 years it is not always easy to distinguish if a tree / shrub / unwanted vegetation is 5 or 6 years old. Consequently, in consultation with the different interest groups they adapted their GAEC-guidelines. Denmark argued that the areas concerned probably turned into production in 2007 or 2008.

[DG AGRI would emphasise that the criticism does not cover cases dealing with the good maintenance / (non-)respect the GAEC as such. What is of importnace is that the acceptance of (parts of) parcels as ineligible is a non-conformity which lead to irregular payments.


On the basis of the findings and considering all explanations provided by the Member State, DG AGRI maintains that the weaknesses established generated a risk to the Fund and considers that the application of a flat rate correction is the best way to assess the risk. In accordance with Document VI/5330/97, the weakness in a key control calls for the application of a 5% correction. Yet, the problems in the on-the-spot checks mainly affected (permanent) pasture, non-cultivated land and land declared for set-aside, and the result of the study in respect of the effect on the SPS payments showed a lower level of risk related to the rest of the population, the risk is differentiated. Hence the following corrections are proposed for 2005 and 2006 claim years:

5% flat rate correction on area based subsidies related to permanent pasture, set-side and non cultivated land.

2% flat rate correction on area based subsidies related to the rest of the population

59

The amounts to be excluded are:

Claim year Currency Correction2005 DKK 145 767 856,812005 EUR 3 908,132006 EUR 20 172 193,94

Having been notified of the correction, by letter dated 23.06.2010 the Danish authorities provided a more accurate calculation of the corresponding risk.

The calculation, which has been carried out in cooperation between DG AGRI and the Danish administration, presented was reviewed as follows:

Year No of ha Value of entitlements

Total value (DKK)

Total value (EUR)

2005 DKK/ha 1. 5% Correction on set-aside areas 8,945.45 2,240.36 20,041,044.512. 5% Correction on uncultivated areas 975.05 2,623.37 2,557,918.243. 5% Correction on permanent pasture 10,699.75 989.54 10,587,871.144. LPIS/GIS 2,193.00 2,467.60 5,411,446.804a. Sanctions - LPIS-GIS 2,193.00 3,280.32 7,193,741.765. Tolerance – cross-checks 777.00 2,467.60 1,917,325.205a. Sanctions - Tolerance 777.00 1,148.99 892,765.236. Analysis of reference parcel review – random sample

4,102.00 2,467.60 10,122,095.20

6a. Sanctions 4,102.00 3,280.32 13,455,872.64Total in 2005 72,180,080.72

2006 1. 5% Correction on set-aside areas 8,945.45 2,238.92 20,028,153.62 2,685,603.092. 5% Correction on uncultivated areas 1,775.75 2,836.68 5,037,239.11 675,450.423. 5% Correction on permanent pasture 10,699.75 1,097.28 11,740,619.65 1,574,316.094. LPIS/GIS 2,170.00 2,660.82 5,773,979.40 774,240.964a. Sanctions - LPIS-GIS 2,170.00 3,537.18 7,675,676.81 1,029,242.225. Tolerance – cross-checks 893.00 2,660.82 2,376,112.26 318,616.215a. Sanctions - Tolerance 893.00 1,238.96 1,106,390.51 148,357.456. Analysis of reference parcel review – random sample

4,102.00 2,660.82 10,914,683.64 1,463,565.17

6a. Sanctions 4,102.00 3,537.18 14,509,505.20 1,945,599.82Total in 2006 79,162,360.21 10,614,991.44

The points 1 – 3 are calculated as a 5 % flat rate correction

Point 4 - 6: are punctual corrections

The above correction is without prejudice to any other clearance of account procedures concerning 2nd pillar expenditure for the claim years concerned.

60


The Danish authorities referred the case to the conciliation body, but withdrew their request when DG AGRI informed the Danish authirties it would accept the revised calculation.


Not applicable.

61

12.4. DENMARK – Entitlements

Enquiry DPU/2008/01 DPU-2008-102Mission dates NA NAObservation letter 19.05.2008 04.03.2008Reply Member State 17.07.2008 30.04.2008Invitation bilateral meeting 16.10.2008Conclusions bilateral meeting 28.01.2009Reply Member State 3.4.2009 and 03.05.2010Conciliation letter: Ares 394962 dated 05.07.2010Conciliation reference: Not requestedConciliation Body's opinion: NAFinal letter: NA


12.4.1.1. Farmer status of landowners

Direct aid may be granted to farmers that comply with the definition of a farmer as defined in Art.2(a) of R. 1782/2003. Carrying out an ‘agricultural activity’ is an integral part of the above definition and is defined in Art.2(c) of the same Regulation as either producing, rearing or growing agricultural products or maintaining the land in good agricultural and environmental conditions as laid down in Art.5 of that Regulation.

While Art.44 of R.1782/2003 governs the use of payment entitlements, Member States should also refer to Art.29 of the same Regulation and ensure that no payment is made to beneficiaries who are found to have artificially created the conditions required for obtaining payment in order to obtain an advantage contrary to the objectives of the support scheme.

62

In principle, based on the above definition of a farmer, DG AGRI takes the view that the ‘active’ farmer would not necessarily be the landowner. Moreover, it is very unlikely that two different persons could be considered the active farmer for the same parcel of land at the same time, one for the SPS and one for the Rural Development schemes.

The Danish authorities agreed with DG AGRI's opinion that the same area cannot be claimed under the SPS and agri-environmental measures by two different farmers. Indeed, as from claim year 2007, SPS payments and Rural Development measures have been included in a single application, so it is no longer possible for two farmers to claim for the same parcel. As regards claim year 2005, the Danish authorities presented the results of the cross-check showing whether it was the same farmer who received payment entitlements under SPS and a commitment for aid under the rural development programmes. They reported that there were indeed conflicts in at most 162 cases accounting for an area of no more than 560,24 ha, which were corrected by the authorities where this appeared necessary.

However, the population at risk is larger than these 162 cases identified. Consequently, DG AGRI stands by its opinion that the Danish authorities did not set up a system to check the reality of the agreement between landowners and tenants and detect who was farming the land or ultimately bearing the management risk, i.e. who was the ‘active’ farmer. Specifically, cases where conflicts arose between landlord and tenant about who was the real beneficiary, i.e. ‘active’ farmer, should have prompted the Danish authorities to conduct specific controls on all new entrants, as the group most affected.

63

In Denmark, a substantial increase was observed in the total number of claimants for the SPS in 2005 (70.378) compared with area payments in 2004 (47.454). Therefore, special attention should be paid to controls ensuring that only farmers within the meaning of Art.2 of R.1782/2003 obtain SPS entitlements. According to the Danish authorities, this increase (48,3% of new claimants in 2005) was to a large extent caused by landowners (taking back land they had leased out) who had never lodged an application for area payments but successfully applied for SPS in 2005.

DG AGRI concludes that there is a risk that payment entitlements were allocated to the undue beneficiaries in Denmark. The population presenting a risk to the Fund is considered to be new farmers who entered the SPS in 2005 and left the system in 2006 (i.e. after having established payment entitlements, the land was again declared by the tenants). These are potentially the farmers/landowners who might in reality not bear the management risk, i.e. they were not ‘active’ farmers, although they sought to establish payment entitlements.

The Danish authorities communicated reference amounts activated by these beneficiaries in 2005 amounting to DKK 24.856.999,04. Moreover, any payment entitlements unduly established in the first year also present a risk to the Fund in terms of their activation in subsequent years (up to and including 2009).

PE activated which were allocated to landowners entering in 2005 and left out SPS in 2006 (in DKK) in claim years

2005 2006 2007 2008 200924.856.999,04 27.032.110,63 26.688.500,13 23.898.073,79 25.870.428,08

12.4.1.2. Non-agricultural use of land declared

Direct aid may be granted to farmers that comply with the definition of a farmer as laid down in Art.2(a) of R.1782/2003. Moreover, under Art.44(1) of R.1782/2003, entitlements can only be activated by ‘eligible hectares’. It follows from Art.44(2) of R.1782/2003 that areas used for ‘non-agricultural activities’ (i.e. sports fields, golf courses, campsites or airport areas) are not eligible.

64

DG AGRI obtained a sample list of new direct payment beneficiaries in financial year 2006 named as clubs, campsites, councils or airports (93). This was sent so the Danish authorities so that they could analyse them. From this, DG AGRI's conclusions are:

– The Danish authorities examined the lists and, using the same criteria as the Commission, identified 192 applicants (0,3% out of total) in these categories.

– The Danish authorities analysed ortho-photos of all 93 cases and checked on the spot those where there was reasonable doubt about whether the area had been put to agricultural use. In those cases (notably all airports, some golf clubs and horse riding clubs), the Danish authorities recalculated payment entitlements, recovered unduly paid amounts and applied sanctions.Although some unduly paid amounts were recovered and entitlements recalculated, DG AGRI takes the view that the risk could not have been adequately covered by the Danish authorities due to the size of the potential risk group (most of the land used predominantly for non-agricultural activities might have been used and declared by new farmers not bearing a ‘doubtful’ name).

DG AGRI maintains its position that the control system set up by the Danish authorities was unable to properly identify non-agricultural use of the area claimed under the SPS in 2005, thus was deficient. Indeed, special attention to the eligibility of the land declared by the so called ‘doubtful’ group of beneficiaries was only paid after Denmark was made aware of the DG AGRI observations.

65

Based on the Danish figures, the DG AGRI concludes that the risk to the Fund is much higher among new farmers who in the first year of implementation of the SPS were suddenly able to declare areas that were not eligible for payments before. Pasture area declared by new farmers presents a particularly higher risk of non-agricultural use and will therefore be considered as the population at risk as regards the application of a financial correction.

Once the payment entitlements were unduly established in claim year 2005, their activation in subsequent years up to and including claim year 2009 also present a risk to the Fund.

The following table shows the amounts at stake, following the figures provided by the Danish authorities:

Total amounts activated by new farmers (pasture area only) in DKK2005 2006 2007 2008 2009

54.375.366,53 54.955.536,46 52.943.789,15 49.103.120,32 104.875.234,16

12.4.1.3. Verification of farmer status in case of sales with a private contract clause

Article 12(5) of R.795/2004 states: ‘The applicant shall prove to the satisfaction of the Member State that, at the date of application for the payment entitlements, he is a farmer within the meaning of Article 2(a) of Regulation (EC) No 1782/2003’.

Based on this provision, DG AGRI is of the opinion that the Danish authorities should have checked all farmers who signed a Private Contract Clause (PCC) and did not apply for the SPS for 2005.

The Danish authorities explained that checks were carried out on a random sample of farmers who signed a PCC and had not applied for the SPS in 2005. In 2005, farmers who wished to transfer their cattle reference amounts to other farmers could send in a form designed in such a way that it could be signed by the farmer who wished to transfer his historical component of the reference amounts and by the farmer who was to receive it. The form was not drawn up in such a way that the farmer could state what his actual agricultural activity was.

66

Nevertheless, the Danish review of potential cases showed that 46 involved a transfer of reference amounts with a private contract clause with no record of the vendor being an active farmer in 2005. Therefore, DG AGRI concludes that the total value of transferred reference amounts reported by the Danish authorities for these 46 cases, DKK 0,6 million a year, creates a risk to the Fund and that the total amount unduly paid from 2005 to 2009 can therefore be estimated at DKK 3 million.


12.4.2.1. Farmer's status

According to the Danish authorities claimants who in 2005 possessed (as owner or lessee) eligible land and had responsibility for managing it were therefore eligible to participate in the SPS. In Denmark there is a tradition of numerous long- and short-term leases and it is the responsibility of the owner of the land to decide each year whether he himself will be responsible for managing it or will lease it out. Therefore, they could not reject single payment claimants satisfying those conditions. According to the authorities view there is no legal basis either in the Regulation or in national legislation for rejecting claimants solely on the ground that their eligible agricultural land was leased out before or after 2005.

12.4.2.2. Non-agricultural use of land declared

In 2005 the Danish Directorate for Food, Fisheries and Agri Business used the definitions of a farmer and agricultural activity specified in Art.2(a) and (c) of R.1782/2003 and of eligible hectares in Art.44(1) and (2) of that Regulation as the basis for the allocation of payment entitlements and the payment of support. Around half of the Danish farmers farm only part-time, which means that they may be registered under another activity, such as camp site or riding club, while still complying with the provisions of the Regulation concerning participation in the single payment scheme. Consequently, the authorities are of the opinion that there are no immediate grounds for excluding part-time farmers from the scheme if they meet the criteria for the allocation of payment entitlements and the payment of support laid down in the Regulation.

67

12.4.2.3. Verification of the status of farmer in case of sale with private contract clause

Already included under point observations.


12.4.3.1. Lack of controls over farmer status of landowners

It has been ascertained that the risk to the Fund from a lack of controls on the farmer status of landowners is much higher and more widespread among new farmers starting activity after the reference period in 2005 who left the system in 2006.

The abovementioned weakness is a deficiency in the adequate functioning of key controls according to document VI/5330/97. This deficiency generated a risk to the Fund for claim years 2005, 2006, 2007, 2008 and 2009 as regards the population at risk (payment entitlements established to farmers entering the system in 2005 and leaving in 2006). DG AGRI is of the opinion that, in accordance with document VI/5530/97, a 5% flat-rate correction is the best method to quantify this risk. This is applied to the population at risk as provided by the Danish authorities.

12.4.3.2. Non-agricultural use of area declared

It has been ascertained that the risk to the Fund as regards the above observation is much higher among new farmers starting their activity after the reference period. Only payment entitlements established for pasture are concerned.

68

The abovementioned weakness is a deficiency in the adequate functioning of key controls according to document VI/5330/97. This deficiency has generated a risk to the Fund for claim years 2005, 2006, 2007, 2008 and 2009 as regards the population at risk (payment entitlements established on the basis of pasture area declared in 2005 by new farmers). DG AGRI is of the opinion that, in accordance with document VI/5530/97, a 5 % flat-rate correction is the best method to quantify this risk.

However, taking into consideration that the Danish authorities already recovered all undue payments identified by themselves and by DG AGRI under this enquiry plus those identified during the on-the-spot checks carried out by the Danish authorities, the remaining risk to the Fund is deemed more limited.Therefore, a financial correction of 2 % is proposed for all expenditure concerning the population at risk, in relation to claim years 2005, 2006, 2007, 2008 and 2009. This is applied to the population at risk as provided by the Danish authorities.

12.4.3.3. Verification of farmer status in case of sales with a private contract clause

According to document VI/5330/97 the application of one-off correction is the best way to asses the risk to the Fund if the actual level of irregular payments, and thus the financial loss to the Fund, can be determined. On the basis of the analysis and the Danish figures, DG AGRI proposes a one-off correction for the lack of controls on the farmer status in case of transfers subject to a private contract clause. The amounts related to claim year 2005 have been excluded from the flat rate correction due to the application of the 24 month rule.

The total impact of the above is:

69

Claim year

EC budget

sub-item

Ground of correction

Total amount

subject to correction

(EUR)

Reference amounts of

pasture area, set-aside (EUR)

Reference amounts of all

other area (EUR)

CorrectionAmount of correction

(EUR)

Amount of

correction (DKK)

Amounts corrected-

covered following Area Aids

enquiry (EUR)*

Net cash effect (EUR)

Net cash effect

(DKK)

200505 03 01 01 0000 001

Landowners at risk (payments as of 19.05.2006) 10.034,66 1.493,57 5,00% 74,68 557,28 74,68 0,00 0,00

8.541,09 427,05 3.186,85 0,00 427,05 3.186,85Non-agricultural use of area (payments as of 04.03.2006) 131.972,39 2,00% 2.639,45 19.696,62 2.639,45 0,00 0,00

TOTAL 3.141,18 23.440,75 2.714,13 427,05 3.186,85

200605 03 01 01 0000 002

Private contract clause - farmers' status verification 80.459,15 one-off 80.459,15 0,00 80.459,15

Landowners at risk 3.624.967,90 534.718,74 5,00% 26.735,94 26.735,94 0,00 3.090.249,16 154.512,46 154.512,46

Non-agricultural use of area 7.369.459,91 2,00% 147.389,20 147.389,20 0,00Reimbursement based on the reduction of the population at risk subject to a 5% flat rate correction for a reduced population at risk (pasture, set-aside and uncultivated area) under enquiry AA/2006/05 as a consequence of the application of the one-off correction for lack of verifications in Private Contract Clause

-369,71 TOTAL 409.096,75 174.125,14 234.601,90

200705 03 01 01 0000 003


Landowners at risk 3.579.994,45 509.100,94 5,00% 25.455,05 0,00 25.455,05 3.070.893,51 153.544,68 0,00 153.544,68

Non-agricultural use of area 7.101.877,85 2,00% 142.037,56 0,00 142.037,56 TOTAL 401.521,26 0,00 401.521,26

200805 03 01 01 0000 005



Non-agricultural use of area 6.581.217,29 2,00% 131.624,35 0,00 131.624,35 TOTAL 372.192,58 0,00 372.192,58

200905 03 01 01 0000 007



Non-agricultural use of area14.087.991,3

7 2,00% 281.759,83 0,00 281.759,83 TOTAL 536.118,38 0,00 536.118,38

GRAND TOTAL

1.722.070,15 176.839,26 1.544.861,18

*5% on pasture, set aside and uncultivated area for 2005, 2006


Not applicable


Not applicable

12.5. FINLAND

Enquiry No: AA/2007/05Mission Dates 10-14.09.2007Observation letter 04.02.2008Reply Member State 26.05.2008Invitation bilateral meeting 13.05.2009Conclusions bilateral meeting 30.07.2009Reply Member State 28.09.2009Conciliation letter: 11.03.2010Conciliation reference: No conciliation requestedConciliation Body's opinion: NAFinal letter: NA


12.5.1.1. Weaknesses related to LPIS-GIS- Lapland region

Up to date information

To be useful for the farmer when lodging his claim (cf. Art.12 of R.796/2004) and effective for the administration when performing the necessary cross-checks (cf. Art.24 of R.796/2004), the information in the LPIS-GIS as regards the eligible area should be accurate.This requires that (in principle) reference parcels are stable and that the information as regards their boundaries, the total area and the area of ineligible features is correct (in particular for those >0.1ha) and up-to-date.

For the Lapland region, the ortho-photos in the LPIS-GIS generally date from 1992-1998 (updates delayed due to weather conditions). The method of updating LPIS-GIS using GPS measurements is limited to the measured parcels and thus does not ensure the accuracy of the LPIS-GIS for Lapland. Under these conditions a sufficient level of qualitative on-the-spot-checks is a necessity to ensure that the financial interests of the Fund are protected.

In the bilateral procedure, the authorities stated that Finland’s LPIS is appropriate and works, and that a material error has not occurred in the case of Lapland; only seven farms had over-declared their area by more than 50%.

In claim year 2006, for SPS, 50% of farmers subject to on-the-spot checks over-declared by up to 3% or 2ha and 18.84% over-declared by over 3% but no more than 20%. Overall the level of area "not found" during on-the-spot checks was 1.94%.In claim year 2007, for SPS, 53.67% of farmers subject to on-the-spot checks over-declared by up to 3% or 2ha and 20.34% over-declared by over 3% but no more than 20%, and 0.56% over-declared more than 20%. Overall the level of area "not found" during on-the-spot checks was 2.11%.

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The level of on-the-spot checks performed in 2007 was 9.47%. Based on the working document DS/2006/24-rev2, the number of on-the-spot checks should be increased at the level of 10%. In 2006 the level of on-the-spot checks performed was 7.16%, and the increase rate should have been of 1.25 (i.e.6.25%).

However, although the document is in principle respected, considering that the LPIS is not up to date, a higher level of on-the-spot checks is required to ensure compliance with Art.26 of R.796/2004, in particular taking into account that half of the 'area not found' for the claim year 2007 representing 27.48% of the farmers is over-declared by over 3% but no more than 20%. The situation was similar for the claim year 2006: 61.5% of 'area not found' was represented by 27.36% of the farmers over-declaring by over 3% but no more than 20%. Thus DG AGRI maintains its view that the increase was not sufficient to counterbalance this situation and to protect the Fund.

The Finish authorities explained hat the accuracy of the digitisation of all reference parcels in the area of the new ortho-photos taken is checked against them, and the boundaries are corrected if necessary. However, during the audit mission, it was found that either there was no systematic digitisation of changes to reference parcels by photo-interpreters following import of new ortho-photos into the LPIS-GIS, or that it was done inaccurately. Hence, the measures taken and foreseen by the authorities to improve the continuous GIS up-dating appear to be insufficient to gain reasonably assurance that the information in the LPIS-GIS is correct.

Retro-active recoveries of undue payments

During the bilateral meeting, the Finnish authorities explained that each year 1/5th of Finland's territory is updated with new ortho-photos followed by the update of the information in the LPIS and the recovery of amounts undue paid in the concerned and previous claim years. The corresponding recoveries are:

Claim year Recovered amounts - EUR2006 60,958.332007 14,577.202008 21,721.09

TOTAL 97,256.62

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Based on the information received, these recoveries do not extend beyond the year preceding the previous year. This constitutes a non-compliance with Art.73 of R.796/2004. Therefore, the actual amount to be recovered in plus by the Finish Paying Agency would have been:

Claim year Recovered amounts EUR2007 14,577.22008 43,442.18

TOTAL 58,019.38

12.5.1.2. Sanctions

Audit work has shown that in claim year 2006 and 2007 the Finish Paying Agency was applying reductions and exclusions pursuant Art.51 of R.796/2004 incorrectly.

