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									                                EuropeAid Annual Activity Report 2009




EuropeAid




            EuropeAid Co-operation Office
               Annual Activity Report

                        2009




                           i
                                                                                                             EuropeAid Annual Activity Report 2009




INDEX

1.   POLICY ACHIEVEMENTS .................................................................................................. VIII

     1.1.    Achievements by policy area ............................................................................................. viii
             1.1.1.        EuropeAid's Policy Objectives...................................................................... viii
     1.2.    EuropeAid's General Objectives 2009 ............................................................................... xi
             Number of (state-based and non-state) armed conflicts outside the EU ........... xiii
             Number of refugees, asylum-seekers and internally displaced people (IDP).... xiii
     1.3.    Achievements by ABB activities (operational activities) ................................................... 1
             Activity: European Neighbourhood policy and relations with Russia ................... 1
             Activity: Relations with Asia, Central Asia and Middle Eastern (DCI) countries. 4
             Activity: Relations with Latin America ........................................................................... 8
             Activity: Human rights and democratisation .............................................................. 11
             Activity: Multilateral relations, co-ordination in the areas of migration and asylum,
                       general external relations matters ................................................................ 12
             Activity: Crisis management and global threats to security................................... 14
             Activity: Relations with sub-Saharan African, Caribbean and Pacific (ACP)
                      countries and EU member states' overseas countries and territories
                      (OCTs)................................................................................................................... 16
             Activity: Food security...................................................................................................... 18
             Activity: Non-state actors and local authorities in development........................... 19
             Activity: Environment & sustainable management of natural resources, including
                       energy ................................................................................................................... 21
             Activity: Human and social development .................................................................... 24

2.   MANAGEMENT AND INTERNAL CONTROL SYSTEMS ...................................................27

     2.1.    The DG in 2009..................................................................................................................... 27
             2.1.1.        The service environment ................................................................................. 27
             2.1.2.        Risk environment and management............................................................. 28
             2.1.3.        Mission statement and Commissioner / DG working arrangements ... 29
             2.1.4.        Major events of the reporting year ................................................................ 29
             2.1.5.        Education, Audiovisual and Culture Executive Agency.......................... 29
     2.2.    The functioning of the entire internal control system ...................................................... 30
             2.2.1.        Compliance with the requirements of the control standards ................ 30
             2.2.1.1. EuropeAid HQ..................................................................................................... 30
             2.2.1.1.1.Mission and values............................................................................................ 30
             2.2.1.1.2.Human resources .............................................................................................. 30
             2.2.1.1.3.Planning and risk management processes ................................................ 31
             2.2.1.1.4.Operations and control activities .................................................................. 31
             2.2.1.1.5.Information and financial reporting .............................................................. 32


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                                                                                                            EuropeAid Annual Activity Report 2009



            2.2.1.1.6.Evaluation and audit ......................................................................................... 32
            2.2.1.2. Delegations ......................................................................................................... 32
            2.2.2.        Effectiveness of implementation of the internal control standards ..... 32
            2.2.2.1. EuropeAid HQ..................................................................................................... 32
            2.2.2.1.1.Actions in relation to the prioritised internal control standard ............. 32
            2.2.2.1.2.Results of the internal control standards effectiveness survey ........... 33
            2.2.2.2. Delegations ......................................................................................................... 35
            2.2.3.        Conclusion .......................................................................................................... 35

3.   BUILDING BLOCKS TOWARDS THE DECLARATION OF ASSURANCE........................36

     3.1.   Building block 1: Assessment by management ............................................................... 36
            3.1.1.        Main elements of the control strategy.......................................................... 36
            3.1.1.1. Responsibilities and lines of accountability............................................... 36
            3.1.1.2. Management systems....................................................................................... 36
            3.1.1.3. Management assessment framework .......................................................... 37
            3.1.2.        Key controls ........................................................................................................ 38
            3.1.2.1. Results of key financial controls on operations........................................ 38
            3.1.2.1.1.Ex-ante (institutional) compliance assessments ...................................... 38
            Four pillar institutional compliance assessment of international organisations
                     (joint management) ........................................................................................... 38
            Five      pillar compliance assessment of beneficiary states and regional
                         organisations (decentralised management) ............................................... 39
            Six pillar compliance assessment of national development bodies (centralised
                     indirect management)....................................................................................... 39
            Compliance assessment of EU Member States (shared management) ............... 40
            Budget Support eligibility assessments (centralised direct management) ........ 41
            3.1.2.1.2.Ex-ante external audits and verifications.................................................... 41
            Audit framework ................................................................................................................. 41
            Audit planning..................................................................................................................... 42
            Audit implementation ........................................................................................................ 43
            Audit results - summary reports of audit framework contractors......................... 44
            Verification missions to international organisations (joint management) .......... 46
            3.1.2.1.3.Ex-ante transactional controls performed by the Commission............. 47
            3.1.2.1.4.Ex post controls................................................................................................. 48
            Ex post transactional controls performed by the Commission ............................. 48
            Monitoring of OLAF investigations................................................................................ 49
            Recovery of undue payments ......................................................................................... 50
            3.1.2.2. Management reporting ..................................................................................... 50
            3.1.2.2.1.Operational reporting ....................................................................................... 50
            3.1.2.2.2.Verification missions to delegations ............................................................ 50
            3.1.2.3. Independent operational monitoring of activities ..................................... 51



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                                                                                                                 EuropeAid Annual Activity Report 2009



     3.2.    Building block 2: Results from audits during the reporting year .................................... 52
             3.2.1.         Recommendations of the Internal Audit Capability (IAC) in 2009......... 52
             3.2.1.1. IAC Audit on human resources development in Delegations................ 52
             3.2.1.2. IAC Opinion in the context of the Declaration of Assurance 2009 ....... 53
             3.2.2.         Recommendations of the Internal Audit Service (IAS) in 2009.............. 53
             3.2.2.1. IAS audit - Financial management of Directorate A programmes ........ 53
             3.2.3.         European Court of Auditors (ECA) reports published in 2009 .............. 53
             3.2.3.1. ECA 2008 Annual Reports ............................................................................... 53
             3.2.3.2. ECA Special Reports published in 2009 ...................................................... 55
             3.2.3.3. Analysis of significant weaknesses highlighted by the ECA in 2009 .. 56
     3.3.    Building block 3: Follow-up of action plans for audits from previous years ................. 57
             3.3.1.         Actions in relation to Internal Audit Capability (IAC) audits .................. 57
             3.3.1.1. Completed implementation of IAC recommendations............................. 57
             3.3.1.2. Ongoing implementation of IAC recommendations ................................. 58
             3.3.2.         Actions in relation to Internal Audit Service (IAS) audits ....................... 59
             3.3.2.1. Completed implementation of IAS recommendations ............................. 59
             3.3.2.2. Ongoing implementation of IAS recommendations ................................. 59
             3.3.3.         Actions in relation to European Court of Auditors (ECA) audits .......... 60
             3.3.3.1. ECA Annual Reports published before 2009.............................................. 60
             3.3.3.2. ECA Special Reports published before 2009 ............................................. 61
     3.4.    Building block 4: Assurance received from other Authorising Officers......................... 61
     3.5.    Conclusion ............................................................................................................................. 62
     3.6.    Completeness and reliability of the information reported in the building blocks ......... 63
     3.7.    Reservations ......................................................................................................................... 63
     3.8.    Overall conclusions on the combined impact of the reservations ................................. 63

4.   DECLARATION OF ASSURANCE.......................................................................................64




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                                                        EuropeAid Annual Activity Report 2009




Annexes

Annex 1:   Statement of the Resources Director

Annex 2:   Human and Financial resources by ABB Activity

Annex 3:   Draft Annual Accounts and Financial Reports, EU Budget and European
           Development Fund (available upon request)

Annex 4:   Materiality criteria

Annex 5:   Internal Control Templates for Budget Implementation

Annex 6:   Implementation through national or international public-sector bodies

Annex7:    Annual Activity Report of the Executive Agency "Education, Audiovisual and
           Culture"




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                                                                     EuropeAid Annual Activity Report 2009



List of acronyms
AAP                Annual Action Programmes / Annual Audit Plan
ABB                Activity Based Budgeting
ACP                Africa, the Caribbean and the Pacific
AENEAS             Financial and technical assistance programme for migration & asylum
ALFA               Programme for higher education institutions in Latin America
ASEAN              Association of South-East Asian Nations
CAN                Andean Community
CBRN               Chemical, biological, radiological and nuclear (technologies)
CRIS               Common Relex Information System
CSO                Civil Society Organisations
DCI                Development Co-operation Instrument
DEV                Directorate-General for Development
DG                 Directorate-General
EC                 European Commission
ECHO               Directorate-General for Humanitarian Aid
ECFIN              Directorate-General for Economic and Financial Affairs
EDF                European Development Fund
EIDHR              European Initiative on Democratisation and Human Rights
ENP                European Neighbourhood Policy
ENPI               European Neighbourhood Policy Instrument
ENRTP              Thematic Programme for Environment and sustainable management of Natural
                   Resources, including Energy
ENV                Environment Directorate-General
EOM                Election Observation Mission
EU                 European Union
FAO                Food and Agriculture Organisation of the United Nations
FLEGT              Forest Law Enforcement, Governance and Trade
FTE                Full-Time Equivalent
GCCA               Global Climate Change Alliance
GDP                Gross Domestic Product
GEEREF             Global Energy Efficiency & Renewable Energy Fund
GNI                Gross National Income
GTZ                German technical cooperation agency
HQ                 Headquarters
HR                 Human Resources
IfS                Instrument for Stability
ILO                International Labour Organisation
INSC               Instrument for Nuclear Safety Co-operation
ISTC               International Science and Technology Centre
JLS                Directorate-General for Justice, Freedom and Security
JRC                Joint Research Centre
LA                 Local Authority
LRRD               Linking relief, rehabilitation and development
MEDA               Previous financial instrument of the Euro-Mediterranean partnership
MDG                Millennium Development Goals
MS                 Member States
NGO                Non-Governmental Organisation
NSA                Non-State Actor
OCTs               Overseas Countries and Territories
ODA                Official Development Assistance
OECD               Organisation for Economic Cooperation and Development
OLAF               European Anti-Fraud Office
PCA                Partnership and Cooperation Agreement
PEGASE             EC financing mechanism for the Palestinian Authority
RELEX              Directorate-General for External Relations
ROM                Results Oriented Monitoring
RTD                Research Directorate-General
SMEs               Small and medium-sized enterprises
STCU               International Science and Technology Centre of Ukraine
TACIS              Technical Assistance to the Commonwealth of Independent States
TAIEX              Technical Assistance and Information Exchange
UN                 United Nations
UNDP               United Nations Development Programme
UNESCO             United Nations Educational, Scientific and Cultural Organisation




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                                                              EuropeAid Annual Activity Report 2009


UNFCCC    United Nations Framework Convention on Climate Change
UNODC     United Nations Office for Drugs and Crime
UNOHCHR   Office of the United Nations High Commissioner for Human Rights
UNWRA     United Nations Relief and Works Agency for Palestine Refugees in the Near East
WB        World Bank
WHO       World Health Organisation
WTO       World Trade Organisation




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                                                                     EuropeAid Annual Activity Report 2009




1. POLICY ACHIEVEMENTS
   1.1.    Achievements by policy area

       1.1.1. EuropeAid's Policy Objectives

This report reviews the work of the EuropeAid Co-operation Office during 2009. EuropeAid
delivered, in financial terms, more aid than ever before: commitments reached €8.8 billion and
contracts were signed to the value of €9 billion, exceeding the objectives set at the start of the
year. Payments made amounted to €4.3 billion from the EU General Budget and €3.3 billion from
the European Development Funds.
In 2009, the effects of the economic crisis became widespread, and fell disproportionately on the
poorest people living in developing countries, which are often most exposed to downturns in
international trade. Whereas the EU had seen some modest progress made towards achieving at
least some of the MDGs, in 2009 that progress was reversed as the numbers of people living in
extreme poverty, and experiencing hunger, rose. The countries that are the world’s major aid
donors lost momentum towards meeting their pledges of giving 0.7% of their GNI to make poverty
history.
The Commission can be reasonably proud of its response to these external crises. The €1 billion
Food Facility, agreed in 2008 to attempt to mitigate the food price rises, was translated rapidly,
efficiently and transparently into action: €837 million was committed in 2009, through various
actors and delivery channels. The ambitious Food Facility pledge proved an opportunity for driving
donor coordination and alignment. The Commission came to the help of several countries badly
affected by the economic crisis with money from the EDF, using the Vulnerability-Flex mechanism,
financed from the European Development Fund. €500 million was earmarked for those countries
hardest hit, mostly, but not exclusively, in sub-Saharan Africa. After the Israeli incursion into Gaza,
the Commission brought forward to 2009 aid that had been allocated to the 2010 budget.

As these examples of food security, the global economic downturn and a military incursion
suggest, EuropeAid is operating in an inherently risky environment. In addition, as EuropeAid
develops new aid delivery mechanisms, it will encounter new external risks, working with the
private sector or with the governments of fragile states. Those risks have to be assessed and
weighed against the potential benefits for the development of the countries concerned.

However, in 2009 it became clear that EuropeAid is also increasingly exposed to significant
internal risks, which are repeatedly noted by the Court of Auditors and other control bodies. In
recent years, EuropeAid has made heavy investments in staff training and has improved or
maintained the quality and standards of its controls. But EuropeAid’s ability to respond to external
risks is constrained by a worsening human resources situation. Staffing levels at the beginning of
2010 are down to an all-time low of four persons per €10 million of aid funding. In EuropeAid, every
second staff member is an agent on a limited term, non-renewable contract that expires after three
years. Under the current rules, this equates to 15% of EuropeAid’s experienced staff having to
leave every year.
This report summarises the actions and initiatives taken in this year in pursuance of our
commitment to achieving the MDGs and to delivering high quality and effective aid. It also
presents, in its second part, the institutional framework within which we work. As the European
External Action Service comes into being, it is useful to review the year and ask what lessons can
be learned to inform future EU development policy.




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                                                                     EuropeAid Annual Activity Report 2009



Objective 1: Contribute to poverty reduction through sustainable development
This objective covers an extremely broad range of actions, including reconstruction
following disasters or conflict, measures to improve social and economic cohesion and the
development of social and economic services, contributions to health, education and vocational
training programmes, and the promotion of regional integration strategies. For instance:

Rehabilitation and reconstruction post-crisis is a long-term endeavour. Five years after
the Asian tsunami the Multi Donor Fund for Aceh and Nias continues to add value by working
closely with the central and local governments to identify and respond to remaining needs in the
reconstruction process. This evolving role for the fund will continue until it closes in 2012. Palestine
also received additional support of €39.6 million from the Food Facility this year which was directed
primarily at Gaza. A new amount of €43 million was provided to Georgia to continue the support
operations to displaced persons. More funds for relief and rehabilitation will be found for Haiti in
2010. Beyond the initial relief package of €30 million, the Commission will make available €100
million for early non-humanitarian assistance, focusing on restoring the government's capacity to
operate effectively. €200 million will be added from the 9th and 10th European Development Funds
to support Haiti's mid and long term rehabilitation and development.

To fight climate change and protect the environment, EuropeAid participated in the set-up and
first projects financed from an innovative fund, the GEEREF, which provides equity finance for
renewable energy and energy efficiency projects around the world through public-private
partnerships. Climate-proofing activities continued under the umbrella of the Global Climate Change
Alliance in four developing countries with a further eight identified, and substantial technical
assistance is being provided.

EuropeAid projects supported the strengthening of health systems and health services, providing
training for health workers. The Commission continues successfully to fund the primary health care
delivery in ten provinces and hospital services in five provinces of Afghanistan. The preparation of
the 10th EDF Water and Energy facilities progressed at good pace during 2009. About 14.5 million
people are expected to directly benefit from access to safe water. Of these, some 3.5 million will
also benefit from access to improved sanitation and 10.5 million from hygiene education
programmes. About 6.5 million people are expected to benefit from projects under the Energy
Facility.

The Commission also continues to support the Global Fund to Fight AIDS, Tuberculosis and Malaria
- the main instrument to fight these three main poverty-related diseases at a global level - with
contributions totalling €50 million in 2009.

Education is a priority sector for EuropeAid and the focus of many sectoral support programmes.
For example, EU support to Nepalese school sector, in addition to basic education, covers early
childhood education, secondary education, vocational training and adult literacy. Thanks to the
long-term support of the Commission and other donors, Bangladesh has made spectacular
progress in alleviating gender disparities in primary and secondary education. MDG 2 on achieving
universal primary education has been reached.

The €1 billion Food Facility was the most significant additional global contribution to stimulate
agricultural development and fight hunger in developing countries. The Facility drew together
different aid delivery channels: civil society, international and regional organisations, beneficiary
governments and the aid agencies of EU member states.




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                                                                       EuropeAid Annual Activity Report 2009



Objective 2: Contribute to peace and security outside the EU through targeted
external assistance activities
The Commission contributes to the attempts to resolve the Middle East conflict, supports stability
in Central Asia, reconstruction in Iraq and Afghanistan, and helps the African Union in its work in
conflict and post conflict areas.
In Palestine the Commission continues to provide assistance for essential supplies, utilities and
social allowances to support the most vulnerable Palestinian families. In Afghanistan the EU
assistance contributed - inter alia - to the reconstruction process and to furthering the rule of law, in
particular through continued funding for the Law and Order Trust Fund (LOFTA). LOFTA finances
police, border management and customs support. EU assistance to Pakistan focuses on
education, rural development and sustainable natural resource management, with a particular
focus on the provinces bordering Afghanistan and temporary home to many refugees.
Eighteen countries were involved in trans-regional cooperation in the fight against drugs trafficking
supported by the Instrument for Stability. The programme also continues to fund work on export
controls in the Balkans, the former Soviet Union, South-East Asia, the Middle East and north
Africa. The Expert Support Facility, a mechanism for the mobilisation of experts in this field, is now
fully operational. The Commission continues to be a leading actor in nuclear safety in the
neighbourhood region.
The African Peace Facility is the first EU development instrument which focuses exclusively on
peace and security in Africa. Since its establishment the EU has channelled €740 million through it,
and its scope was broadened in 2007 to include conflict prevention and post-conflict stabilisation.
Under the 10th EDF, the Commission was able to earmark €300 million for the tri-annual action
plan. The instrument is holistic, combining capacity building, peace support operations and an
early response mechanism, at both regional and continental levels.


Objective 3: Promote democracy and human rights outside the EU through targeted
external assistance activities
EuropeAid continues to finance and implement election observation missions. Supporting
elections in nine countries in 2009, these missions provided an impartial assessment of the
conduct of the elections in line with international standards, of particular value where the elections
take place in unstable conditions. Other programmes support civil society: for instance the
"AFKAR" programme in Lebanon, which aims to reinforce the role and influence of Lebanese civil
society organisations and Lebanese citizens in view of the respect and protection of human rights,
as well as the consolidation of the rule of law.
Single and multi-country interventions in support of non-state actors and local authorities were
supported through Commission grants. These actions aim to reach the poorest and most
vulnerable groups in society, to improve their participation in the policy decisions which affect
them. The activity is unique to the Commission in being one where the acceptance of the country
in question is not a prerequisite: therefore we continue to note resistance to these actions by some
national authorities. This means that risks are higher for our partners and some disruption of the
activities may be expected.
EuropeAid promotes the mainstreaming of good governance in all areas of co-operation and also
supports targeted interventions in key governance areas. One such intervention in 2009 was the
pre-electoral action in Moldova "Media Action for Voter Education", aiming to provide citizens of
Moldova with balanced electoral information before and following the 2009 parliamentary elections.

