Ensuring the correct payment of CAP funds
Financial support from the CAP stems from two principal funds – the European agricultural guarantee fund (EAGF) and the European agricultural fund for rural development (EAFRD). The European Commission ensures that a system is in place to provide reasonable assurance that these funds are spent properly, and that any irregular payments can be detected and recovered.
Declaration of assurance
All EU expenditure under the CAP is subject to a declaration of assurance from the European Commission’s Director-General for Agriculture and Rural Development. This declaration states that:
- CAP funds have been used for their intended purposes;
- expenditure has complied with the principles of sound financial management;
- the control procedures in place provide necessary guarantees on the legality and regularity of all transactions.
The declaration is published every year in the department’s annual activity report, along with a complete breakdown of spending activities under the CAP.
A comprehensive management and control system
By issuing a declaration of assurance, the Director-General confirms that a comprehensive management and control system is in place for CAP expenditure. This system is composed of four levels:
- sound financial management and internal controls in EU countries;
- detailed checks carried out in advance of payments;
- audits and reviews from independent certification bodies;
- final audits and clearance of accounts from the European Commission.
Single audit approach
The management and control system for CAP funds operates under a single audit approach, in which each level draws upon the assurance provided by other levels. This approach allows the Commission to audit the work of the paying agencies and certification bodies in a dynamic and cost-effective manner, ensuring:
- an accurate estimation of error rates;
- effective detection of the sources of errors;
- the implementation of remedial actions and the reduction of error rates year after year.
Taken together, these four levels and the results they produce allow the Commission to obtain reasonable assurance that taxpayers’ money is spent correctly, as laid out by EU law.
Sound management and internal control
Under shared management, EU countries are responsible for implementing and controlling the various schemes under CAP legislation, while the Commission ensures that they carry out their work properly.
EU countries execute payments to farmers and other beneficiaries through national or regional paying agencies. Assurance on the sound management of CAP funds is obtained through:
- paying agencies’ compliance with detailed accreditation criteria set at EU level;
- a management declaration from the director of the paying agency, accompanied by the complete accounts, as well as control data and statistics.
Checks and administrative controls
For each support scheme financed by the EAGF and EAFRD, paying agencies undertake a rigorous system of checks before payments are made.
The management and control systems for each support scheme share some common features, as well as special rules tailored to the specificities of the scheme. The systems generally provide for:
- exhaustive administrative controls of 100% of the aid applications;
- on-the-spot checks of a sample of transactions, ranging between 1% and 100%, depending on the risk associated with the scheme in question;
- cross-checks with other databases, where considered appropriate.
For most payments and checks, paying agencies avail of the integrated administration and control system (IACS), an interconnected set of databases that can be applied to a number of support schemes.
Certification bodies are independent auditors, appointed at national level according to EU specifications. The role of these bodies is to verify and certify the activities of paying agencies.
Each year, the certification bodies deliver an opinion on:
- the completeness, accuracy and veracity of their annual accounts;
- the proper functioning of their internal control systems;
- the legality and regularity of the expenditure for which reimbursement has been requested from the Commission.
Certification bodies also verify the paying agencies’ compliance with accreditation criteria and the management declarations.
The audit work of the certification bodies is a key element of assurance for CAP expenditure, providing the basis for the subsequent auditing work of the Commission.
Commission audits and clearance of accounts
As a final level of assurance, the Commission undertakes a clearance of accounts procedure, consisting of:
- an annual financial clearance of accounts, which covers the completeness, accuracy and veracity of the paying agencies' accounts;
- a multi-annual conformity procedure, involving conformity audits to check the management and control systems in individual paying agencies and to assess how effectively those systems protect the EU budget.
Under the single audit approach, the Commission takes as a starting point the work of the certification bodies. The Commission also audits the work of certification bodies.
If risk of irregular expenditure is detected, the Commission covers the risk of financial losses to the EU budget by applying financial corrections. Financial corrections are determined on the basis of the nature and gravity of the infringement and the financial damage caused to the EU.
European Court of Auditors
The European Court of Auditors is tasked with checking spending made by the EU and EU countries. It conducts regular audits of EU funding mechanisms and spending, including legality and regularity, as well as performance audits to make sure that money is spent as it should be and that the EU’s internal systems of control are correctly designed.
Protecting against fraud
In order to better protect the budget of the CAP against fraud, the European Commission has put in place a specific anti-fraud policy.
The anti-fraud policy's main objectives are to:
- raise fraud awareness in EU countries and within the Commission;
- reinforce fraud prevention;
- reinforce fraud risk assessment;
- develop fraud detection capabilities;
- give guidance to EU countries for fraud prevention and detection;
- reinforce cooperation with the European Anti-Fraud Office (OLAF).
The anti-fraud strategy underpins the principles of sound financial management and good governance of the CAP budget by EU countries and the European Commission.
OLAF is the EU’s anti-fraud body; it has the power to investigate any suspected instances of fraud, corruption or serious misconduct within either the EU institutions or beneficiaries of EU funds. Reports to OLAF can be made anonymously and in any of the EU’s official languages.
EU Implementing Regulation 908/2014 – laying down rules for the application of EU regulation 1306/2013 regarding paying agencies and other bodies, financial management, clearance of accounts, rules on checks, securities and transparency [Articles 52-62]
EU Implementing Regulation 908/2014 lays down rules for the application of EU regulation 1306/2013 with regard to paying agencies and other bodies, financial management, clearance of accounts, rules on checks, securities and transparency.
EU Delegated Regulation 907/2014 - supplementing EU Regulation 1306/2013 regarding paying agencies and other bodies, financial management, clearance of accounts, rules on checks, securities and transparency.