DG AGRI is of the view that the approach adopted for these claim years does not comply with the provisions of Art.51; Art.50(3) and Art.49(1) of R.796/2004, which require that for the payments and the reductions and exclusions "the average of the values of the different entitlements in relation to the respective area declared shall be taken into account".


Considered under the point findings.


Based on the findings and considering all explanations provided, DG AGRI retains its position that the system implemented in Finland in the claim years 2006-2007 shows some weaknesses, which created a risk for the Fund.

For the non-compliance in the application of sanctions, the Finish authorities provided the calculation of the maximum risk to the Fund in relation to SPS. As regards the retro-active recovery the Finish authorities gave an estimate of risk but this only covered 1 year. DG AGRI is of the opinion that using these figures to establish the multi-annual effect is the best way to asses the risk for the Fund.

Finally, as regards the issues in the Lapland region, DG AGRI sees that the best way to assess the risk for the Fund is to apply a flat rate correction.

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The following financial correction is proposed:

1. The amounts relating to the incorrect application of sanctions in 2006 and 2007: EUR 18,553.70.

2. The non-recovered amounts over the different years: EUR 58,019.38.

3. The weaknesses in the Lapi-region are in accordance with document VI/5330/97, constituting a failure to operate a "key" control. However in view of the level of area not found during the on-the-spot checks, DG AGRI is of view that a correction of 2% is more appropriate. Giving an amount of EUR 385,396.82.

The total amounts proposed for exclusion are

Claim year BP Correction2006 050301010000002 203,706.822007 050301010000003 214,820.902008 050301010000004 43,442.18


Not applicable


Not applicable

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12.6. FINLAND

Enquiry DPU/2008/07Observation letter 25.02.2009Reply Member State 20.04.2009Invitation bilateral meeting 12.03.2010Conclusions bilateral meeting 25.06.2010Reply Member State 14.07.2010 and 03.09.2010Conciliation letter: Ares(2010)851241 dated

23.11.2010Conciliation reference: Not requestedConciliation Body's opinion: NAFinal letter: NA


12.6.1.1. Non-recovery of undue payments following the parcels updating process

According to Art.73 of R.796/2004 Member State shall recover undue payments made to farmers.

The Finnish authorities informed DG AGRI that following the LPIS-GIS updating process entitlements that have been indentified as established incorrectly (because the areas declared in 2006 have been found incorrect) are returned to the National Reserve as required by Art.73(a) of R.796/2004.However, the Finnish authorities stated that the corresponding undue payments not recovered from the farmers as required under Art.73 of R.796/2004 are: EUR 208.560,32 for claim year 2006 and EUR 38.963,06 for claim year 2007. These amounts therefore represent a risk to the Fund.

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12.6.1.2. Activation of entitlements on vegetable gardens

Art.60 of R.1782/2003 implies that land used to produce fruit and vegetables is eligible for SPS only if a farmer had corresponding entitlements with authorisation (a 'sticker' attached to the payment entitlement).

In Finland, parcels declared as vegetable gardens can be activated up to the maximum of 0,3ha without any authorisations attached to the corresponding payment entitlements.DG AGRI is of the opinion that crops usually cultivated in vegetable gardens (fruit and vegetables) are not eligible for SPS payments, unless the farmer is in possession of a 'sticker'. Therefore, the activation of entitlements without a 'sticker' on vegetable gardens is contrary to Art.60 of R.1782/2003.

The Finnish authorities supplied the information on unduly allocated and activated payment entitlements on vegetable gardens: EUR 134.535,85 for claim year 2006 and EUR 106.422,80 for claim year 2007.

12.6.1.3. Overpayments linked to reference amounts for sugar beet production

The sugar beet reference amounts to be included in the Finnish single payment scheme in 2006 were calculated as provided in Section K of Annex VII of R.1782/2003. For Finland, this reference amount is based on two separate values: the reference value EUR 8.255.000,00 and the additional amount to be included during the four years (2006-2009), i.e. EUR 1.281.000,00. The Finnish authorities applied the reduction of 0,8% for the National Reserve only to the first amount.

DG AGRI is of the opinion that according to Art.42(1) of R.1782/2003 all reference amounts should be reduced (by a maximum of 3 %) to constitute the National Reserve. Therefore, the unit value of payment entitlements with reference amounts coming from sugar beet production is overstated, and the farmers concerned (having sugar beet additional reference amounts) were thus overpaid.

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On the basis of the amounts supplied by Finland, DG AGRI assessed the risk to the Fund as follows:

Claim year

Total payments linked to sugar beet additional reference amounts (EUR)

Undue payments (0,8% out of total payments) in EUR

2006 1.264.122,84 10.112,982007 1.261.556,34 10.092,452008 1.264.681,32 10.117,452009 1 266 942,81 10.135,57



No arguments were presented by Finland.


The Finnish authorities explained that ‘vegetable garden’ includes many different plants for household use, including certain arable crops. As these crops do not meet the requirements of Art.60 of R.1782/2003, the reference amounts of vegetable gardens could not be communicated to the Commission, hence they did not give rise to entitlements with authorisation (stickers).


The Finnish authorities are of the opinion that the sum of payments made in the years concerned did not exceed the net ceiling (EUR 1.270.752 respecting Annex VII, Section K, Table 2 of R.1782/2003) and therefore there is no risk to the Fund.

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On the basis of the findings, and after considering all the explanations provided by the Finnish authorities, the DG AGRI maintains that the weaknesses established in the operation of several key controls have generated a risk to the Fund. In particular, the items below are to be noted.

In accordance with document VI/5330/97 DG AGRI is of the view that for the following deficiencies, the application of a one-off correction is the best way to asses the risk to the Fund, taking into account that the actual amount of irregular payments provided by the Finnish authorities, and thus the amount of financial losses suffered by the Community, can be determined.


Paying Agency Budget line Correction type Currency Amount

corrected Financial year 2007

FI01 050301010000002 One off EUR 208.560,32

Financial year 2008FI01 050301010000003 One off EUR 38.963,06TOTAL EUR 247.523,38




FI01 050301010000002 One off EUR 134.535,85

Financial year 2008FI01 050301010000003 One off EUR 106.422,80 TOTAL EUR 240.958,65

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FI01 050301010000002 One off EUR 10.112,98

Financial year 2008FI01 050301010000003 One off EUR 10.092,45

Financial year 2009FI01 050301010000005 One off EUR 10.117,45

Financial year 2010FI01 050301010000007 One off EUR 10.135,57TOTAL EUR 40.458,45


Not applicable


Not applicable

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12.7. GREECE

Enquiry AA/2006/48bObservation letter 20.06.2007Reply Member State 12.07.2007Invitation bilateral meeting 21.10.2008Conclusions bilateral meeting 15.05.2009Reply Member State Ares(2010)283731 dated

14.07.2009Conciliation letter: 27.5.2010Conciliation reference: 10/GR/449Conciliation Body's opinion: 2.12.2010Final letter: Ares(2011)349556 dated

30/03/2011


12.7.1.1. Forage area non-inclusion in the calculation of the reference area/amounts

Pursuant to Art.43 of R.1782/2003, the forage area to be considered for the establishment of payment entitlements is all the forage area of the holding that was available (not only the area declared) throughout the calendar year, in accordance with Art.5 of R.2419/2001, for rearing animals, including areas in shared use and areas which were subject to mixed cultivation. In this framework, Member States should be able to ascertain, for each farmer, all the available forage area during the reference period.

Greece decided to make use of Art.28(1) of R.795/2004 by considering the forage area declared by the farmer in the area aid application for 2004 for the establishment of payment entitlements. Following the application of Art.28 (1), Art.28(2) of R.795/2004 should have also been respected in Greece. This article establishes that:

"For the purpose of the establishment of the definitive payment entitlements the farmer may prove, at the satisfaction of the competent authority, that his forage area in the reference period was lower or, in case the area used by Member States is lower, he shall, in accordance with Article 43(2)(b) of Regulation (EC) No 1782/2003, declare all the forage area he held in the reference period."

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Therefore, by failing to identify the forage area at their disposal in the reference period (in the cases where that area was higher than the one declared in 2004), farmers in Greece received too few payment entitlements of a too high unit value, and have generally more hectares of land than entitlements allocated. In some cases, farmers even received special entitlements although they had declared land during the reference period.

Contrary to Art.28(2) of R.796/2004, even when there was clear evidence that the farmer had declared more forage area during the reference period than that declared in 2004 the Greek authorities did not take this surface as a basis for the establishment of payment entitlements.

The risk to the Fund arising from the failure to take into account all the forage area is deemed to be twofold:

At farmer level, if the farmer has more hectares of land than entitlements allocated:

– the surplus land is then available for the activation of entitlements acquired by the farmer (through the National Reserve or in the market), so that the farmer will benefit from aid to which he would not have been entitled without the failure to take into account the forage areas;

– or the farmer might stop farming the surplus land, but will still receive the full reference amount on a smaller area, so he will benefit from aid to which he would not have been entitled without the failure to take into account the forage.

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The forage area in excess not necessary for the activation of the payment entitlements held might risk being abandoned and not maintained in Good Agricultural and Environmental Conditions, which is contrary to the aim of the CAP reform.

The Greek authorities failed to provide exact figures defining the forage area not taken into account in the calculation of the reference area, which could give an indication of the population at risk. However, based on the figures and explanations provided by the Greek authorities it can be concluded that the population at risk is mainly composed of the beneficiaries who received sheep and goat premiums in the reference period.

Indeed, on the basis of the forage area declared in posterior claim years (when declaration of forage area was compulsory) it can be estimated that only one third of the forage area declared by ovine farmers lead to the establishment of area based payment entitlements. The reference amounts determined in 2006 as regards these beneficiaries are:

Value of normal/area-based entitlements: EUR 416.100.597,17

Value of special entitlements: EUR 93.598.370,92

Total reference amounts: EUR 509.698.968,09

12.7.1.2. National Reserve allocation

The criteria applied

To benefit from the additional allocation of payment entitlements from the National Reserve under the investor's category in Greece, the beneficiary had to provide proof of the investment. However, the decision on the number of payment entitlements to be allocated was made based on the following criteria:

– location of the holding, – participation in the national programmes during the reference period, – age of farmers (under 40 years old),– number of family members (receiving additional payment entitlements if having

at least 3 children).

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DG AGRI considers that these criteria do not reflect the nature and value of the investments (for example the number of hectares subject to the investment were not considered) in the category of investors (Art.21 of R.795/2004) and new farmers (Art.42(3) of R.1782/2003). Furthermore, this approach does not ensure equal treatment between farmers and is not in compliance with Art.42 of R.1782/2003 and Art.21(1) of R.795/2004. Moreover, the allocation of the number of payment entitlements from the National Reserve did not take into account the provisions of Art. 6 (2 and 3) of R. 795/2004 limiting their number to the hectares a farmer already holds (owned or leased).

Regional average calculation

The Greek authorities decided to allocate to the producers the reference amounts from the National Reserve 2006, granting single-payment area-based entitlements with a unit value equal to the regional average value of entitlements (Greece is considered as one region under SPS). In accordance with Art.42(6) of R.1782/2003, the unit value of the payment entitlements allocated should not be higher than the regional average for the category of new farmers (Art.42(3) of R.1782/2003) and for farmers participating in restructuring and/or development programmes (Art.42(5) of R.1782/2003).

In the calculation of the regional average the authorities included the values of all reference amounts, except the ones deriving from the bovine and ovine sector. Consequently the payment entitlement was established at EUR 755,19/ha however, the Greek authorities decided to use the rounded value of EUR 750/ha for the allocation of the National Reserve.

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DG AGRI considers the calculation presented by the Greek authorities for the determination of the regional average value of payment entitlements to be not in compliance with the Regulation, for the following reasons:

– Not all agricultural payments concerned under Annex VI of R.1782/2003, calculated and adopted in accordance with Annex VII to the same Regulation, were included in the calculation of the average regional value of payment entitlement: reference amounts coming from payments into bovine and ovine schemes were not taken into account.

– A number of forage area hectares at the farmer’s disposal during the reference period were also not taken into account for the calculation and establishment of payment entitlements under Art.43 of R.1782/2003 and/or Art.6(4) of R.795/2004.

The calculation of the regional average value of payment entitlements, taking account also of the reference amounts granted for the bovine and ovine schemes and the corresponding forage areas declared under these schemes, gives a result of EUR 718,58/ha. Accordingly, DG AGRI concludes that the National Reserve allocation in 2006 was overstated by the difference between the regional average used in Greece (EUR 750/ha) and the corrected regional average which should have been used (EUR 718/ha). Using the corrected regional value, DG AGRI estimates that EUR 2.951.138,27 can be considered as undue payments in the categories under Art.42 (3 and 5) of R.1782/2003 and therefore presents a risk for the Fund. Note that this difference between regional averages (4,46%) should have been enhanced with the inclusion of the forage area not taken into account in the calculation of the reference value and area (cf. supra), which would have further reduced the regional average.

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The following table shows the amounts allocated and activated (using the activation rate for all the National Reserve) presenting a risk to the Fund with regard to the National Reserve (NR) allocation under the abovementioned categories in 2006:

National Reserve for categories Art.42(3 and 5) of R.1782/2003

NR allocation NR activation (using the regional value of EUR 750)

NR activation using the corrected regional average of EUR 718,58

Number of producers 21.976Number of entitlements 103.830,14 93.925,47Amount 77.872.605.00 70.444.102,50 67.492.964,23Undue payments due to the regional average differences 2.951.138,27


Only claim year 2006 is considered under this clearance of accounts procedure. Therefore, any observation also relevant for subsequent years will be followed up in a separate enquiry.

12.7.2.1. Forage area non-inclusion

This deficiency has generated a risk to the Fund for claim years 2006 and onwards as regards the population at risk (i.e. the beneficiaries of the sheep and goat premiums during the reference period). DG AGRI is of the opinion that, in conformity with document VI/5530/97, a flat-rate correction is the best method to quantify this risk. As it concerns a key control a flat-rate correction of 5% of the reference amounts generated by the beneficiaries of sheep and goat premiums during the reference period is proposed as regards claim year 2006.

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Given the total reference amount of EUR 509.698.968,09 the correction is as follows:

Paying Agency Budget line Correction

type Currency Amount corrected

Financial year 2007GR01 50301010000002 Flat rate 5 % EUR 25.484.948,41

12.7.2.2. National Reserve allocation

One-off correction

In accordance with document VI/5330/97 DG AGRI is of the view that for the deficiency related to the calculation of the regional average, the application of a one-off correction is the best way to asses the risk for the Fund, taking into account that the actual amount of irregular payments, and thus the amount of financial losses suffered by the Community, can be determined.

This correction covers the undue reference amounts activated for payment entitlements allocated from the National Reserve under certain categories due to the incorrect calculation of the regional average ceiling:



Financial year 2007GR01 50301010000002 One-off EUR 2.951.138,27

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Flat-rate correction

DG AGRI is of the opinion that the shortcomings related to the National Reserve allocation criteria in 2006 represent a weakness in a key controls. This deficiency has generated a widespread risk for the Fund as regards the population at risk (i.e. the beneficiaries of the allocations of the national reserve reference amounts). DG AGRI is of the opinion that, in conformity with document VI/5530/97, a flat-rate correction is the best method to quantify this risk ane consequenly a 10 % is considered justified.

The amounts that constitute the population at risk have been provided by the Greek authorities. The one-off correction proposed (cf. supra) has been deducted from the population at risk.


typeCurrenc

yAmount

correctedFinancial year 2007

GR01 50301010000002 Flat-rate 10 % EUR 10.460.620,42

To avoid double corrections, DG AGRI corrections applied to the same expenditure in the framework of enquiry AA/2007/06 for claim year 2006 are deducted from the financial correction to be applied in the context of this enquiry.

Therefore, the financial impact of the correction proposed under the current document is as follows:

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EC budget sub-item

Description of correction

Total amount subject to

correction (EUR)

Total amount subject of

correction after one off deduction (EUR)

Special entitlemetns value (EUR)

Normal entitlements value (EUR)

Correction Amount of correction (EUR)

Amounts corrected-covered following Area Aids enquiry

(EUR)

Net cash effect EUR

50301010000002

Regional average calculation 2.951.138,27

one off 2.951.138,27 0,00 2.951.138,27

National reserve criteria 107.557.342,50 104.606.204,23 10,00% 10.460.620,42 10.460.620,42 0,00

Forage area non-inclusion (ovine producers) 509.698.968,09

93.598.370,92 5,00% 4.679.918,55 0 4.679.918,55

416.100.597,17 5,00% 20.805.029,86 20.805.029,86 0,00Reimboursement based on the reduction of the population at risk subject to a 10% flat rate correction under enquiry AA/2007/06 as a consequence of the application of the one-off correction for the regional average calculation -295.113,83

GRAND TOTAL 38.896.707,10 31.265.650,28 7.335.942,99

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12.7.3.1. Forage area non inclusion in the calculation of the reference area/amounts

The Greek authorities accepted the risk to the Fund involving only ovine producers, however considering it to be insignificant. They believe that the small impact should not justify the request to re-calculate the single payment entitlements of Greek sheep and goat farmers, which would cause extraordinary upheaval for the Member State, both in social terms and in the implementation per se of the single payment scheme.

12.7.3.2. National reserve allocation

The Greek authorities' view is that the criteria for allocation of entitlements from the national reserve are objective, ensure equal treatment of producers and do not distort the market or competition. Out of the 11.288 farmers who received entitlements from the national reserve during the first phase, 10.255 (90,84%) were claiming and were recognised as young farmers. The number of older producers is only a small percentage of the total number of producers who have received entitlements from the national reserve. The granting of entitlements from the national reserve 2006 to young producers is consistent with the spirit of national policy as defined specifically in the various programmes of rural development being implemented, which, in their majority, seek to support younger producers.

The Greek authorities are of the opinion that since the trigger for payment of aid for the livestock premium schemes in the reference period was the eligible livestock capital and not the area of agricultural land, they do not agree with the view of the DG AGRI that payments in the bovine and goat/sheep sectors and the corresponding defined areas for these schemes should be taken into account in defining the average value of single payment area entitlements.


In the conclusions to its final report, the Conciliation Body noted that:

6.2: As there are no precise guidelines on the financial corrections, the Commission has much leeway when imposing flat-rate corrections that it could calculate itself.

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6.3: The Greek authorities put forward arguments which, on first analysis, are not unjustified, and the Body feels that the technical argumentation of the Greek authorities could substantially reduce the rate of the proposed correction by excluding the value of the normal rates applied to surfaces areas. This reduction would lower the correction basis to approximately EUR 267 million.

6.4: The Body draws the Commission's attention to the fact that all the applications from the new entrants and investors have been accepted and respected and that the national reserve has not been used up, according to the Greek authorities. In these circumstances, the Body is concerned about the risk and financial losses that might be incurred by the Funds and estimates that any new financial correction concerning this item must be based on considerations of a legal nature.


12.7.5.1. Forage area non-inclusion in the calculation of the reference area/amounts (point 6.3 of the conciliation report)

Pursuant to Art.43 of R.1782/2003 and Art.28(2) R.795/2004, Member States should determine, for each farmer, all the available forage area during the reference period.

This was not done correctly by Greece in claim year 2006. With regard to the determination of the risk to the Fund, the conciliation body observes, that the Greek authorities and DG AGRI agree that the forage area of the reference period was not taken into account mainly for the beneficiaries who received sheep/goat premiums during the reference period.

In the conciliation request, the Greek authorities suggested that a flat-rate correction should be applied only to reference amounts that correspond to special entitlements allocated to sheep and goat farmers in 2006. The authorities are of the opinion that the reference amounts corresponding to the normal payment entitlements allocated to these farmers duly take into account arable land and some forage area; therefore these reference amounts should not be concerned by the financial correction. Furthermore, in the conciliation procedure, the Greek authorities suggested that the maximum risk to the Fund is constituted by the reference amounts allocated to ovine producers, based solely on the sheep/goat premiums received during the reference period, which amount to EUR 267.485.463,20.

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DG AGRI maintains that for all individual reference amounts (both area-based and livestock premia) of EUR 509.698.968,09 allocated to sheep and goat producers in 2006, there was a risk of its consolidation into a smaller number of entitlements with a higher unit value, unless all forage area was taken into account. However, DG AGRI accepts that the risk to the Fund was related to the reference amounts calculated on the basis of the sheep/goat premia (EUR 267.485.463,20) rather than to the area based reference amounts. From this amount (EUR 267.485.463,20) the following should be deducted:

– EUR 20.351.982,95: The reference amount of the population at risk who also received the reference amounts from other livestock premia and for whom the forage area was duly taken into account;

– 2.72%: The reduction to comply with the national ceiling;

– 5%: The reduction of the amounts to feed Art. 69 payments;

– 2%: The reduction to feed the national reserve.

Furthermore, DG AGRI would like to indicate that farmers who received the aid under the sheep/goat aid scheme in the reference period (under Art.9 of R.2419/2001), for which the forage area declaration was not required, are not exempted from the requirements of Art.43 of R.1782/2003 and Art.28(2) of R.795/2004. The suggestion by Greece to reduce the population at risk for these farmers is therefore not accepted.