In Part 1 of this report, some indicators are used which mirror our Management Plan but many of
the indicators we use are not shown given space constraints. Please see the section in the
management plan explaining how EuropeAid uses indicators in practice.
Similarly with evaluations: some are mentioned in this report but for more detail please visit our
website Evaluation


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      1.2.     EuropeAid's General Objectives 2009



                                  Impact indicators

                                  Indicator                             Target (long-term)                                Milestones (if any)        Current          situation          (n-1)
                                                                                                                                                     Source: UN MDG progress report 2009
                                                                                                                                                     unless otherwise stated


                                  Millennium Development Goals,         International target is to halve by 2015 the      Second UN review of        Global poverty rates are falling, and this
1   Contribute     to             mainly in Africa as well as Asia,     number of people living on less than $1.25 a      progress towards MDGs      target is likely to be achieved: the
    poverty reduction             Latin America                         day.                                              (2010) where donors        number of people living on less than
    through                       MDG 1 progress indicators:                                                              and recipients will have   $1.25 a day fell from 1.8 billion in 1990
    sustainable                   Income per capita (calculated at                                                        to show how they           to 1.4 billion in 2005. In sub-Saharan
    development                   Purchasing      Power        Parity                                                     contributed    to    the   Africa, however, the number of poor
                                  exchange) in poor countries.          Allied with this international target is          targets.                   people increased by 100 million in this
    Contribute to poverty         Defined by: World Bank                a commitment to improve aid effectiveness, in                                time. EuropeAid will implement 2008-
    eradication outside the                                             line with the Paris Declaration and the Accra                                2013 €37 billion in country specific
    EU, as agreed in the                                                                                                                             programmes (both OECD ODA and
                                                                        Agenda      for    Action,    which    includes
    European Consensus on                                                                                                                            Official Aid) via the new external aid
                                                                        commitments to increase use of country
    Development,       through    Share of the Poorest       Quintile                                                                                instruments and the 10th EDF Joint EU-
                                                                        systems, apply in-country division of labour,
    sustainable      economic     Consumption/ Income                                                                                                Africa strategy. In Latin America, social
                                                                        further untie aid, address conditionalities and
    and social development                                                                                                                           inequality is high.
                                  Defined by: UN                        improve predictability & transparency of aid.
    of countries in the
    neighbourhood       region,
    Africa, Asia, Central
    Asia, Latin America, and
    in the Caribbean and          MDG 2 and 3 progress indicators,      MDG 2 aims to achieve universal primary           Second UN review of        In the developing world, enrolment
    Pacific regions, and this     such as:                              education, ensuring that all boys and girls       progress      towards      coverage in primary education reached
    in line with the objectives   % Pupils Starting Grade 1 who         complete primary school. MDG 3 focuses on         Millennium                 88% in 2007, with encouraging progress
    of the UN Millennium          Reach Grade 5                         promoting gender equality to empower women,       Development Goals          in sub-Saharan Africa and South Asia.
    Declaration     and     the   Literacy Rate of 15-24 year-olds      eliminating gender disparities in primary and                                The gender gap is closing — albeit
    objectives          agreed    Ratio of Literate Women to Men        secondary education and at all levels by 2015.                               slowly — in primary school enrolment in
    between the international     15-24 years old                                                                                                    the developing world: 91:100 girls to
    donor community and                                                                                                                              boys in 1999 rose to 95:100 in 2007.
                                  Defined by: UNESCO
    recipient countries in the                                                                                                                       Though progress is being made, women
    Paris Declaration on aid                                                                                                                         still lack equal representation at the


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                 Impact indicators

                 Indicator                              Target (long-term)                             Milestones (if any)     Current         situation        (n-1)
                                                                                                                               Source: UN MDG progress report 2009
                                                                                                                               unless otherwise stated


effectiveness.                                                                                                                 highest levels of decision-making. On
                                                                                                                               average women occupy 18% of the
                                                                                                                               parliamentary seats worldwide: 22% in
                                                                                                                               LA and Caribbean, 18% in Sub-Saharan
                                                                                                                               Africa,-&0% in Oceania, North Africa
                                                                                                                               and West Asia.



                 MDG 4 and 6 progress indicators,       MDG 4 aims to reduce child mortality, by       Second UN review of     Death rates in children under age 5 are
                 such as:                               decreasing the mortality rate among children   progress      towards   dropping. The highest death rates are
                 Under-5    children     malnutrition   under five by two thirds.                      Millennium              still in Sub-Sahara African countries.
                 (weight/age, %) Defined by: WHO        MDG 6 concerns the combat against              Development Goals       The absolute number of deaths of
                 Malaria (cases per 1,000 people)       HIV/AIDS, malaria and other diseases                                   children under 5 has risen from 4.2
                 Defined by: UNDP                                                                                              million in 1990 to 4.6 million in 2007.
                 People living with HIV/AIDS (15-49                                                                            However the mortality rate is expected
                 years)                                                                                                        to decrease continuously during coming
                 Defined by: UNAIDS                                                                                            years.

                                                                                                                               The number of yearly new infections by
                                                                                                                               HIV/AIDS has decreased in Sub-
                                                                                                                               Saharan Africa. However, South Africa
                                                                                                                               accounts for more than a third of new
                                                                                                                               HIV infections and 38% of AIDS
                                                                                                                               induced deaths. Overall, 67% of people
                                                                                                                               living with HIV live in Sub-Saharan
                                                                                                                               Africa.

                                                                                                                               95% of deaths due to malaria take
                                                                                                                               place in Sub-Saharan Africa. However,
                                                                                                                               considerable progress is being made in
                                                                                                                               the struggle against malaria. In Sub-
                                                                                                                               Saharan Africa, the use of insecticide
                                                                                                                               treated nets increased from 2% in 2000
                                                                                                                               to 20% in 2006.




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                         Impact indicators

                         Indicator                                 Target (long-term)                             Milestones (if any)       Current            situation             (n-1)
                                                                                                                                            Source: UN MDG progress report 2009
                                                                                                                                            unless otherwise stated


                         Number of reforms implemented,            Approximation of legislative and regulatory    Periodic    assessment    Uneven commitment to reform amongst
                         delivered under the Action Plans          framework with European and international      through    reports   of   countries, but by and large progress in
                         for the Neighbourhood area                standards.                                     approximation        of   those areas where specific programmes
                         Defined by: EC                                                                           framework     in   the    are in place;
                                                                                                                  Neighbourhood region.      Tracking of reform measures through
                                                                                                                                            programme       specific  disbursement
                                                                                                                                            decisions with the various sector
                                                                                                                                            programmes;
                                                                                                                                             Additional momentum provided in the
                                                                                                                                            East through the Eastern Partnership
                                                                                                                                            Programme, while the potential for
                                                                                                                                            momentum in the South via the UPM is
                                                                                                                                            currently dampened by the Middle East
                                                                                                                                            conflict: negative impact on the new
                                                                                                                                            governance structures for UPM.


                         Number of (state-based and non-           Reduction and prevention of (state-based and                             In 2008 a total of 52 active armed
2   Contribute      to   state) armed conflicts outside the        non-state) armed conflicts.                                              conflicts were recorded: 36 were state-
    peace and security   EU                                                                                                                 based and 16 non-state conflicts.
    outside the EU       Data from UCDP, Uppsala Conflict Data
                         Program, University of Uppsala
    through targeted                                                                                                                        (UCDP, Uppsala Conflict Data Program, University
                                                                                                                                            of Uppsala)
    external
    assistance
    activities


                         Number of refugees, asylum-               Long-term target is to reduce the number of                              There are 15.2 million refugees,
                         seekers and internally displaced          refugees, asylum-seekers and internally                                  827.000 asylum-seekers and 26 million
                         people (IDP)                              displaced people.                                                        IDP around the world (2008).
                         Data annually compiled and published by
                         UNHCR

                         Number of countries that have             By 2015 there will be an increase of the                                 All UN Member States have ratified at
3   Promote              ratified four or more of the seven        number of UN Member States having ratified                               least one of the seven core human
    democracy      and   UN human rights treaties                  four or more of the seven core human rights                              rights treaties and 82% have ratified
    human       rights

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                                                                                                                                 EuropeAid Annual Activity Report 2009

                   Impact indicators

                   Indicator                               Target (long-term)                                  Milestones (if any)      Current         situation         (n-1)
                                                                                                                                        Source: UN MDG progress report 2009
                                                                                                                                        unless otherwise stated


                   Defined by: OHCHR                       treaties.                                                                    four or more.
outside the EU
through targeted
external
assistance         Number of elections monitored           Increased trust in public institutions in partner   Continue to deliver at   9 missions in 2009, and 18 expert
activities         which are carried out in conformity     countries.                                          least     10  election   assessment missions, carried out in
                   with international standards                                                                observation  missions    conformity with international standards.
                   Defined by: EC                                                                              per year.                These missions provided an impartial
                                                                                                                                        assessment of the electoral process, of
                                                                                                                                        particular value where election results
                                                                                                                                        were contentious.


                   Number of countries where there         By 2013 at least 90 countries will have                                      76 countries were covered by CBSS in
                   is both a strong need for more          benefitted from the country-based support                                    2009
                   effective action on the part of civil   schemes targeting countries where there is
                   society       organisations     and     sufficient room for human rights and
                   sufficient freedom and/or room for
                                                           democracy advocacy. This result will already
                   manoeuvre for human rights and
                   democracy advocacy, so as to            be reached in 2010 and we expect the number
                   allow the CBSS – "Country-Based         of countries to stabilize
                   Support Schemes" – to support
                   local civil society
                   Defined by: EC




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                                                               EuropeAid Annual Activity Report 2009




    1.3.      Achievements by ABB activities (operational activities)

Activity: European Neighbourhood policy and relations with Russia

Activity description and justification for EU intervention

The objective of the European Neighbourhood Policy (ENP) is to build, together with partner
countries, a secure, stable and prosperous neighbourhood on the basis of shared values and
common interests. To achieve its objective, and build an increasingly close relationship
between the EU and each of the partner countries, the ENP uses jointly agreed Action Plans.
In 2004, the Commission adopted a Proposal for a Regulation on a new European
Neighbourhood and Partnership Instrument (ENPI), which provides EU financial assistance,
including for cross-border co-operation and support for Action Plan priorities, to the ENP
countries and Russia. The EuropeAid website carries more information: European
Neighbourhood Policy
Key results and lessons learned in 2009
•   Georgia: EuropeAid continued to provide assistance to Georgia, to improve the living
    conditions of displaced persons and to strengthen the institutional capacities of the
    government in its management of the aftermath of the conflict. In 2009 a new amount of
    €43.5 million was allocated to Georgia to continue the support operations to displaced
    persons.
•   Palestine: At the request of the Prime Minister of the Palestinian Authority and with the
    agreement of the Commissioner, it was agreed to bring forward the decision for 2010
    funds to the end of 2009 in order to provide the Authority with sufficient resources to meet
    its obligations in the early months of 2010 before other donor funding comes on stream.
    To that end an amount of €158 million was allocated for direct financial support to the
    Palestinian Authority, with a further €66 million being allocated to the General Fund of
    UNRWA, which is also facing increasing financial difficulties in meeting its statutory
    obligations to Palestinian refugees.
•   Neighbourhood Investment Facility: the Board of the Facility approved 13 projects
    representing a total investment of €5.3 billion. The contribution to these projects amounts
    to €99.7 million, leveraging a total loan amount of €2.5 billion from the European Finance
    Institutions. These contributions are financed by the EC Budget (€77.97 million) and by
    voluntary contributions of the Member States (€21.73 million).
•   Lessons learned - Evaluation of MEDA II: The evaluation covered the Commission's
    cooperation with the Mediterranean partner countries, implemented under the MEDA II
    regulation, for the period 2000-2006. The evaluation concluded that MEDA II had
    contributed to the implementation of major reforms and to progress in public sector
    management and professional practice. While there was often insufficient explanation of
    the rationale underlying the choice of aid modalities to finance Commission's
    interventions, there was a positive assessment on the increased use of budget support
    and its effectiveness in stimulating important policy reforms. Effectiveness and efficiency
    had improved, compared to MEDA I. Regional interventions under MEDA II suffered from
    insufficient ownership at the national level. At the regional level, the Commission was
    faced with an absence of national structures to take over post-programme
    responsibilities, undermining the sustainability of the interventions.
SPECIFIC OBJECTIVE: Furthering the conditions for close co-operation between the EU
and its neighbours and for regional integration




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Indicator: Proportion of implementation of the Regional / Interregional Multiannual Indicative
Programmes 2007-2010 via the Annual Action Programmes (AAP) compared to the initial
indicative programming
Target: Full implementation of Regional and Interregional Multiannual Indicative Programmes
by 2010. Full adherence of the ENP partner countries to these programmes, so that their
impact is maximised.
Latest known result: The Regional East, Regional South, and Interregional AAPs were
presented to Member States in good time.
Indicator: Rating of Result Oriented Monitoring (ROM) for multi-country co-operation activities
(regional and inter-regional).
Target: Result Oriented Monitoring rating for multi-country co-operation approaching B for the
entire neighbourhood.
Latest known result: ENPI EAST 2009: majority of 4 and 3 ratings (4 - 60, 3 – 53, 2 - 8).
SOUTH 2009: majority of 4 ratings (4 - 119, 3 - 65, 2 - 2, 1 - 2).
Main expenditure-related outputs:

Two special measures for Georgia adopted by the Commission in 2008 for a total of €61.5
millions were implemented in 2009 through direct targeted budget support. The first three
contributions were disbursed between end of 2008 and end of 2009 (€48.9 million).

Out of 15 Cross Border Cooperation Programmes planned, 1 was adopted in 2007 and 12 in
2008; the two (Spain-Morocco) programmes remaining are still not adopted. However
Financing Agreements with Russia which had been stalled were finally signed in November.

Enthusiasm for twinning projects – the provision of Member States' public sector expertise to
assist partner countries – continues to exceed expectations, and the overall number of
ongoing twinning projects now exceeds 225. For TAIEX by the end of the year there was
finally a national contact point in every neighbourhood country.

After six months of suspension following the events in Gaza, the "Union for the Mediterranean”
process got back on track, with ministerial meetings restarted under the Swedish presidency,
and the senior officials’ meetings resumed with a view to putting the secretariat in place.

SPECIFIC OBJECTIVE: Support EU neighbours' economic and sector reforms and promote
integration with the EU Single Market and among neighbouring countries themselves

Indicator : Proportion of implementation of the National Multiannual Indicative Programmes
2007-2010 via the bilateral Annual Action Programmes (AAP) compared to the initial indicative
programming
Target : Full implementation of National Multiannual Indicative Programmes by 2010
Latest known result: Financing decisions and commitments were done according to the
forecasts, except for a programme of €10 million planned for Libya. The special measure for
Libya on Migration was not adopted due to the lack of agreement from the Libyan authorities.
Indicator : Rating of Result Oriented Monitoring for bilateral co-operation activities.
Target : Result Oriented Monitoring rating for bilateral co-operation approaching 3 for the
entire neighbourhood
Latest known result: 2.85 (East) and 2.79 (South




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Indicator : Higher number of ENP countries involved in legislative reform and good
governance practices and adopting sustainable development policies. Higher number of ENP
countries engaged in regional convergence of policies and reforms
Target : Extension and deepening of reform (including with regard to secondary legislation) in
¾ of the ENP countries by 2010. In 2009-2010, tangible measures aimed to mitigate the
effects of the international economic and financial crisis on partner countries' socio-economic
development.
Latest known result: In most ENP partner countries adoption of institutional and legislative
reforms is ongoing, as well as progress towards economic and social development, with
improved attention to environmental aspects.

Main expenditure-related outputs:

Cooperation programmes began to be deconcentrated to the Commission delegation to
Azerbaijan following the opening of the operational sector of this new delegation.



SPECIFIC OBJECTIVE: Promote democracy, human rights and the rule of law and
contribute to conflict resolution in the EU's neighbourhood

Indicator : Proportion of implementation of the assistance package planned for the period
2007-2010 in favour of the Palestinians compared to the initial indicative aid programming.
Target : Commitment for the period 2007-2008 for the West Bank and Gaza representing 72%
of indicative programming 2007-2010.
Latest known result: The expected output was exceeded: measures for a total amount of
€353.6 million were committed. In addition, a measure of €224.5 million from the 2010 budget
was adopted in 2009.
Indicator : Proportion of implementation of the assistance package planned for the period
2007-2010 in favour of Georgia compared to the initial indicative programming.
Target : Assistance to the Internally Displaced Persons as a result of the August 2008 crisis
over a period of three years (2008-2010).
Latest known result: 61% (€43 million to assist IDPs from a total of € 70 million).
Indicator : Increasing number of activities aimed at promoting political dialogue (democracy,
human rights, rule of law, migration) and contributing to stability and conflict resolution
Target : Result Oriented Monitoring rating for projects aimed at promoting political dialogue
and contributing to stability approaching 3 for the entire neighbourhood.
Latest known result: Result Oriented Monitoring rating for projects promoting political dialogue
and contributing to stability at 2.80 (East) and at 2.73 (South) in 2009.
Main expenditure-related outputs:

The Commission had decided in 2008 to frontload an amount of €235 million from the 2009
budget for the Occupied Palestinian Territory. €168 million of this was attributed to the
Palestinian Authority as direct financial support in order to ensure the continuation of basic
services to the population by the Palestinian Authority (payment of salaries to health workers
and teachers, purchase of fuel for Gaza Power Plant and social allowances to vulnerable
Palestinian families). The remainder represented the Commission's annual funding of
UNRWA's core budget and (€1 million) a contribution to that organisation's Reform



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                                                                EuropeAid Annual Activity Report 2009




Development Plan, €39 million for Direct Financial Support to the Palestinian Authority, and
€61 million for institutional and economic development projects.

SPECIFIC OBJECTIVE: Strengthening the Strategic Partnership between Russia and the
EU

Indicator : Proportion of implementation of the National Multiannual Indicative Programme
2007-2010 compared to the initial programming
Target : Full implementation of the revised National Indicative Programme by 2010.
Latest known result: 37.5%
Indicator : Rating of Result Oriented Monitoring for cooperation with Russia.
Target : Result Oriented Monitoring rating for activities with Russia still approaching 3.
Latest known result: 2.98 out of 4.

Main expenditure-related outputs:

Development of new programmes remains difficult. The bilateral AAP 2009 for €14.5 million
was adopted by the Commission.



Activity: Relations with Asia, Central Asia and Middle Eastern (DCI) countries

Activity description and justification for EU intervention

Asia, Central Asia and countries east of Jordan are important partners for the EU,
economically and politically. The region accounts for more than half of the world’s population
and a quarter of global economic wealth created every year. Poverty remains a significant
challenge as the region is still home to two thirds of the world’s poorest people. The added
value that the EU can offer is reflected by its experience in building the largest single market
in the world, its role as the largest source of global foreign direct investment, and the largest
single source of Official Development Aid (ODA) and humanitarian assistance. The
EuropeAid website carries more information: Cooperation with Asia

Key results and lessons learned in 2009

•   Education: The Commission's budget support to the Nepalese school sector aims to
    expand access, and improve the quality of what students learn. This programme includes
    early childhood education, secondary education, vocational training and adult literacy. In
    Bangladesh, the Commission is providing further support to strengthening basic
    education in the Chittagong Hill Tracts. Thanks to the long-term support of the
    Commission and other donors, Bangladesh has made spectacular progress in alleviating
    gender disparities in primary and secondary education. MDG 2 on achieving universal
    primary education has been reached. In 2009 the Commission pledged €201 million over
    two years to the Joint EC-AusAID Education Sector Support Programme to support
    Indonesia's education strategic plan 2010-2014.
•   Economic and trade development: to promote growth and improve social cohesion
    Commission programmes enhanced trade capacity throughout the region and at the
    regional level. ASEAN received support in the areas of air transport, intellectual property
    rights and for its Free Trade Area negotiations. The Commission-funded Multilateral
    Trade Policy Assistance Projects in Vietnam, and successfully supported the ministries



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                                                                 EuropeAid Annual Activity Report 2009




    involved in the WTO accession process. Sustainable consumption and production and
    the role of SMEs are promoted through the "SWITCH" regional programme.
•   Afghanistan: Despite the deteriorating security situation in Afghanistan, EuropeAid's
    commitments reached €192 million. Support to Afghanistan is carefully targeted. The
    Commission provides support to the Ministry of Public Health in health care policy and
    management, covering hospital reform, disability and mental health services, but also to
    NGOs delivering a basic package of health services in 10 provinces, and an essential
    package of hospital services in five provinces. It is estimated that 5 million Afghans have
    benefited from access to these services. To strengthen security and the rule of law in the
    country the Commission provides the Afghan National Police with regular salary
    payments equipment.
•   Iraq: In spite of recent improvements in the security situation, the instability still prevalent
    in the country prevented the preparation of a multi-annual programming document.
    Programming priorities for 2009 and 2010 were confirmed: continued institutional
    strengthening of the Iraqi government, and the provision of basic services (health, water,
    sanitation, education).
•   Lessons learned: The 2009 mid term review of the Commission's support to the
    reconstruction in Indonesia, following the devastating tsunami of 2004 concluded that the
    project portfolio overall was highly relevant and performing well. AIDCO finalised in 2009
    an evaluation of the Commission's cooperation with ASEAN, in parallel with the
    evaluation of the Commission's country level cooperation strategies in Thailand,
    Malaysia, Lao PDR and Vietnam. It concluded that Commission assistance to ASEAN
    had contributed significantly to progress made in regional economic integration, although
    its impact remained limited and often indirect in nature. It recommended a closer
    coordination between the support provided to the ASEAN Secretariat and other relevant
    country-level programmes or regional programmes. A fundamental lesson to be drawn
    from the 2002-2006 strategies is the low absorption capacity in several countries and
    regional groupings. Therefore the new programming exercise covering 2007-2013 has
    put more emphasis on areas such as capacity building in key institutions.
SPECIFIC OBJECTIVE: Promote sustainable development in Asia, eradicate poverty, and
facilitate the integration into the world economy
Indicator : Sustainable development - Access to improved sanitation facilities
Target : Halve, by 2015, the proportion of the population without sustainable access to safe
drinking water and basic sanitation.
Latest known result : Contrasting data from 1990 and 2006, all the 9 countries for which
comparable data are available show progresses towards the halving of the percentage of
people who live without basic sanitation facilities. The most impressive achievement was that
of Burma/Myanmar, where the proportion of people living with sanitation facilities has grown
form 23% in 1990 to 82% in 2006. Nevertheless, it is highly unlikely that countries like
Bangladesh, Indonesia and Nepal succeed in halving the proportion of the population without
basic sanitation facilities by 2015.
Indicator : Inequality of wealth distribution: Inequality measures (GINI index)
Target : Contribute to ensure a more equal distribution of income by 2015. Improve number of
countries under 40 points in the index.
Latest known result: Six of the 11 countries for which the latest data are available suffer from
very unequal wealth distribution (i.e. their GINI index level is above 40). These are: Cambodia,
China, Nepal, Philippines, Sri Lanka and Thailand.
Indicator : Population living below $1.25 a day (%)



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                                                             EuropeAid Annual Activity Report 2009




Target : Contribute to halve, between 1990 and 2015, the proportion of people whose income
is less than $1.25 a day.
Latest known result: Thailand, Malaysia, Maldives and Vietnam are early achievers. China and
Sri Lanka are well on track. Not enough information for Bhutan and Burma/Myanmar. The
percentage of people living with less than $1.25 a day remains particularly high in Nepal
(55.1), Bangladesh (49.6) and Lao PDR (44)
Main expenditure-related outputs:

In 2009 the Commission contributed to the eradication of extreme poverty and hunger (MDG
1), by deploying food security programmes in Bangladesh and Burma/Myanmar. In
Bangladesh, for example, the Food and Livelihoods Security Project (to which the Commission
allocated €24 million in 2009) contributes to the improvement in food security of rural ultra-
poor small farmers and rural day labourers and their dependants. Following the earthquake In
Pakistan, in October 2005, the Commission services helped to restore the socio-economic
fabric in the earthquake-affected areas. Public infrastructure has been rehabilitated and plans
for the reconstruction of 328 schools are under way.