The maximum reference amount (population) that was consolidated and therefore constitute a risk to the Fund is therefore reduced to EUR 223.823.059,57 (amount before conciliation EUR 509.698.968,09).

Risk to the Fund:

The risk to the Fund arising from the failure to take into account all the forage area is deemed to be twofold. At farmer level, if the farmer has more hectares of land than entitlements allocated:

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– the surplus land was available for the activation of entitlements acquired by the farmer through the national reserve, so that the farmer benefits from aid to which he would not have been entitled without the initial failure to take into account the forage areas;

– or the farmer might stop farming or trade the surplus land, but will still receive the full reference amount on a smaller or no area, so he will benefit from aid to which he would not have been entitled without the failure to take into account the forage.

As the Greek authorities are not in a position to provide an exact analysis of the above risks to the Fund, DG AGRI maintains its position that, in the absence of this information, the application of a flat rate correction is the most appropriate course of action to take.

Calculation of the risk:

Based on the partial estimate by the Greek authorities of the potential losses to the Fund (cf. risk 1.), DG AGRI considers that the amount representing a risk to the Fund can best be estimated as follows:

A flat-rate correction of 5% of the amounts at risk generated by the beneficiaries of sheep and goat premia during the reference period as regards claim year 2006.

Total reference amounts: EUR 223.823.059,57 , generated by goat and sheep premia only (before conciliation EUR 509.698.968,09).

Of which value of special entitlements is EUR 83.422.240,12 (new updated figures provided after the conciliation procedure; before conciliation EUR 93.598.370,92).

Consequently the total financial correction is EUR 11.191.152,98 of which:

5 % of the reference amounts (normal, area based entitlements): EUR 7.020.040,97 (before conciliation EUR 20.805.029,86)

and

5 % of value of special entitlements: EUR 4.171.112,01 (before conciliation EUR 4.679.918,55)

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12.7.5.2. National Reserve criteria

In its conclusion the Conciliation body refers to the "overall" situation as regards the risk to the Fund. However, what is important in the clearance of accounts is the risk of overpayment at the individual level. In this respect the fact that the national reserve was not "fully used" is irrelevant. On this subject, DG AGRI maintains its view as set out in the correction notification letter that the national reserve allocation at the individual level was not in compliance with the applicable legislation:

– The criteria used do not reflect the nature and/or value of the investments as such in the category of investors (Art.21 of R.795/2004), but rather the situation of the investor (age, number of children, number of animals owned, location of the farm, etc). Under the Greek method, the number of payment entitlements could be higher or lower than the actual investment made in additional area bought or leased.

– Another category of farmers who could benefit from the national reserve were farmers under 40 years old. The criteria of age and number of family members do not ensure equal treatment between farmers applying for the national reserve and do not comply with Art. 42 of R.1782/2003. The SPS legal basis concerned makes no provision for using these (socially-oriented) criteria when it refers to new (not young) farmers (Art. 42(3) of R.1782/2003) or investors (Art. 21(1) of R.795/2004) or to any other category of beneficiaries who might be eligible for the national reserve allocation.

12.7.5.3. Regional average calculation

The conciliation body did not comment on this point in its report; and the position as communicated in the correction notification letter is maintained.

12.7.6. Calculation of the financial correction

After having examined the report, and in the absence of any new relevant information being provided by the Conciliation Body or by the Greek authorities, DG AGRI maintains its position with regard to the justification for and the level (except point 3.1) of the financial correction.

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12.7.6.1. Non-inclusion of forage area




12.7.6.2. Incorrect calculation of the regional average ceiling



Financial year 2007GR01 50301010000002 One-off EUR 2.951.138,27

12.7.6.3. National Reserve criteria

*The amount subject to correction was reduced by a one-off correction (cf. point 3.2.1.) before applying the 10% flat rate financial correction. This is due to the overlap of the populations at risk.

To avoid double corrections, DG AGRI will ensure that any correction applied on the same expenditure in the framework of the enquiry AA/2007/06 will be deducted from the financial correction to be applied in the context of this enquiry.


type Currency Amount corrected*


95

The financial corrections including the net cash effect are as follows:

EC budget sub-item Description of correction

Total amount subject to

correction (EUR)

Total amount subject of

correction after one off and flat rate

corrections deduction (EUR)

Special entitlemetns value (EUR)

Normal entitlements value

(EUR)Correction Amount of

correction (EUR)

Amounts corrected-covered

following Area Aids enquiry

(EUR)

Net cash effect EUR

50301010000002

Regional average calculation 2.951.138,27

one off 2.951.138,27 2.951.138,27

National reserve criteria 107.557.342,50 104.606.204,23 10,00% 10.460.620,42 10.460.620,42 0,00

Forage area non-inclusion (ovine producers)

223.823.059,57 83.422.240,12 5,00% 4.171.112,01 4.171.112,01

140.400.819,45 5,00% 7.020.040,97 7.020.040,97 0,00Reimboursement based on the reduction of the population at risk subject to a 10% flat rate correction under enquiry AA/2007/06 as a consequence of the application of the one-off correction for the regional average calculation -295.113,83

GRAND TOTAL 24.602.911,67 17.480.661,40 6.827.136,45

Based on 10% for 2006 c.y.

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12.8. HUNGARY

Enquiry No: AA/2007/08Mission Dates 05-09.11.2007Observation letter 19.05.2008Reply Member State 22.07.2008Invitation bilateral meeting 13.05.2009Conclusions bilateral meeting 11.08.2009Reply Member State 12.10.2009Conciliation letter: 3.3.2010Conciliation reference: 10/HU/440Conciliation Body's opinion: 15.9.2010Final letter: 07.12.2010


In order to be effective for the cross-checks and the on-the-spot checks required by Art.24, Art.29 and Art.30 of R.796/2004, it is essential that the information in the LPIS-GIS is accurate as regards correct identification of the parcels, the eligible area and the boundaries of the reference parcels.

The audit evidenced that in claim year 2006 and 2007 the information in the LPIS-GIS was not always correct. To remedy the problems the Hungarian authorities took action on different levels in 2007 and 2008.

Although the Hungarian authorities are of the view that their LPIS-GIS was created in line with the applicable rules and was also permanently updated to fulfil the required standard, DG AGRI maintains that the LPIS-GIS used for claim year 2006 and 2007 was insufficiently accurate as regards the maximum eligible area. This had a negative impact on the effectiveness of the administrative and on-the spot checks and thus constitutes a non-compliance with Art.23 of R796/2004. This situation created a risk for the Fund, which was assessed by the Hungarian authorities via a study (cf. below).


The Hungarian authorities quoted that their analysis of the maximum risk for the Fund indicates that the financial risk is negligible, and therefore believe there should be no correction.

97


On the basis of the findings and considering all explanations provided by the Member State, DG AGRI maintains that the over-stated area information in the LPIS-GIS (finding also observed in respect of claim year 2004 and 2005) represent a weakness in the operation of key controls, and that it has created a risk for the Fund.

As regards the extent of the risk DG AGRI took note of the study carried out by the Hungarian authorities which was based on the SAPS. In accordance with document VI/5330/97, the application of a flat rate correction is not appropriate in this case.

The following table presents the latest data on over-declared areas resulting from retro-active cross-checks and their financial impact with regard to SAPS:

Claim year SAPSArea (ha) Amount Amount/ha

2006 22.022,66 1.969.926,94 EUR 89,45 EUR (102,29*0,8745)2007 20.154,75 2.056.792,24 EUR 102,05 EUR (105,52*0,9671)

However, these figures do not cover the impact of the sanctions and possible under-declarations at claim level, which could be used for compensation of "over-declarations". Yet, the study showed that the financial consequence of these 2 "impurities" would be expressed with the multiplier 1,34 in 2006 and 1,38 in 2007. The amounts therefore are:

Claim yearSAPS

AmountMultiplier for financial

impact Risk for the Fund2006 1.969.926,94 EUR 1,34 2.639.702,10 EUR2007 2.056.792,24 EUR 1,38 2.838.373,29 EUR

With regard to the net financial cash effect due account has to be taken of the corrections in the pipeline for the exceeding of the ceiling for SAPS 2006 with 926.791 EUR (enquiry J.5 FA/2008/093/HU) and the amounts recovered and credited to the Fund by the Hungarian authorities (to be provided).

To enable correct determination of the residual risk for the Fund the Hungarian authorities are invited to provide the latest state of play of the amounts recovered and credited to the Fund.

98


The conciliation body :

4. Notes that contrary to earlier years, the present correction proposed is a punctual correction based ion the figures supplied by Hungary;

5. It invites the Hungarian authorities to supply the data that have been recovered and credited to the Fund in the meantime.


DG AGRI notes that the Conciliation Body's report does not question the grounds for the correction. Consequently the position as communicated in the letter dated 3.3.2010 on the weakness established in the LPIS and the effect on the cross and on-the-spot checks is maintained. That there was a indeed risk for the Fund created by this weakness is proven by the information supplied by the Hungarian authorities.

As no recoveries and corresponding crediting to the Fund have taken place in the meantime for the claim years concerned the amount of the correction as communicated in the letter dated 3.3.2010 is maintained.

Claim year Financial year Currency Amount Budget post

2006 2007 EUR 2.639.702,10 0503010200000032007 2008 EUR 2.838.373,29 050301020000004

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12.9. ITALY

Enquiry No AA/2008/13 AA/2008/32Mission date 3-6.2008 NoneObservation letter 21.11.2008 16.4.2008Reply Member State 26.1.2009 13.10.2008 + 19.1.2009Invitation bilateral meeting 25.6.2009 Not requiredConclusions bilateral meeting 12.8.2009Reply Member State 3.11.2009Additional info 14.12.2009Conciliation letter: 23.03.2010Conciliation reference: No conciliation requested – but calculation refined by

letter dated 4.10.2010Conciliation Body's opinion: NAFinal letter: NA


12.9.1.1. LPIS-GIS

The audits performed for the 2005 and 2006 claims showed that the maximum eligible surface area as recorded in the LPIS-GIS (see Article 20 of Regulation (EC) No 1782/2003) is not always up to date. This situation affects the effectiveness of the cross-checks provided for by Article 24 of Regulation (EC) No 796/2004 and potentially also the quality of the on-the-spot checks (cf Article 30 of Regulation (EC) No 796/2004).

In 2007 Italy started work on a ‘new’ (‘overhauled’) GIS in the aim of making the information in the GIS more qualitative. By updating a third of the country every year, the work was scheduled to be 100% completed by the end of 2009.By then, for the areas not updated, the information on the maximum eligible surface area at reference parcel level could potentially still be incorrect. This is especially true for the pasture reference parcels (see infra).


Risk analysis

For the Single Payment Scheme (SPS), the ‘random’ sampling shows more discrepancies (2.3%) than the sample based on the risk analysis (1.83%). This indicates that the 2007 analysis was not effective and is thus not compliant with Article 27 of Regulation (EC) No 796/2004.

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Rate of on-the-spot checks

In 2007 the rate of anomalies was 1.9% for surface areas ‘not found’ and 15.3% for farmers who over-declared.Considering that the risk analysis is not sufficiently risk-oriented and that it is not intellectually wrong to expect that the rate of anomalies found this way would be at least equal to that found through the random selection, the rates to be achieved should be at least 5.5% to comply with Article 25 of Regulation (EC) No 796/2004. The on-the-spot check rate for 2007 was 5.21%.


As far as woods / wooded areas (within a pasture parcel) are concerned, specific rules have been established to evaluate their ‘eligibility’ (see Article 8 of Regulation (EC) No 796/2004).

When the on-the-spot checks were redone, in several cases differences were found in the eligible surface area. This situation is linked in part to the 'automatic' application of a defect rate based on the pasture parcel category. Thus the way the procedure was applied in 2007 led in many cases to aberrations relating to the surface areas that did not satisfy the conditions for eligibility in Article 2(2) and Article 2(2a) of Regulation (EC) No 796/2004 and in other cases to eligible areas being rejected.

This led to shortcomings in the on-the-spot checks in relation to the requirements in Articles 23, 29, 30 and 32 of Regulation (EC) No 796/2004 with regard to the (permanent) pastures with trees or other ineligible elements.

As part of the abovementioned ‘overhaul’ of the LPIS-GIS, the flat-rate system was amended in such a way that the assessment is now done at the level of the agricultural parcel instead of the cadastral parcel. As the cadastral parcel does not always correspond to the agricultural reality on the ground, this new procedure is better 'adapted' and leads to a better assessment of the eligible surface area.This is part of the risk recalculation under the LPIS-GIS point.

12.9.1.4. Penalties (Enquiry AA/2008/32)

The Italian authorities did not calculate the payments and the reductions and exclusions in accordance with Art.50(3) and Art.51 of R.796/2004 for the Single Payment Scheme payments.

101

In the Italian procedure the entitlements are considered to be utilized in relation to their value, as laid down in Art.49(2) of R.796/2004. Thus the area determined is allocated starting with the payment entitlements having the highest value. Set-aside entitlements and other entitlements are treated separately. This is considered an incorrect approach in that Art.49(1) of R.796/2004 clearly requires that payments and the reductions and exclusions shall be applied on the average of the entitlements declared.

The Italian authorities recalculated the amount that should have been paid to the farmers by using the correct formulas. This exercise shows that 618.405,01 EUR was unduly paid to the applicants for claim year 2007.


12.9.2.1. LPIS-GIS

Italy indicated that since the audit it has taken measures to improve the quality of the check environment (farmer information, LPIS-GIS update, on-the-spot control procedure). More specifically, the methods for evaluating pasture parcels for the LPIS-GIS have been sent to DG AGRI with examples (photos). These same documents help the inspectors to determine the level of eligibility of the parcels visited during the on-the-spot checks. This new procedure leaves less room for manoeuvre in interpreting the photos and in the site visits, thus ensuring the quality of the on-the-spot checks and protecting the Fund.

12.9.2.2. On the spot checks

Included in fndings.

12.9.2.3. Calculation of penalties

In its reply to the observation letter, Italy stressed its disagreement with the interpretation of Article 49(1) of Regulation (EC) No 796/2004. Nevertheless, the Italian authorities made the requested re-calculation and provided precise figures.


DG AGRI is of the view that the weaknesses created a risk for the Fund. These weaknesses represent a failure in the working of key and ancillary checks.

102

The Italian authorities made a retroactive calculation for the weakness in the LPIS-GIS. This sum also covers the flaw in the 2007 penalty calculations. As far as the risk created by the weaknesses in the on-the-spot checks is concerned, DG AGRI considers that this was largely absorbed by the measures taken to 'overhaul' the LPIS-GIS. The residual risk is not great enough to justify a financial correction.

In accordance with document VI/5330/97 DG AGRI believes that the application of a one-off correction is the best way to assess the risk for the Fund.

On the basis of the calculation provided by the Italian authorities on 4 October 2010, the financial impact for the claim year amounts to EUR 36 807 613.46 for the expenditure under the first pillar. In the absence of the details of the budget items concerned, this amount will be charged to budget item 050301010000003.

No financial information concerning the risk for the Fund has been provided to date for the surface-area-based amounts paid under rural development measures.

In the absence of this information, in accordance with document VI/5330/97 DG AGRI believes that the application of a flat-rate correction is most appropriate. As the failures constitute a weakness in a key check, a 5% correction is proposed. This makes the amount calculated EUR 10 810 788.09.

Following recoveries credited to the Fund, the financial impact of these corrections is:

For the first pillar: EUR 36 807 613.46

For the second pillar: EUR 10 810 788.09


NA


NA

103

12.10. MALTA

Enquiry No: AA/2007/10Mission Dates 02–06.07.2007Observation letter 05.12.2007Reply Member State 08.04.2008Invitation bilateral meeting 09.02.2009Conclusions bilateral meeting 10.08.2009Reply Member State 05.10.2009Conciliation letter: 18/03/2010Conciliation reference: No conciliation requestedConciliation Body's opinion: NAFinal letter: NA


On the basis of Art.20 of R.1782/2003 as from 01.01.2005, Member States are required to have a LPIS-GIS, whereby reference parcels are (in principle) stable and the information as regards their boundaries, their total area and the area of ineligible features (in particular for those above 0.1ha) is correct and up-to-date.

For claim year 2006, the LPIS-GIS implemented in Malta did not contain information relating to the reference parcel's eligibility and its boundaries. Consequently, the maximum eligible area was not always correct. Furthermore, no yearly update of the LPIS was realised using the results of the on-the-spot checks. Also, the results of visual checks of eligibility of declared reference parcels at the lodging stage were not systematically recorded and re-used over the years.

Thus the information provided to the farmer under the provisions of the art.12(3) of R.796/2004 was unreliable and rendered the system insufficient to guarantee the correct payment of aid, in that cross-checks under Art.24 of R.796/2004 were not effective. This had also an impact on the area based RD-measures since Art.66 to Art.72 of R.817/2004 refer to the administrative, control and sanction provisions laid down under the detailed IACS rules of R.2419/2001 (R.796/2004).

As regards any risk for the Fund caused by this weakness in respect of claim year 2007, this will be covered under enquiry AA/2008/19.


The Member State noted the findings and referred to the remedial action taken.


The above weaknesses created a risk for the Fund for both 1st and 2nd pillar expenditure for claim year 2006.

As remedial action Malta introduced a "new" LPIS in claim year 2008. As a result the Maltese authorities were in the position to have a systematic review (i.e. complete up-date of the LPIS-GIS, not only the GIS-layer concerning

104

ineligible features) based on the VHR image. This enabled, Malta to recalculate the payments based on the reviewed area.

Considering that information was provided regarding the calculated risk for the Fund by Malta, in accordance with document VI/5330/97, DG AGRI is of the view that the best way to assess this risk is to use the evaluation in so far as possible. Although the calculation does not cater for all weaknesses, DG AGRI believes that the application of a flat rate correction for the remainder of the risk, or even for the risk as a whole would be not appropriate, especially in the light of the retro-active remedial actions undertaken.

Based on the information supplied by Malta as at 31.12.2009 the amount still to be recovered was as follows:

Arable Aid - Claim year 2006: BP 050302010000003

Debt: 36,300.14 EUR.Recovered Amount: 11,365.86 EUR.The uncovered risk is: 24.934,28 EUR

Less Favoured Areas - Claim year 2006: BP 050404000000

Debt: 634,358.49 EUR.Recovered Amount: 437,483.79 EUR.The uncovered risk is: 196.874,70 EUR

DG AGRI draws the attention to the fact that the amounts <100 EUR, which the Maltese do no intend to recover under the de-minimis’ clause (cf. Art.5a of R.885/2006), do constitute a risk for the Fund and are thus included in the amounts above. This because, if the system would have operated appropriately as from the start of the claim year, these amounts would not have been paid and declared to the Fund.

The total correction amounts to EUR 221.808,98.


Not applicable


Not applicable

105

12.11. THE NETHERLANDS

Enquiry DPU-2008-006 DPU-2008-107Observation letter 12.01.2009 17.04.2008Reply Member State 11.03.2009 19.08.2008Invitation bilateral meeting 27.11.2009Conclusions bilateral meeting 30.03.2010Reply Member State 22.06.2010Conciliation letter: Ares(2010)873547 dated 29.11.2010Conciliation reference: No conciliation requestedConciliation Body's opinion: NAFinal letter: NA


12.11.1.1. Overshoot of the national ceiling for 2006

According to Art.41 of R.1782/2003, the Dutch national ceiling for the year 2006 was EUR 325.103.000. As the initial reduction (0,25%) for the constitution of the National Reserve was not sufficient to cover all approved applications, an additional 1% reduction for the National Reserve 2006 was made in January 2007. After this reduction, the total value of all established payment entitlements was still overshooting the national ceiling by EUR 2.692.075.

In order to stay within the national ceiling the Dutch authorities decided to apply a second additional retroactive reduction of 1,5% on 10.08.2007 and therefore, finally respected the national ceiling as from claim year 2007.

Ceiling 2006 EUR 325.103.000Initial allocation (0.25% reduction) EUR 330.950.269Overrun EUR 5.847.269Allocation in January 2007 (after 1% reduction) EUR 327.795.075Overrun EUR 2.692.075Allocation in August 2007 ( after 1.5% reduction) EUR 323.109.612

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However, the national ceiling of established payment entitlements was overrun for claim year 2006, and as payments for 2006 were granted on this basis, overpayments were effected at individual farmer level. For 2007 the ceiling was respected.

The Dutch authorities decided to recover overpayments of >100 EUR at individual farmer's level. DG AGRI is of the opinion that all overpayments created a risk to the Fund. Indeed, even the undue payments not recovered by the Dutch authorities following Art.73(8) of R.796/2004 or Art.5a of R.885/2006, still involve a risk to the Fund as they would have never been paid if the establishment of payment entitlements had been correctly allocated at the beginning. The total risk is therefore considered to be EUR 1.400.132.

12.11.1.2. Forage area

Pursuant to Art.43 of R.1782/2003, the forage area to be considered for the establishment of payment entitlements is all the forage area of the holding that was available (not only the area declared) throughout the calendar year, in accordance with Art.5 of R.2419/2001, for rearing animals, including areas in shared use and areas which were subject to mixed cultivation. In this framework, Member States should be able to ascertain, for each farmer, all the available forage area during the reference period.Following the application of Art.28(1), Art.28(2) of the same regulation should have also been respected in The Netherlands. This article establishes that:

''For the purpose of the establishment of the definitive payment entitlements the farmer may prove, at the satisfaction of the competent authority, that his forage area in the reference period was lower or, in case the area used by Member States is lower, he shall, in accordance with Art.43(2)(b) of R.1782/2003, declare all the forage area he held in the reference period".

107

According to the Dutch authorities' explanations during the bilateral meeting, the forage area considered for the establishment of payment entitlements was all the forage area of the holding that was available throughout the calendar year for farmers receiving livestock premium, for rearing animals and not only the area declared. Although they agreed not to have done so when initially establishing the entitlements, the Netherlands supported their position with the fact, that the agricultural census submitted by the farmers in the reference period was the basis for defining this forage area. This was taken into account in the fixing of the definitive entitlements. Whilst noting this procedure, DG AGRI observes that in accordance with the Dutch Agricultural Census Regulation, only farmers whose holdings are likely to cover 3 or more ''Dutch size units'' (the Dutch measure for the size of a holding on the basis of the premium received in the reference period) will be included in the census. Those that have a fewer number of ''Dutch size units'' have therefore not been covered by this "alternative" method.

The consequence of this situation is that the reference amounts have been concentrated in a lower number of entitlements with a higher unit value, and this creates a risk for a specific population of farmers. In general this risk is deemed to be twofold.

At farmer level, if the farmer has more hectares of land than entitlements allocated:

– the surplus land is then available for the activation of entitlements acquired by the farmer (through the National Reserve or in the market - land sold to another farmer who could then activate his entitlements without land), other crops cultivated not allowed on SPS land;

– or the farmer could stop farming the surplus land, but will still receive the full reference amount on a smaller area, thus will benefit from aid to which he would not have been entitled without consolidation.

108

The forage area in excess not necessary for the activation of the payment entitlements held might not be maintained in Good Agricultural and Environmental Conditions, what is contrary to the aim of the CAP reform.

Considering the above, the following non-compliant situation for the population at risk has been observed in The Netherlands:

For the category of farmers who did not submit the agricultural census and for whom the forage area was therefore not taken into account for the calculation of the reference area, the Dutch authorities provided the following figures:

Reference year 2000 2001 2002

Total number of farmers with reference amounts

94 897

91 669

90 703

Of which no agricultural census submitted but with animal premiums = population at risk

5 407 5 781 6 836

DG AGRI considers that there is a certain risk, that a percentage of these farmers (without agricultural census) did not receive the correct number / value of entitlements.

In the absence of the risk assessment by the Dutch authorities for the population at risk, its approximation made by DG AGRI may be considered as follows:

109

From the information received the total value corresponding to farmers receiving only livestock premia in the reference period with their forage area taken into account for the calculation of the reference areas is EUR 25.331.442. This covers 15.500 farmers, therefore the average reference amounts per farmer would be EUR 1.634,29.

6.008 farmers constitute the population at risk (average number of farmers without census submitted in the reference period 2000-2002). The overall amount at risk would be EUR 9.818.814,32 (based on an extrapolation of the reference amounts from the farmers who did submit census: 6.008 farmers x 1.634,29).

12.11.1.3. Simultaneously granting of reference amounts from the National Reserve (NR) from different categories

It has been observed that the applicants for the NR in 2006 under more than one category are being granted reference amounts from all categories where the conditions were met. Furthermore, a farmer might benefit at the same time from the NR allocation and the application of the hardship provisions.

This approach is not in accordance with Art.18(2) of R.795/2004. This Article states that the value (of the payment entitlements allocated) shall be the highest value the farmer may obtain by applying separately each of the following Articles for which he meets the conditions: Art.19 to 23a of R.795/2004 (NR) or 37(2) (new farmer during the reference period), art.40 (hardship), art.42(3) (NR) and art.42(5) (NR) of R.1782/2003.

Whilst on the principle the Dutch authorities do not share DG AGRI's position they provided the exact calculations for the 21 farmers, where in 6 cases this finding materialised. The following table shows the results of the analysis carried out by DG AGRI as regards the farmers for whom the application of the Dutch approach led to overpayments. This table shows that the situation above clearly generated a risk to the Fund for claim year 2006 and onwards.

110

Audit no.

Farmer's no.

Amount allocated in

2006 respecting

Art. 18(2) of R. 795/2004

Amount over-

activated in 2006

Amount over-

activated in 2007

Amount over-

activated in 2008

Amount over-

activated in 2009

2 40238274 2.367,73 270,76 270,76 270,76 270,763 30008088 113.337,34 2.640,22 2.640,22 2.640,22 2.640,22

18 201168071 1.303,84 1.172,34 1.172,34 1.172,34 1.172,3419 200768842 115,21 109,49 109,49 109,49 109,4920 200776816 2.618,44 1.670,46 2.488,30 2.488,30 2.488,30

21 200783445 316,91 301,17 301,17 301,17Farm closed

down in 2009

total EUR 6.164,44 6.982,28 6.982,28 6.681,11

12.11.1.4. Systematic error in the calculation of flax and hemp

Audit work revealed that for flax and hemp the reference area is systematically calculated by dividing the sum of hectares for the 2 reference years (2001 and 2002) by 3 instead of 2. However, for the calculation of the reference amounts for flax and hemp the sum of payments obtained for claim years 2001 and 2002 was correctly divided by two only.

As a result the number of payment entitlements was established at a lower level and the unit value of the payment entitlements was too high. During the clearance of accounts procedure the Dutch authorities provided the figure of the area left out from the calculation:

Number of farmers 975Consolidated area / Number of too few entitlements established 1.885Amount at risk (EUR) 154.649,22

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The comments have been included in the point findings.


12.11.3.1. One off corrections

In accordance with document VI/5330/97 DG AGRI is of the view that for the following deficiencies, the application of a one-off correction is the best way to asses the risk to the Fund, taking into account that the actual amount of irregular payments, and thus the amount of financial losses suffered by the Community, can be determined:

Overshoot of the national ceiling for 2006

Simultaneously granting of reference amounts from the National Reserve (NR) from different categories

12.11.3.2. Flat rate corrections

In accordance with document VI/5330/97, DG AGRI is of the opinion that the application of a flat rate correction is the best method to quantify the risk generated by the weaknesses concerned.

Forage area non-inclusion for the farmers not submitting the census

When all key controls are applied, but not in the number, frequency, or depth required by the regulations, then a correction of 5% is justified, as it can reasonably be concluded that they do not provide sufficient assurance of the regularity of the claims, and that the risk to the Fund was significant.

112

DG AGRI is of the opinion that the risk of abandonment of the excessive forage area (without entitlements) is not significant in the Netherlands where because of the intensive cultivation and the scarcity of the agricultural area the forage area has been kept at the same level from 2006 onwards. For this reason, DG AGRI proposes a 2% flat rate correction for the amounts at risk.

In the absence of precise figures from the Dutch authorities the correction proposed is based on an estimation of the overall amount at risk (EUR 9.818.814,32) for the limited population (farmers with livestock premium received in the reference period and not submitting the agricultural census).

The payment entitlements are distributed once and remain valid for an undefined period. Consequently, the undue allocation in the first year bears a risk to the Fund as well in the years onwards. Therefore, the amount at risk is thus EUR 196.376,29 per claim year (2006-2009).

Systematic error in the calculation of flax and hemp

In accordance with document VI/5330/97 when all key controls are applied, but not in the number, frequency, or depth required by the regulations, then a correction of 5% is justified, as it can reasonably be concluded that they do not provide sufficient assurance of the regularity of the claims, and that the risk to the Fund was significant.

Therefore, DG AGRI proposes the financial correction of a flat rate 5% is justified for the population of beneficiaries allocated flax and hemp reference area and amounts. The overall amount of EUR 154.649,22 presenting the basis for the calculation of the risk to the Fund was submitted by the Dutch authorities.

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The payment entitlements are distributed once and remain valid for an undefined period. Consequently, the undue allocation in the first year bears a risk to the Fund as well in the years onwards. Therefore, the amount at risk is thus EUR 7.732,46 per claim year (2006-2009).

The overall result is as follows:

Claim year

EC budget

sub-itemDescription of correction

Amount subject to correction

(EUR)

Amounts subject to correction after deductions of one off correction (EUR)

Correction

Amount of correction (EUR)

200605 03 01 01 0000 002

Overshoot of the national ceiling 1.400.132,00 one off 1.400.132,00Simultaneously granting of awards from the National Reserve from different categories 6.164,44 6.135,29 one off 6.135,29Forage area non-inclusion - farmers without census 196.376,29 195.447,84

flat rate 2% 195.447,84

Systematic error in the calculation of flax, hemp 7.732,46 7.695,90

flat rate 5% 7.695,90

TOTAL 1.610.405,19 1.609.411,03

200705 03 01 01 0000 003

Simultaneously granting of awards from the National Reserve from different categories 6.982,28 one off 6.982,28Forage area non-inclusion -farmers without census 196.376,29

flat rate 2% 196.376,29

Systematic error in the calculation of flax, hemp 7.732,46

flat rate 5% 7.732,46

TOTAL 211.091,03 211.091,03

200805 03 01 01 0000 005

Simultaneously granting of awards from the National Reserve from different categories 6.982,28 one off 6.982,28Forage area non-inclusion - farmers without census 196.376,29

flat rate 2% 196.376,29


flat rate 5% 7.732,46

TOTAL 211.091,03 211.091,03

200905 03 01 01 0000 007

Simultaneously granting of awards from the National Reserve from different categories 6.681,11 one off 6.681,11Forage area non-inclusion -farmers without census 196.376,29

flat rate 2% 196.376,29


flat rate 5% 7.732,46

TOTAL 210.789,86 210.789,86

GRAND TOTAL 2.243.377,11 2.242.382,95

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Not applicable


Not applicable

115

12.12.

SWEDEN

Enquiry No: AA/2007/16Mission Dates 11-15.06.2007Observation letter 29.11.2007Reply Member State 29.01.2008Invitation bilateral meeting 04.02.2009Conclusions bilateral meeting 21.04.2009Reply Member State 18.06.2009; 24.08.2009; 9.07.2010 and

07.09.2010 Conciliation letter: 26.10.2010Request for conciliation: N/AConciliation reference: N/AConciliation Body's opinion: N/AFinal letter: N/A


12.12.1.1. Weaknesses in the LPIS-GIS

To be effective for the cross-checks required by Art.24(1)c of R.796/2004, it is essential that the information in the LPIS-GIS to be implemented as from 1.1.2005 (cf. Art.20 of R.1782/2003) is accurate as regards the identification of the parcels and the eligible area of the reference parcels. This requires that (in principle) reference parcels are stable and that the information as regards their boundaries, the total area and the area of ineligible features is correct and up-to-date. In particular, the identification of land cover change involving non-agricultural, wooded, built-up or non-arable areas must be carried out effectively and the LPIS-GIS updated.

The mission in 2007 detected that the Swedish LPIS-GIS was not up to standard: reference parcels were erroneously defined and ineligible areas larger than 0,1ha were included in the reference areas. These features, mainly inaccessible areas or forest, and which cannot be considered as arable land or permanent pasture as defined in Art.2(1) and Art.2(2) of R.796/2004, were recorded as eligible land in the Swedish system. As the LPIS-GIS did not provide accurate and up-to-date information on areas of eligible land, the cross-checks to be carried out as per Art.23(1) and Art.24(1)c of R.796/2004 were ineffective, leading to undue payments on ineligible areas.

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Following the observations expressed by DG AGRI, the authorities carried out a full review of their reference parcel (block) database. This work allowed the assessment of any amounts paid unduly (including sanctions) in claim years 2005, 2006 and 2007 for 1st pillar and area based 2nd pillar payments. For the second pillar only claims with agri-environmental payments for semi-natural pasture were assessed. No information could be provided by Sweden as regards farmers with only arable land.

12.12.1.2. Administrative control

Reference area is smaller than the area claimed and determined

Sweden applied a tolerance of 0.1 ha during cross-checks for overdeclaration of the reference area of the block, i.e. if the area applied for was up to 0.1 ha larger than the reference area of the block, the entire area applied for was approved.In 2006 a total of 816 ha came under the tolerance range. In 2007 this figure was 894 ha. As from 2008 Sweden ceased to apply this tolerance.

Although the impact is not significant according to Sweden, it represents a non-compliance with Art.24 of R.796/2004.

Differences in the area established

The re-performance of the on-the-spot checks during the mission showed differences with the initial measurement in a high number of cases. Inspectors had initially accepted areas which do not comply with the definition of Art.2(1); 2(2) and 2(2a) of R.796/2004. The majority of the parcels with differences were declared as pastureland. Consequently, DG AGRI is of the view that the on-the-spot checks were not carried out to the standards required by Art.23, Art.29, Art.30 and Art.32 of R.796/2004.

12.12.1.3. Sanctions

The calculation of the sanctions was not in line with Art.49 of R.796/2004 following which the average value of the entitlements declared should be taken into account. In the Swedish practice the average value of the entitlements corresponding to the area established was used.

Sweden carried out a revision exercise on the allocated entitlements and payments. The financial impact of this non conformity is tackled in the risk estimation exercise related to the LPIS update.

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12.12.2.1. LPIS(-GIS)

According to the Swedish authorities, the results showed that the risk exists for farmers with claims containing semi-natural pasture land but for farmers claiming arable land the risk of erroneous payment is very small. The aid paid to Swedish arable land should, therefore, be exempted from any possible penalty.

12.12.2.2. On-the-spot controls

Sweden does not deny that some of the areas found by the inspectors in 2007 cannot be regarded as eligible land. These areas, characterised by overgrown vegetation with no real fodder value, will not be covered by the payment scheme. On the other hand, a large portion of the inventoried land that has too many trees according to the new definition should be seen from the perspective of production and fodder value as being fully adequate farming land and therefore should continue to be approved for the payment scheme.


On the basis of the findings and considering all explanations provided by the Member State, DG AGRI maintains that the above findings generated a risk to the Fund for the claim years 2005-2007. These weaknesses represent a failure in the functioning of key and ancillary controls.

Sweden put in place remedial actions in order to address the deficiencies in the system. By mean of these actions, the Swedish authorities - in accordance with Document VI/5330/97 – provided an assessment of the generated risk for the 1st and 2nd pillar.

In absence of the figures for the arable land farmers under 2nd pillar, DG AGRI estimated the corresponding risk by using the same distribution of risk (between arable and pasture-arable farmers) as in the first pillar.

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Following the validation of the calculation, DG AGRI proposes to accept the figures provided by the Swedish authorities as the most accurate reflection of the incurred financial risk to the Fund. Consequently, DG AGRI foresees to exclude the following amounts from Community financing:

Claim yearFinancial

year Currency Correction 1st pillarCorrection 2nd

pillar 2005 2006 SEK*

(EUR)223 191 203,03

(24 063 726)18 876 390,19

(2 035 189)2006 2007 EUR 23 916 240 1 985 3652007 2008 EUR 22 173 168 1 316 185

* Conversion rate 9.275006 SEK/EUR


Not applicable


Not applicable

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12.13. UK

Enquiry AA/2005/53 (Scotland)

AA/2005/54 (Wales)

DPU/2007/101 (Scotland and Northern Ireland

Mission datesObservation letter 08.12.2005 08.12.2005 08.06.2007Reply Member State 28.02.2006 28.02.2006 05.07.2007Invitation bilateral meeting

22.09.2008

Conclusions bilateral meeting

17.03.2009

Reply Member State 15.05.2009


Conciliation reference: 10/UK/433

Conciliation Body's opinion:

23.07.2010


Enquiry DPU/2008/004 (Northern Ireland)

DPU/2008/101 (Northern Ireland)

Mission dates 10.-14.03.2008Observation letter 26.05.2008 19.02.2008Reply Member State 30.09.2008 23.04.2008Invitation bilateral meeting

22.12.2008 03.06.2008

Conclusions bilateral meeting

27.05.2009 28.08.2008

Reply Member State 28.07.2009 29.10.2008 and 28.11.2008

Conciliation letter: Ares(2010)54086 dated 02.02.2010Conciliation reference: 10/UK/433Conciliation Body's opinion:

23.07.2010


12.13.1. Main findings as in the Conciliation letter

12.13.1.1. National Reserve

Incorrect reduction for National Reserve (Scotland, Wales, Northern Ireland)

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Art.42(1) of R.1782/2003 states that the reference amounts can be reduced by maximum 3% to constitute the National Reserve. Any further resourcing of the National Reserve must be made by way of linear value reductions of all entitlements allocated (including entitlements with only the regional base amount and entitlements with pro-rata allocations from the National Reserve), as provided by the provisions of Art.42(7) of R.1782/2003 and Art.4(1) and (2) of R.795/2004.

Therefore, the linear reduction of 4.2% as applied in Scotland, Wales and Northern Ireland on all payment entitlements except National Reserve entitlements creates an undue advantage for farmers having received overstated entitlements from the National Reserve in claim year 2005. Had the regulation been applied correctly, then the additional linear reduction of 1,2% (3%+1,2%=4,2%) to fund the National Reserve would also have been applied to National Reserve entitlements.

The authorities provided the figures on the total amount of the National Reserve allocation in 2005 per region concerned:

Total NR allocation in 2005:

1,2% reduction to be applied:

Northern Ireland EUR 17.290.987 EUR 207.491,84

Scotland EUR 37.398.680 EUR 448.784,16Wales EUR 16.997.154 EUR 203.965,85TOTAL EUR 71.686.821.00 EUR 860.241,85

The Welsh and Northern Irish authorities communicated the overall rates on the activation of payment entitlements, however for Scotland in absence of a rate being provided an estimated rate of 99% (i.e. average of other regions) was used. Based on these rates, the unduly paid amounts representing a risk to the Fund are the following:

Undue payments Northern Ireland

Wales Scotland

Activation of NR in 2005 99.7% 98,45% 99%Unduly paid in 2005 EUR 206.869,36 EUR 200.804,38 EUR 444.296,32Activation of NR in 2006 99.2% 99,82% 99%Unduly paid in 2006 EUR 205.831,95 EUR 203.598,71 EUR 444.296,32Activation of NR in 2007 98.8% 96,15% 99%Unduly paid in 2007 EUR 205.001,94 EUR 196.113,03 EUR 444.296,32

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Allocation of National Reserve entitlements under the investors category (Scotland, Wales, Northern Ireland)

Art.21(1) of R.795/2004 foresees, that ''Investment shall be provided for in a plan or programme whose implementation has already started by 15 May 2004 at the latest. The plan or programme shall be communicated by the farmer to the competent authority of the Member State." Moreover, the same article only foresees the possibility of the absence of a “written plan or programme”, not the absence of the plan itself. In such cases, “Member States may take account of other objective proof of the investment”.

Contrary to the legal provisions above, the allocation of National Reserve awarded under the investors category in UK is solely based on the increase of at least 10% of the premium received between the reference period and claim year 2004. This increase is considered by the UK authorities to be sufficient proof of the investment.

DG AGRI accepts that the increase in premiums in 2004 may constitute an appropriate basis for allocating the value of the National Reserve award, but only once the reality of the investment is proved. However, despite the above mentioned legal provisions, the UK authorities did not try to get assurance on the existence of a genuine investment before allocating awards from the National Reserve. This is considered not to be in accordance with Art.21 of R.795/2004, causing a risk for the Fund.

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The following situations were observed due to the method chosen by the UK authorities:

– Award allocated even in case of apparent disinvestment

Amounts from the National Reserve were allocated even in cases where an increase in premia did not systematically imply an investment but could even be sometimes generated by a disinvestment (e.g. increase in slaughter premium).

– Short term investments accepted

Short term investments like buying or leasing suckler cow quota in 2004 or short term lease of land were accepted as investments in Wales. Indeed, the UK authorities did not implement specific checks in case of lease of quota as they generally assumed that an increase of quota meant an increase of animals in the herd, because the contrary would not have been economically justified. They also stated that requesting 6 years leasing contracts would not have been appropriate as the UK general practice was to lease quota only for a period of 7 months.

Consequently as the UK authorities did not prove that this observation does not also concern other regions, DG AGRI considers that Art.21(4) of R.795/2004 was not respected in the whole of the UK.

Therefore, DG AGRI concludes that there is a risk to the Fund as regards the population of beneficiaries who obtained the following reference amounts allocated under the category of investors from the National Reserve:

Wales Scotland Northern Ireland

Total amounts allocated under the investor's category in 2005 (in EUR)

13.418.916,00 19.500.000,00 10.567.369,00

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The following table presents the total amounts activated (EUR) per region and per claim year by investors (population at risk), taking into account the amounts communicated by the authorities (with the exception of the use of the UK average activation rate of 99% for Scotland).

2005 2006 2007Wales 13.317.016,00 13.263.151,00 13.265.053,00

Scotland 19.350.000,00 19.350.000,00 19.350.000,00Northern Ireland 10.461.695,00 10.461.695,00 10.461.695,00

12.13.1.2. Farmers status

Direct aid may be granted to farmers that comply with the definition of a farmer as laid down in Art.2(a) of R.1782/2003. The notion of carrying out an "agricultural activity", which is an integral part of the above definition, is laid down in Art.2(c) of R.1782/2003. According to this provision, a beneficiary has either to carry out a typical ''agricultural activity'' or maintain his land in good agricultural and environmental conditions as established under Art.5 of R.1782/2003.