A large number of Asian countries benefit from support to Health sector policy or Health
projects. In 2009, the Commission allocated €20 million to fight infectious diseases at the
regional level. Moreover, the Commission committed a €36 million support for the Health
Sector Reform Agenda of the Government of the Philippines.

In 2009, the regional Erasmus Mundus programme continued to promote education and
research exchange for student scholarships, while the Tempus programme helped
modernising higher education systems and institutions.

Given the suspension of the Comprehensive Dialogue with Iran, no bilateral cooperation with
this country under the DCI occurred in 2009. For Yemen, the only action programmed under
the AAP for this year was the food security support programme. EuropeAid has entered into
an intensive dialogue with the Yemeni authorities with a view to maximising the impact of the
various ongoing food security support programmes.

SPECIFIC OBJECTIVE : Fostering peace and security in Afghanistan and Iraq

Afghanistan

Indicator : Improve government capacity for revenue collection to enable recurrent budget
support to decline.
Target : Ratio to reach is 7 % of GDP for 2008/2009.
Latest known result: Domestic revenues were revised downwards to 6.9% of GDP in
2007/2008. The fiscal outturn was worse than projected due to a weak revenue performance
and higher spending.
Indicator : Strengthening and enforcement of the legal system and counter-narcotic
strategies.
Target : In 2010-2013 achieve increased number of poppy free provinces and reduced surface
of opium cultivated in Afghanistan
Latest known result: In 2008 the number of opium "poppy-free" provinces – i.e. provinces
estimated to have less than 100 ha of opium cultivation - has increased from 18 to 20 (out of a
total number of 34).
Indicator : Under 5 Mortality rate per 1,000 live births



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Target : Improved access to health services leading to reduction of mortality rate by 2010.
Latest known result: The under-five mortality rate per 1,000 live births was 260 per thousand
live births in 1990, 257 in 2000 and stands at 257 in 2007.

Iraq

Indicator : Proportion of the assistance package planned for Iraq delivered, compared to the
aid allocations initially decided.
Target : 100%
Latest known result: 100%

Main expenditure-related outputs:

In accordance with the EU response strategy for Afghanistan Commission assistance targets
the focal sectors of rural development, governance and health. The Commission continued to
strengthen the rule of law and governance through funding for the LOTFA – Law and Order
Trust Fund. The Commission also strengthened the capacity of the Ministry of Interior in
financial and project management to computerise the payroll system. Afghan agricultural
production is supported, with a focus on improving the management of water and land
resources.

Reinforcing the focal sectors, the Commission also aims to reduce the threat of injury and
death posed by mines. Minefield and former battlefield surveys, area reduction and related
marking activities are conducted, de-mining activities continue, in particular through
community-based demining.

In spite of recent improvements in the security situation in Iraq, the instability prevalent in the
country still does not allow for multi-annual planning. Support to Iraq in 2009 will therefore be
presented as a Special Measure for €42 million to the DCI Committee of October. Outputs for
Iraq are expected to be committed as planned.

SPECIFIC OBJECTIVE : Furthering the conditions for closer cooperation between the EU
and Central Asian countries

Indicator : Democratisation/Rule of law - Number of countries achieving independent judiciary
Target : Three countries start improving the independence of the judiciary by 2010.
Latest known result: Although none of the Asian or Central Asian countries has an
independent judiciary system, nevertheless, programmes for reform of the judiciary are in
preparation in two countries. Habeas corpus guaranteeing basic legal defence rights has been
adopted in Uzbekistan and Kazakhstan. Tajikistan is active in promoting Human Rights issues
through the European instrument for Democracy and Human Rights (EIDHR).
Indicator : Education initiative for Central Asia - Number of scholarships granted to Central
Asia within the Erasmus Mundus programme
Target : Doubling of scholarships available for Central Asia by 2010: 300
Latest known result: 5 countries participated in 2008/09. 190 scholarships were granted in
2008/2009.


Main expenditure-related outputs:




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Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan have Partnership Cooperation
Agreements (PCAs) in force. An interim agreement (of the PCA) with Turkmenistan should
come into force early 2010.

In the framework of the Commission's support to Public Finance Management in Kyrgyzstan,
specific actions were taken to strengthen the budgeting process, and modernise the internal
control and audit systems. In Tajikistan the Commission is supporting the Public Finance
Management reform strategy, following the Tajik authorities’ creation of a new body for
Independent External Audit.

The Commission's support to the Tajik social protection strategy resulted - inter alia - in the
setting up of a system of non-residential social service institutions. In Kyrgyzstan the
Commission has contributed to establishing the legal and institutional framework for social and
child protection reforms, and strengthened the institutional capacity to manage their
implementation. This has improved targeting and timely payment of social benefits, and
improved social services support to vulnerable families and children.

In Kazakhstan, the EU assistance was focused mainly on economic development and
diversification, including support to SMEs, education, administrative reform at central and
regional level, health (Maternal and Child Care and HIV prevention) and judiciary reform and
capacity building. In 2009 the EU assisted the Government of Kazakhstan in the preparation
for taking over the OSCE chairmanship in 2010.

The Rule of Law Initiative further strengthens the regional cooperation through regular
dialogue. With its Central Asia Border Management and anti-drug programmes, the
Commission has fostered institutional reform in border management. The programmes
strengthened capacities, assisting in securing the Tajik-Afghan border, which resulted in
improved infrastructure along trade and transit routes while making the borders safer for trade
purposes. The implementation of European and international standards for drug treatment and
methodologies in drug rehabilitation centres established under the "CADAP" programme
further improved the skills and capacities of the national specialised agencies to deal with the
drug-related problems.



Activity: Relations with Latin America

Activity description and justification for EU intervention

In Latin America the EU is developing a strong partnership which focuses on political dialogue,
reinforcement of social cohesion, support to regional integration, the facilitation of trade and
economic relations between the EU and Latin America, the promotion of multilateralism, peace
and security and continued institutional support for the consolidation of democratic processes.
The added value of the EU’s activity is its capacity, through its own experience, to support
regional integration in other regions of the world and its ability to offer a comprehensive
partnership. It is also crucial from a strategic global perspective to have Latin America as an
ally in global governance. The EU and Latin America have shared interests, common values
and strong cultural links. The EuropeAid website carries more information: External assistance
and Latin America

Key results in 2009

•   In line with the priorities set in the strategy documents, in 2009 the Commission approved
    34 actions with Latin American countries (at bilateral, regional and sub-regional levels)



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      mainly in areas such as social cohesion, regional integration, support to the private
      sector, trade and the environment. These actions not only cover the 2009 AAPs but also
      part of the 2010 AAPs.
•     Poverty reduction: In Paraguay, the Commission is financing a €24 million poverty
      reduction programme that aims at alleviating extreme poverty by consolidating the
      implementation of the social protection network of the Paraguayan government through
      improved basic services such as better access to drinking water and basic cleaning up,
      maternal healthcare and education. Taking 2006 as a baseline, the percentage of
      population with access to drinking water increased from 50% to 56% and the percentage
      of institutional child birth rose from 63% to 72%.

•     Regional integration: While the Commission continues the negotiations on Association
      Agreements with the Andean Community (CAN), Central America and Mercosur,
      cooperation actions prioritise the integration processes of the region. In 2009, a
      programme was adopted in support of the CAN Secretariat to design a regional policy for
      economic and social cohesion. An action was approved for Mercosur to enhance the
      quality and standards of its products. Regarding Central America, a programme was
      adopted to support a regional system for quality control and the application of sanitary
      and phyto-sanitary measures (€ 23.5 million), as well as a Regional Border Security
      Programme (€ 5.5 million), which aims to enhance the capacity of institutions involved in
      border management.

•     In line with the priorities which emerged during recent EU-LAC summits and high level
      meetings, as well as with the new strategy for Latin America adopted by the Commission
      in September 2009, a Latin America Investment Facility (LAIF) was established in 2009
      with a first contribution of € 10.85 million. LAIF operations will support the implementation
      of the EU Regional Strategy for Latin America, focusing on energy, environment and
      transport investments and also providing support to SME development and social sector
      infrastructures.

•     Some challenges to implementation: In 2009 cooperation ran into difficulties with
      Honduras and Nicaragua, the second and third largest beneficiaries respectively of EU
      assistance in Latin America. The political situation in Honduras has resulted in the
      temporary suspension of EU aid, with the exception of emergency assistance and
      activities implemented by NGOs and other local actors. As regards Nicaragua, the
      European Commission and other EU donors decided to suspend the aid channelled
      through budget support in January 2009. The Commission continued its other activities
      while maintaining a dialogue with the Nicaraguan government and will review the
      situation in the light of action taken by the government.


SPECIFIC OBJECTIVE: Promote social cohesion in Latin America.

Indicator: Reduction of poverty: Millennium Development Goal n°1 in Latin America and the
Caribbean.
Target: Contribution to the achievement of MDG n°1: halve between 1990 and 2015, the
proportion of people who live on less than 1 USD a day. The goal for Latin America is to
reduce the poverty rate at 1USD a day to 5.7% in 2015.
Latest known result: 1990: 11.3%; 1999: 10.9%; 2005: 8.2 %1

Indicator: Ensuring a more equal distribution of income.
1 (World Bank, 2009 World Development indicators)




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Target: Gini coefficient for Latin America to decrease2. In 1990 the Gini coefficient for Latin
America and the Caribbean was 0.553
Latest known result: 1990: 0,55; 2005: 0.53

Main expenditure-related outputs:

A total of € 158 million were committed in support of the national nutritional programmes of
Peru and Guatemala and education and growth and trade in El Salvador, i.e. more than one
third of the total aid to Latin America for this year.

The programme ALFA III, targeting cooperation between higher education institutions, was
launched in 2009. The first equipment of the Euro-solar programme was also installed during
the year. Several other programmes successfully continued their implementation in 2009.
Under the Alßan programme (EU contribution: €88.5 million for the period 2002-2010), 3,319
scholarships have been granted since 2003, which helped 404 students to complete their
studies in 2009. The new programme Erasmus Mundus External Cooperation Window
succeeds the Alßan programme as from 2009. The EUROsociAL programme, with an EU
contribution of € 31.26 million for the period 2005-2010, has established partnerships between
Latin American and European public institutions, supporting public policy reforms in five social
sectors: education, health, employment, justice and taxation. With the objective of
strengthening voices at the local level, the URBAL programme has established links between
298 Latin American local institutions which took part in the 13 thematic networks with 188
projects on subjects such as town planning and local policies.

SPECIFIC OBJECTIVE: Foster regional integration in Latin America

Indicator : Level of integration in the three Latin American sub-regions (Central America,
Andean Community (CAN), Mercosur) – measured through concrete outcomes of regional
programmes

Target : Continue increasing trade integration, not only in absolute terms but also in terms of
intra-regional trade with respect to total trade

Latest known results: 1. Intra-regional trade (imports, €million)

                                                                            2006                                   2007                                  2008
             Mercosur                                                    21,785                                25,580                                27,202
             Central America                                               4,599                                 4,979                                  5,294
             CAN                                                           4,557                                 4,420                                  4,704


              2. Percentage of intra Latin America flow versus total trade flow (imports):
(2006) 20.0%; (2007) 20.2%; (2008) 20.0%

Main expenditure-related outputs:

Several actions, detailed in the 2009 AAPs, aim to reinforce the regional integration process in
the three sub-regions: Central America, the Andean Community and Mercosur. The
Programme CAN Social Cohesion II, for instance, aims to strengthen the member countries of

2 The Gini coefficient is a measure of inequality of a distribution and often is used as an income inequality metric. Here, 0 corresponds to perfect income equality (i.e.
everyone has the same income) and 1 corresponds to perfect income inequality (i.e. one person has all the income, while everyone else has zero income)
3 (UNDP Human Development Report).




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the Andean Community and the organisation’s General Secretariat in the design of a regional
policy for economic and social cohesion, territorial development and the implementation of a
pilot action to achieve these goals.

Region-wide programmes finance a number of actions in various sectors, such as institutional
strengthening and enhanced regional cooperation following market and economic integration.
Two new regional programmes started in 2009 with the objective of contributing to regional
integration: @lis II and Al-Invest IV. @lis II (EU contribution: €22 million) contributes to
reducing the digital divide between Europe and Latin America, integrating Latin America into
the Global Information Society and creating long-term partnerships between the two regions.

The fourth phase of Al-Invest (EU contribution: €50 million for the period 2009-2013) was
launched in Sao Paulo in June 2009. The programme will continue supporting the
internationalisation of small and medium-sized enterprises.



Activity: Human rights and democratisation

Activity description and justification for EU intervention

The protection of human rights - civil, political, economic, social and cultural - together with
the promotion of pluralistic democracy and effective guarantees for the rule of law, are
among the European Union’s fundamental objectives in development and other forms of co-
operation with third countries. This constitutes a cross-cutting dimension in the Union's co-
operation programmes. The “European Instrument for Democracy and Human Rights”
(EIDHR), expresses the EU's intention to integrate democracy and human rights into all its
external policies. One of its key assets is its autonomy, as the instrument can grant aid
where there are no development cooperation links and it can intervene without the
agreement of the governments of third countries. Its main beneficiaries are groups and
individuals who are struggling for democracy, human rights and fundamental freedoms within
civil society.
The EuropeAid website carries more information: Human rights and democracy
Key results in 2009

    •    Election observation missions (EOMs): 9 elections were supported in 8 countries (El
         Salvador, Bolivia, Ecuador, Malawi, Lebanon, Afghanistan, Guinea-Bissau,
         Mozambique). These missions provided an impartial assessment of the conduct of the
         elections in line with international standards, of particular value where the elections take
         place in unstable conditions. Missions to Yemen and Ivory Coast were cancelled due to
         the postponement of the elections, and the mission to Honduras was cancelled due to
         the political situation in the country. Expert missions were deployed to assess the
         elections in the Maldives, Iraq, Indonesia, South Africa, Ivory Coast and Niger.
•       Respect for human rights & fundamental freedoms: By the end of 2009, approximately
        250 Human Rights Defenders had benefitted from protection mechanisms put in place by
        specialised organisations financed by EIDHR, in the form of grants, emergency
        relocation, reimbursement of legal/medical fees, and so on. 76 countries were covered by
        Country-Based Support Schemes in 2009, 92 are planned to benefit from this instrument
        in 2010. These schemes target countries where there is both a need for more effective
        action on the part of Civil Society Organisations and where there is sufficient freedom for
        human rights and democracy advocacy to be carried out.




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•   Lessons learned: The EIDHR continues to be the subject of close scrutiny. The external
    evaluation on Commission support to the International Criminal Court (ICC) launched in
    2008 was completed. Very broadly it concluded that the EIDHR-funded activities have
    been very relevant, generally very effective, and have had a positive impact on the
    establishment and functioning of the ICC. Regular reporting to the European Parliament
    continues.

SPECIFIC OBJECTIVE: Build confidence in and enhance the reliability and transparency of
democratic electoral processes through deployment of EU election observation
missions

Indicator : Number of      missions and results (including assessment and recommendation
reports)
Target : 8 to 12 EU electoral observation missions and 3 to 5 expert assessment missions
carried out each year
Latest known result: 9 EU election observation missions; 3 EOMs organised but not carried
out; 11 exploratory missions conducted, and 7 expert missions carried out.

Main expenditure-related outputs:

The operational capacity to deploy EOMs was improved and a dedicated framework services
contract, to provide more choice of possible implementing partners, was made fully
operational. As EOMs increasingly take place in difficult countries such as Afghanistan where
elections are part of a peace building process, additional complex logistical and security
challenges have resulted, making such capacity improvements necessary.

SPECIFIC OBJECTIVE : Promote democracy and human rights through support to civil
society and to victims of human rights abuses

Indicator : Number of new civil society organisations financed where there is a serious lack of
fundamental freedoms and where civil society operates with difficulty
Target : By 2013 the instrument will have financed for the first time at least 150 new civil
society organisations in countries/regions where there is a serious lack of fundamental
freedoms
Latest known result: By the end of 2009, 46 projects were ongoing, supporting approx. 100
organisations.

Main expenditure-related outputs:

The EIDHR Compendium was developed during 2009, and provides an overview of all the
projects supported by the EIDHR Instrument from the time of its launch in 2007 up to the end
of the first quarter of 2009. At that time, 502 projects had been implemented with co-funding
from the EIDHR, representing a combined funding of €194.2 million.
The 2009 EIDHR Annual Action Programme was adopted on 15 April 2009, and all 3 of the
calls for proposals planned in the AAP were launched. The selection process for the 4 calls
for proposals under the 2008 budget was completed.


Activity: Multilateral relations, co-ordination in the areas of migration and
asylum, general external relations matters

Activity description and justification for EU intervention


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This Activity covers both the EU external policies linked to the multilateral relations
frameworks (United Nations, Council of Europe etc.) as well as the thematic programme on
asylum and migration. The activity can be divided into 4 main elements: promotion of global
governance; support to regional organisations in the multilateral system; relations with the
Council of Europe and the OSCE; migration and asylum.
Concerning migration and asylum, EuropeAid manages the implementation of the former
programme 'AENEAS' as well as the new thematic strategy introduced in 2007. This covers
actions in the areas of re-admission, illegal and legal immigration and law-making, and builds
on initiatives created under AENEAS. The approach is principally geographic, adjusted to
take account of the “migratory route” concept.

The EuropeAid website carries more information: Migration and Asylum

Key results in 2009
•   Migration and development: The Africa-EU Partnership on Migration, Mobility and
    Employment will provide holistic responses to these issues in the interest of both
    partners, with the particular objectives to create more and better jobs for Africa and to
    better manage migration flows. One targeted action started this year.
•   EU Expertise (MIEUX): MIEUX is an initiative to provide technical assistance on request
    from third countries wishing to enhance their capacities to better address irregular
    migration and mixed migration flows as part of a comprehensive approach to migration
    management. The 36-month initiative has a global scope and complements the
    Commission's current longer-term migration co-operation initiatives with short-term
    capacity building actions which can be swiftly be put in place.
SPECIFIC OBJECTIVE: Develop co-operation with third countries in the areas of migration
and asylum: foster the links between migration and development; promote well-
managed legal labour migration; fight illegal immigration and facilitate the
readmission of illegal immigrants; fight smuggling of and trafficking in human beings;
and promote asylum and international protection.
Indicator : Increased effort and cooperation of third countries in managing migration and
development issues.
Targets : Mobility partnerships effectively implemented; potential for expansion of mobility
partnership pilot experiences assessed; Regional Protection Programmes carried out in the
focus regions; EU-Africa Partnership on Migration, Mobility and Employment effectively
supported
Latest known result: Three Mobility Partnerships are being implemented/negotiated (Moldova,
Cape Verde, Georgia) and several projects supporting them are ongoing. €5 million in Special
Measures was dedicated to Regional Protection Programmes in the Horn of Africa in 2009.
Activities and awareness-raising campaigns through Commission-financed projects have been
carried out worldwide in order to increase the level of remittances channelled in support of
development projects.

Main expenditure-related outputs:

The 2009 Annual Action Programme adopted on 5 June 2009, covers three main activities: the
management of all aspects of migratory flows, the prevention of irregular migration in Libya
and support measures for the programme.

A Call for Proposals was launched in mid August, for a budget of €70 million to be contracted
in 2010. Around 150 ongoing projects are already managed centrally, thus discussions were
held with DG JLS in particular, to move to the deconcentration of the management of regional


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and local projects to EU Delegations in order to ensure greater coherence at local level and
strengthen aid effectiveness.