In addition to Art.44 of R.1782/2003, Member States should assure that no payment shall be made in favour of beneficiaries from whom it is established that they artificially created the conditions required for obtaining such payments with a view to obtaining an advantage contrary to the objectives of that support scheme (cf. Art.29 of R.1782/2003).

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The substantial increase in the total number of claimants between area payments in 2004 compared to SPS 2005 claimants put into the question the controls assuring that only farmers in the sense of Art.2 of R.1782/2003 obtain SPS entitlements. In principle, based on the definitions of a farmer above, DG AGRI is of the opinion that the “active farmer” would not be necessarily the landowner when a parcel is declared by him. The following non compliant situations were observed in the Northern Ireland:

Conacre

The conacre system has a long tradition in Northern Ireland. It is defined as a very common type of oral farming contract. Its nature, duration and the responsibility over a land in conacre can change each year.

The Northern Irish authorities had given the sole responsibility to the landowners and tenants (conacre taker) to decide who will be the beneficiary of the payment entitlements associated to a parcel taken/given in conacre.

In principle, based on the definitions laid down in Art.2(a) of R.1782/2003 and interpretation of Art.2 and Art.28 of R.1974/2006, DG AGRI is of the opinion that in general the “active farmer” would be the conacre-taker who is bearing the risk and not (necessarily) the owner of the land. Moreover, in Northern Ireland it is usually the "conacre-taker" who is responsible under Rural Development (RD) programmes to fulfil the obligations resulting from RD-contracts. Therefore, it can be in principle concluded that it is him who exercises the agricultural activity within the meaning of the definition laid down in Art.2(a) of R.1782/2003 and not the landowner. In this context, it is not acceptable that under the SPS the "conacre taker" is "only" considered as equivalent to an employee of the landowner and under the RD programmes schemes it is him who bears the responsibility. In any case, the decision on who was the correct beneficiary of the payment entitlements might need to be treated on a case by case basis in certain circumstances.

125

The audit concluded that the Northern Irish authorities did not put in place a system to check the reality of the agreement between landowners and conacre takers to detect who should have been the correct beneficiary at least in doubtful cases. In particular, one of the basic checks should have been to cross check if the beneficiary of the payment entitlement was the same as the beneficiary of aid under RD for a given parcel. Therefore, DG AGRI is of the opinion that there is a high possibility that the payment entitlements were not allocated to the right beneficiary. Procedures applied in Northern Ireland do not ensure compliance with Art.2(a) of R.1782/2003 and therefore are presenting a risk for the Fund.

Moreover, DG AGRI is of the opinion that the role and the nature of the conacre is not consistent throughout the Northern Irish system as regards allocation of payment entitlements:

On the one hand, land in conacre is not considered as area under lease contract when applying for SPS. Indeed, in most of the cases the owner is the one who normally establishes the payment entitlements on that land, without any verification by the authorities.

On the other hand, even if according to the Northern Irish business rules, conacre is defined as a verbal agreement and as such can not be accepted for the allocation from the National Reserve in the category of leased land and purchase of leased land, exceptions to the rule were created for land under conacre. Furthermore, when allocating National Reserve under the category “transfer of leased land” (Art.20 of R.795/2004), conacre counts as a lease if more than one of the reference years was involved.

In both cases a comparative advantage was given to the landowners of the land in conacre by either not performing any checks over the actual active farmer or approving the exceptions to the rule in the other case.

Therefore, it can be concluded that there is a risk that payment entitlements have been allocated to undue beneficiaries in Northern Ireland. This risk is much higher within the population of new farmers taking into account that significant changes occurred in the first year of implementation as regards landowners declaring their land for the first time.

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12.13.1.3. Non-agricultural use of land declared (Northern Ireland)

Direct aid may be granted to farmers that comply with the definition of a farmer as laid down in Art.2(a) of R.1782/2003. Moreover, according to Art.44(1) of R.1782/2003, entitlements can only be activated by ''eligible hectares''. It follows from Art.44(2) of the same Regulation that areas used for ''non-agricultural activities'' (e.g. sports, golf grounds, campgrounds, or airport areas) do not have the status of eligible hectares.

DG AGRI obtained the list of the new direct payments beneficiaries in the financial year 2006 named as club, camp, council or airport. Though not being a comprehensive sample of the population at risk, serious doubts as to the compliance with the legal requirements above were raised. A sample table of the new beneficiaries concerned along with payments details was sent to the authorities to perform the analysis.

– The Northern Irish authorities checked all cases identified, recovered the undue overpayments and recalculated payment entitlements for cases where the non-agricultural use of area was identified.

The Northern Irish authorities accept that there were no special procedures in place in respect of new and doubtful beneficiaries and/or parcels but according to them it should be noted that the value of claims of this nature are generally very low. Moreover, in any case some of these cases were inspected as part of the normal risk and random sampling regime. DG AGRI maintains its position that the control system implemented by the Northern Irish authorities, was not able to identify the non-agricultural use of the area claimed by the new and doubtful parcels / beneficiaries under the SPS, and thus was gravely deficient.

127

This failure represent a weaknesses in the functioning of a key control leading to a situation whereby for a certain type of recipients of direct aids there is a risk of widespread irregularity in payments charged to the Fund. The following table shows the amounts at stake:

2005 2006 2007

Total amounts allocated and activated by new farmers in Northern Ireland (only flat rate part)

EUR 9.009.917,00

EUR 9.013.217,76

EUR 8.976.874,14

12.13.1.4. Establishment of Payment Entitlements on less area than the area declared (Northern Ireland)

The UK authorities confirmed that farmers were allowed not to establish entitlements on all the land they declare, which according to them is in line with the Community regulations. Indeed, they consider that the obligation to declare all the agricultural land only serves cross-compliance purposes. They base their decision on the interpretation of the word ''…any agricultural area…'' in the Art.44(2) of R.1782/2003 (an not “all agricultural area”).

DG AGRI does not share this view, as Art.59(2) of R.1782/2003 clearly states that “the number of entitlements per farmer shall be equal to the number of hectares he declares in accordance with Art. 44(2) the first year of application of the single payment scheme”, i.e. the Art 44(2) of R.1782/2003 states that “eligible hectares shall mean any agricultural area of the holding taken up by arable land and permanent pasture”.

128

According to DG AGRI, the word “any” in Art.44(2) of R.1782/2003 should read as “an” (“eligible hectare shall mean an agricultural area of the holding”) and mean that all eligible area in 2005 should give rise to the creation of payment entitlements. Indeed, it would be in contradiction with the principle of the regional model set out in Art.59 of R.1782/2003. In this model, the regional element of the payment entitlements’ unit value is calculated based on all eligible hectares, as defined in Art.44 of R.1782/2003.

DG AGRI maintains, that the situation described leads to the undue consolidation of the historical part of the reference amount on too few payment entitlements. In some cases, this could even lead to the creation of entitlements subject to special conditions. Therefore, this practice could be considered as artificially creating the conditions required for obtaining the payments with a view to obtaining an advantage contrary to the objectives of the SPS (Art.29 of R.1782/2003).

Based on these same figures, it can be observed that the establishment of payment entitlements on less area than declared is more frequent in the population of new farmers, therefore is this population that represents a higher risk for the Fund.

12.13.1.5. Overrun of the regional ceiling (Northern Ireland)

The UK authorities opted for the regional implementation of the SPS according to Chapter 5 of R. 1782/2003 and decided to divide the national ceiling referred to in Art.41 of the same regulation by regions. Therefore, according to DG AGRI this requires to comply with Art.58 (1) of R.1782/2003 foreseeing the application of a linear percentage reduction of the reference amounts in order to respect the regional ceiling.

129

Based on the figures provided by the Northern Irish authorities, the regional ceiling for claim year 2005 was EUR 339.076.171. Taking into account that the value of payment entitlements established in 2005 was EUR 339.540.225,77, DG AGRI concludes that the Northern Irish ceiling was exceeded by EUR 464.054,77 (0,1368%). However, no necessary scaleback (0,1368%) of the individually allocated PE was done in 2005 in order to respect the Northern Irish regional ceiling.

Taking into account the annual declarations of expenditure by the Northern Irish authorities and applying the over allocation rate of payment entitlements (0,1368%), the unduly amounts paid per claim year are the following:

Undue payments in Northern Ireland Claim year

2005Claim year

2006Claim year

2007

Payments based on the annual declaration

EUR 324.842.217,41

EUR 342.513.998,22

EUR 320.812.207,17

Unduly paid (0,1368%) EUR 444.384 EUR 468.559,15 EUR 438.871,1

Taking into account that the financial correction should concern the expenditure declared up to the maximum of 24 months preceding the written communication of the Commission’s findings (Art. 31 of R. 1290/2005), claim year 2005 is not covered by the enquiry DPU/2008/004 (observation letter sent on 26.05.2008) thus the only claim years proposed to be corrected are 2006 and 2007.

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These have been covered above


On the basis of the findings and after considering all explanations provided by the UK authorities, DG AGRI maintains that the weaknesses established in the operation of several key and ancillary controls have generated a risk to the Fund. Note that only claim years 2005, 2006 and 2007 are considered under this clearance of account procedure. Therefore, any observation also relevant for the subsequent years will be followed up in a separate enquiry.

12.13.3.1. One off corrections

In accordance with document VI/5330/97 DG AGRI is of the view that for the following deficiencies, the application of a one off correction is the best way to asses the risk to the Fund, taking into account that the actual amount of irregular payments, and thus the amount of financial losses suffered by the Community, can be determined. On the basis of the analysis above, the following one off corrections are proposed:

Overrun of the regional ceiling (Northern Ireland)


type Currency Amount corrected*

Financial year 2007GB 05 05 03 01 02 One off EUR 262.727,20

Financial year 2008GB 05 05 03 01 03 One off EUR 233.869,16TOTAL EUR 496.596,36

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*The one off correction proposed (has been deducted from the total amount overpaid due to the overrun of the regional ceiling, as this overshooting becomes lower.

Incorrect reduction for National Reserve (Scotland, Wales, Northern Ireland)



Financial year 2006GB 05 05 03 01 01 One off GBP 141.074,56

GB 06 05 03 01 01 One off GBP 302.987,88

GB 07 05 03 01 01 One off GBP 136.938,55

Financial year 2007GB 05 05 03 01 02 One off EUR 205.831,95GB 06 05 03 01 02 One off EUR 444.296,32GB 07 05 03 01 02 One off EUR 203.598,71

Financial year 2008GB 05 05 03 01 03 One off EUR 205.001,94GB 06 05 03 01 03 One off EUR 444.296,32GB 07 05 03 01 03 One off EUR 196.113,03

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12.13.3.2. Flat rate correction for National Reserve allocation under the category of investors (Scotland, Wales, Northern Ireland)

DG AGRI is of the opinion that in accordance with document VI/5330/97 the application of a flat rate correction is the best method to quantify the risk linked to the following non-compliances:

– Insufficient checks of beneficiaries under investors category of National Reserve The abovementioned weaknesses relate to the application of key controls in the sense of document VI/5530/97 as regards eligibility of the beneficiaries to the National Reserve allocations. This deficiency affects claim years 2005, 2006 and 2007 but can be limited to the population at risk (i.e. the beneficiaries of the allocations of the national reserve reference amounts under the category of investors).

The situation is considered one whereby one or more key controls are not applied or applied so poorly or so infrequently that they are completely ineffective in determining the eligibility of the claim or preventing irregularity. Consequently, a financial correction of 10% is proposed for all expenditure concerning National Reserve allocation to investor's category, relating to claim years 2005, 2006 and 2007. The amounts that constitute the population at risk have been provided by the UK authorities.

The (1,2%) reduction of National Reserve payment entitlements not applied in Scotland, Wales and Northern Ireland has been deducted from the population at risk. The one off corrections proposed above have been also deducted from the population at risk in Northern Ireland (the proportional part of overshoot of the regional ceiling).

133



Financial year 2006GB 09 05 03 01 01 Flat rate

10%GBP 5.808.606,00

GB 05 05 03 01 01 Flat rate 10%

GBP 709.858,05

GB 06 05 03 01 01 Flat rate 10%

GBP 1.300.706,42

GB 07 05 03 01 01 Flat rate 10%

GBP 890.107,85

Financial year 2007

GB 09 05 03 01 02 Flat rate 10%

EUR 7.891.315,89GB 05 05 03 01 02 Flat rate

10%EUR 1.026.282,97

GB 06 05 03 01 02 Flat rate 10%

EUR 1.907.334,00GB 07 05 03 01 02 Flat rate

10%EUR 1.323.402,48

Financial year 2008GB 09 05 03 01 03 Flat rate

10%EUR 6.471.327,27

GB 05 05 03 01 03 Flat rate 10%

EUR 1.020.669,14GB 06 05 03 01 03 Flat rate

10%EUR 1.907.334,00

GB 07 05 03 01 03 Flat rate 10%

EUR 1.274.746,03

12.13.3.3. Flat rate correction for new farmers (Northern Ireland)

DG AGRI is of the opinion that in accordance with document VI/5330/97 the application of a flat rate correction is the best method to quantify the risk due to the following non-compliances:

– Absence of control of non-agricultural use of land declared – Absence of control of farmers status (conacre)) – Absence of control regarding establishment of payment entitlements on less area

than declared

It has been detected that the risk for the Fund as regards the above mentioned observations mainly concerns the population of new beneficiaries starting their activity after the reference period and receiving only flat rate entitlements.

134

The situation is considered one whereby one or more key controls are not applied or applied so poorly or so infrequently that they are completely ineffective in determining the eligibility of the claim or preventing irregularity. Consequently, a financial correction of 10% is proposed for all expenditure concerning new farmers, relating to claim years 2005, 2006 and 2007 for Northern Ireland.The amounts that constitute the population at risk have been provided by the Northern Irish authorities. Moreover, the proportional part of the one off corrections proposed due to the overshoot of the regional ceiling (concerning claim years 2006 and 2007) and the (1,2%) reduction of National Reserve payment entitlements have been also deducted from the population at risk in Northern Ireland.



Financial year 2006

GB 05 05 03 01 01 Flat rate 10% GBP 614.431,29

Financial year 2007

GB 05 05 03 01 02 Flat rate 10% EUR 900.088,77Financial year 2008

GB 05 05 03 01 03 Flat rate 10% EUR 896.459,38

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In the conclusions to its final report, the Conciliation Body noted that:

6.2: As regards 'conacre' system in Northern Ireland, the Conciliation Body is of the opinion that DG AGRI and the UK authorities should continue the dialog on this point and refers to its opinion expressed in their note ARES(2010)359482 dated 22.06.20010 (point 6.3) as follows:

‘On the subject of ‘conacre’, the Body has understood that the Commission departments’ position is based on their legal interpretation of the legislative texts. However, the Body also notes that ‘conacre’ is a traditional system of farming agricultural land, which makes unwritten provision for sharing the goods farmed between the owner and the farmer. In this context, the Body wonders whether it is pertinent to establish a priori which of the two parties should benefit from Community aid or whether it would not be better to simply establish during the on-the-spot checks whether the conditions for benefiting from the aid are met, regardless of which party has applied for the aid. The Body has also noted that the United Kingdom authorities have provided assurances that they never pay the same aid twice for the same plot of land and that, on the contrary, they apply penalties if such a situation arises. Nevertheless, even if the correction proposed for the LPIS-GIS shortcomings or the key controls covers the financial correction in this case, the Body considers that the United Kingdom authorities and the Commission departments should adopt a common position on this subject to prevent this problem recurring in future audits.

136

'

6.3: The Body asks DG AGRI to verify and reconsider the UK replies of 29.5.2009 (UK reply to the minutes of bilateral meeting) and the documents related to the meeting held between UK authorities and the Commission on 17.11.2003 as concerns the possibility of establishment of entitlements on a part of the eligible land.

6.4: Invites DG AGRI to reconsiders the financial correction proposed for the investors category of National Reserve. According to the elements provided by the N-Irish, Scottish and Welsh authorities, the board is questioning the equal financial correction for all regions of UK.

6.5: The Body draws the attention of the Commission to the UK authorities position that the financial correction due to the failings to apply the linear reduction of 1,2% to the National Reserve amounts, might not be correct.


12.13.5.1. DG AGRI's financial corrections maintained

For the following observations the UK authorities did not sufficiently prove or provide any new elements in their conciliation request that the risk to the Fund could be lower than the one proposed in DG AGRI's letter notifying the correction. Therefore, DG AGRI maintains its position on the financial correction proposed for the following observations:

– Absence of control of farmers status – Conacre system (point 6.2 of CB report); Northern Ireland

DG AGRI cannot accept the argument of the Conciliation Body and points out that the agricultural funds should be received by the right beneficiary as defined in Art.2(a) of R.1782/2003 and Art.2 and Art.28 of R.1974/2006. The legislation does not foresee any derogation as regards conacre.

137

DG AGRI maintains the opinion that the Northern Irish authorities should have put in place a system to check the reality of the agreement between landowners and tenants to detect who is bearing the management risk. In principle, based on the definitions laid down in Art.2(a) of R.1782/2003 where a farmer is defined as a person (natural or legal) who exercise an agricultural activity or/and keeping land in GAEC and based on the interpretation of Art.2 and Art.28 of R.1974/2006, DG AGRI is of the opinion that very often the farmer would be the conacre-taker and not (necessarily) the owner of the land. Failure to do this creates a risk to the Fund.

DG AGRI maintains that the procedures applied in Northern Ireland do not ensure compliance with Art.2(a) of R.1782/2003 and therefore there is a high risk that the payment entitlements were allocated to the wrong beneficiary who could receive future payments.

– Absence of control regarding establishment of payment entitlements on less area than declared (point 6.3 of CB report); Northern Ireland

The Conciliation Body asked to revise the UK documents in relation to the meeting of 17.11.2003 between the Commission and the UK authorities. DG AGRI confirms the receipt of the documents and the additional explanations related to that meeting during the conciliation procedure. The position maintained by the UK that the SPS is a voluntary scheme, where farmer is not obliged to declare all of his land for the establishment of entitlements, was previously transmitted to DG AGRI during the clearance of accounts procedure. According to the UK authorities''…the Commission had come to the view that the SPS is a voluntary scheme and, therefore, farmers cannot be forced to enter land into the scheme against their will…''.

138

DG AGRI agrees that the SPS scheme is a voluntary scheme but if a farmer decides to join the scheme, then he is obliged to be in compliance with the corresponding regulations, including Art. 59(4) of R.1782/2003. DG AGRI observes that there is no evidence of the Commission having supported the position mentioned by the UK authorities.

Therefore, DG AGRI cannot accept the UK authorities view, as Art.59(2) of R.1782/2003 clearly states that “the number of entitlements per farmer shall be equal to the number of hectares he declares in accordance with Art. 44(2) the first year of application of the single payment scheme”, i.e. the Art 44(2) of R.1782/2003 states that “eligible hectares shall mean any agricultural area of the holding taken up by arable land and permanent pasture”. According to DG AGRI all eligible area in 2005 should give rise to the creation of payment entitlements.

Indeed, the approach taken by the N-Irish authorities would be in contradiction with the principle of the regional model set out in Art.59 of R.1782/2003. In this model, the regional element of the payment entitlements’ unit value is calculated based on all eligible hectares, as defined in Art.44 of R.1782/2003. Therefore, this observation and the financial correction is maintained.

– Insufficient checks of beneficiaries under investors category of National Reserve (point 6.4 of CB report) in Northern Ireland

DG AGRI maintains that the checks over the reality of investments were insufficient in Northern Ireland and no new elements were provided by the Northern Irish authorities. Therefore, the proposed financial correction on a limited population remains.

139

– Incorrect reduction for National Reserve (point 6.5 of CB report), Northern Ireland, Scotland and Wales

In their conciliation request, the UK authorities did not dispute DG AGRI's observation, rather pointed out their disagreement with the calculation of the financial correction regarding the incorrect reduction of 1,2% for National Reserve for all regions concerned. Their proposal is to apply the 1,2% of the financial correction only to the proportional part of the National Reserve amount fed by a way of a linear reduction (for 1,2%) of payment entitlements with pro-rata allocations from the National Reserve.

After analysing the proposal of the UK authorities, DG AGRI maintains its position as expressed in the correction proposal letter (cf. supra). Therefore, failing to apply the reduction of 1,2% on all amounts allocated from the National Reserve, created a risk to the Fund.

– Absence of control of non-agricultural use of land declared; Northern Ireland

This observation has not been disputed by the Conciliation Body in its final report, neither any new elements were provided by the authorities. Therefore, the proposed financial correction is maintained concerning the lack of controls done by the Northern Irish authorities in order to identify the non-agricultural use of the area claimed by the new and doubtful parcels / beneficiaries under the SPS.

– Overrun of the regional ceiling; Northern Ireland

No new elements were provided by the authorities and has not been disputed by the Conciliation Body in its final report.

UK authorities have opted for the regional implementation of the SPS according to Chapter 5 of R. 1782/2003 and have decided to divide the national ceiling referred to in Art.41 of the same regulation by regions. Therefore, according to DG AGRI this requires to comply with Art.58(1) of R.1782/2003 foreseeing the application of a linear percentage reduction of the reference amounts in order to respect the regional ceiling.