Activity: Crisis management and global threats to security

Activity description and justification for EU intervention

This activity complements actions taken in the framework of the CFSP and it contains a
number of different strands: Under the conflict prevention strand, the Commission addresses
the root causes of violent conflict and international channels to prevent the spread of violent
conflict by restricting the flow of funds resulting from the illicit trade in diamonds from war
zones through the Kimberley Process. Under crisis and disaster response, funds are
channelled through the specialised UN agencies and NGOs. Under the promotion of nuclear
safety throughout the eastern neighbourhood of the Union, the Commission aims to improve
the safety of civilian nuclear installations, nuclear waste management, storage and disposal,
and to sustain a culture of nuclear safety. Finally, the Commission contributes to trans-
regional-level actions in the area of organised crime, trafficking, protection of critical
infrastructure and threats to public health. The EuropeAid website carries more information:
A stable present means a brighter future
Key results in 2009
•   IfS: The Expert Support Facility mechanism, enabling the Commission and beneficiary
    countries to draw on people with particular expertise to support programming and
    implementation in areas of trans-regional threats to security, has gathered pace and by
    the end of 2009 more than 18 expert missions had been carried out in 12 countries. The
    framework contract, aimed at public and para-statal entities in member states, aroused
    the interest of 186 such entities. It has led to work with 14 consortia from 16 member
    states in the areas of, inter alia, chemical, biological, radiological and nuclear (CBRN)
    technologies, bio-safety and bio-security, counterterrorism and organised crime. Five
    assignments were launched in 2009 under this priority for the IfS. Countries/regions
    covered include the Caribbean, Latin America, Senegal, Ghana, Cap Verde, Indonesia,
    Bangladesh, Mali, Mauritania and the Horn of Africa.
•   Nuclear safety: The geographic scope of the Nuclear Safety Cooperation Instrument
    includes all third countries, even though the first part of the implementation phase (2007-
    2009) concentrated mainly on Russia, Ukraine, Armenia and Kazakhstan. During 2009,
    preparations were made to extend the programme to the Philippines, Morocco, Vietnam
    and Brazil, the first time it has been extended outside the Neighbourhood region.
SPECIFIC OBJECTIVE: Promotion of an effective nuclear safety culture, in the context of
EU external energy policy

Indicator : Progress in enhancing cooperation with third partner countries in the area of
nuclear safety through the implementation of the Commission's Nuclear Safety Strategy for
Community cooperation programmes 2007-2013 as referred to in the Communication on
"Addressing the international challenge of nuclear safety and security".
Target : Increase in nuclear safety culture in partner countries; Increase of the protection
against radioactive materials; Improved legislative and regulatory frameworks in the area of
nuclear safety in third partner countries; Continuation of the nuclear safety cooperation /
assistance with the Commonwealth of Independent States and extension to other third
countries particularly those starting or expanding nuclear power programmes; Mitigation of the
consequences of the Chernobyl disaster



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Latest known result: Action Programmes 2008 phase III with Armenia, Belarus, Georgia,
Ukraine, Jordan, Egypt and Morocco, all signed. The Memorandum of Understanding with
Ukraine is being reviewed by Ukraine after changes made by the Commission (inclusion of
Chernobyl activities).
Main expenditure-related outputs:

The last TACIS contracts were signed in August. The AAP 2008 was fully contracted except
for the Russian allocation where the funds were redirected to Ukraine, Armenia, and the
Chernobyl Shelter Fund. Definition of the 2009 programme is largely on track, with the INSC
committee approving certain parts in April. The merger of the internal websites and the CIRCA
database with the databases and websites hosted by the JRC at Petten is well under way.

SPECIFIC OBJECTIVE : To reduce the risk of proliferation by counteracting illicit spread of
chemical, biological, radiological and nuclear (CBRN) technologies, materials and
agents

Indicator : Number of activities identified on the basis of the Strategy and Indicator
Programme and implemented by the Commission in collaboration with other international
donors and the partner countries in the areas of non-proliferation of CBRN technologies,
materials and agents.
Target : Thematic coverage of all five priority areas identified in the Strategy 2007-2011 and
Indicator Programme 2007-2008, taking into account the activities of other international donors
active in this field.
All countries representing potential risks of proliferation of CBRN technologies, materials and
agents covered by the assistance from the Commission acting in multilateral framework.
Latest known result: 7 activities identified.
Main expenditure-related outputs:

The programming for the Instrument for Stability Indicative Programme for the period 2009-
2011 was adopted in April. The AAP 2009 was prepared in parallel and presented to the
management committee in July.

SPECIFIC OBJECTIVE : Counteracting global and trans-regional threats

Indicator : Strengthened capacities of the Drug Control Coordination Unit / Economic
Cooperation Organisation's secretariat to assume a role of political consensus-seeking and of
advocating for trans-regional cooperation
Target : Fight against trafficking in Central and Western Asia along the heroin trafficking route.
Increased effectiveness of information exchange on illicit trafficking, in particular of drugs,
pursuant to enhanced use of Interpol I-24-7 communication system in the 3 priority countries
(Iran, Pakistan and Afghanistan). Improved container and border control in selected countries
and linkages with UNODC and Commission existing initiatives
Latest known result: Agreement signed and activities ongoing covering 10 countries.
Implementation delayed (because of difficulties obtaining visas for Iran and late conclusion of
partnership agreements between GTZ-UNODC-Interpol.)

Indicator : Enhanced capacity for international cooperation of law enforcement and judicial
service of beneficiary countries for contributing to the fight against international criminal
networks along the cocaine route.




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                                                                EuropeAid Annual Activity Report 2009




Target : Implementation of measures against the illicit trafficking of firearms and explosive
materials in Africa and central America, and to reduce the incidence of drug precursors'
diversion from licit trade (Latin America and the Caribbean)
Latest known result: Effective implementation starting January 2010: Contribution agreement
signed covering 10 airports; grant to combat money laundering in the non-banking sector
signed with the "Gafisud" organisation covering 10 countries. Identification of precise actions
for maritime trafficking in 3 countries is ongoing. Identification of actions for capacity building
on law enforcement are also ongoing in cooperation with Ameripol.

Main expenditure-related outputs:

The Instrument for Stability indicative programming for 2009-2011, the AAP 2009 (covering
new programmes on the cocaine trafficking route and on critical maritime routes) and a pilot
project on Maritime Awareness and Risks were decided, together with the IfS Expert Support
Facility's new specialised framework contract with Member State organisations covering,
inter alia, CBRN technologies, biosafety & bio-security, counterterrorism and organised
crime.



Activity: Relations with sub-Saharan African, Caribbean and Pacific (ACP)
countries and EU member states' overseas countries and territories (OCTs)

Activity description and justification for EU intervention

The activity covers EU relations with the 78 states that have signed the Cotonou ACP-EU
Partnership Agreement, Cuba, and EU Member States' 20 Overseas Countries and
Territories (OCTs). An Association Decision by the Council in 2001, modified in 2007,
governs EU-OCT relations. The activity comprises political and trade relations and
development co-operation. The European Development Fund (EDF) funds most of the EU's
ACP and OCT programmes, whilst the Community Budget funds programmes in South
Africa, support to ACP banana- and sugar-producing states, and thematic programmes.
The EuropeAid website carries more information: External assistance and ACP countries

Key results in 2009 and lessons learned

•   Peace Facility: The African Peace Facility is the first EU development instrument which
    focuses exclusively on peace and security in Africa. Since its establishment the EU has
    channelled €740 million through it, and its scope was broadened in 2007 to include
    conflict prevention and post-conflict stabilisation. Under the 10th EDF, the Commission
    was able to earmark €300 million for the tri-annual action plan. The instrument is holistic,
    combining capacity building, peace support operations and an early response
    mechanism, at both regional and continental levels. The three ongoing EU capacity
    building programmes are; Strengthening the Peace and Security Department of the
    African Union Commission; Strengthening African conflict prevention capacities (Early
    Warning Systems); Reinforcing the planning and management capacities of the African
    Union Commission, the Regional Economic Communities and the African Standby Force.
•   Vulnerability FLEX: The potential negative impact of the financial crisis on Budget
    Support operations in beneficiary countries was anticipated. The risks mainly related to
    two Budget Support eligibility areas: macroeconomic stability and progress towards
    poverty reduction. So far these risks have not materialised since in many cases
    macroeconomic frameworks have been revised in collaboration, and often with support,
    from the IMF. In addition, the Commission pledged additional budget support through the


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    new vulnerability FLEX mechanism which aims to help countries maintain spending
    programmes without jeopardising macro-economic stability.
•   The implementation of the 10th EDF Water and Energy facilities progressed at a good
    pace during 2009. About 6.5 million people are expected to benefit from projects under
    the Energy Facility. More than 1.6 billion people in the world mainly concentrated in rural
    and peri-urban areas of developing countries do not have access to electricity. The
    situation is particularly severe in ACP countries, where the rate of access to electricity
    can be as low as 10% in rural areas. Both the Water and the Energy Facilities are using a
    pooling mechanism which aims to maximise impact and attract private investment in
    infrastructure projects by blending their grants with loans
•   Lessons learned: Country evaluations were completed for Chad, the Central African
    Republic, Uganda, Angola, Namibia and Botswana. These evaluations assessed
    cooperation over periods of 6 – 8 years. Although it is impossible to aggregate the
    findings of these evaluations some key themes do nevertheless stand out. In Uganda,
    Namibia and Botswana, it was found that the Commission's strategies had been
    designed in line with national development strategies. Cooperation strategy in Chad and
    Angola was judged to have been relevant to partner needs at the time of implementation.
    In Angola the transition from humanitarian response was considered logical, consistent
    and strategic. For the Central African Republic however the evaluation found that it took
    the Commission a long time to fully elaborate a global response to the crisis.

SPECIFIC OBJECTIVE: Contribute to poverty alleviation and sustainable development
through fostering improved governance, trade, infrastructure, social cohesion and
environmental sustainability

Indicator: Reduction of poverty: Millennium Development Goal n° 1 progress indicators, in ACP
countries.
Target: Contribution to the achievement of MDG n°1: halve between 1990 and 2015, the
proportion of people who live on less than 1 USD a day
Latest known result: In Sub-Saharan Africa, in spite of sustained economic growth over the
past five years, the poverty rate remains at 50%. The international financial crisis represents a
major setback for developing countries' poverty reduction efforts.

Main expenditure-related outputs:

By the end of 2009, 62 Annual Action Programmes had been adopted, including the first ones
under the 10th EDF regional programmes.

Regarding the Intra-ACP portfolio, 129 EDF programmes are under implementation for a total
amount of €3,851 million and 35 programmes are under preparation for 2010-2011 for a total
amount of €835 million.

After the signing of the Intra-ACP Strategy in March 2009, work started immediately to prepare
the interventions to be committed from the 10th EDF resources for 2009. The AAP 2009
committed a record amount of €800.82 million to 14 programmes.

In 2009 an additional €200 million contribution to the Infrastructure Trust Fund was pledged by
the Commission, bringing the overall amount of the Fund to €372.7 million. €33 million were
committed in grants during 2009 and €26 million were given a clearance in principle.

A new €40 million programme was approved to support the Global Climate Change Alliance
under the 10th EDF. The preparation of the 10th EDF Water and Energy Facilities progressed


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at a good pace and with high quality (both Facilities approved within the 2009 Intra ACP AAP
in November 2009 for €200 million each). The first call for proposals of the Energy Facility was
launched in November 2009.

Over €150 million were disbursed in the form of additional Budget Support under VFLEX/FLEX
in 11 ACP States, thereby meeting our objective of helping to reduce the 2009 fiscal gap in
countries most affected by the global economic downturn.

As at end 2009, a total of €8.35 billion has been committed out of the €21.2 billion under the
10th EDF managed by the Commission. In addition, €400 million has been approved by the
Commission for the Water and Energy Facilities, these funds being financially committed as
and when contracts are signed. Thus 18 months after its entry into force (1st July 2008),
around 40% of the 10th EDF has already been committed / approved.

SPECIFIC OBJECTIVE: CONTRIBUTE, THROUGH THE EDF, TO REINFORCE PEACE, SECURITY AND
STABILITY IN THE ACP STATES

Indicator: Number of African-led peace support operations and level of EC engagement in
conflict resolution and presence on the ground in conflict areas.

Target: Considerable progress under the 10th EDF. €300 million tri-annual African Peace
Facility Action Plan (2008-2010). 60% of the APF contracted by 2010. Under the 10th EDF,
€200 million earmarked for Peace and Security Operations, €65 million for Capacity Building
programmes and €15 million for the Early Response Mechanism.

Latest known result: The Peace Facility continues to support African-led peace operations in
Somalia ("AMISOM") and the Central African Republic ("MICOPAX").

Main expenditure-related outputs:

Under the 10th EDF, contributing to the tri-annual African Peace Facility Action Plan, €200
million is earmarked for Peace and Security operations, €65 million for capacity building
programmes, and €15 million for the Early Response Mechanism.

Based on findings from financial audits of previous peace operations supported by the Peace
Facility ("AMIS" in Darfur and "AMISEC/MAES" in the Comoros) a very considerable effort is
being made to strengthen the financial management of the Commission of the African Union.

Delivering on the Commission's Communication of 2007 on an EU response to situations of
fragility, Guidelines for the implementation of Budget Support in Fragile States were approved
in April.



Activity: Food security

Activity description and justification for EU intervention

The Food Security Thematic Programme (FSTP) is part of the EU's commitment towards
achieving the MDG1 on hunger, which appears to be elusive as 2015 approaches,
particularly in Sub-Saharan Africa. The EuropeAid website carries more information: Fighting
hunger

Key results in 2009



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•   Food Facility: In 2009, the €1 billion Food Facility was the most significant additional
    global contribution to stimulate agricultural development and fight hunger in developing
    countries, with project formulation and contracting done in record time. The Facility drew
    together different aid delivery approaches (civil society, international organisations,
    beneficiary governments) and permitted the Commission to act as a driver for
    coordination within the UN system.

•   Fragile states: €117 million were committed to assist the transition from relief to
    development in failed and fragile states in Africa and Asia, to be implemented mainly by
    NGOs acting locally.

SPECIFIC OBJECTIVE : Improve food security in favour of the poorest and the most
vulnerable and contribute to achieving the first MDG, especially through research &
technology, linking information and decision making and addressing food security in
fragile and failed states

Indicator: Availability and adoption of innovative and demand-driven pro-poor agricultural
technologies and policies; degree of participation of farmers and other stakeholders in
research programmes.

Target: Development and adoption of demand-driven technologies and policies responding to
beneficiaries’ needs; active role of low-income smallholder farmers and other stakeholders in
research programmes.

Latest known result: A grant with FARA (Forum for Agricultural Research) has been signed.
FARA is a leader of the consortium "PAEPARD II" where there will be a strong partnership
with farmers' organisations, member of this Consortium. The Food Security Thematic
Programme is financing the "Immediate Plan of Action" 2009-2011 for reform of the FAO.

Main expenditure-related outputs:

The 2009 AAP was approved in May. With a budget of €217 million, it includes 1 new global
call for proposal in the area of research in ecological agriculture and better market access for
poor smallholders, and 22 local calls for proposals in the areas of LRRD and innovative
approaches to combat food insecurity.

The deadline of call for proposals for innovative approaches in research for agriculture which
stimulate demand driven and pro-poor agricultural technologies was extended in order to
optimize the result of the call.

€530 million from the Food Facility were implemented through international and regional
organisations, €212 million - via a call for proposals - through Non State Actors and MS
development agencies, and €94 million under budget support actions.

Activity: Non-state actors and local authorities in development

Activity description and justification for EU intervention

•   The objective of the thematic programme on non-state actors and local authorities in
    development is to support initiatives carried out by civil society organisations and local
    authorities originating from the Community and partner countries in the area of
    development as well as to strengthen their capacity in the policy making process. The
    EuropeAid website carries more information: Civil society & local authorities




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•   Key results and lessons learned in 2009

•   Lessons learned – the mid-term review of the NSA/LA programme has been carried out,
    highlighting on the one hand that (i) the programme has produced a nucleus of high-
    quality projects and that (ii) the representativeness of the community of NSA and LA
    stakeholders is increasing. On the other hand, the report underlines that (i) the country
    selection needs to be improved (more focussed, fewer countries), (ii) capacity building
    needs to be made systematic and built into the programme and (iii) there is a need for a
    more systematic consultation of stakeholders.
•   A structured dialogue with non-state actors, local authorities, Member States and the
    European Parliament has been initiated in order to strengthen the effectiveness of
    stakeholders involved in EU development cooperation. Democracy and human rights are
    thematically addressed within the dialogue for the first time.
•   Dialogue and consultation with various stakeholders principally from the South is steadily
    improving: three regional seminars on civil society and the thematic programmes were
    organised in Mexico, Cairo and Daar es Salaam, gathering over 300 participants

SPECIFIC OBJECTIVE : An inclusive and empowered society in partner countries to
facilitate Non State Actors' (NSA) and Local Authorities' (LA) participation in poverty
reduction and sustainable development strategies

Indicator: Degree of participation of poorest sections of the population, including marginalised
and vulnerable groups out of reach of mainstream services and/or excluded from policy
making processes, including number of activities and initiatives undertaken by Civil Society
Organisations (CSOs)/Local Authorities (LAs) for consulting or influencing partner country
governments' policy formulation and monitoring

Target: Increase marginalised and vulnerable groups' participation in and contribution to the
definition of policies and involvement in public debate.
Latest known result: In the majority of targeted countries, poorest sections of population have
no access to public services and are de facto excluded from policy-making processes.
During the course of 2009, 396 contracts for single-country and multi-country initiatives were
signed with non-state actors and local authorities with the aim of improving this situation.
Main expenditure-related outputs:

The NSA-LA thematic programme continues to be a challenge to implement, subject to very
close scrutiny from member states, the European Parliament and European NGOs. The first
part of the AAP 2009 (representing 97% of the financial envelope) was approved without major
difficulties, but the second part (1.4% of the envelope) was opposed by Parliament during the
democratic scrutiny procedure, which delayed its implementation. The first half of the year was
devoted to the evaluation of all the calls for proposals launched at the end of 2008.

SPECIFIC OBJECTIVE : Raise public awareness of development issues and promote
education for development in the EU and acceding countries

Indicator: Public awareness and understanding of development issues, including number and
quality of initiatives undertaken by CSOs and LAs in the field of education (formal and
vocational) to promote the inclusion of development issues in their respective programmes.

Target: Mobilise EU citizens in favour of development and action against poverty. Improve
public understanding and support for long-term structural development processes.



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                                                              EuropeAid Annual Activity Report 2009




Latest known result: The Eurobarometer special survey of October 2009 states that (i) 3/4 of
the EU population is not aware of the MDGs but (ii) there was nevertheless an increase in the
percentage of people being aware (from 12% in 2004, to 18% in 2007 and 24% in 2009).

Main expenditure-related outputs:

87 contracts for projects aiming to raise EU public awareness and education for development
have been signed with non-state actors and local authorities in 2009.

SPECIFIC OBJECTIVE : Strengthen cooperation, coordination and networking among
European organisations

Indicator: Degree of cooperation between European non-state actors and local authorities
networks and between them and the Commission (including creation of new
platforms/alliances).

Target: Reinforce cooperation and networking between European non-state actors and local
authorities, within their organisations and with the Commission.

Latest known result: Set up of Platforma (local & regional authorities' platform) and launch of
the trade unions development cooperation network. Increased interaction between members
of the Czech and Swedish NGO platforms.

Main expenditure-related outputs:

In 2009, EuropeAid had weekly contacts with CONCORD and strengthened contacts and
working relations with ITUC (International Trade Union Confederation).

9 projects involving non-state actors and local authorities were agreed.



Activity: Environment & sustainable management of natural resources,
including energy

Activity description and justification for EU intervention

In this activity area, the Commission promotes and implements the policy applicable to the
Community’s relations with developing countries and Europe’s neighbours on environment
and sustainable management of natural resources, including energy, promotes coherence
with other Community policies and conducts forward studies to these ends. Financial support
is provided to projects within 5 priority areas: (1) working upstream on MDG7: promoting
environmental sustainability; (2) promoting implementation of EU initiatives and
internationally agreed commitments; (3) better integration by the EU (4) strengthening
environmental governance and EU leadership; and (5) support for sustainable energy
options in partner countries and regions. The EuropeAid website carries more information:
Environment and natural resources

Key results in 2009

• Renewable and Efficient Energies: through the new Global Energy Efficiency and
  Renewable Energy Fund (GEEREF) the Commission is seeking to create a leverage effect
  to scale up investments in new technologies. The fund size as of January 2010 was €108
  million while the funding target is €200–250 million. In 2009, two GEEREF investments



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   were carried out at a total value of €22.5 million. Current leverage at the level of these two
   regional funds was €89 million (at first closing), thus co-financing of 75% has been
   obtained. With the expected total fund size of €230 million for these two funds, and the
   equal amount of debt funding expected, projects of €460 million could be funded, thus
   entailing a co-financing of over 95%, for a GEEREF investment of less than 5%. The
   shortage of risk capital in the renewable energy and efficiency sector in developing
   countries and transition economies is estimated at over €9 billion.
• Climate Change: activities intensified with the UNFCCC negotiation sessions in Bonn and
  our contribution to the 5th National Communication of the Commission to the UNFCCC.
  Guidelines were adopted to assist staff to better understand and mainstream climate
  change in aid co-operation. The Global Climate Change Alliance (GCCA) started work in
  four pilot countries with another eight pilot countries identified. A support facility has been
  launched which will provide capacity building assistance to GCCA countries' policy
  makers, negotiators and line Ministries and will support Delegations in the identification of
  appropriate climante change actions. A study on the Commission's aid co-operation
  portfolio at risk to climate change was undertaken.
• An "auction floor" was organised in March 2009 in order to find funding partners for some
  of the project proposals submitted under the call for proposals "Environment and
  sustainable management of natural resources, including energy" which could not be
  selected for Commission funding due to budget limitations. This proved to be an
  innovative way of coordinating with funding partners, which attracted quite some media
  attention.