140

In Northern Ireland no necessary scaleback (0,1368%) of the individually allocated payment entitlements was done in 2005 in order to respect the Northern Irish regional ceiling. Therefore, DG AGRI maintains the correction proposal of the conciliation letter.

12.13.5.2. Modified DG AGRI's financial corrections

– Insufficient checks of beneficiaries under investors category of National Reserve (points 6.3 and 6.4 of CB report) for Scotland and Wales

The Conciliation body report suggests to DG AGRI to revise the financial correction of a flat rate 10% applied to the reference amounts allocated from National Reserve to the category of investors. According to their opinion, this correction should not be equal for all regions of UK, as the administration procedures were claimed to be different between them.

Art. 21(1) of R.795/2004 foresees, that ''Investment shall be provided for in a plan or programme whose implementation has already started by 15 May 2004 at the latest. The plan or programme shall be communicated by the farmer to the competent authority of the Member State." Moreover, the same article only foresees the possibility of the absence of a “written plan or programme”, not the absence of the plan itself. In such cases, “Member States may take account of other objective proof of the investment”.

DG AGRI's audits observed that in general and contrary to the legal provisions above, the allocation of National Reserve amounts under the investors category in UK is based on the increase of at least 10% of the premium received between the reference period and claim year 2004. This increase is considered by the UK authorities sufficient proof of the investment.

141

Scotland:

The Scottish authorities presented facts that the above mentioned UK procedure is indeed upgraded to follow the EU legal requirements as set up above. The following documents/facts are verified by the authorities before allocating the National Reserve under the investors category:

Cross-checks of bovine subsidy claims to confirm increase in subsidy, and cross-check quota data to confirm increase in Suckler Cow quota, if applicable. Farmer has to provide copies of documents relating to land sales or long-term leases completed between 1 January 2000 and 15 May 2004 inclusive. Farmer has to provide a copy of an investment plan, with evidence of finance provision (e.g. letter of offer from a financial institution or own capital). Where no written plan is available, you will have to provide other written evidence that can be judged on its merits. Farmer must support cases of investments defined purely in terms of increased claims (with or without leased quota and/or short-term lets) by providing additional evidence of investment/expansion (e.g. an investment or development plan). Farmer has to provide, if relevant, copies of contractor's/supplier's invoices (paid) for enhanced capacity of housing facilities.

In addition, the Scottish authorities analysed the potential disinvestment cases, which would indicate the weaknesses of the abovementioned checks. Finally, no case was identified in Scotland.

142

Wales:

In the conciliation procedure, the Welsh authorities stated that the procedures applied in Wales also differ from the common procedure as laid down in UK. The Welsh authorities explained that in no case would an applicant who solely increased premia in 2004 be accepted under the investor category. In order for an applicant to be accepted under the investor category, he was required to provide a written plan of investment. In some cases, where a written plan was not available they would assess other documentary evidence as objective proof (i.e. receipts/records of investment purchases etc).

An internal checklist was completed by the Welsh authorities in order to confirm the existence of a plan/documentary evidence in all cases of investor applications. DG AGRI reviewed as well the additional documents provided by the authorities with standard examples.

After taking into account the facts above as regards Scotland and Wales, DG AGRI's opinion is that the risk to the Fund in Scotland and Wales as regards the National Reserve allocation in the category of investors is negligible.

The financial correction of a 10% flat rate correction for investors from the national reserve initially proposed for these two regions is therefore withdrawn.

12.13.5.3. Calculation of the financial correction:

One off corrections

In accordance with document VI/5330/97 DG AGRI is of the view that for the following deficiencies, the application of a one off correction is the best way to asses the risk for the Fund, taking into account that the actual amount of irregular payments, and thus the amount of financial losses suffered by the Community, can be determined. On the basis of the above mentioned observations, the following one off corrections are proposed:

143

12.13.6. Overrun of the regional ceiling (Northern Ireland)



GB 05 05 03 01 01 0000 002

One off EUR 262.727,20Financial year 2008

GB 05 05 03 01 01 0000 One off EUR 233.869,16

12.13.7. Incorrect reduction for National Reserve (Scotland, Wales, Northern Ireland)



Financial year 2006GB 05 05 03 01 01 0000

001One off GBP 141.074,56

GB 06 05 03 01 01 0000 001

One off GBP 302.987,88GB 07 05 03 01 01 0000

001One off GBP 136.938,55


002One off EUR 205.831,95

GB 06 05 03 01 01 0000 002

One off EUR 444.296,32GB 07 05 03 01 01 0000

002One off EUR 203.598,71


003One off EUR 205.001,94

GB 06 05 03 01 01 0000 003

One off EUR 444.296,32GB 07 05 03 01 01 0000

003One off EUR 196.113,03

144

Flat rate correction for new farmers – Northern Ireland


– Absence of control of non-agricultural use of land declared – Absence of control of farmers status (conacre) – Absence of control regarding establishment of payment entitlements on less area

than declared

It has been detected that the risk for the Fund as regards the above mentioned observations mainly concerns the population of new beneficiaries starting their activity after the reference period and receiving only flat rate entitlements.

The findings represent weaknesses in one or more key controls causing a high risk of wide-spread loss to the Fund. Therefore, a financial correction of 10% is proposed for all expenditure concerning new farmers, relating to claim years 2005, 2006 and 2007 for Northern Ireland. The amounts that constitute the population at risk have been provided by the UK authorities. Moreover, the proportional part of the one off corrections proposed due to the overshoot of the regional ceiling (concerning claim years 2006 and 2007) and the reduction (1,2%) of National Reserve payment entitlements have been also deducted from the population at risk in Northern Ireland.



GB 05 05 03 01 01 0000 001 Flat rate 10% GBP 614.431,29

Financial year 2007GB 05 05 03 01 01 0000 002 Flat rate 10% EUR 900.088,77

Financial year 2008GB 05 05 03 01 01 0000 003 Flat rate 10% EUR 896.459,38

145

12.13.7.1. Flat rate correction for National Reserve allocation under the category of investors – Northern Ireland


– Insufficient checks of beneficiaries under investors category of National Reserve

The abovementioned weaknesses relate to the application of key controls in the sense of document VI/5530/97 as regards eligibility of the beneficiaries to the National Reserve allocations. This deficiency affects claim years 2005, 2006 and 2007 but can be limited to the population at risk (i.e. the beneficiaries of the allocations of the national reserve reference amounts under the category of investors).

The findings represent weaknesses in one or more key controls causing a high risk of wide-spread loss to the Fund. Therefore, a financial correction of 10% is proposed for all expenditure concerning National Reserve allocation to investor's category, relating to claim years 2005, 2006 and 2007. The amounts that constitute the population at risk have been provided by the UK authorities.

Moreover, the reduction (1,2%) of National Reserve payment entitlements not applied in Northern Ireland has been deducted from the population at risk. The one off corrections proposed have been also deducted from the population at risk in Northern Ireland (the proportional part of overshoot of the regional ceiling).

146



Financial year 2006GB 05 05 03 01 01 0000 001 Flat rate 10% GBP 709.858,05

Financial year 2007

GB 05 05 03 01 01 0000 002 Flat rate 10% EUR 1.026.282,97Financial year 2008

GB 05 05 03 01 01 0000 003 Flat rate 10% EUR 1.020.669,14

To avoid double corrections, DG AGRI will ensure that any correction applied on the same expenditure in the framework of the enquiries AA/2006/07 and AA/2008/18 will be deducted from the financial correction to be applied in the context of this enquiry.

The financial corrections including the net cash effect are as follows. [This table takes into account the revised corrections following the UK-authorities' observations on the arithmetical proceedings in the calculation of the 1,2% scale back of the national reserve]. :

147

Northern Ireland (GB05)


Amount subject to correction (GBP for claim year 2005 and EUR for 2006, 2007)

Amounts subject to correction after deductions of one off corrections (GBP for claim year 2005 and EUR for 2006, 2007)


(EUR)

Amount of correction

(GBP)

Amounts corrected following Area Aids enquiry (GBP for c. y.r 2005 and EUR

for 2006, 2007)

Net cash effect EUR

Net cash effect in GBP

05 03 01 01 0000 001

Reduction of 1,2 % for NR 100.767,54 one off

100.767,54

100.767,54

NR - investors' category7.184.798,04

7.123.214,0510%

712.321,41 356.160,70

356.160,70

New farmers 6.144.312,90 10% 614.431,29 307.215,64

307.215,64

TOTAL

1.427.520,24

764.143,89

05 03 01 01 0000 002


147.022,79 147.022,79

Overshoot of regional ceiling 468.559,15 147.022,79one off

321.536,36 321.536,36

NR - investors' category*10.482.830,05

10.378.759,6310%

1.037.875,96 518.937,98 518.937,98

New farmers 9.013.217,76 9.000.887,6810%

900.088,77 450.044,38 450.044,38

TOTAL 2.406.523,88 1.437.541,52

05 03 01 01 0000 003


146.429,96 146.429,96

Overshoot of regional ceiling 438.871,10 146.429,96one off

292.441,14 292.441,14

NR - investors' category* 10.440.560,57 10.336.909,7910%

1.033.690,98 1.033.690,98

New farmers 8.976.874,148.964.593,78 10%

896.459,38 896.459,38

TOTAL 2.369.021,46 2.369.021,46

149

document.doc ad-hoc 35

Wales (GB07)




(EUR)

Amount of correction

(GBP)

05 03 01 01 0000 001 Reduction of 1,2 % for NR 97.813,25 one off 97.813,25

TOTAL

97.813,25


TOTAL 145.427,65


TOTAL 140.080,83

Scotland (GB06)



Correction Amount of correction (EUR)

Amount of correction (GBP)


TOTAL

216.419,91


TOTAL 317.354,51


TOTAL 317.354,51

13. CROSS-COMPLIANCE


151

14. COTTON, FLAX AND HEMP, SILK WORMS


152

15. OLIVE OIL AND OTHER OILS AND FATS


153

16. DRIED FODDER AND SEEDS


154

17. RURAL DEVELOPMENT

17.1. Poland - Measures e. (Less-favoured areas) and f. (Agri-environment) under the Rural Development Plan 2004-06 (EAGGF-Guarantee)

Enquiry No: RDG/2007/008/PL

Legislation: Council Regulation (EC) No 1257/1999 and Commission Regulation (EC) No 817/2004

Date of mission: 1 to 5 October 2007

Observation letter: AGRI.D.8928 dated 11.04.2008

Reply of the Member State: Fsr.312/PROW-37-2/2008 dated 11.06.2008

Bilateral meeting: 24 November 2008

Minutes of the bilateral meeting: D(2009).4920 dated 23.02.2009

Reply to minutes of bilateral: Fsr.312/PROW-3-2/2008 dated 22.04.2009; Fsr.312/PROW-3-4/2008 dated 21.05.2009


Request for conciliation: WR/AB/4023/7-7/2010 dated 13.01.2010

Conciliation reference: 10/PL/424

Conciliation Body's opinion: Ares(2010)263965 dated 18.05.2010


Budget line: 6500 (TRDI)


No sanctions were applied to the beneficiaries found to be in infringement of the Usual Good Farming Practices ("UGFP") for the first time, for both Agri-environment ("AEM") and Less-favoured areas ("LFA"). It occurs that the system of sanctions for infringements of the UGFP which was in place in relation to the AEM and LFA expenditure declared in the 2006 financial year was not dissuasive, as required by Article 73 of Commission Regulation (EC) No 817/2004.

155

17.1.2. Member State's arguments

The Polish authorities justified that the repetition of the same infringement the following year was penalised with a 100% sanction. Moreover, they made clear that all the beneficiaries found in breach for the first time were re-included in the control sample in the following year. They claimed that this resulted in the system being dissuasive.

The Polish authorities also explained that other sanctions were applicable in Poland to infringements of the UGFP, including first infringements, on the basis of national legislation.


The Conciliation Body:

– considered that it was not possible to bring together the views of the two parties in this case within the prescribed time limit of the conciliation procedure;

– invited the Commission services to examine the relevance of their proposal for a financial correction.


The Directorate General for Agriculture and Rural Development maintains its position and proposes a financial correction of 2% for the financial year 2007.

The services of DG AGRI note that a flat-rate correction has already been applied under the enquiry AA/2006/21/PL to the expenditure affected by this financial correction (Decision No 2010/152/EU of 12/03/2010). The guidelines VI/5330/97 state that when several deficiencies are found in the same system, the flat rates of correction are not cumulated. In order to avoid such an accumulation in this case, DG AGRI will refrain for the time being from executing the financial correction in respect of the rural development expenditure in question.

156

However, if the financial corrections decided by the Commission in respect of enquiry AA/2006/21/PL are cancelled in part or in full by the EU Courts, the financial correction under the present enquiry will be executed at a later stage.

The calculation is as follows:

Paying Agency Budget Item

Correction Amount(EUR)

Deductions(EUR)

Financial Impact(EUR)

Financial Year 2007PL01ARMA

050404000000Measure E (LFA)

-5,324,873 -5,324,873 0

PL01ARMA

050404000000Measure F (AEM)

-2,011,045 -2,011,045 0

TOTAL -7,335,918 -7,335,918 0

The Correction Amount of EUR 7,335,918 corresponds to expenditure in national currency of PLN 28,399,919.

157

17.2. Portugal - Measures e. (Less-favoured areas), f. (Agri-environment) and h. (Afforestation of agricultural land) under the Rural Development Plan 2000-06 (EAGGF-Guarantee and EAFRD)

Enquiry No: RDG/2007/011/PT


Date of mission: 19 to 23 November 2007


Reply of the Member State: 56/GPRC/ARCO/2008 dated 07.07.2008

Bilateral meeting: 20 January 2009

Minutes of the bilateral meeting: Ares(2009)96451 dated 12.05.2009

Reply to minutes of bilateral: 112/GPRC/ARCO/2009 dated 15.07.2009


Request for conciliation: N/A

Conciliation reference: N/A

Conciliation Body's opinion: N/A

Final letter: N/A

Budget line: 6701 (EAGGF-Guarantee FY 2006, FY 2007)

6711 (EAFRD, FY 2007)


Insufficient scope of on-the-spot checks in Less-favoured areas ("LFA") and Agri-environment ("AEM")

According to paragraph 3 of Article 69 of Regulation (EC) No 817/2004, "Checks shall cover all the commitments and obligations of a beneficiary which can be checked at the time of the visit".

The audit revealed that for the AEM and LFA, until the claim year 2006, two separate samples were drawn for on-the-spot checks:

(1) One sample included beneficiaries who received aid based on surfaces;

(2) Another sample included beneficiaries who received aid for their livestock.

158

Based on this distinction, during the on-the-spot checks, the beneficiaries of the first sample were only controlled for their area-related conditions and the beneficiaries of the second sample only for their livestock-related conditions.

Sanction system not applied since 2004 in Afforestation of agricultural land ("Afforestation")

Although infringements had been detected after 2004 for the Afforestation measure, the Member State has recovered only 28% of the amounts for recoveries other than the ones due to the non-respect of deadlines by the beneficiaries. This latter has already given rise to a proposal for a one-off financial correction.


The Portuguese authorities did not refer the matter to the Conciliation Body.


N/A


The Directorate-General for Agriculture and Rural Development maintains its position that the implementation of the rural development measures LFA, AEM and Afforestation was not in conformity with EU rules in the financial years 2006 and 2007.

The shortcoming about the scope of the on-the-spot checks concerns a key element of the system, which would lead to the application of a 5% flat rate financial correction. Nevertheless, considering the risk-mitigating factors, the Directorate-General for Agriculture and Rural Development proposes a flat rate correction of 2%.

The shortcoming about the recoveries other than the ones due to the non-respect of deadlines by the beneficiaries gives rise to a one-off financial correction.

A flat-rate correction has already been applied under the enquiry AA/2006/10/PT to the expenditure affected by this financial correction (Ad hoc 34). The guidelines VI/5330/97 state that when several deficiencies are found in the same system, the flat rates of correction are not cumulated. In order to avoid such an accumulation in this case, DG AGRI will deduct the amounts already corrected under enquiry AA/2006/10/PT in respect of the same expenditure.

159

However, if the financial corrections decided by the Commission in respect of enquiry AA/2006/10/PT are cancelled in part or in full by the EU Courts, the financial correction under the present enquiry will be executed at a later stage.

The calculation is as follows:

Paying

AgencyBudget Item


Deductions(EUR)


EAGGF-Guarantee - Financial Year 2006PT01PT02PT03

50401064040001 - LFA -1,323,588 -3,308,970 050401074051001 – AEM -1,064 -2,659 050401084050001 – AEM -1,411,223 -3,528,056 0050401114070001 – Affor. -157,547 0 -157,547

RDP 2000—2006 EAGGF-Guarantee - Financial Year 2007PT01 PT02 PT03

50401064040001 – LFA -40,691 -101,728 050401074051001 – AEM -255 -636 050401084050001 – AEM -45,788 -114,469 0

EAFRD - Financial Year 2007PT01 PT02 PT03

50405012115002 - LFA -82,054 0 -82,05450405012125002 - LFA -34,468 0 -34,46850405012145002 - AEM -381,557 0 -381,557TOTAL -3,478,233 -655,626

160

17.3. Poland – "Afforestation of agricultural land" measure of the Rural Development Plan 2004-2006 in NATURA 2000 sites

Enquiry No: RDG/2007/014/PL


Date of mission: N/A


Reply of the Member State: WR/EJ/4023/7-73/2008 dated 28.03.2008

Bilateral meeting: 24 November 2008

Minutes of the bilateral meeting: D(2009)4920 dated 23.02.2009

Reply to minutes of bilateral: Fsr.312/PROW-3-2/2008 dated 22.04.2009; ROW-wr-zw-821-1-5/5314/09 dated 04.2009; ROW-wr-zw-821-1-5/6574/09 dated 05.11.2009; ROW-wr-zw-821-1-5/6939/09 dated 12.11.2009; e-mails of 01/10/2009, 28/10/2009, 03/02/2010 and 02/03/2010


Request for conciliation: WR/AB/4023/7-305/2010 dated 23/09/2010

Conciliation reference: 10/PL/456

Conciliation Body's opinion: Rejection of request, by letter Ares(2010)678835 dated 08/10/2010

Final letter: N/A

Budget line: 6500 (TRDI)


Due to a wrong transposition of Habitats and Wild Birds Directives (92/43/EEC and 79/409/EC) and of the Directive on Environmental Impact Assessment (85/337/EEC) into national law, the criteria fixed by Poland to establish whether or not a given Afforestation project in a Natura 2000 site should be subject to a prior EIA/Natura 2000 assessment were not in compliance with the above-mentioned directives.


Before the Conciliation letter, the Polish authorities claimed that in 2009/2010 compensatory measures had been taken in the Ostoja Warminska area.

161

After the Conciliation letter, they requested for Conciliation, but their request was not considered admissible because the correction amount was below 1,000,000 EUR laid down in point a) of Article 16(2) of Regulation (EC) No 885/2006. Furthermore, the correction did not also meet the criterion laid down in point b) of that Article.


N/A


The Directorate-General for Agriculture and Rural Development maintains that the weakness established in the functioning of a key control has generated a risk to the Fund.

Since the impact assessment in question was completely missing in the case of projects carried out in Natura 2000 areas and having a size of less than 20 ha, the DG AGRI is of the view that a financial correction of 10% should be applied on the expenditure concerned for this weakness on a key control. The financial correction concerns the expenditure incurred by Poland for measure "h" in the 24 months preceding the letter of observations AGRI 019980 dated 30/07/2007 (expenditure from 01/08/2005 to 31/07/2007) and relating to projects carried out in Natura 2000 areas and having a size of less than 20 ha.

A 5% flat-rate correction has already been applied under the enquiry AA/2006/21/PL to the expenditure affected by this financial correction (Decision No 2010/152/EU of 12/03/2010). The guidelines VI/5330/97 state that when several deficiencies are found in the same system, the flat rates of correction are not cumulated. In order to avoid such an accumulation in this case, DG AGRI will deduct the amounts already corrected under enquiry AA/2006/21/PL in respect of the same expenditure. Consequently, the financial impact is limited to 50% of the gross correction.

162

However, if the financial corrections decided by the Commission in respect of enquiry AA/2006/21/PL are cancelled in part or in full by the EU Courts, the financial correction under the present enquiry will be executed at a later stage.

The calculation is then as follows:

Paying Agency Budget Item


Deductions(EUR)



050404000000Measure H (Afforestation) -40,254 -20,127 -20,127





TOTAL -402,168 -201,084 -201,084

The Correction Amount of EUR 402,168 corresponds to expenditure in national currency of PLN 1,580,238.

163

17.4. Rural development corrections resulting from the enquiries into other fields than rural development:

The corrections which resulted from the enquiries into other fields than rural development but which concern the expenditure financed by EAFRD are listed below.