SPECIFIC OBJECTIVE : Promote Global environmental sustainability (MDG 7) through high
quality implementation of EU initiatives and internationally agreed commitments

Indicator: Global average temperature increase of maximum 2° Celsius
Target: By 2015 developing countries have adopted development strategies to reduce the
growth in their CO2 emissions.
Latest known result: While the EU's CO2 emission targets for 2012 are likely to be met, global
emissions are on the rise and make it likely that temperatures will increase beyond the 2°.
According to the 2007 World Bank MDG Report, total emissions of CO2 from developing
regions rose from 9.7 billion tonnes in 1990 to 12.4 billion tonnes in 2004. The Copenhagen
Accord failed to set any emission targets.
Indicator: Rate of protected area to maintain biological diversity in developing countries
Target: By 2020 significant growth in the Protected Areas as a proportion of total area in
developing regions.
Latest known result: Terrestrial and Marine Protected Areas represented 14.4% of the total
area of developing regions in 2006. (2007 World Bank MDG Report)

Main expenditure-related outputs:

The 2009 AAP for the programme was adopted in May. Its financial allocation of €164 million
euro covers all five priorities of the thematic programme except the improvement of expertise
for integration and coherence. The programme includes a call for proposals amounting to
€62.7 million.

Contracts with external experts were concluded to draft terms of reference for a call for tender
and a call for proposals linked to the issue of Carbon Capture and Storage (CCS)




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                                                               EuropeAid Annual Activity Report 2009




SPECIFIC OBJECTIVE: Strengthen International Environmental Governance to better
protect the global environment and allow sustainable development in line with EU
policy

Indicator: Level of EU influence on decisions taken by Multilateral Environment Agreements &
processes to effectively protect the global environment; Level of climate change consensus
limiting climate change to 2ºC
Target: Majority of decisions taken in international meetings in line with EU positions.
Latest known result: The Copenhagen Accord was negotiated at the December 2009 COP 15.
Since then, more than 90 countries have associated themselves to the Accord, representing a
large majority of the world population and more than 80% of global emissions. Implementing
the Accord means action now by mobilising significant fast start finance, while complementing
the on-going international negotiation process.

Indicator: Implementation of decisions by conventions for trade in endangered species
(CITES) and on biological diversity (CBD)
Target: Conventions (CITES and CBD) contribute effectively to meeting goal of reducing rate
of biodiversity loss by 2010.
Latest known result: Several reports confirm that the global 2010 target to significantly reduce
the rate of biodiversity loss will be missed. The rate of biodiversity loss and ecosystem change
is still accelerating. Support from the EU was instrumental to advance global deliberations on
the establishment of an Intergovernmental Science-Policy Platform on Biodiversity and
Ecosystem Services and an international regime on access and benefit sharing.
Main expenditure-related outputs:

DG Environment leads on this (shared) objective. However disappointing the results, it is clear
that the EU played a lead role in the COP 15 in Copenhagen.

Activities under the 2009 budget for the GCCA have been identified for four countries:
Vanuatu, the Maldives, Tanzania and Cambodia. A tender for technical assistance (€3 million)
has been launched.

SPECIFIC OBJECTIVE: Promoting sustainable energy access and global security of energy
supply

Indicator: Amount and % of co-financing obtained via the Global Energy Efficiency and
Renewable Energy Fund (GEEREF)
Target: Leverage between €300 million and €1 billion of additional investments by 2010.
Latest known result: The size of the GEEREF as of January 2010 was €108 million.

Main expenditure-related outputs:

EuropeAid continued to promote the GEEREF. In 2009, two GEEREF investments were
carried out at a total value of €22.5 million. Current leverage at the level of these two regional
funds was €89 million (at first closing), indicating that co-financing of 75% has been obtained.
With the expected total fund size of €230 million for these two funds, and the foreseen equal
amount of debt funding, projects of €460 million are expected to be funded, implying a co-
financing of over 95%, for a GEEREF investment of less than 5%.The shortage of risk capital
in the renewable energy and efficiency sector in developing countries and transition
economies is estimated to be over €9 billion.



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                                                                EuropeAid Annual Activity Report 2009




Investments in regional sub-funds in India and South Africa took place during the summer, and
a sub-fund in China is in preparation.



Activity: Human and social development

Activity description and justification for EU intervention

This activity concerns strategies on good health for all, education, knowledge and skills,
gender equality and other areas of human and social development (employment and social
cohesion, children, youth and culture) in development policy. The programme contributes to
translating high-level strategies into action, through cross-regional initiatives to share good
practices, develop indicators and improve the data situation. The EuropeAid website carries
more information: Human and social development

Key results in 2009

•   Investing in People: The programme addresses 7 of the 8 Millennium Development
    Goals, complementing bilateral cooperation with global and regional initiatives, including
    support to policy action, capacity building and exchanges of good practices. In the area
    of employment and social inclusion, the focus in 2009 goes to the social inclusion of
    people excluded from the formal labour market and social protection schemes, targeting
    vulnerable groups and people working in the informal economy. The training needs of
    people working in the informal economy are also the main focus of the action of 'Investing
    in People' in the area of Technical and Vocational Education and Training in 2009, with
    the aim of supporting the development of activities that are more responsive to local
    labour market demand and produce relevant and useful professional skills in a flexible
    manner.
•   Health: fight against poverty-related diseases, promotion of sexual and reproductive
    health and rights as well as tackling the lack of human resources for primary health. The
    Commission continues to support the Global Fund to Fight AIDS, Tuberculosis and
    Malaria (GFATM) - the main instrument to fight these three main poverty-related diseases
    at a global level - with a further contribution of €50 million in 2009 from the EU Budget
    and disbursements during the year from both the Budget and the EDF amounting to
    € 200 million
•   Education: Regarding education for all, progress is still required to achieve the goal of
    universal primary school completion, which was supported again through a contribution to
    the 'Education for all Fast-Track Initiative' multi-donor trust fund, the Catalytic Fund. This
    initiative was launched in 2002 as a global partnership to ensure accelerated progress
    towards universal primary education for all boys and girls by 2015.
•   Gender: Gender equality, children's rights and cultural diversity continue to be promoted,
    especially through action implemented by civil society organisations, with a specific
    allocation for Mediterranean ENPI countries in 2009-2010.
SPECIFIC OBJECTIVE: Good health for all

Indicator: Increased number of people benefiting from access to prevention, treatment and
care on HIV/AIDS, malaria and other major diseases, reproductive and sexual care services
and basic health workers services.
Target: Reverse the spread of HIV/AIDS, malaria and other major diseases.




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                                                               EuropeAid Annual Activity Report 2009




Latest known result: The prevention efforts with respect to HIV/AIDS, malaria and other major
diseases are proving successful, but access to prevention, treatment and care in the worst
affected countries remains limited. The proportion of HIV-positive pregnant women receiving
antiretroviral prophylaxis is growing, leading to a reduced number of new HIV infections
among children. The number of people gaining access to antiretroviral treatment is now
approaching 4 million. Antiretroviral therapy coverage rose from 7% in 2003 to 42% in 2008,
with especially high coverage achieved in eastern and southern Africa (48%)4and mortality
related to HIV/AIDS is declining slightly. However, the majority of people in need still lack
access to treatment, and HIV/AIDS remains one of the top causes of death in Africa.
SPECIFIC OBJECTIVE: Equal opportunities for education, knowledge & skills;
Indicator: Increased net enrolment ratios in primary education, boys and girls alike.
Target: Contribute to boys and girls' being able to complete a full course of quality basic
schooling by 2015.
Latest known result: The global net enrolment ratio rose from 83% to 87% between 1999 and
2005. Participation levels increased most rapidly in sub-Saharan Africa (by 23%), and South
and West Asia (by 11%). Yet with current trends 58 out of 86 countries that have not yet
reached universal primary enrolment will not achieve it by 2015.

SPECIFIC OBJECTIVE: Gender equality and women's empowerment;

Indicator: Level of political representation of women, existence and enforcement of legal
frameworks for economic and social gender equality, measured by proportion of seats held by
women in national parliament
Target: Contribute to reduce gender disparity in access to social services, increase women's
voice in society through better political and civil society representation and improve gender
economic and social equality.
Latest known result: Gains in equality of access to remunerative labour markets have been
modest. This is paired with lower social protection for women than for men. In many
developing regions women are still lacking property rights, and have no access to credit.
Women's political participation remains weak especially in Northern Africa, and Western Asia,
where the percentage of women in Parliament does not exceed 10% (a notable exception is
Rwanda with 56% after the most recent elections in 2008).

SPECIFIC OBJECTIVE: Improvement of human and social development - employment and
social cohesion, children, and youth and culture

Indicator: Increased social protection spending and formal employment, measured by:-
Employment-to-population ratio, (MDG1) - Proportion of own-account and contributing family
workers in total employment (MDG1) - social expenditure/ GDP % - % of population covered
by basic social security
Target: Contribute to a wider and more consistent implementation of the decent work agenda
for women and men. Promote an active labour policy.
Latest known result: In developing regions, around three quarters of all men and half of all
women are working. More than half of these workers are in unstable and insecure jobs with
little or no social protection. Reforms of social protection systems, in particular cash transfers
to vulnerable groups such as children and old people have been introduced and strengthened
over the last decade, especially in Latin America.

4
    Source: WHO



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                                                             EuropeAid Annual Activity Report 2009




Indicator: Decreased proportion of children engaged in child labour, victims of child
trafficking or violence

Target: Obtain progress in the implementation of the Convention on the Rights of the Child.
Latest known-result: There are high levels of child exploitation through illegal and hazardous
labour, trafficking and all forms of violence (especially sexual violence and abused rights in
armed conflicts).

Indicator: Improved access and protection of cultural heritage and diversity in
developing countries

Target: Contribute to a better access of local populations to their own cultural heritage, a
better diffusion of developing country cultural events/works of arts towards other countries
and the EU, more cultural exchange across borders to contribute to a higher level of
intercultural dialogue; strengthen the role of non-state actors in culture.

Latest-known result: Large parts of developing countries' populations have no access to their
own or foreign culture. There is a lack of capacity to preserve and promote cultural heritage
and cultural creation. The level of governance in culture is low, non-state actors are often
weak.


Main expenditure-related outputs (common to all four objectives):

The AAPs for 2009 and 2010 Part 1 were adopted with a budget of €131.3 million. They
include seven new calls for proposals in the areas of the health workforce, non-communicable
diseases, reproductive health, technical and vocational education and training, gender
equality, social inclusion and child participation. Additional funds are also programmed to
select projects under two calls for proposals set out in the 2008 Action Programme, in the
areas of gender equality (supporting women’s property ownership and adult female literacy)
and culture (access to local culture, protection and promotion of cultural diversity).




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                                                                      EuropeAid Annual Activity Report 2009




    2. MANAGEMENT AND INTERNAL CONTROL SYSTEMS
    2.1. The DG in 2009

    2.1.1.   The service environment

    EuropeAid’s mission is to implement the large majority of the external assistance
    instruments5 of the European Commission financed from the General Budget of the
    European Community and the European Development Funds (EDF).

    To this end EuropeAid has a annual transaction turnover of approximately € 9 billion, just
    under half of which is financed by the European Development Funds, outside the EC
    General Budget. The external aid budget managed by EuropeAid has been on a steady
    upward trend (see graph below) and is likely to undergo a 17% increase by the end of the
    current financial framework in 2013.

               General Budget and EDF individual commitments 2002-2009 (€bn)


                                                                                      5

                                     Budget
                                                                                      4


                                                                                      3

                                                               EDF
                                                                                      2


                                                                                      1


                                                                                      0
                           '0 4   '0 5       '0 6       '0 7        '0 8       '0 9




    The Director General of EuropeAid is the authorising officer by delegation for the expenditure
    under the EC Budget and the EDF. He shares the responsibility of the external aid cycle
    with the Directors General of DGs RELEX and DEV who are responsible for multi-annual
    programming.

    Projects/programmes are either managed directly by EuropeAid, or by EC Delegations in
    third countries under EuropeAid’s overall responsibility (devolved management). The
    portfolio devolved to delegations comprises approximately 82% of geographical and 62 % of
    thematic budget lines6 for EC Budget funding and 88 % with respect to the EDF.

    The relationship between delegations and headquarters is supported by a matrix of lines of
    accountability in which DG RELEX is responsible for administrative questions in delegations
    (logistics, personnel, administrative expenditure) as well as, together with DG DEV (for the
    EDFs), for political and programming aspects, while EuropeAid oversees the
    implementation of projects/programmes. An inter-service agreement defines the roles and
    responsibilities of each DG.


5
  Except pre-accession aid, assistance to the Western Balkans, humanitarian aid, and macro-financial aid,
    Common Foreign and Security Policy (CFSP) and the Rapid Reaction Mechanism.
6
  For the thematic programmes, the share of devolved programmes (portfolio managed by Delegations) is lower
    than at the end of 2008 (62% against 70%). This is due to the high number of contracts signed at
    Headquarters under the food facility.


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                                                                   EuropeAid Annual Activity Report 2009




                            Geographic Distribution of EuropeAid's funds7

                           In M€                                Neighbourhood
                                                                 south: 1137M
                                                                     19%

                                                                         Neighbourhood
                                                                           east: 318M
                                                                               5%



                           Africa, Caribbean,
                                                                          Asia: 673M
                             Pacific: 3379M
                                                                             11%
                                   59%



                                                                         Latin America:
                                                                              308M
                                                                               5%




    At the end of 2009, EuropeAid was staffed by 607 official posts and 505 full time
    equivalents (FTE) of external staff i.e. 45 % of EuropeAid's FTE staff were contract agents
    or other staff on short-term contracts.

    In the Commission's 111 delegations in third countries where aid management falls within
    the remit of EuropeAid, another 2468 people were responsible for managing external aid via
    'operational' or 'finance / contract / audit' tasks. 20% of these posts are staffed by officials
    on a 2 to 4 year rotation basis and the remaining 77% of the workforce are contract agents
    or local agents who can be employed on longer-term or permanent contracts. In addition, 85
    posts (3%) in Delegations are provided by Member States for contracts of 1 to 4 years for
    'Young Experts' and 'Seconded National Experts'.

    Thus a high staff turnover remains a feature of the aid management environment as does
    the challenge of persistent vacancy rates in delegations where living conditions are difficult,
    especially - but not exclusively - for contract agents.


    2.1.2.   Risk environment and management

    The operational environment of EC external aid is characterised by the:
       • geographical dispersion of activities (more than 150 states/territories/regions and 85
          delegations);
       • high number of operations and associated financial transactions;
       • diversity of partners and beneficiaries (ranging from small local NGOs to international
          organisations e.g. the United Nations) with their diverse management and control
          capacities;
       • wide variety of cooperation instruments (traditional projects, budgetary support,
          sectoral approaches, contributions to global instruments), each with their own
          comprehensive financial rules.
       The level of risk prevailing in developing countries is also high due to their geo-political,
       social, institutional and administrative environment, frequently associated with security
       and instability problems.



7
    Based on payments not including thematic programmes. ACP includes South Africa, Bananas and Sugar
      budget lines.




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                                                               EuropeAid Annual Activity Report 2009




 Mitigating factors vis-à-vis such risks include the design of cooperation instruments (tailored
 to local circumstances and specific needs); the use of different management systems (on the
 basis of the management capacity of the beneficiary state or implementing partners); and
 rigorous procedures for the selection of implementing partners. In addition EuropeAid
 provides substantial training opportunities for staff (and, to some extent, implementing
 organisations), HQ/Delegation support and well documented guidance (including via
 internet). Financial safeguards over and above those required by the relevant legislation, a
 multilayered audit approach and the presence of expert operational and finance Commission
 staff in the field undertaking comprehensive ex-ante transactional checks are all other ways
 in which EuropeAid responds to mitigate the impact of the high risks in its external aid
 environment.


 2.1.3.     Mission statement and Commissioner / DG working arrangements

 EuropeAid's mission statement at DG, Directorates and Units level was updated in 2009. The
 mission statement is available on EuropeAid intranet.

 In line with the “Code of Conduct Governing Relations between Commissioners and
 Services” adopted by the College on 24.11.2004, specific working arrangements between the
 Cabinet of Commissioners Ferrero-Waldner and Michel and DG EuropeAid were in place in
 2009. These had been updated in 2006 to simplify reporting requirements and ensure better
 coherence with the Code of Conduct and the Commission's Internal Rules.

 An overview of budget execution against targets and a summary of ongoing cases under
 investigation by OLAF is provided to the relevant Commissioners' cabinets on a monthly
 basis. In addition a twice yearly overview of internal control issues is made.

 Commissioner Olli Rehn replaced Commissioner Louis Michel from 19 May to 9 June for
 the development portfolio, and Commissioner Karel de Gucht took over as from 17 July.


 2.1.4.     Major events of the reporting year

 February 2009 saw the successful transfer of the EDF accounts into the Commission's
 central (accruals) accounting system ABAC. This change had been recommended by the
 Court of Auditors and the Discharge authority over a number of years and will facilitate
 clearer, more detailed and coherent accounting information for EuropeAid as a whole. The
 migration was the culmination of several years of preparation and necessitated a 6 week
 shutdown of EDF accounting. This clearly had an impact on EDF operations during 2009
 with most likely a one off negative impact on performance on payments' periods.

 Three financing decisions and overall plans for the newly announced € 1 billion Food
 Facility were approved by the European Parliament and all EU Member States on 30 March,
 29 April and 9 December 2009. The Food Facility spans a period of 3 years (2009-2011)
 and represents the main EU response to the worsening global food security situation in
 2007/08.


 2.1.5.     Education, Audiovisual and Culture Executive Agency

 EuropeAid works with the Education, Audiovisual and Culture Executive Agency using
 centralised indirect management for the implementation of two programmes known as
 'Erasmus Mundus Action II' (which replaced 'Erasmus Mundus External Cooperation


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                                                                EuropeAid Annual Activity Report 2009




    Window' in 2009), and Tempus IV actions. All of them are financed under the relevant
    external cooperation instruments (ENPI, DCI, EDF).

    EuropeAid's responsibility is executed through the Steering Committee of the Executive
    Agency, composed of five members from the three parent DGs8. The steering committee
    meets four times a year and is the main control and communication body whose tasks
    derive directly from the Framework Regulation on Executive Agencies. It adopts inter alia
    the following documents of the agency: its annual work programme, annual management
    plan, annual activity report as well as its budget. The president of the steering committee
    informs the parent DGs' Directors General of the decisions taken by the committee as well
    as all relevant topics concerning the work of the agency. Every steering committee is
    prepared by the 'horizontal affairs meeting' chaired by the director of the agency with the
    participation of the relevant services of the parent DGs.


    2.2. The functioning of the entire internal control system

    EuropeAid carried out the annual review of internal control in 2009 through a desk review
    on compliance with the baseline requirements of the Internal Control Standards (ICS) and a
    self assessment of the effectiveness of the internal control system via an online
    management survey involving Directors and Heads of Unit. A similar exercise was carried
    out in Delegations by instruction of DG RELEX. The main outcomes of these exercises are
    presented below.


    2.2.1.     Compliance with the requirements of the control standards

    2.2.1.1.     EuropeAid HQ

    The compliance exercise was carried out this year in relation to the 61 baseline requirements
    of the 16 Internal Control Standards9 via a desk review, involving consultation with units
    taking key responsibility for each internal control standard baseline requirement. The desk
    review confirmed EuropeAid is compliant with the requirements for all the internal control
    standards.

    Particular developments and improvements in 2009 in relation to baseline requirements are
    detailed below.


    2.2.1.1.1.     Mission and values

    See 2.1.3.


    2.2.1.1.2.     Human resources

    On ICS 3 'Staff allocation and Mobility' more efforts have been made to reduce the impact of
    the high staff turnover on the continuity of operational management in HQ. According to

8
  2 from EAC including the President, 1 from AIDCO - the DDG- and 1 from INFSO - to be replaced by
    COMM following the new set up of portfolios of the new Commission
9
  Communication SEC (2007)1341 on the Revision of the Internal Control Standards and Underlying
Framework


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                                                                         EuropeAid Annual Activity Report 2009




 requirement 3.4 'Necessary support to facilitate the integration of new staff', EuropeAid has
 developed a new course for newcomers to EuropeAid – 'Introducing EuropeAid's Role in EC
 Development Cooperation' - which was tested successfully and is now given regularly.
 EuropeAid also launched a formal tutoring and mentoring scheme in 2009. In addition, in
 December the last update to the new job description screening exercise was launched. In
 relation to ICS 4 'staff evaluation and development' 84% of staff (officials and contract
 agents) had prepared a training map in 2009. EuropeAid's vacancy rate for officials at the
 end of 2009 was at a record low of 3.46 %, well below the 5% target.


 2.2.1.1.3.        Planning and risk management processes

 EuropeAid's provisional management plan 2010 was published, as in previous years, on
 EuropeAid's intranet site. The plan was constructed with input from all units/directorates, and
 was updated for significant changes between 2009 and 2010, but was still provisional at the
 end of 2009 to allow for the impact of any changes to be registered following the passing into
 law of the Lisbon Treaty. ICS 6 'risk management process' was a priority standard in 2008
 and significant actions were undertaken in 2008 and 2009 to improve performance in this
 area including revision of the risk management methodology (with the help of external
 consultants) and awareness raising sessions delivered across the organisation (to 2110 out
 of 42 units). This control standard achieved a 17% increase in its effectiveness rating by
 management survey between 2008 and 2009 (see 2.2.2.1.2).

 A number of actions have been taken in response to risk assessments. For example, in
 Nicaragua, following a risk assessment, the Commission decided to suspend budget
 support payments, reorientating its bilateral cooperation through traditional projects in 2009.
 In this vein EuropeAid has developed guidelines on specific procedures for crisis and post
 crisis countries11. In addition, following a risk analysis, proactive action was taken to mitigate
 risks associated with the 2008 global financial crisis on budget support performance e.g.
 macro-economic frameworks have been revised (in collaboration with the International
 Monetary Fund) and additional support pledged through VFLEX12 which should contribute to
 maintain beneficiary countries' spending programmes without jeopardising macroeconomic
 stability.


 2.2.1.1.4.         Operations and control activities

 On ICS 7 'operational structure' one derogation has been granted on the mandatory staff
 mobility requirement for sensitive functions during the reporting year. One Head of unit was
 extended as titular of this function beyond the maximum established period. On ICS 10
 'business continuity' staff have been reminded of the obligation for a hand over notes in case
 of mobility. In addition the review of EuropeAid's Business Impact Analysis was launched in
 line with recent guidelines. Financial circuits were updated for the European Development
 Fund and the General Budget in February and March respectively.

 On ICS 11 'Document management' requirement 11.2 'Every document… needs to be
 registered…', 2009 was a transitional year in which EuropeAid moved to the Commission's
 electronic Advanced Records System (ARES) (on 24 March) and the requirement to ensure
 that all registered documents are filed in ARES was introduced. At the end of 2009 all

10
   Another 12 units were trained in January 2010.
11
   As of October 2009 there were 31 countries eligible to use these procedures. Status is reviewed annually.
12
   VFLEX aims at responding to the impact of the global financial crisis in the most affected ACP countries for
    the period 2009-2010 and in the form of an amendment to an existing Budget Support programme.


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                                                              EuropeAid Annual Activity Report 2009




 documents were being routinely registered in ARES and the filing rate in ARES was at 52%
 of total documents registered with the remaining documents continuing to be attached to
 CRIS records and filed in paper files.


 2.2.1.1.5.         Information and financial reporting

 See 2.2.2.1.1 for further information on activities related to the (effectiveness) of ICS 12
 'information and communication'. In addition, in relation to compliance on copyright issues,
 updated standard legal information was put on the website, including detailed legal
 information for publications, videos and photos. Support is now provided upon request on
 copyright issues based on the expertise and recommendations of OPOCE, DG COMM or the
 legal service.


 2.2.1.1.6.         Evaluation and audit

 For ICS 14 'Evaluation of activities' the Joint evaluation unit completed 13 strategic
 evaluations, launched 18 new ones and had 9 ongoing evaluations at year end which had
 been initiated in 2008. The Commission launched pilot evaluations of budget support
 programmes in Tunisia and Mali order to test the feasibility of the proposed new OECD/DAC
 methodology. For ICS 15 'Assessment of Internal Control Systems' see 2.2.2.


 2.2.1.2.       Delegations

 In February 2010, the delegations carried out the annual self-assessment of the state of
 compliance with the Internal Control Standards. The exercise, based on a survey (by means
 of an on-line questionnaire) of the Heads of Delegation, was jointly developed by DG
 RELEX, EuropeAid and the Central Financial Service of DG BUDG.
 The overall weighted average rate of implementation as perceived by devolved delegations
 managing EuropeAid funds was 92.5%, very much in line with last year's results of 92.4%.
 The standard showing highest compliance ratings was ICS 14 'Evaluation of Activities' with
 98.8%, while the one with lowest implementation rate is ICS 15 'Assessment of Internal
 Control Systems' (79.6%).


 2.2.2.     Effectiveness of implementation of the internal control standards

 2.2.2.1.       EuropeAid HQ

 2.2.2.1.1.         Actions in relation to the prioritised internal control standard

 The Annual Management Plan 2009 of EuropeAid indicated ICS 12 'Information and
 Communication' as the Internal Control Standard prioritised for 2009.

 EuropeAid prioritised this standard in order to improve internal communication. EuropeAid
 operates in a complex and changing external environment where high quality information is
 essential. A high level of delegation, and geographically dispersed activities, require a good
 sharing of information and management/staff's awareness of the responsibilities of internal
 and external communication. There was also the need to improve the quality of information
 input into the information technology systems e.g. CRIS and the information available on the
 external websites and Intranet.



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                                                              EuropeAid Annual Activity Report 2009




 A number of actions to improve the effective implementation of this standard were taken in
 2009, in particular:
 • An 'Internal Communication' Task Force was set up and established an 8 point action
    plan. Among the 21 specific actions foreseen, 8 were delayed, 7 partly achieved and 6
    completed. EuropeAid's communication unit produced an annual report giving details on
    actions implemented.
 • A data quality framework was established, standards for data quality management were
    set and procedures for data management were defined. These foresee data quality
    audits (to identify root causes), data cleansing and data quality monitoring. Training and
    awareness-raising both for staff in headquarters and in the delegations is an integral part
    of the strategy. More business rules are also now being included in the system to avoid
    input mistakes whenever possible.
 • The 'Communication Awards - Project of the Year' were introduced to raise awareness
    on the work done by colleagues in their communication strategies. More than 50
    submissions were received and twelve projects were preselected by a selection
    committee with members from across EuropeAid and the communication unit.
 • The internal control website was reviewed and a new system of reporting internal control
    weaknesses was put in place to allow for anonymity.
 • A new Local Information Security Officer was appointed in October 2009 with the
    objective of implementing new Commission information security rules.

 On the basis of the results of the annual self-assessment on the effectiveness of internal
 control, 84% of EuropeAid management considers that the measures taken on information
 and communication to be effective in 2009 (in comparison with a score of 80% in 2008).
 Similar feedback was given by IT users regarding system performance.

 EuropeAid will continue with activities to maintain and increase the effective implementation
 of this standard (including the revision of the communication strategy in 2010 to take into
 account the entry into force of the Lisbon Treaty and arrival of a new Commission).


 2.2.2.1.2.         Results of the internal control standards effectiveness survey

 The overall results of the ICS 'effectiveness' management survey show that 85% of the
 respondents assess the control measures in EuropeAid as effective and confirm the
 generally satisfactory perception of management about the functioning of the internal control
 system. This is an increase from the 2008 result of 80%.

 The Internal Control Standard (ICS) No 1 relating to 'Mission' (98% of total respondents), ICS
 No 16 on the 'Internal Audit Capability' (97%), and ICS No 13 on 'Accounting and Financial
 Reporting' (96%) achieved the highest effectiveness assessments across the organisation.
 Directors expressed 100% of satisfaction with effectiveness of measures taken for ICS 1
 Mission, ICS 2 Ethical and Organisational Values and ICS 5 Objectives and Performance
 Indicators.

 At the other end of the scale, ICS 3 'Staff Allocation and Mobility' achieved the lowest
 effectiveness rating at 55% (2008 result 42%), substantially below the nearest lowest scores
 (ICS 11 Document Management at 78% (2008 also 78%) and ICS 6 Risk Management at
 79% (2008 62%)). 52% of responses from Directors indicate that improvements are needed
 on the human resources control standard.

 The low effectiveness rating of human resources policy reflects a significant weakness in the
 implementation of human resources internal controls based on three factors: the reduction in



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                                                                            EuropeAid Annual Activity Report 2009




 external manpower in relation to growing tasks and increasing operational credits13, high staff
 turnover at HQ and persistently high vacancy rates in delegations.

 Regarding the external manpower issue, credits14 granted by Budget Authority for recruiting
 external staff in EuropeAid HQ have been capped at the same figure since 2006. With the
 cumulating annual increase in salary costs, this situation implies either that contract agent
 posts have to be kept vacant for increasingly long periods of time15 or that posts should be
 cut year on year. In addition, for contract agents, as opposed to the situation for permanent
 staff, no compensatory credits are available to recompense for absences such as maternity
 leave etc. Given that 45 % of EuropeAid's FTE staff are contract agents or other staff on
 short-term contracts (in comparison with 15% for the Commission as a whole), and that
 some EuropeAid units are staffed up to 75% by contract agents, it is clear that the
 organisation is being stretched in an unsustainable way.

 On the staff turnover issue, the duration of a headquarters' contract agent post is a maximum
 of three years. The high proportion of short-term staff and the related turnover in
 recruitment16 is inevitably resulting in a loss of institutional memory, which has detrimental
 effects on the continuity of operational management in headquarters.

 Finally, vacancy rates in Delegations are significantly higher than in HQ17, particularly for
 countries in 'fragile situations' (which had a contract agent vacancy rate of 20.4% at the close
 of 2009). For contract agents in delegations, EuropeAid lacks the necessary credits for filling
 all contract agent vacant posts and EPSO reserve lists for certain profiles are no longer
 available (e.g. civil engineers, macroeconomists, finance). Where these problems can be
 overcome, difficulties remain in attracting good candidates to hardship posts, particularly
 pending the establishment of a contract agent 'rotation' system, and procedural delays
 remain problematic for timely recruitment. In addition, as regards officials, compliance with
 the EU 2 quota for the External Service remains a challenge to filling long-term vacancies in
 'hardship' posts in both finance and operational sections18. These posts require relevant
 profiles and experience as well as candidates with a readiness to go to these countries.

 EuropeAid's 2010 risk assessment has highlighted these continuing HR risks (resources and
 turnover) for 2010, particularly given that they are likely to be exacerbated by additional
 budgetary constraints forcing significantly higher future vacancy rates and/or cuts in contract
 agent posts. The HR problems in relation to vacancy rates in delegations have also been
 proposed in EuropeAid's risk register for 2010 as a critical crosscutting risk for the
 Commission (with DG HR, EPSO and RELEX).

 EuropeAid has initiated contacts with DG HR, EPSO and DG RELEX to endeavour to reform
 elements of the human resources strategy to improve its 'fit' with the external aid
 environment. Some improvements are already underway including changes in the selection
 procedures for contract agent posts (see 3.2.1.1). At the end of 2009 Delegations were

13
   Compared to 2004, when the number of staff per €10 million was 4.8, the 2009 ratio is down to below 4.
14
   On Budget Heading 4 (former BA lines).
15
   Obligatory vacancy periods for contract agents have increased from 1.5 months in 2009 to 8 months in 2010.
16
   140 contract agents (around a third of the total contract agent population) left EuropeAid in 2009.
17
   HQ vacancy rate at year end 3.6% for officials (and 4.7% in delegations) and 3.6% for contracts agents (and
     14.5% for contract agents in delegations). For contract agents, these figures – which are a year end
     'photograph' (not a full year average) - reflect end of year recruitments to utilise available credits.
18
   On 31 December 2009, the EU 10 and EU 2 recruitment quotas (AD and AST) for the External Service had
     not fully been reached (for EuropeAid this was due to the unavailability of appropriate profiles for finance
     and operational sections). This blocked the transfer of inter-institutional officials and the recruitment of EU
     15 laureates for delegations with the result that even in fragile states where EuropeAid had already
     identified appropriate EU 15 'laureates' to fill vacancies, those posts remained vacant over long periods.


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                                                                        EuropeAid Annual Activity Report 2009




 permitted to take into account spontaneous applications (under certain conditions) and
 encouraged to indicate vacant contract agent posts on their internet site.


 2.2.2.2.        Delegations

 In February 2010, the delegations carried out the annual self-assessment of the state of
 effectiveness of the implemented control arrangements. The exercise, based on a survey (by
 means of an on-line questionnaire) of the Heads of Delegation, was jointly developed by DG
 RELEX, EuropeAid and the Central Financial Service of DG BUDG.
 The overall weighted average effectiveness rate was estimated at 86.5%, showing a slight
 increase compared to the previous year (85.2%). The best performing standard on the
 'effectiveness' rating was ICS 13 'Accounting and Financial Reporting' (95.5%), and the one
 with lowest weighted average rate is ICS 3 'Staff Allocation and Mobility' (77.7%).


 2.2.3.      Conclusion

 The internal control system is working satisfactorily in EuropeAid and compliance with the
 internal control standards remains good. Key improvements have been made, e.g. the
 overhaul of the accounting system for the EDF, and the DG has been able to successfully
 absorb major new initiatives such as the response to the food security crisis (the 'Food
 Facility') within its overall control architecture. Work done in 2009 on training and
 awareness raising on risk management (prioritised standard for 2008) has born fruit with
 substantially better 'effectiveness' scores than the previous year and substantial
 improvements have also been seen in document management performance with the
 introduction of the new electronic document management system ARES. Staff training
 continues to perform extremely well and contribute significantly to the speed, quality and
 'regularity' of our aid interventions, giving our staff on average 12 days of formal training a
 year19. Moreover 2009 has witnessed a number of major new initiatives to improve
 communication and information which will have a beneficial knock-on effect throughout the
 organisation, notably for data quality in the management information systems.

 Procedures in place control the key risks posed to EuropeAid in terms of its external aid
 objectives and controls work as intended. The major residual risk remains in staff allocation
 and mobility (which, together with 'risk management' has been made a prioritised internal
 control standard for 2010) as evidenced by the results of the 'effectiveness' management
 self-assessment in 2009 (and 2008) and other management information sources such as
 the six monthly reports of delegations (see 3.1.2.2.1) and the findings of the Internal Audit
 Capability (see 3.2.1.1) and Internal Audit Service (see 3.2.2.1).




19
     EuropeAid offered 562 courses this year - including 40 distance learning modules and 93 'in the field' -
      delivering a total of 18.713 training days – 60% of which were taken up by Delegation staff.


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                                                                       EuropeAid Annual Activity Report 2009




3. BUILDING BLOCKS                         TOWARDS              THE        DECLARATION                 OF
   ASSURANCE
 The materiality 'threshold', above which the Director General would require a reservation to
 his Statement of Assurance (see Part 4) is set out in detail in Annex IV. In summary, any
 weaknesses identified in 2009 should lead to a reservation on the Director General's
 Statement of Assurance if it is felt that more than 2% of moneys entrusted to EuropeAid
 have not been spent on the purposes for which they were intended, or if particular events in
 2009 have so significantly undermined the reputation of the Commission as a whole that
 there has been a loss of confidence in the institution by its stakeholders.


3.1. Building block 1: Assessment by management

 3.1.1.      Main elements of the control strategy

 3.1.1.1.       Responsibilities and lines of accountability

 Each operational Director in EuropeAid is responsible for the implementation of a number of
 programmes or budget lines within the framework of a sub-delegation he/she receives from
 the Director-General. All stages of the authorising procedure - operational, financial and
 contractual - are under the direct hierarchical responsibility of the Authorising Officer by sub-
 delegation (Director). This single and clear chain of command enhances personal
 responsibility. The same principle is applied in devolved delegations where this role is sub
 delegated to the Head of Delegation.


 3.1.1.2.       Management systems

 External assistance programmes are mainly implemented under three management
 frameworks (see below). In addition a small number of programmes under the European
 Neighbourhood Policy Instrument operate under shared management with EU Member
 States for cross border cooperation, and a fifth (centralised indirect) management system
 emerged more prominently in 2008 / 2009 in the context of the aid effectiveness agenda
 through delegation agreements with national bodies (see Annex VI). It is also used for
 cooperation through the European Investment Bank20 and through the Commission's
 executive agencies (see also 2.1.5). The choice of management system is based on the risk
 environment, the appropriate implementing partners and other qualitative criteria.
 • 'Centralised - direct' management means that the Commission, at headquarters or in
     delegations, undertakes the contract award procedures and payments to final
     beneficiaries. This management system is used, inter alia, for the management of
     thematic budget lines, budget support and some regional programmes and is most
     commonly used for activities financed by the EC General Budget. It accounted for 63%
     of individual commitments in 2009.
 • Decentralised management accounts for approximately 14% of EuropeAid's portfolio.
     This implies that certain implementation tasks are entrusted to a beneficiary country or
     regional organisation. The degree of compliance with internationally accepted standards
     for accounting, audit, internal control, procurement and grant award procedures of the
     organisation determines the degree of decentralisation e.g. for the transfer of

20
     Notably the € 32 M Facility for Euro-Mediterranean Investment and Partnership which allows the EIB to
      carry out risk capital operations and technical assistance in countries of the Southern Neighbourhood
      region.


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                                                                      EuropeAid Annual Activity Report 2009




       responsibilities for contracting and paying. EuropeAid does not yet operate full
       decentralisation although new arrangements are being developed. Partially
       decentralised management is most commonly used for activities financed by the EDF,
       although the share is decreasing over time as budget support (centralised management)
       assumes a greater proportion of the EDF portfolio21.
 •     'Joint' management means that certain implementation tasks are entrusted to an
       international organisation who may then use their own management procedures
       provided the accounting, audit, control and procurement procedures of the organisation
       offer guarantees equivalent to internationally accepted standards. Joint management
       accounts for 20% of EuropeAid's total individual commitments (contracts) for 2009.

          EuropeAid's external aid (individual commitments) by management system

        European Development Fund                        Budget




Further details of EuropeAid's internal control strategy by management system can be found
in Annex V.


 3.1.1.3.       Management assessment framework

 The management assessment contributing to the reasonable assurance given by the
 Director General is informed by the following key controls:
     • Results of key financial controls on operations
     • Management reporting
     • Independent operational monitoring
 The coverage of each of these controls in relation to EuropeAid's key management systems
 is shown below in very simplified terms. Please refer to text below and Annex V for a more
 complete explanation of the relationship between management system and key controls.




21
     Statistics concerning the breakdown of EuropeAid's cooperation by management system have also become
       more reliable in 2009 with the migration of EDF data to the CRIS-ABAC accounting system.


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                                                                                EuropeAid Annual Activity Report 2009




                     Key controls in relation to management system : a summary

                                                      Management system

                                        Centralised
                                                                           Partially                        Shared
                                        indirect            Centralised                    Joint
                                                                           decentralised                     (EU
                                        (national           direct                         (international
                                                                           (beneficiary                     Member
                                        development         (Commission)                   organisations)
                                                                           states)                          States)
                                        bodies)
                      Ex-ante
                      institutional
                                              √                                                  √
                      compliance
                      assessments
     Results of
                      Ex-ante
     key financial
                      transactional                              √               √
     controls on
                      controls
     operations
                      Ex-ante audits
                                              √                  √               √               √            √
                      & verifications
                      Ex-post
                                              √                  √               √               √            √
                      controls
     Management reporting                     √                  √               √               √            √
     Independent operational
                                              √                  √               √               √            √
     monitoring




 3.1.2.       Key controls

 3.1.2.1.         Results of key financial controls on operations

 3.1.2.1.1.           Ex-ante (institutional) compliance assessments

 EuropeAid contracts with external auditors to undertake institutional assessments for
 compliance with internationally recognised standards of financial management (notably
 audit, accounting, internal control and procurement) with third party bodies wishing to
 implement aid programmes on the Commission's behalf under delegated management
 systems. Country level ex-ante eligibility assessments are also made prior to any decision
 being taken on Budget Support programmes.

 Four pillar institutional compliance assessment of international organisations
 (joint management)

 Twenty two new reviews of the conformity of international organisations' procedures with
 internationally accepted standards were completed in 2009. This brings the cumulative total
 at the end of the year to 56 assessments covering 90 international organisations22. Most of
 the international organisations with which the European Commission has a long lasting
 collaboration have now been assessed (99% of EuropeAid contracts in joint management
 are currently covered by the 4 pillars assessment). In the future the assessments will focus
 on new partners.

 The analysis is currently on-going for 26 international organisations, among them the Asian
 Development Bank and the United Nations Interregional Crime and Justice Research
 Institute. The majority of EuropeAid contracts in Joint management are to UN organisations
 (58%) and the World Bank (28%). The World Bank is going through an update of its first
 assessment. Further details can be found in Annex V (Internal Control Template 6).


22
     The assessment of the UN Secretariat covers 30 different UN organisations.


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                                                                          EuropeAid Annual Activity Report 2009




 The results of the assessments of international organisations are satisfactory, showing that
 the organisations generally meet internationally accepted standards regarding their
 accounting, auditing, internal control and procurement procedures. Where critical
 recommendations have been made by the auditors, joint management cooperation was put
 on hold until remedial action was taken. Alternatively, when for example the analyses
 revealed that some ACP regional organisations did not fully meet the standards identified,
 the agreements with those entities were modified prior to signature so that these
 organisations continued to use EC procedures rather than their own in areas of non
 compliance e.g. procurement. These compliance assessments, together with verification
 missions (see below) and reporting provide the most substantial elements of assurance for
 joint management.



     Performance Indicators –ex-ante institutional compliance assessments
                                                                                    2008            2009
     (4 pillar) of international organisations for joint management

     Output - Level and nature of controls carried out
     •   number of 4 pillar assessments completed (cumulative)                  34              56
     •   number of international organisations assessed (cumulative)            68              90
     •   % of contribution agreements with international organisation covered   73% Budget      99% Budget
         by compliance assessments (cumulative – by value)                      80% EDF         +EDF



 Five pillar compliance assessment of beneficiary states and regional
 organisations (decentralised management)

 Traditionally, the level of decentralisation practised by EuropeAid has been partial, since
 beneficiary countries use EC procedures and all payments to third parties are made by the
 EC, with the exception of those payments made under programme estimates23.