CyprusAA/2007/01, AA/2007/31Chapter 12.1

Financial Year Programme/Region Measure

Financial impact (in EUR)

2006 TRDI -1 209 427.342007 TRDI -554 691.172008 01 211 -61 703.262008 01 212 -287 629.052008 01 214 -467 862.93Grand Total -2 581 313.75

CyprusAA/2008/004/CYChapter 12.2



2009 01 212 -184,341.03Grand Total -184,341.03

ItalyAA/2008/13, AA/2008/32Chapter 12.9Financial Year Programme/Region Measure


2007 003 Emilia Romagna 214 -309.03 007 Lombardia 214 -318.13 010 Toscana 214 -1,782.792007 Total -2,409.952008 001 Abruzzo 214 -40,604.92 002 Bolzano 211 -288,076.54 214 -304,247.53 003 Emilia Romagna 214 -537,434.75 004 Friuli Venezia Giulia 211 -438.01 214 -8,015.20 005 Lazio 214 -68,579.97 006 Liguria 214 -44,385.97 007 Lombardia 214 -617,181.52 008 Marche 214 -123,839.39 010 Toscana 214 -664,202.74 011 Trento 211 -118,265.19 214 -113,818.05 012 Umbria 214 -282,668.62 014 Veneto 211 -136,312.54

164

214 -1,783.45 015 Molise 214 -7,773.12 016 Sardegna 214 -36,745.67 017 Basilicata 214 -543,998.00 018 Calabria 212 -50.88 214 -334,992.71 019 Campania 214 -227,283.53 020 Puglia 214 -363,796.87 021 Sicilia 214 -616,724.492008 Total -5,481,219.642009 001 Abruzzo 214 -68,029.07 002 Bolzano 211 -12,593.10 214 -52,541.32 003 Emilia Romagna 214 -158,805.14 004 Friuli Venezia Giulia 211 -76,516.73 214 -7,911.86 005 Lazio 214 -284,174.37 006 Liguria 211 -48,377.02 212 -239.05 214 -49,065.00 007 Lombardia 214 -48,770.84 008 Marche 211 -132,104.58 212 -13,599.65 214 -135,842.37 009 Piemonte 211 -127,181.41 214 -531,867.23 010 Toscana 214 -122,387.71 011 Trento 211 -88,170.60 214 -39,568.68 012 Umbria 211 -71,181.46 212 -12,866.75 214 -164,402.36 013 Valle d'Aosta 211 -11,686.83 014 Veneto 211 -100,011.05 214 -7,662.58 015 Molise 214 -5,094.91 016 Sardegna 214 -74,990.55 017 Basilicata 214 -321,956.20 018 Calabria 211 -50,136.27 212 -181,301.25 214 -244,431.20 019 Campania 211 -577,811.13 212 -40,244.55 214 -187,011.38 020 Puglia 212 -163.54 214 -366,333.67 021 Sicilia 214 -912,127.102009 Total -5,327,158.50Grand Total -10,810,788.09

MaltaAA/2007/010/MTChapter 12.10



165

2007 TRDI -196,874.70Grand Total -196,874.70

SwedenAA/200716/SEChapter 12.12



2007 001 212 -492,726.50214 -1,492,638.50

2007 Total -1,985,365.002008 001 212 -313,956.82

214 -1,002,228.182008 Total -1,316,185.00Grand Total -3,301,550.00

PolandFA/2007/087/PLChapter 19.4



2006 TRDI -454 236.65Grand Total -454 236.65

PortugalFA/2008/079/PTChapter 19.6



2007 002 113 -139 653.412007 002 212 -69 343.002007 002 511 -12 183.59Grand Total -221 180.91

GermanyFA/2009/135/DEChapter 19.8



2008 012 123 -535 350.002008 012 121 -129 243.892008 012 123 -8 524.982008 012 125 -154.452008 012 227 -22 880.102008 012 323 -177.532008 012 511 -530.04Grand Total -696 861.00

166

18. LATE PAYMENTS

18.1. Denmark – Late payments and exceeding of ceilings

Enquiry No: FA/2009/084/DK

Legislation: Reg. 1290/2005, 883/2006 and 885/200

1432/2003, 1433/2003 and 2200/96

1156/2006 and 1782/2003


Observation letter: AGRI 5434 dated 24.02.2009

Reply of the Member State: 2814-05-27 dated 3.11.2009


Minutes of the bilateral meeting: AGRI 522996 dated 19.08.2010

Reply to the minutes of bilateral: 2814-05-27 dated 15.10.2010

Conciliation letter: AGRI 212328 dated 25.02.2011




Final letter: N/A


In accordance with Article 9 (1) of Commission Regulation (EC) No. 883/2006, a financial correction of 329.708,43 EUR was proposed for failure to meet the statutory deadlines for payments. In addition an amount of 5.208,1 EUR was also proposed for correction for exceeding of ceilings (set out by Reg. 1156/06 and 1782/2003).

167


Non-respect of payment deadline, budget post 05 02 08 03 1502 011/012

The Danish Food Industry Agency held back the payments to the producer organization until December 2007 in order to prevent irregularities and to ensure the genuineness and compliance of operations financed by EAGF as obliged. Due to this obligation the deadline for payment for the operational programs 2005 and 2006 was exceeded.

For these reasons and with the aim to protect the EAGF the Danish Paying Agency maintains its position and finds:

• That a thorough investigation was justified,

• When taking into account the many steps of the investigation the administrative handling of the case was completed expediently and without unnecessary delays,

• The objective of the EU legislation in question has been preserved without jeopardizing the financial interests of the EU while at the same time protecting the legal rights of the producer organization.

The Danish Food Industry Agency also drew the attention to the principle of proportionality as mentioned in Article 16 of Council Regulation (EC) No 1290/2005, according to which the principle should be applied when deciding whether a payment made by a paying agency is eligible for Community financing.

Moreover, the Danish authorities pointed out in letter no. 2814-05-27 dated 15 October 2010

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that a full on-the-spot check can only be undertaken once the producer organisation has submitted its payment request. Under the Commission Regulation (EC) No 1432/2003 the organisation has to submit its application until 31 January of the year following that for which the aid is requested. On the basis of the time limits set for submitting aid applications and for payments, the period for undertaking checks and further investigations is only 9.5 months (1 February to 15 October).

In the case in point the enquiries started upon receipt of the inspection report on 14 September 2006 and ended with the payment on 20 December 2007. The investigations thus took over one year and three months.

It must therefore be recognised that even if the on-the-spot checks had been undertaken at the earliest possible point, there would not have been time to carry them out in conjunction with the supplementary checks, deemed necessary in this case, and whose scope and timeliness was accepted by DG AGRI.

The Danish authorities also take the view that postponing payment in this situation was justified on the grounds of not exposing EU funds to a possible and unnecessary risk. Article 21 (penalties) of the Commission Regulation (EC) No 1432/2003 applicable at the time provided only that Member States had the possibility of revoking the recognition of a producer organisation. The legal basis did not, however, provide for the authorities to suspend a producer organisation for a period during which it was being investigated and its compliance with recognition criteria checked. Such a provision was included when the legislation on producer organisations was revised. It is contained in Article 116(2) of Regulation (EC) No 1580/2007. The provision is new and gives the Member State the possibility of postponing payments for a certain period. The Danish authorities take the view that, acting in accordance with the spirit of the rules, they complied with the principles that were later enshrined in law.

Other budget posts

The corrections proposed on other budget posts were not contested by Denmark.

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Non-respect of payment deadline, budget post 05 02 08 03 1502 011/012

With regard to the changes of the legislative framework on "the possibility of postponing payments" in Regulation No. 1580/2007 compared to the previous Regulation No. 1432/2003 that was applicable for the case in question, it needs to be noted:

• In accordance with Article 21 of Regulation No. 1432/2003, it was envisaged that the Member State authorities take appropriate and timely actions in case non-compliance with the recognition criteria is found within checks carried out.

• Moreover, in accordance with Article 116(2) of Regulation No. 1580/2007, under the new legislative framework, the suspension of the recognition of a producer organisation should not exceed 12 months in case non-respect of the recognition criteria is found by on-the-spot controls.

• In the given case, the Danish Ministry informed the Commission services about its concern of the status of the Producer Organisation and requested further guidance on 19 July 2007, whereas the control took place between 22 August and 5 September 2006, and the findings were reported on 14 September 2006. The Commission Services provided guidance on 25 October 2007. After closing the case in December 2007 the Paying Agency carried out the payments in January 2008.

The Commission is of the opinion that both legislative frameworks serve to guarantee the sound functioning of the system of financing agricultural supports and the sound administration of Community funds.

170

The Commission would also note that it is in any case – like the Member States – bound to apply the legislation in force at the time; it cannot, therefore, take subsequent modifications of the related legal framework into account when assessing facts subject to earlier legislation.

Consequently, the position is maintained considering that the initial controls and the investigation were not undertaken within an appropriate time frame to enable payments before the regulatory deadline.

Exceeding of ceiling, budget post 05 03 02 08 2122 085

The Danish authorities did not contest the correction proposed for exceeding of the ceiling, amounting to 3.855,08 EUR on this budget post. Taking into account the negative amounts declared by Denmark, and thus re-credited to the Fund in the financial years 2009 and 2010, no exceeding of ceiling occurs, and consequently no correction is to be proposed on this budget post.

Concerning the budget post 05 03 02 27 0000 004 the correction is also modified according to the negative amounts declared in financial year 2010.

The final position is as follows:

Budget item Currency Correction Deduction already made

Financial impact

Financial year 2008 – Correction due to late payments

05 02 08 03 1502 011 EUR 329.708,43 329.708,43 0,00

Financial year 2008 – Correction due to exceeding of ceilings

05 03 02 27 0000 004 EUR 1.500,20 1.353,02 147,18

Total EUR 331.208,63 331.061,45 147,18

The proposed correction is for 331.208,63 EUR.

18.1.4. Opinion of the Conciliation Body – N/A

18.1.5. Final Commission position N/A

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19. OTHER CORRECTIONS

19.1. Austria – Overshooting of Rural Development allocations

Enquiry No: FA/2007/145/AT

Legislation: Reg. 1258/1999, Reg. 1663/95, Reg. 94/442/EC, Reg. 817/2004



Reply of the Member State: BMLFUW-LE.5.8.1/0151-PR/3/2007 dated 31.10.2007



Reply to minutes of bilateral: BMLFUW-LE.5.8.1/0114-PR/3/2009 dated 30.07.2009

Conciliation letter: AGRI Ares/72191 dated 10.02.2010

Request for conciliation: BMLFUEW-LE.5.8.1/0030-PR/3/2010

dated 9.0.32010

Conciliation reference: 10/AT/431

Conciliation Body's opinion: Ares/433069 dated 15.07.2010

Final letter: AGRI 46981 dated 17.01.2011


Financial correction was proposed for overshooting of rural development allocations for FY 2006 concerning six budget posts totalling 1.403.515,38 EUR.


Budget post 05040106 4040 001/051

1. Concerning budget post 05040106 4040 001/051, Austria stated that the total expenditure declared amounted to 690.432.857,06 EUR and the allocation was 692.670.000,00 EUR. Therefore the allocation was not exceeded.

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Budget post 05040109 4060 001

2. With regard to budget post 05040109 4060 001, the final financing plan provided for a total amount of 45.110.000,00 EUR and not 45.010.000,00 EUR. Therefore the budget line was only exceeded by 7.357,43 EUR and not by 107.357,43 EUR.

Budget posts 05040107 4051 001 and 05040107 4050 001/051

3. As for budget posts 05040107 4051 001 and 05040107 4050 001/051, the Austrian authorities did not understand the Commission's calculation method, whereby the October 2006 payment was split into payment periods of 1 to 11 October and 12 to 15 October. On 12 October, the Commission has authorised the amendment of the financing plan of Austria. The payments made on the basis of this authorisation have not exceeded the financial framework provided for Austria. There was an under-spending of 49.693,23 EUR and not an excess of 1.270.306,77 EUR. However, it appears to Austria that the Commission accepted the financing plan for the payment of the "Less favoured areas" measure, but not for the "Agri-environmental measures".


Budget post 05040106 4040 001/051

1. Austria changed the allocation on this budget post to 690.430.000,00 EUR in the communication of 12 October 2006. Art. 51 (4) of Reg. 817/2004 gives the Member State the possibility to communicate amendments of financial nature (subject to particular conditions, among others, sending a new financial table for all the measures and respecting the overall amount of Community support), which enter into force on the date of their receipt by the Commission, to rural development programming documents. As a consequence of the above mentioned communication, the new ceiling at the end of the programming period for each measure has to be considered as the ultimate amount, which can be financed by EAGGF for the measure concerned (unless a new amendment is communicated).

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Budget post 05040109 4060 001

2. The argument regarding budget post 05040109 4060 001 was accepted by the Commission and the financial correction was therefore reduced by 100.000,00 EUR.

Budget posts 05040107 4051 001 and 05040107 4050 001/051

3. With regard to the budget posts 05 04 01 07 4051 001 – 05 04 01 07 4050 001/051 "Agri-environmental measures", it should be noted that the expenditure declared by Austria was carried out before the 12 October 2006. The modification notified by Austria in the letter of 11 October 2006 entered into force on 12 October 2006. Therefore, the new allocation of 2.129.540.000,00 EUR could not be taken into consideration for the measure concerned, but the previous one, namely 2.128.220.000,00 EUR.

Thus, the position was, as follows:


Financial impact

Financial year 2006 – Correction due to exceeding of ceilings05 04 01 03 4020 001 EUR 4.586,93 0 4.586,9305 04 01 06 4040 001/051 EUR

2.857,060

2.857,06

05 04 01 07 4051 001 EUR 1.270.306,77 0 1.270.306,7705 04 01 09 4060 001 EUR 7.357,43 0 7.357,4305 04 01 11 4071 051 EUR 12.697,41 0 12.697,4105 04 01 12 4080 251 EUR 5.709,78 0 5.709,78Total EUR 1.303.515,38 0 1.303.515,38


Correction proposed on budget post 05040107 4051 0001 was referred to the conciliation procedure in accordance with article 16 of Reg. 885/2006. In the conclusions to its final report, the Conciliation Body states:

174

"C. APPRAISAL BY THE CONCILIATION BODY

6.1 After having heard both parties, the Body considers that they agree on the sequence of events: the bank account of the paying agency was debited on 11 October 2006 but it was only on 12 October 2006 that the Commission was notified of the adjustment to the financial programming of the Rural Development Programme. Therefore the new financial programming entered into force on 12 October 2006. However, the sums debited from the paying agency on 11 October 2006 did not start arriving on the accounts of the beneficiaries until 13 October 2006. The Austrian authorities maintain that, had there been difficulties, they could have cancelled the payments and regained possession of the sums they had paid. They thereby wish to demonstrate that the Funds incurred no financial risk.

6.2 The agency notes that Article 51 of Regulation (EC) No. 817/2004 is very strict as regards the obligation of Member States to communicate to the Commission any adjustments they wish to make to ceilings . Certain adjustments, such as those concerning this file, "shall enter into force on the date on which they are received by the Commission2". The Body finds that the Commission received the adjustments proposed in this case on 12 October and that the Austrian authorities - despite having initiated the payment of aid to beneficiaries on 11 October 2006 - state that they still had the possibility of cancelling these operations on 12 October 2006. In these circumstances and while it considers that this is a legal matter outside its area of responsibility, the Body suggests that the Commission examine whether, in the light of the proportionality principle generally recognised in the law of the Member States and the European Union, the conditions for a financial correction actually exist in this particular case.

D. CONCLUSION

The Conciliation Body, having taken into consideration all these factors:

notes that it has not be able to bring the respective positions of the Commission and the Austrian authorities closer together within the timeframe allowed for the conciliation procedure

asks the Commission to re-examine the correction level envisaged in this case, taking into account the elements outlined in points 6.1 and 6.2 above, and

asks its secretariat to disseminate this report in accordance with Article 16(4) of Regulation (EC) No 885/2006.

2 Extract from paragraph 4 of Article 51 of Regulation (EC) No 817/2004

175


Concerning the first observation (6.1) of the Conciliation Body:

The arguments that the payments that were made by the Paying Agency on 11 of October 2006 have actually reached the bank accounts of the beneficiaries on 13 of October 2006 cannot be accepted.

The Article 5(1) of the Commission Regulation 883/2006 states the following: "Without prejudice to the special provisions on declarations of expenditure and revenue relating to public storage referred to in Article 6, expenditure and assigned revenue declared by the paying agencies in respect of a given month shall correspond to payments and receipts actually effected during that month."

In other words, the Member States shall declare for a given period the expenditure that was actually made. In this particular case, Austria has declared the expenditure of 2.129.490.306,77 EUR that has actually been made until the 11 October 2010 (included), which resulted in a overshooting of ceiling on 11 October 2010. The Commission services cannot accept the argument that the expenditure, which has been declared as incurred expenditure until 11 October 2006, has not actually been made by Austria before 13 of October 2006.

Concerning the second observation (6.2):

DG AGRI recalls Article 51(4) of the Regulation 817/2004, which states that the modifications "shall enter into force on the date they are received by the Commission". As confirmed by the Conciliation Body, the modification of the financial ceilings has been formally received by the Commission on 12 October 2006 and that is the date when the modification entered into force.

176

The Conciliation Body is asking to examine the correction in the light of the principle of proportionality. In this respect, it is noted that the Commission needs also to assure an equal treatment of all the Member States. DG AGRI would like to underline that it has consistently taken the same approach, regarding the entry into force of the modifications of financial ceilings for the rural development allocations in accordance with Article 51(4) of the Regulation 817/2004, for all other Member States.

Taking into account the above, the Commission services conclude that there was an overshooting of the financial ceiling with an amount of 1.270.306,77 EUR for the budget item 05 04 01 07 4051 0001, which took place on 11 of October 2006.

Corrections proposed on other budget posts have not been referred to conciliation procedure under Article 16 of the Commission Regulation 885/2006. Consequently, the position for other corrections is maintained.

Final position is as follows:


Financial impact

Financial year 2006 – Correction due to exceeding of ceilings05 04 01 03 4020 001 EUR 4.586,93 0 4.586,9305 04 01 06 4040 001/051 EUR

2.857,060

2.857,06

05 04 01 07 4051 001 EUR 1.270.306,77 0 1.270.306,7705 04 01 09 4060 001 EUR 7.357,43 0 7.357,4305 04 01 11 4071 051 EUR 12.697,41 0 12.697,4105 04 01 12 4080 251 EUR 5.709,78 0 5.709,78Total EUR 1.303.515,38 0 1.303.515,38

The total financial correction proposed is 1.303.515,38 EUR. The amount has not been deducted yet in respect of financial year 2006.

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19.2. Italy – Paying Agency ARBEA, financial clearance FY 2005

Enquiry No: FA/2006/67/IT

Legislation: Reg. 1663/95, Reg. 1258/1999

Reg. 296/96



Reply of the Member State: ACIU.2006.419 dated 29.05.2006


Minutes of the bilateral meeting: AGRI Ares 240843 05.05.2010

Reply to minutes of bilateral:





Final letter: N/A


In the review of the annual accounts for the financial year 2005, the Certifying Body noted that the Paying Agency declared an amount of 130.959,62 EUR in the annual accounts for the financial year 2005 although this amount was not paid before 15 October 2005.


The Italian authorities explained that 130.959,62 EUR represents a payment order that was issued on 14 October 2005 but it was put on hold by the PA because some additional investigation had to be performed regarding the eligibility of the payments concerned. As a result of these additional investigations, an amount of 63.781,39 EUR was not paid to the beneficiaries and was returned to the Fund in April 2006. However, the payment of 67.178,23 EUR was executed six months after the expenditure was claimed.

178


No action was taken by ARBEA to rectify the error in the annual declaration of financial year 2005.

Consequently, DG AGRI services consider that the Paying Agency breached the provisions of following regulations:

1. Regulation No. 296/96:

Article 7 (1) – Expenditure claimed in respect of a given month must fall with payments actually effected during this month. It may include corrections to the data reported in respect of previous months of the same year.

Article 7 (3) - Payment orders not executed and payments debited to the account and then re-credited shall be shown in the accounts as deductions from expenditure in respect of the month during which the failure to execute or the cancellations is reported to the paying agency.

Article 7 (5) – Cumulative data relating to expenditure that can be referred to a specific year may be corrected no later than in the annual accounts of that specific year.

2. Regulation 1663/95 – Annex:

Point 6 (v) of this Annex "The payment shall be executed by the agency's banker, or, as appropriate, a governmental payments office, or the cheque mailed, within five working days of the date of charge to the EAGGF. Procedures shall be adopted to ensure that all payments for which transfers are not executed, or cheques not cashed, are re-credited to the Fund."

179

Point 9 of the Annex to the Regulation "Accounting procedures shall ensure that monthly and annual declarations are complete, accurate and timely, and that any errors or omissions are detected and corrected, in particular through checks and reconciliations performed at intervals not exceeding three months."

Therefore, the amount of 67.178,23 EUR is proposed for financial correction. The amount of 63.781,39 EUR was returned to the Fund in April 2006, therefore no correction is proposed.


The total correction amounts to 67.178,23 EUR.