 However the possibility to increase the level of delegation to beneficiary countries under
 decentralised management (e.g. use of country procedures) has been introduced recently.
 If procedures other than those of EC are to be applied to implement the action the
 Commission needs first to obtain assurance that these procedures comply with the '5 pillars'
 conditions provided for in the relevant Financial Regulations. Terms of Reference for these
 assessments have been issued in 2009, together with specific guidance and an internal
 procedure for implementing decentralised management. Pending this change, assurance
 for decentralised management is informed primarily through ex-ante transactional controls
 (see 3.1.2.1.3), ex-ante audits (see 3.1.2.1.2) and ex-post controls (see 3.1.2.1.4) as well as
 monitoring and reporting.


 Six pillar compliance assessment of national development bodies (centralised
 indirect management)

 Centralised indirect management with national development bodies started in EuropeAid
 2008 but has largely developed during 2009. It involves the delegation of funds from the
 Commission to a donor country development agency (usually another EU Member State) to
 implement external aid in order to improve aid effectiveness and efficiency amongst multiple

23
     A formal agreement between the National Authorising Officer and the Commission in a decentralised
      management mode to undertake/contract/execute payments for activities.


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                                                                            EuropeAid Annual Activity Report 2009




 donors. Compliance assessments are a necessary prerequisite for this 'Delegation
 Agreement'. By the end of 2009, there were 12 national development bodies which had
 been positively assessed and with which delegated cooperation could be approved24.
 Further details can be found in Annex VI.

 The overall results of these assessments have been positive, showing that the national
 development agencies meet internationally accepted standards of financial management
 and where critical recommendations have been made by the auditors, swift remedial action
 has been taken. The assessments, (complemented by monitoring and reporting), provide
 the primary control for assurance under centralised indirect management.

     Performance Indicators –ex-ante institutional compliance assessments (6
                                                                                       2008             2009
     pillar) of national development bodies in centralised indirect management

     Input - resources devoted to ex ante institutional compliance assessment
             of national development bodies
     •   National development bodies - amount contracted for the 6 pillar
                                                                                   € 517 628       € 252 270
         compliance assessments
     Output - Level and nature of controls carried out
     •   number of national development bodies assessed (cumulative)               6               12
     •   number of 6 pillar assessments completed (cumulative)                     6               12
     •   % of delegation agreements with national development bodies covered
                                                                                   100%            100%
         by compliance assessments (cumulative – by value)



 Compliance assessment of EU Member States (shared management)

 Cross Border Cooperation (CBC) programmes under the European Neighbourhood Policy
 Instrument are run under shared management with EU Member States. Prior to the
 adoption of the Joint Operational Programme25, EuropeAid needs to certify that "the
 management capacity of the Joint Management Authority is commensurate with the volume,
 content and complexity of the operations planned under the programme. In particular, [...]
 sufficiently qualified human resources, [...], requisite computerised management and
 accountancy tools and financial circuits, [...] and internal control and audit systems."26.

 These checks may be carried out through an on-the-spot compliance assessment. However
 given that structures need to be in place and systems working before their effectiveness can
 be verified the certification process in not yet fully underway. An assessment of one Joint
 Management Authority has been undertaken but outcomes were limited as no financial
 transactions had yet been executed. Further assessments are planned in 2010.




24
   By end 2009, 28 delegation agreements (from Commission to Member States) for a total amount of € 97 M
    had been approved (see Annex VI) with another 20 (€ 114 M) in the pipeline. 17 transfer agreements (from
    Member States to Commission) for a total amount of € 123 M were also signed or in the pipeline.
25
   Each CBC programme is based on a Joint Operational Programme (JOP) document, which is adopted by a
    Commission Decision. The JOP covers the entire financial perspective and sets out the priorities of each
    programme, its management structures and working methods.
26
   Art 5 of the ENPI CBC Implementing Rules (EC) 951/2007.


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                                                                          EuropeAid Annual Activity Report 2009




 Budget Support eligibility assessments (centralised direct management)

 For budget support - under centralised (direct) management – the Commission formally
 assesses the eligibility of the country for budget support once indicators for the country are
 favourable. The eligibility assessment, undertaken by Commission staff in delegation and
 headquarters, includes the national development strategy, macroeconomic stability and
 public finance reform trends in the country concerned. Specific guidelines were developed
 in 2009 for assessment eligibility in fragile states. Recent criticisms by the Court of Auditors
 have led to a bigger emphasis on formal documented appraisal process which is now in
 place and will be further reinforced by the issue of substantially revised guidelines for
 budget support in 2010.


 3.1.2.1.2.          Ex-ante external audits and verifications

 Audit framework

 The audit and verification coverage of EuropeAid's activities results from a mix of mandatory
 and risk based external audits and verifications using external auditors contracted (either by
 the Commission or by third parties e.g. beneficiaries) either through the audit framework
 contract or other procurement procedures.

 The large majority of audits used by EuropeAid are financial and systems audits (including
 the combination of these two) which provide assurance on the legality and regularity of
 external aid operations. This assurance is primarily related to compliance with applicable
 regulations and rules.

 In verifications, auditors also make use of methods used in audits but verifications are more
 limited in scope and give only factual findings rather than providing audit assurance. The
 large majority of the verifications used by EuropeAid are expenditure verifications with a
 financial focus on the eligibility of expenditure. EuropeAid makes use of verifications for
 'verification missions' of international organisations (see below); 'expenditure verifications' of
                          27
 programme estimates and mandatory 'expenditure verifications' of grants above €100
 00028 and (non EDF) fee-based service contracts.

 Mandatory audits and expenditure verifications (see table below) are subject to ex-ante
 audit procedures before the Commission clears final payments. Mandatory audits and
 expenditure verifications can be contracted and managed by the Commission or by the
 beneficiaries of certain external aid contracts. Risk-based audits are a response to the
 specific risks perceived by the responsible Authorising Officer. The objective is to have an
 additional layer of controls available which the responsible Authorising Officer should
 activate if he/she perceives specific risks notably in cases where mandatory audits are not
 required or where the results of mandatory audits are too limited in scope or are not
 considered satisfactory.

 EuropeAid performs almost all its audits and verifications on an ex-ante basis which means
 that audit and verification results are taken into account in final payments e.g. the
 subtraction of non eligible expenditure.


27
      A formal agreement between the National Authorising Officer and the Commission in a decentralised
        management mode to undertake/contract/execute payments for activities.
28
     It should be noted that the scope of these checks go well beyond the provisions of the Financial Regulation
        which sets the threshold for mandatory audits concerning grant contracts at € 750 000.


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                                                                                     EuropeAid Annual Activity Report 2009




                EuropeAid external audit requirement by management system/instrument

                                                    Management system

                     Centralised
                                                               Partially             Shared with EU
                     indirect    with   Centralised direct                                                Joint         with
                                                               decentralised         Member States
                     national           by             the                                                international
                                                               with beneficiary
                     development        Commission                                                        organisations
                                                               states
                     bodies
                                        All grants ≥ € 100 000 = mandatory expenditure verification by
   Grants
                                        beneficiary before final payment
                                        - Mandatory expenditure verifications for
                                        fee based service contracts by beneficiary.
   Procurement
                                        - Audits by the Commission of works and
                                        supplies contracts can be made.
                                        Financing
                                        Agreement may
   Budget
                                        require an annual
   support
                                        audit by the
                                        Commission
                                                                 Mandatory
                                                                 Expenditure
   Programme
                                                                 verifications ≥ €
   estimates
                                                                 200 000 by the
                                                                 Commission
                                                                                                          - International
                                                                                                          organisations' own
                                                                                                          audit framework
   Contribution                                                                                           applies
   Agreement                                                                                              - Commission may
                                                                                                          conduct
                                                                                                          verification
                                                                                                          missions
                     Development
   Delegation        body's own
   Agreement         audit framework
                     applies
                                                                                      - annual external
                                                                                      audit
   Joint                                                                              - annual internal
   Operational                                                                        audit
   Programme                                                                          - Commission may
                                                                                      conduct
                                                                                      verification
                                                                                      missions




 Audit planning

 The annual planning of audits and other engagements (e.g. verifications of international
 organisations) results in audit plans which include mandatory and risk-based audits. Major
 improvements have been made to the audit planning methodology year on year - including
 a major revision in 2009 - allowing more and better analyses. The improvements have
 provided more insight and understanding of the composition of the portfolio's of contracts
 managed by EuropeAid services and the Delegations. In particular, a better and uniform
 calculation of the planned audit coverage ratio was obtained in 2009. The numbers of audits
 in the Audit Plan 2009 may relate to a contract or to a series of contracts.




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                                                                          EuropeAid Annual Activity Report 2009




                Targets - Audit Plan                  2008               2009               2010

          Contracts in basic population
          Number of contracts                 NA                 18 168               18 762
          Amount contracted in M€             NA                 52 061               33 621
          Amount paid amount in M€            NA                 39 773               24 985
          Contracts selected for audit or verification
          Number of contracts                 NA                 1 083                1 134
          Amount paid amount in M€            NA                 2 095                1 894
          Audit Coverage Ratio                NA                 5%                   8%
          Number of audits and other
                                              1.098              698                  621
          engagements29
          Mandatory                           733                462                  385
          Risk-based                          365                236                  236


 The audit coverage ratio30 planned by the Commission for 2009 was 5% and for 2010 will
 be 8%. However the Commission's planned coverage of audits is only one part of the
 auditing environment of EuropeAid's activities. Audits are also launched by beneficiaries
 and by partners under delegated cooperation management systems. In addition the multi-
 annual framework in which projects run means that audit plans from other years also widen
 coverage. For example the analysis shows that a significant part of the basic population of
 contracts (i.e. 9%) is already covered by mandatory verifications – launched by
 beneficiaries - which were either performed in 2009 or will be performed at a later stage.
 Budget support also forms a large percentage of EuropeAid's potential audit universe31 but
 is rarely appropriate to standard financial audits.


 Audit implementation

 EuropeAid regularly monitors the implementation of the audit plans. Since 2008, the
 information is taken from CRIS-Audit, where it is registered and updated by headquarters
 and Delegations.

 The Audit Plan 2009 originally foresaw 706 audits and included 818 audits by the end of the
 year. Of these 525 (64%) had been launched by 31 December 2009 and 99 draft reports
 had been received. Concerning previous Audit Plans, the 2007 Plan was almost fully
 implemented (95% of audits launched) by year end, and, for the 2008 Plan, 81% of audits
 planned had been launched. The launch of an audit depends largely on the progress in
 implementation of the contract to be audited. Experience shows that full implementation of
 an audit plan takes about three years (since 2008, an audit cannot be postponed to a later
 audit plan, it remains in the original plan, even if it is launched in a later year).

 The quality of the above engagements is subject to a review (including quality checks) by
 the Commission's Audit Task Managers at EuropeAid headquarters and in the Delegations.

29
   Other engagements include verifications of International Organisations.
30
   Total amount paid for contracts subject to audit divided by total amount paid for all contracts in the basic
   population of contracts.
31
   New budget support individual commitments (contracts) represented 41% of the EuropeAid portfolio in 2009.


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                                                                              EuropeAid Annual Activity Report 2009




 Moreover, regular quality checks are carried out for final audit reports. The results of this
 work are presented in an annual report on the quality of audits.


 Audit results - summary reports of audit framework contractors

 Audit firms which have signed a Framework Contract with EuropeAid provide annual
 summary reports on the audits they have performed during the year. The results of the 184
 audits which were completed in 2009 (i.e. final report issued by the audit firm) are described
 in EuropeAid's Annual Report 2009 on Framework Contract audits. The main outputs and
 results are summarised in the table below.


     Performance Indicators – External (ex-ante) audit of operations               200832              2009
     (all management systems)

     Input - resources devoted to external (ex-ante) audit of operations
     •   Cost of the external audits contracted by the Commission (by            € 44.1 M33           € 15 M
         framework contract and other procurement)
     •   Cost of the expenditure verifications launched by beneficiaries34        € 13.5 M           € 13.7M
     Output - Level and nature of controls carried out
     •   Number of financial and systems audit reports finalised
          - % financial audits / all audits                                       66% (108)          69% (127)
          - % systems audits / all audits                                           4% (6)             2% (4)
          - % financial and systems audits / all audits                            30% (48)           28% (52)
     •   % audits launched by 31.12.year N (AAP N + AAP N-1)                     75% (1331)         70% (1290)
     •   % audits contracted by 31.12.year N (AAP N + AAP N-1)                   71% (1269)         65% (1207)
     •   % audits finalised by 31.12.year N (AAP N + AAP N-1)                     37% (664)          32% (588)
     Result - What the controls allowed us to discover/remedy
     •   Conclusions of financial audits35
          - % unqualified opinions on financial audits / all audit opinions       56% (88)           42% (75)
          - % qualified opinions on financial audits / all audit opinions         38% (60)           54% (97)
          - % adverse opinions on financial audits / all audit opinions           1% 36 (1)          3%36 (5)
     •   Conclusions of systems audits
          - % full assurance (unqualified) / all audit opinions                   38% (21)            2% (1)
          - % substantial assurance (qualified) / all audit opinions              57% (32)           75% (42)
          - % limited assurance (adverse) / all audit opinions                     2% (1)            20% (11)
          - % no assurance / all audit opinions                                    3% (2)             3% (2)




32
   The 2008 audits include 99 reports out of 162 which were issued in the format of the pre 1st October 2007
     terms of reference whereas for 2009 this only concerns 6 out of 184 reports.
33
   In 2008 this figure was calculated on the basis of average audit costs multiplied by the number of audits in the
     2008 planning. Since the development of audit management IT systems (CRIS audit) EuropeAid is now
     better able to identify amounts actually contracted for audits. We now estimate the 2008 figure at € 30M.
34
   These are estimates based on the average verification costs multiplied by the number of grants ≥ €100 000.
35
   In 2008 a large number of opinions (issued under the 'pre 1st Oct' ToR) were categorised as unqualified
     whereas under the 'post 1st Oct 2007' ToR many of these opinions may have been classified as qualified.
     Under the 'pre 1st Oct 2007' ToR the borderlines between the various types of opinions were not sufficiently
     clear (due to the absence of a materiality concept).
36
   Remaining opinions were disclaimers, scope limitations etc


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                                                                            EuropeAid Annual Activity Report 2009




 The auditor's opinion is the essential part of the auditor's report. In 42% of all the reports
 issued in 2009 the auditor expressed an unqualified opinion37. In 54% of the financial audit
 reports issued in 2009, the auditors qualified the audit opinion for material audit findings
 made. In these cases the Authorising Officer had good guidance from the auditor's findings
 with regard to the issues to be addressed and followed up. The difference in results
 between 2008 and 2009 is largely a result of the setting of new rigorous mandatory terms of
 reference in October 2007, with clear materiality thresholds, which are now resulting in
 more consistently categorised auditors' opinions38. A better analysis will be possible in 2010
 and future years as the audit reports will move completely to the new Terms of Reference
 and therefore provide better consistency over time. The same logic applies to system
 audits, where, for the large majority of system audits (i.e. 77%) the type of assurance
 provided was substantial in 2009, even though results appear to be not as good as the
 previous year (96%). This means that the internal control system was sound and
 adequately designed for the purpose, and was operating well, although there were some
 weaknesses.

 The main findings of the synthesis report 2009 relate to financial, management control and
 other compliance issues resulting from shortcomings and weaknesses in the financial
 management and internal control systems of beneficiaries of EC funds. The most important
 financial findings concern ineligible costs as a result of a lack of (adequate) supporting
 documents, and the use of incorrect procurement procedures. A distinction is made
 between financial audit findings which were considered to be clear-cut (a total amount of €
 93 M (i.e. 12% of the total expenditure subject to audit)) and those which the auditors
 believed warranted further consideration by the Commission (€ 140 M (i.e. 18%). These
 financial findings represent potential errors that the control system has discovered and
 which will be further investigated and remedied as necessary at the clearance of final
 payments. The most important management control findings concern weaknesses and
 shortcomings in the accounting, financial reporting, IT systems and procedures and control
 environment of beneficiaries as well as in the management and control processes (fixed
 assets, cash and bank, expenditure control and payroll/human resources). The most
 important other compliance findings concern delays in project reporting and the non-respect
 of reporting formats required by the EC and of visibility and publicity requirements.

 The audit firms have made recommendations in line with the findings they detailed. As such
 the specific recommendations in the reports are clear and provide good added value. The
 audit firms have also provided useful general recommendations for Commission services,
 focusing on preventative measures to avoid the financial findings, and/or reduce them.
 These include the development of specific guide-books for beneficiaries; training and
 communication actions and more focused monitoring. A number of measures have already
 been put into place or are being prepared to address the findings raised by the auditors,
 notably the Financial Management Toolkit for beneficiaries on which work started at the end
 of 2009.

 External audits provide assurance on the legality and regularity of external aid operations
 and is primarily related to compliance with applicable regulations and rules. They also
 contribute to assurance on sound financial management and the principles of economy,
 efficiency and effectiveness, and apply to all management systems.



37
   For financial audits this means that the auditor expressed an opinion that the financial report of the project for
     the period subject to audit presented, accurately, the expenditure actually incurred and the funds of the
     project were, in all material respects, used in accordance with the applicable terms and conditions.
38
   More than 95% of the 2009 audit reports were presented in the 'post 1 Oct 2007' audit report format
     (compulsory since the introduction of new ToR on 1st October 2007) as opposed to about 40% in 2008.


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 Verification missions to international organisations (joint management)

 Agreements with international organisations allow the Commission to carry out checks,
 including on the spot, in order to acquire an understanding of the international
 organisation's system of accountability and to be able to report on the proper use of
 European Community funds. The Audit Plan 2009 included 37 verification missions (of
 which 26 were planned for the United Nations organisations and 7 for the World Bank
 group) covering 59 contribution agreements. 14 international organisations were planned to
 be visited in 2009 (in comparison with 13 in 2008). The table below shows annual
 performance on the 2008 and 2009 planning, showing that out of these 37 planned
 verification missions, 27 were contracted in 2009 with the remainder in the pipeline for
 2010.

     Performance Indicators – External (ex-ante) verification missions to international
                                                                                                   2008    2009
     organisations (joint management)

     Output - Level and nature of controls carried out
     •   Number of verification missions contracted                                                3439     27
             - as % of the AAP N + AAP N -1 Annual Audit Plans                                     76%     73%
     •   Number of reports finalised by February N+1                                               1340     15
             - as % of the AAP N + AAP N -1 Annual Audit Plans                                     29%     41%
     •   Verification coverage (verifications in relation to payments value41)
             - United Nations organisations                                                         9%      14%

             - World Bank Group                                                                    22%      22%


 The main types of findings of the verification missions completed in 2009 include financial
 findings e.g. ineligible expenditure, management control findings e.g. lack of adequate
 accounting records to support the reporting to the EC, and compliance issues concerning
 for example incorrect exchange rates or publicity requirements not being respected.

 Compliance criticism in previous years has particularly focussed on visibility issues and a
 significant improvement in this area has been seen in 2009 with more limited findings,
 notably for EuropeAid's longstanding partners. Action taken in response to the
 recommendations of the verification reports in 2009 included clarifying EuropeAid's
 guidance on the structure of the budget for contribution agreements to favour a budget
 breakdown reflecting that of the international organisation in order to facilitate financial
 reporting and the audit trail. Some difficulties remained in 2009 regarding access to
 documents which will be the focus of efforts in 2010.

 The quality and consistency of the verification reports by framework contract audit
 companies have enabled EuropeAid to get an informed overview of the issues to be tackled
 to identify shortcomings and improve the overall control framework of funds under
 contribution agreements with international organisations. Moreover the results of these
 verifications are generally positive. Together with the compliance assessments (see
 3.1.2.1.1) monitoring and reporting, they provide an extremely valuable contribution to the
 assurance of funds under joint management.


39
   By the end of 2009, all the 45 verification missions included in the 2008 Audit Plan were contracted.
40
   By the end of 2009, 41 reports were received.
41
   This represents the total payments made for the projects verified in 2009 divided by the payments made to the
    UN / WB in the last three years, 2007-2009. Using the same formula, in 2007, the % of funds covered by
    the verification missions to UN was 24% and to the WB was 18%.


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 3.1.2.1.3.         Ex-ante transactional controls performed by the Commission

 Comprehensive and rigorous ex-ante transactional controls, performed by Commission staff
 in delegation and at headquarters form the core of financial controls on contracts and
 payments under centralised direct and partially decentralised management. Before any
 operation is authorised, the operational and financial aspects are initiated and verified by
 two different (operational/financial) entities. This is the "four eyes" principle of the Financial
 Regulation, which EuropeAid, taking account of the specific high risk environment of
 external aid actions, reinforces by requiring controls by two separate agents for each of
 these two stages. Staff check, for example, the eligibility of costs and key documents such
 as valid financial guarantees (tender guarantee, pre-financing guarantee, performance
 guarantee) and certificates of acceptance issued by the project managers or supervisors.
 These controls apply equally to grants, procurement, programme estimates and budget
 support, and financial circuits and checklists are regularly reviewed and updated to
 response to feedback from controls and subsequent risk analysis (see 2.2.1.1.4). For
 example financial circuits for budget support payment were revised in 2009 to more fully
 involve delegation financial and contract staff in preparing payments dossiers (see 3.3.1.1).