19.2.5. Final Commission position – N/A

Paying Agency Budget item Correction

typeCur-rency

Correction amount

Financial Year 2005

ARBEA 05 04 01 07 405 1002 one-off EUR 67.178,23

TOTAL 67.178,23

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19.3. Spain – ES06 Cantabria, ES09 Cataluña, ES12 Madrid, ES18 FEGA – financial clearance FYs 2005 and 2006

Enquiry No: FA/2006/34,37,42/ES and FA/2007/028/ES Legislation: Reg. 1258/1999 and 1663/1995

Date of missions: NA

Observation letters: AGRI 009033 dated 31.03.2006

AGR 010987 dated 30.04.2007

Reply of the Member State: SGCRF-G/JMB-210 dated 29.05.2006 and 02.06.2006;

SGFA/JMB-252 dated 15.06.2007


Minutes of the bilateral meeting: ARES 351228 dated 18.06.2010

Reply to minutes of bilateral: NA





Final letter: N/A


The reviews of the certification reports of the Spanish Paying Agencies (PA) have revealed material or known errors in the accounts and/or debtors and therefore Article 8 letters have been issued - regarding FY2005 - for ES06 Cantabria for the Most Likely Error (MLE), for ES09 Cataluña for debtors and for ES12 Madrid for non-recovered financial errors and - regarding FY2006 - for ES18 FEGA for the MLE, known and systematic errors. Based on the available information from the replies to the 31/03 letters a bilateral meeting was held on 27/01/2010.

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Cantabria: Taking into account the arguments of the PA regarding one of the random errors, the Certifying Body (CB) confirmed that the payment concerned was correct and therefore the MLE is to be recalculated. Recoveries of errors have taken place whereby the amount of financial correction shall be reduced accordingly.

Cataluña: It was confirmed that pursuant to Decision No. 2008/321/EC of 8 April 2008 a one-off financial correction of 1.882.525,15 EUR already took place for the non-recovered debts that did not appear in the T105 of FY2005. (Original amounts were 1.743.373,34 EUR and 160.021,15 EUR).

As regards the amount of 289.572,11 EUR appearing in column “e” of T105, the CB confirmed that for a total amount of 262.959,52 EUR the PA intended to recover the undue payments via set-off from subsequent payments to those beneficiaries, however, this has not occurred for at least 5 years after the debt was identified and no other recovery action took place. Furthermore in the case of 2 debts of 5.554,05 EUR and 8.706,32 EUR the negligence of the PA was established based on court rulings and therefore - according to the CB - a corresponding amount of 14.260,37 EUR should have been returned to the EAGGF fund.

Madrid: The Spanish authorities have provided no further information or comments.

FEGA: The Certifying Body provided confirmation before and after the meeting regarding recovery by the PA of all the errors, including the known errors of 1.324.552,55 EUR and 9.405,33 EUR in Strata 1, the 6 systematic errors totalling 426.116,62 EUR and the 2 random errors of 8.535,02 EUR in strata 2.


Cantabria: a financial correction was proposed for the Paying Agency of Cantabria for the amounts of 103.385,08 EUR relating to the Most Likely Error (MLE) and 220 EUR of non-recovered administrative error amount for the financial year 2005.

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Cataluña: financial correction was proposed for the Paying Agency of Cataluña for a total amount of 277.219,89 EUR (262.959,52 EUR and 14.260,37) relating to the debts in column “e” of T105 of FY2005.

Madrid: financial correction was proposed for the Paying Agency of Madrid for a total amount of 76.518,03 EUR relating to financial errors – 176,00 EUR, 1.892,35 EUR and 74.449,68 EUR - detected during the certification exercise of FY 2004 but not recovered by the Agency.

FEGA: the arguments raised by the Spanish authorities in relation to the reduction of the originally indicated financial correction were accepted pursuant to the recovery of the full amount of all known, systematic and random errors. The correction relating to the known and systematic errors could be waived completely. Pursuant to the recoveries made for the various random errors, the financial correction originally initiated for the MLE of 121.856,72 EUR could be reduced accordingly. The financial correction was therefore proposed to be reduced to 113.321,70 EUR for the Paying Agency of FEGA for FY2006.

Based on the information provided by the Spanish Authorities, the final position is as follows:

The total correction amounts to 570.664.70 EUR.

Paying Agency Basis for correction Correction

typeCur-rency

Correction amount

Financial Year 2005

ES06 Cantabria

MLE one-off EUR 103.605,08

ES09 Cataluña

Debtors one-off EUR 277.219,89

ES12 Madrid

Debtors (not recovered financial errors)

one-off EUR 76.518,03

Total for FY2005 457.343,00

Paying Agency Basis for correction Correction

typeCur-rency

Correction amount

Financial Year 2006

ES18 FEGA MLE one-off EUR 113.321,70

Subtotal for FY2006 113.321,70

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184

19.4. Poland, Paying Agency ARMA – financial clearance FY 2006

Enquiry No: FA/2007/087/PL

Legislation: Reg. 1258/1999 and 1663/95



Reply of the Member State: Ffp.821-508/09/4177 dated 11.09.2009



Reply to minutes of bilateral: Ffp.443-58/10/2380 dated 02.06.2010





Final letter: N/A


In the review of the annual accounts of the Paying Agency, ARMA for the financial year 2006 the Certification body (CB) established that there is a material error in the population "Relocation of financial aid from RVD to SAPARD". The CB identified two random errors, which after extrapolation produced an upper error limit (UEL) of 8.093.693,99 PLN exceeding the materiality of 4.671.684,14 PLN (calculated for the total amount of public funding including both the national and the EU element). The Most Likely Error (MLE) amounted to 2.569.426,66 PLN (EU co-financing = 1.927.070).

185


According to the information received from the Polish authorities, the amount of the first random error of 157.500 PLN was reimbursed by the beneficiary. The second random error of 25.819,67 PLN related to the requirement of the SAPARD legislation, which, in case of the purchase of machinery, obliges the beneficiary to present 3 offers from 3 different suppliers. The CB noted that the requirement of the 3 offers was not respected and there is a potential fraud in the case. The Paying Agency presented the case to the prosecutors' office, which ruled that the PA has no legal basis to recover the amount from the beneficiary. However, the CB is of the opinion that the expenditure is not eligible for SAPARD financing because the beneficiary did not comply with the requirement.


The Commission services noted that the CB confirmed both random errors detected as ineligible expenditure. As the total error from extrapolation exceeds the materiality, a financial correction for the amount of the Most Likely Error (1.927.070 PLN) had to be proposed. This amount was diminished by the amount of the first random error of 157.500 PLN, which has been entirely recovered from the beneficiary.


The total financial correction proposed is 1.769.570 PLN (EUR 454.236,65).

Paying Agency Budget item Correction type

Cur-rency

Correction amount

Financial year 2006

ARMA 05 04 04 one-off PLN 1.769.570

TOTAL 1.769.570

186



187

19.5. Malta – Paying Agency, MRRA – financial clearance FY 2007

Enquiry No: FA/2008/072/MT

Legislation: REG. 1290/2005 and 885/2006


Observation letter: AGRI 007839 of 31/03/2008

Reply of the Member State: dated 18/04/2008, 29/04/2008


Minutes of the bilateral meeting: AGRI (2010)838 dated 04/01/2010

Reply to minutes of bilateral: N/A

Conciliation letter: AGRI Ares/699822 dated 14/10/2010




Final letter: N/A


Based on the findings in the certification report, in Appendix 6 of the 31 March letter a correction of 102.581,31 EUR was proposed:

– With regard to the measure "Tomatoes for Processing", the Head of the Paying Agency has identified a financial error of 62.059,83 EUR.

– With regard to the measure "Trade Mechanisms", the Certification Body has identified a financial error of EUR 24.989,06 .

– With regard to the Arable Aid Applications, the Certification Body has identified a debt of 7.052 EUR, which has not been reported into the debtors' ledger.

– With regard to the measure "Rubble Walls", the Certification Body (CB) has identified a debt of 8.480,42 EUR, which has not been reported into the debtors' ledger.


Based on the certification report of the CB for financial year 2009 and its additional information of 31 July 2010:

Tomatoes for processing

The Certification Body has confirmed that all irregularities were recovered by the PA and credited to the Fund.

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Trade mechanism

The pending debt of 11.426,04 EUR was subject to judicial proceedings at the time of the FY2009 certification audit. However, this amount was credited to the Fund by 31 July 2010.

Arable aid – understated debt

The outstanding debt amounted to 235,10 EUR on 31 July 2010.

Rubble Walls – understated debt

The outstanding debt amounted to 38.687,60 EUR on 31 July 2010.


Taking into account the additional information of the Member State, the final position is as follows:

The total correction amounts to 38.922,70 EUR.



Paying Agency Basis of correction Correction type

Cur-rency

Correction amount

Financial year 2007

MRRA Irregularities/debts one-off EUR 38.922,70

TOTAL 38.922,70

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19.6. Portugal – Paying Agency, IFAP – financial clearance FY 2007

Enquiry No: FA/2008/079/PT



Observation letter: AGRI 9017 dated 14/04/2008

AGRI 3954 dated 16/02/2009

Reply of the Member State: 465/DFI/UCCO/2008 dated 17/10/2008, 30694 dated 6/03/2009,

44/GPRC/ARCO/2009 dated 21/04/2009

105/GPRC/ARCO/2009 dated 02/07/2009

139/GPRC/ARCO/2009 dated 23/09/2009 Bilateral meeting: 29.10.2009

Minutes of the bilateral meeting: Ares(2009)287449 dated 21/10/2009

Reply to minutes of bilateral: 013068/2010 dated 21/06/2010

Conciliation letter: AGRI Ares/750854 dated 27/10/2010




Final letter: N/A


Concerning the accounts of IFAP for FY2007 the Certifying Body (CB) revealed financial errors in the EAGF IACS and the EAFRD non-IACS populations, as follows:

- for the EAGF IACS population a Most Likely Error (MLE) and known errors of 483.360 EUR and 183.543 EUR respectively;

- for the EAFRD non-IACS population a MLE and known errors of 502.919,49 EUR and 140.043 EUR respectively.


EAGF accounts

190

MLE: 483.360 EUR - Error 108.783 EUR

Based on the additional information provided by the Portuguese authorities and confirmed by the Certifying Body, the error detected should be treated as a known error, since the entire population at risk has been examined and the financial impact of the error/finding in the population has been established by the CB to be 108.783 EUR.

Known error: 29.536 EUR

The beneficiaries of the additional payments as per Article 69 of Reg. 1782/2003 should not be limited to those with relevant individual entitlements.


IFAP contested the finding of the Certifying Body, however the CB confirmed its position that the applications cannot be modified after the submission, due to complaints subsequent to payments made, and so the internal rules on the treatment of obvious errors cannot be taken into account retroactively.

EAFRD accounts

MLE (502.919,49 EUR)

As for the random errors, the CB confirmed that after further work and analyses only three errors remain. The new MLE equals 168.817,29 EUR and an amount of 16.980,05 EUR has been re-credited to the Fund.

Known errors (128.912 EUR + 11.131 EUR)It was confirmed, that:- for the original amount of 128.912 EUR, the actual error amounts to 57.575 EUR representing 115 files, out of which 1.745 EUR has been re-credited to the Fund. 42.675 EUR related to 25 cases was found to be eligible after the review of all cases identified (165 cases in total).- concerning the initial error of 11.131 EUR, which related to 59 cases, two payments were found to be justified with an amount of 248 EUR. Furthermore, for one additional case the PA decided not to pursue a recovery procedure as the debt was below 25 EUR. Consequently, the total amount of the error amounts to 10.856 EUR, out of which 1.991 EUR was re-credited to the Fund.As for the additional known error established for financial year 2007 concerning the review of RURIS, IFAP has confirmed that out of the total 8.288,63 EUR, 3.639,96 EUR has been credited to the Fund.

191


EAGF accounts

MLE: 483.360 EUR - Error 108.783 EUR

The amount of 108.783 EUR is to be proposed for correction.


Based on the arguments of the Portuguese authorities it was confirmed by the Commission services that it is up to the Member State authorities to define the eligibility criteria for the beneficiaries in accordance with the Regulation. Similar practices are encountered in other Member States. The application of article 69 of Regulation 1782/2003 in Portugal was notified to and registered by DG AGRI.

The correction of 29.536 EUR is to be withdrawn.


The finding of the CB is confirmed and the position is to be maintained.

Out of the total correction of 154.007 EUR, the payments in marketing year 2006/07 amounting to 68.087 EUR were already proposed for correction under enquiry no. FA/2008/097/PT (Ref. no. AGRI D/20891 dated 29.08.2008) for overshooting the financial ceilings. The amount still to be proposed for correction is 70.638 EUR.

EAFRD accounts

MLE (502.919,49 EUR)

The correction proposed for the Most Likely Error (168.817,29 EUR), which was recalculated after additional information of the Portuguese authorities, can be reduced to 151.837 EUR.

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Known errors (128.912 EUR + 11.131 EUR)

The outstanding amount of the error is (55.830 EUR + 8.856 EUR) 64.686 EUR, which is proposed for correction.

As for the additional known error established for financial year 2007 concerning the review of RURIS, the amount of the correction can be reduced to 4.649 EUR.

Taking into account the additional information of the Member State, the final position is as follows:

The total correction amounts to 400.601 EUR.



Paying Agency Basis of correction Correction type

Cur-rency

Correction amount

Financial year 2007

IFAP Systematic error EAGF

one-off EUR 179.421

IFAP Systematic error EAFRD

one-off EUR 69.343

IFAP Most Likely Error EAFRD

one-off EUR 151.837

TOTAL 400.601

193

19.7. Germany – Paying Agency, Baden-Württemberg – financial clearance FY 2008

Enquiry No: FA/2009/134/DE



Observation letter: ARES 155554 dated 12 January 2009

Reply of the Member State: 615-01206-BW/1 dated 10 March 2010

Bilateral meeting: N/A

Minutes of the bilateral meeting: N/A


Conciliation letter: AGRI (2010) 941850 dated 13.12.2010




Final letter: N/A


The substantive testing of the Certification body revealed a materiality breach in respect of the EAGF IACS population.

A financial correction equal to the MLE (942.497 EUR) and the value of known errors (6.708 EUR) is to be proposed for the EAGF IACS population since the total error (8.358.462 EUR) exceeds the level of materiality (8.283.523 EUR).


The German authorities did not contest the proposed financial correction.

194






Paying AgencyBasis of

correctionCorrection

typeCur-rency

Correction amount

Financial year 2008

Baden-Württemberg Most likely error one-off EUR 942.497

Baden-Württemberg Known error one-off EUR 6.708

TOTAL 949.205

195

19.8. Germany – Paying Agency, Niedersachsen – financial clearance FY 2008

Enquiry No: FA/2009/135/DE



Observation letter: ARES 30018 dated 20 January 2010

Reply of the Member State: 615-01206 dated 12 February 2010

Bilateral meeting: N/A

Minutes of the bilateral meeting: N/A


Conciliation letter: AGRI (2010) 939700.dated 13.12.2010




Final letter: N/A


The substantive testing of the Certification body revealed a materiality breach in respect of the EAFRD non-IACS population.

A financial correction equal to the MLE (161.511 EUR) and the value of known errors (535.350 EUR) is to be proposed for the EAFRD non-IACS population since the total error (1.541.528 EUR) exceeds the level of materiality (1.030.235 EUR).


The German authorities did not contest the proposed financial correction.

196






Paying Agency Basis of correction

Correction type

Cur-rency

Correction amount

Financial Year 2008

Niedersachsen Most likely error one-off EUR 161.511

Niedersachsen Known error one-off EUR 535.350

TOTAL 696.861

197

ANNEX I – Appeals to the Court of Justice, Conciliation Body procedure

Judgments by the Court

Since summary report D(2011)/211644/Annex2 of 16 March 2011 on Decision No 35 was completed, the Court of Justice has issued the following judgments on appeals against the conformity clearance decisions:

case C-321/09P brought by Greece was dismissed

case T-214/07 brought by Greece was dismissed

case T-184/09 brought by Greece was dismissed

Cases still before the Court

Cases still before the Court as at 30 April, together with the amounts concerned, are shown in tables A - M below.

198

TABLE A

SITUATION ON 30 APRIL 2011 REGARDING CASES BEFORE THE COURT AGAINST CLEARANCE OF ACCOUNTS DECISION 2005/555/EC

(19th decision)

Case number Member State Relevant expenditureReferences to

summary reportDocument

AGRI/61234/2005of 15 February 2005

Total disputed correction amount (in €)

T-344/05 Greece - Livestock premiums

- Fruit and vegetables

- Arable crops

B.6.2.

B.2.7.

B.7.1.

- 34 530 717.69

- 330 595.00

- 25 437 255.00

TABLE B


(20th decision)



AGRI/61602/2005of 15 April 2005


T-352/05 Greece - Public storage

- Fruit and vegetables

- Tobacco

- Livestock premiums

B.4.3.

B.2.1.

B.5.1.

B.6.1.

- 3 105 400.72

- 30 662.52

- 23 975 602.85

- 38 550 236.16

1

TABLE C

SITUATION ON 30 APRIL 2011REGARDING CASES BEFORE THE COURT AGAINST CLEARANCE OF ACCOUNTS DECISION 2006/554/EC

(22nd decision)



AGRI/61599/2006of 5 April 2006


T-267/06 Italy - Fruit and vegetables

- Public storage of meat

B.2.1.

B.4.1

- 9 412 284.94

- 2 639 642.63

2

TABLE D


(25th decision)



AGRI-61870-02-2007of 30 April 2007


T-463/07 Italy - Animal Premiums – Bovines

- Olive Oil

- Dried fodder

11.2

13.1

15.1

752 238.00

76 431

6 215

3

TABLE E


(26th decision)



AGRI-63341-01-2007of 3 September 2007


T-86/08 Greece - Fruits & Vegetables – citrus processing

- Rural Development

- Financial audit – late payments

4.3

16.2

17.1

345

1

5

C-24/11P Spain - Olive oil 13.1 183 965 185.54

4

TABLE F


(27th decision)



AGRI-64570-02-2007of 21 December 2007


T-206/08 Spain - Wine distillation 7.1 54 949 195.80

T-232/08 Luxembourg - Rural Development 16.3 964 488.00

5

TABLE G


(28th decision)



AGRI-61316-00-2008of 30 March 2008


T-356/08 Greece - Arable Crops 12.1 127

T-426/08 Italy - Arable Crops

- Fruits & Vegetables

- Export Refunds

- Milk quotas

12.2

4.1

2.1

5.3

145

15

508

13

6

TABLE H


(29th decision)



AGRI-63130-00-2008of 11 September 2008


T-46/09 Greece - Fruits and Vegetables: citrus processing

- Meat premiums: bovines

- Olive Oil: production aid

- Cotton: production aid

- Financial audit: late payments and overshooting of financial ceilings

4.4

11.2

15.1

14.1

18.1, 19.1, 19.2

-2

-14

- 83

- 67

- 11

T-84/09 Italy - Promotional measures

- Olive Oil: production aid

- Rural development

- Financial audit: late payments and overshooting of financial ceilings

6.1

15.2

17.3

18.2, 18.4

- 4

-105

- 958

- 56

7

TABLE I


(30th decision)



AGRI-64177-00-2008of 6 January 2009


T-197/09 Slovenia - Area Aid (Arable Crops) 12.2 -1

T-212/09 Denmark - Area Aid (Arable Crops) 12.1 -100

8

TABLE J


(31st decision)



D/170910/2009/Annex2of 31 March 2009


T-486/09 Poland - Rural Development 17.5 -11

T-500/09 Italy - Fruits and Vegetables 4.1 -3

T-491/09 Spain - Olive Oil – production aid

- Animal premiums

15.3

11.2

-31

-6

T-469/09 Greece - Public storage of rice

- Fruits and vegetables

5.2

4.2

-165

-1

9

TABLE K

SITUATION ON 30 APRIL 2011 REGARDING CASES BEFORE THE COURT AGAINST CLEARANCE OF ACCOUNTS DECISION 2010/152/EU

(32nd decision)



D/2009/20912 -Annex2of 25 September 2009


T-241/10 Poland - Area Aid 12.3 -PLN 279 794 442.15

-EUR 25 583 996.81

T-215/10 Greece - Cotton

- Rural Development

- Intervention Storage: food for the most deprived

14.1

17.2

6.1

-EUR 105 453 107.44

-EUR 18 523 716.00

-EUR 8 330 648.04

T-230/10 Spain - Fruits and vegetable 4.2 -EUR 47 461 960.09

10

TABLE L


(33rd decision)



D/2010/283812 -Annex2

of 18 June 2010


T-453/10 UK- N-Ireland - Area Aids 12.6 -EUR 18 600 258.71

11

TABLE M


(34rd decision)



D/2010/641421 -Annex2

of 19 July 2010


T-588/10 Greek - Area Aid

- Tobacco,

- Cross compliance,

- Dried grapes,

- POSEI - the islands of the Aegean

- Animal premiums.

12.2

8.1

13.1

4.1

10.2

11.2

-EUR 210 913 505.64

-EUR 19 760 841.95

-EUR 4 167 621.65

-EUR 54 701 943.48

-EUR 3 970 402.08

-EUR 50 166 591.97.

T-16/11 The Netherlands - Potato Starch 10.1 -EUR 28 947 149.31

T-2/11 Portugal - POSEI 10.1 -EUR 743 251.25

T-3/11 Portugal - Area Aid 12.4 -EUR 40 690 655.11

12

2. Conciliation Body procedure

The cases detailed in this Summary Report are subject of the following Conciliation Body report:

09/DE/390, 10/PT/450, 10/IT/445, 10/GR/436, 10/FR/451, 10/GR/449, 10/HU/440, 10/UK/433, 10/PL/424, 10/AT/431

Documents

6€¦ · Web viewDirectorate J. Audit of agricultural expenditure J.1. Coordination of horizontal questions concerning the clearance of accounts Brussels, 24 June 2011 D(2011)661767