                                            EuropeAid financial circuits

                              Director-General = Authorising Officer by delegation

                                  Director = Authorising Officer by subdelegation
                                 After Commission decision following comitology, authorisation
                                 of global commitments and signature of financing agreements


                Head of Delegation (HoD) = Authorising Officer (AO) by subdelegation



                 HoD > Head of Finance and Contract                 HoD > Head of Operations = AO by
                   Section = AO by subdelegation                             subdelegation
             Tendering, authorisation of payments and                Authorisation of individual commitments
                        recoveries, audits                            and signature of contracts, monitoring




 Further details can be found in the Internal Control Templates in Annex V.


 No ex-ante transactional controls are performed by the Commission under shared
 management, under centralised indirect (including Delegation Agreements with national
 development bodies) management or under joint management (Contribution Agreements)
 with international organisations, except in cases where the organisation has not fully met
 accepted international standards in one or more of the financial management 'pillars' (or
 does not have for example grant making procedures) as part of their compliance
 (institutional) assessment. In this case EC procedures – including ex-ante transactional
 checks by Commission staff – remain in place.

 The table below indicates the investment and coverage of ex-ante transactional controls by
 the Commission. Preliminary analysis indicates that - in 2009 - 20% of amounts invoiced
 during the period of contract (until and including final payments) are found to be erroneous
 by Commission staff carrying out ex-ante transactional checks. These errors are for the



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                                                                             EuropeAid Annual Activity Report 2009




 most part administrative, e.g. most frequently the double invoicing of previous advances,
 but an amount of € 18.3 million (0.7% of total invoiced amounts) claimed was found to be
 ineligible as a result of these checks. Relatively small amounts of ineligible claims were
 made over a high number of transactions, showing that on average Commission staff
 discovered ineligible claims on more than one in five contracts, indicating a high level of
 financial verification. These corrections represent a control over and above adjustments
 already made by beneficiaries and implementing organisations prior to submitting their
 invoices/requests for payment following an external audit (see 'Audit results - summary
 reports of audit framework contractors' above).

     Performance Indicators – ex-ante transactional controls (centralised
                                                                                        2008            2009
     direct and partially decentralised management)

     Input - resources devoted to ex ante transactional controls
     •   Financial resources for staff dealing with ex-ante transactional controls   € 58.4 M       € 60 M
     Output - Level and nature of controls carried out
     •   Number of registered derogation procedures                                  702            583
     •   Coverage of the Commission ex ante control on tendering and                 100% if        100% if
         contracting procedures launched by the beneficiary or the Commission         ≥ € 50 000     ≥ € 50 000
     •   Coverage of the Commission ex ante control on calls for
                                                                                     100%           100%
         proposals launched by the beneficiary or the Commission
     •   Verification of budget support disbursement criteria                        100%           100%
     Result - What the controls allowed us to discover/remedy                        (Budget
                                                                                     only)
     •   % of contracts on which claimed expenditure was found to be ineligible      20%            22%
         (frequency)42
     •   % by volume (value) of invoice totals not paid (i.e. corrections made by
                                                                                     9.5%           20%
         Commission )43
     •   Total of invoiced funds found to be ineligible at final payment
              -Volume (value) of amounts judged ineligible44                         € 7.4 M        € 18.3 M
              - % by volume (value) of invoiced amounts judged ineligible45          0.5%           0.7%


 3.1.2.1.4.         Ex post controls

 Ex post transactional controls performed by the Commission

 EuropeAid operates a system of desk based ex-post transactional controls on payments,
 recoveries and clearing of pre-financing by Commission staff at HQ. An ex post
 transactional control, based on the analysis of a sample of transactions executed during the
 year, verifies whether the ex-ante checks performed have been carried out properly. The
 aim is to perform an ex post control check on at least 1% of EuropeAid transactions for
 each of EuropeAid's five operational directorates. Each transaction is studied with a view to
 detecting systemic problems and also to detect and correct any financial anomalies which

42
   Number of contracts on which ineligible expenditure was found / total number of contracts, for all contracts
    closed in 2009.
43
   Total of payments / total of invoiced amounts, for all contracts closed in 2009. This 20.2% is mostly (19.5%)
    made up of administrative errors (double invoicing of advances etc). The remaining 0.7% is ineligible.
44
   Amount not accepted (ineligible) on payments for all contracts closed in 2009.
45
   Amount not accepted (ineligible) on payments / total of invoiced amounts, for all contracts closed in 2009.


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                                                                      EuropeAid Annual Activity Report 2009




 might lead to too much or too little being paid, recovered or cleared. The sample is risk
 based and therefore the results are not representative in terms of errors found or any
 financial impact.

 The results of such controls during the 5 years of existence of the system, indicate a high
 number of data input and procedural errors in the risk sample selected. For 2009, as many
 of these errors concerned the EDF, a part of the explanation may be that the EDF accounts
 were migrated into the CRIS system in February 2009 and most EDF data entry is being
 done by staff for the first time into CRIS in 2009. A substantial action plan is underway on
 data quality to address this issue in EuropeAid (see 2.2.2.1.1). Other errors are linked to
 late payments which can result in payment of interest by the Commission (part of the
 explanation for which is also linked to the EDF CRIS accounting migration which
 necessitated a close down in the EDF accounting system for 6 weeks). The financial impact
 of such errors as detected is not significant. Three errors with financial impact were found
 during 2009 (with one leading to a recovery order). All errors were communicated to the
 Authorising Officers to ensure follow-up.

   Performance indicators – Ex- post transactional controls (all management
                                                                                     2008           2009
   systems)

   Input - resources devoted to ex-post transactional controls
   •   Number of staff devoted to ex-post controls                             10             7.5
   Output - Level and nature of controls carried out
   •   Amount of financial transactions actually controlled ex-post
        - number of transactions                                               546            469
        - volume of funds                                                      € 1 535 M      € 348 M
        - % of total population by number                                      1.4%           1.9%
        - % of total population by volume (value)                              13%            4%
   Result - What the controls allowed to discover/remedy
   •   Number of errors registered                                             264            256
   •   Procedural errors and errors related to incorrect data input            150            202
   •   Substantial errors without financial impact                             104            50
   •   Errors with financial impact
           - number of errors with financial impact                            10             4
           - volume (value) of financial impact of errors                      € 0.26 M       € 0.89 M
           - % of error by financial value / funds sampled                     0.02%          0.3%
   •   Amount of recovery orders issued linked to ex-post controls             € 550 643      € 10 660



 Monitoring of OLAF investigations

 OLAF opened 66 investigations in 2009 - a marked diminution in comparison with the 83
 new cases opened in 2008. By the end of 2009, 20 of these cases had been closed by
 OLAF as non cases, 36 were still under assessment and 9 cases were in active
 investigation. One case was classified as a monitoring case (with follow-up).

 In the course of 2009 EuropeAid registered a total of 67 case closures (47 of which were
 opened in previous years). 18 cases were closed with follow-up (3 cases with financial
 follow-up, 5 cases with administrative, financial and judicial follow-up, 8 cases with
 administrative and financial follow-up and for 2 cases the follow-up measures taken were
 not communicated by OLAF as they concerned internal cases). 14 were closed without


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                                                                                                           EuropeAid Annual Activity Report 2009




 follow-up and 35 were closed as non cases. At the end of 2009, 131 cases remained
 ongoing.

                                                    A ID C O OL A F C A S E S 2 0 0 0 - 2 0 0 9
                  O p e n in g s a n d C l o s u r e s p e r Y e a r - T o t a l O n g o i n g C a s e s a t t h e E n d o f t h e Y e a r

                                        Ca ses o p ene d           Ca ses clos ed            On -g oi ng c a s e s

        140                                                                                                       129
                                                                                                                               133           132

        120                                                                                          110
                                                                                        94
        100                                                                87
                                                              78
          80
                                                62
          60
                                   35
          40
                      22
          20
            0
                 2000        2 00 1       2002          2 00 3       2004         2005         2 0 06        2007        2 0 08       2009




 Recovery of undue payments

 In 2009 EuropeAid issued 600 recovery orders for a total amount of € 143.4 million for
 undue payments under the EC General Budget, of which 16 % (€ 18.8 million) were notified
 as being as result of: errors (€ 0.9 million), irregularities (€ 15.1 million) and fraud related
 OLAF cases46 (€ 2.8 million). Under the EDF, EuropeAid issued 500 recovery orders for a
 total amount of € 47.7 million for undue payments, of which 6 % (€ 3 million) were notified
 as being as result of: errors (€ 0.6 million), irregularities (€ 1.3 million) and fraud related
 OLAF cases (€ 1.1 million). The large majority of undue payments not caused by errors,
 irregularities or fraud relate to the reimbursement to the Commission of unspent pre-
 financing at clearance of advances and the use of bank guarantees. For further details of
 recovery orders please see Annex 3.


 3.1.2.2.         Management reporting

 3.1.2.2.1.            Operational reporting

 Management reporting in EuropeAid is based on a six monthly cycle which includes the
 External Assistance Management Reports submitted by Delegations and HQ operational
 units, the reports from Authorising Officers by sub-delegation (Directors) of EuropeAid and
 the assessment of the functioning of internal control resulting in the annual declaration of
 the Internal Control Coordinator (see Annex 1). The major recurrent issue raised in these
 reports in terms of internal control weaknesses related to staff allocation and mobility (see
 2.2.2.1.2). The statement of the resources director (see Annex 1) confirms this
 comprehensive regular reporting of advice and recommendations on the overall state of
 internal control in EuropeAid.


 3.1.2.2.2.            Verification missions to delegations

 The devolution process of transferring aid management tasks from Brussels to the field was

46
     In the case of an irregularity reported to OLAF.


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                                                                          EuropeAid Annual Activity Report 2009




 accompanied by a verification process to guarantee that Delegations could take on
 devolved management responsibilities. Verification missions are a management tool at
 director level. They provide assurance to the Sub-delegated Authorising Officer (SDAO), as
 well as an insight for Delegations regarding their capacity to manage external assistance
 and the achievement of the Delegations' goals. Delegations are reviewed once every 3 to 6
 years. Between March 2008 and the end of 2009 about 26 verification missions were
 carried out.

 New guidelines were produced in March 2008 and updated in December 2009. The new
 methodology aims to help EuropeAid assess: 1) performance on the aid effectiveness
 agenda and Commission positioning; 2) quality of aid delivery, results and outputs; and 3)
 adequacy of the internal organisation, systems and processes. For verification missions to
 newly devolved delegations, the emphasis is on the third area.

 The main findings of the verification missions conducted in March 2008 - March 2010 will be
 summarised during 2010.


 3.1.2.3.        Independent operational monitoring of activities

 EuropeAid contracts with external providers to independently monitor external aid activities
 using relevance, efficiency, effectiveness, sustainability and impact criteria. Approximately
 € 17 million was spent on this monitoring in 2009, which covered over € 700 million in
 ongoing projects i.e. 28% of the overall EC development cooperation portfolio. The aim is to
 monitor all projects in all management systems with the exception of general budget
 support47 using this 'Results Orientated Monitoring' method. This usually means several
 visits during the projects' lifetime, although frequency is staggered to avoid multiple
 monitoring / evaluation / audit missions on project staff in the same year.

 These 'on the spot' independent checks provide feedback to project managers and at the
 same time contribute significantly to the Director General's assurance that funds have been
 used for the purposes for which they were intended. Effectiveness ratings – showing to
 what extent projects achieved the objectives set - are shown below since 2006 and indicate
 that 76% of projects monitored were judged good to very good as regards achievement of
 objectives in 2009 and that the overall trend is positive, showing a gradual improvement in
 results over time.




47
     Budget support individual commitments (contracts) represented 42% of the EuropeAid portfolio in 2009.


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                                                             EuropeAid Annual Activity Report 2009




 Results Orientated Monitoring – 'effectiveness' rating on EuropeAid projects in 2009




 3.2. Building block 2: Results from audits during the reporting year

 3.2.1.     Recommendations of the Internal Audit Capability (IAC) in 2009

 During 2009 the IAC completed one new audit of EuropeAid's management systems (see
 below) and nine follow-up audits (see 3.3.1).


 3.2.1.1.       IAC Audit on human resources development in Delegations

 This audit addressed the potential risk that the lack of skilled staff in Delegations could
 endanger the achievement of EuropeAid objectives. The auditors gave a qualified opinion,
 and assessed the risk as 'medium'. The final report was approved in June 2009 and
 concluded that the internal control system in place provided reasonable assurance
 regarding the achievement of the business objectives set up for the human resource
 selection process, training process, and support process except for the aspects related to
 the seven recommendations classified as 'very important'. The auditors did not recommend
 a reservation as long as appropriate action was taken in line with these recommendations.

 As DG RELEX - rather than EuropeAid – is responsible for selection and training processes
 for contract agents in delegations, it is the competent Directorate General for the
 implementation of most of the issues raised by the audit. As a result, for three of the
 recommendations, EuropeAid's implementation means in practice that the relevant
 communications and requests have been made to DG RELEX (regarding availability and
 updating of job descriptions and the tailoring of selection procedures to specific posts) for
 their consideration. The fourth recommendation was implemented by EuropeAid in defining
 clear training paths for different functions.

 For the three remaining recommendations DG RELEX and EuropeAid and are jointly
 working on improving the pre-posting programme for the rotation and establishing an
 obligatory pre-posting training package for newly appointed staff. In addition DG RELEX
 and DG DIGIT are in the lead on the delegation expertise 'mapping' human resources



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                                                               EuropeAid Annual Activity Report 2009




 management tool.
 The full implementation of these recommendations will help to mitigate the identified risk for
 2010 in relation to human resources weaknesses in Delegations.


 3.2.1.2.       IAC Opinion in the context of the Declaration of Assurance 2009

 The opinion of the Internal Audit Capability was that, for 2009, based on the results of their
 audits as described in the objectives and scope of the engagements carried out, the internal
 control system in place in EuropeAid provided reasonable assurance regarding the
 achievement of the business objectives set up for the processes audited. The Internal
 auditor highlighted however the need to take more timely action in response to audit
 recommendations.


 3.2.2.     Recommendations of the Internal Audit Service (IAS) in 2009

 During 2009 the IAS completed one new audit of EuropeAid's management systems (see
 below) and one follow-up audit was undertaken (see 3.3.2).


 3.2.2.1.       IAS audit - Financial management of Directorate A programmes

 The overall objective of this audit was to provide an opinion on compliance with
 Commission rules, and the effectiveness and efficiency of devolved operations of the
 European Neighbourhood Policy Instrument. The report was issued in November 2009
 giving reasonable assurance except for four very important recommendations relating to
 'high inherent risks'. These recommendations should be implemented in 2010 and are
 related to improvements in project monitoring, providing quality and timely follow-up to
 Delegation reports, ensuring necessary staff resources for the implementation of the Annual
 Audit Plan and the establishment of a comprehensive analysis on the adequacy of staffing
 levels to manage the portfolio of projects at HQ and Delegations (to be communicated to
 DGs RELEX and HR).


 3.2.3.     European Court of Auditors (ECA) reports published in 2009

 3.2.3.1.       ECA 2008 Annual Reports

 In relation to the legality and regularity of transactions, although the Court judged that EDF
 revenue and commitments were free of material error i.e. <2% error rate, they concluded
 that payments for both the budget and the EDF were affected by material error (of 2-5%).
 Most 'quantifiable' errors related to eligibility, absence of documents or calculation errors.
 'Unquantifiable' errors mostly related to compliance issues such as bank guarantees,
 contract type, visibility issues, prior approval of contractual documents and missed
 deadlines for submission of financial reports.

 Almost all errors with budget support (BS) commitments (EDF) fell into the 'unquantifiable'
 category e.g. the Court stated that 'the Commission frequently did not demonstrate in a
 structured and formalised manner that public finance management was sufficiently
 transparent, accountable and effective in terms of eligibility for BS commitments', although it
 did recognise improvements. Other BS errors related to payments included lack of evidence
 of the foreign exchange transfer, unsatisfactory evaluation of compliance conditions and an


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                                                                EuropeAid Annual Activity Report 2009




 incorrect reference period for the evaluation of indicators.

 In the EDF report the Court stated that that it was not able to obtain all the necessary
 documents on 10 transactions managed by international organisations. It also complained
 in Chapter 2 that 'access to UN generated audit reports … were partly or fully denied'. (The
 Commission fully cooperated with the Court in facilitating access to documents notably
 through contacts with the Brussels Office of the U.N.). Reference is also made to the
 Internal Audit Service's follow-up audit on the implementation of the 'FAFA' agreement with
 the U.N.

 The ECA found that EuropeAid's 2008 Annual Activity Report was clearer, better structured
 and more informative than previous years, with greater use of quantitative indicators.
 However it judged that more work was needed to provide clear conclusions on how the
 results of the various controls contributed to the DG's declaration. It also contrasted the
 Director General's Declaration of Assurance on the regularity of transactions (with no
 reservations) with the material level of error (i.e. above 2%) 'revealed' by the Court. There is
 a general criticism that the Court's findings on the 'partial effectiveness' of control systems
 and the material level of error found by the Court are not adequately reflected in the
 relevant AARs. The Court recalls that this is the fourth year in which it has made this
 observation (see response in 3.2.3.3).

 The Court highlighted the problems presented in the Annual Activity Report of the high
 turnover of short-term staff at HQ leading to institutional memory loss and the high vacancy
 rate in Delegations reported as on an upward trend. It recalled its recommendation for a HR
 review made in the 2007 report to 'to assess whether HQ and delegations have the level
 and type of human resources required to ensure the quality of control' and its
 recommendation that a human resources policy should be developed on the basis of an
 analysis of the skills and knowledge needed in relation to the management of budget
 support in view of its increasing importance'.

 The report judged that EuropeAid's supervisory and control systems were partially effective
 in ensuring the regularity of payments (as the previous year). Nevertheless it recognised
 that EuropeAid 'has set up a comprehensive control strategy' and has 'continued to make
 significant improvements to its supervisory and control systems'… 'pursuing its efforts to
 ensure more efficient and effective implementation of controls', noting the new terms of
 reference of audits, the development of the IT system CRIS audit to monitor audits and the
 improved Annual Activity Report. It encouraged EuropeAid to develop a key indicator on the
 estimated financial impact of residual errors (after all multiannual controls have been
 implemented).

 The ECA also commented on the problems of recordkeeping and accounting systems in
 EuropeAid's implementing organisations. It found that lack of capacity and ownership in
 recipient countries led to ineffective checks and that controls carried out by some
 supervisors on works contracts were inadequate. Nevertheless the ECA recognised the
 actions taken by the Commission to mitigate these risks including technical and financial
 audits, provision of technical assistance and work on better guidance for implementing
 organisations.

 The ECA found that that many Delegations did not consistently follow EuropeAid guidelines
 on audit planning and that implementation of annual audit plans was very slow (56%
 launched within year). The Court noted that Delegations were not updating CRIS audit 'in a
 timely and complete manner'. Nevertheless the Court welcomed the introduction of CRIS
 audit, encouraging the Commission to further develop the system for broad-brush analysis


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                                                                      EuropeAid Annual Activity Report 2009




 of findings and recommendations of external audits.

 The Court noted that EuropeAid's Internal Audit Capability operated effectively in 2008 as
 well as the contribution of the Internal Audit Service.

 Key recommendations include:
    • Ex-ante checks to be improved and focus more on key risks;
    • Better support and monitoring of implementing organisations;
    • Eligibility for budget support to be demonstrated on public reform (inc. the
        beneficiary country's commitment to it) in a structured and formal way; and
    • Financing agreements to provide a clearer basis for payment framework and
        conditionalities.
    • EuropeAid should assess the feasibility of extending the ACP ex-post transactional
        control approach beyond EDF activities.
    • On audit:
           o Annual audit plans should be based on more structured risk analysis and
                assessment of available resources.
           o Implementation of the annual audit plan to be more closely monitored with
                corrective actions as necessary.
           o CRIS audit should be further developed to monitor audit activity and follow-
                up audit findings.
           o Audits and ex-post controls to be properly recorded (e.g. systematic updating
                of CRIS) and systematically analysed

 These recommendations are currently under analysis and implementation is already
 underway on most issues, particularly in relation to audit planning and monitoring, budget
 support and further support for implementing organisations (see 'Financial management
 toolkit' in 'Audit results - summary reports of audit framework contractors' in 3.1.2.1.2). For
 instance, following a recommendation by the Court48, the basic principles and methods for
 annual audit planning have been made compulsory. A number of issues will also be dealt
 with in the context of the review of EuropeAid's control strategy, due to begin in 2010. In this
 context, consideration will be given to the development of an indicator of the estimated
 financial impact of residual errors for the EuropeAid portfolio.



 3.2.3.2.       ECA Special Reports published in 2009

 The European Court of Auditors published two special reports in 2009 with particular import
 for EuropeAid. All five recommendations from the 'Banking Measures in the Mediterranean
 Area in the Context of the MEDA Programme' (Special Report 1/2009) were accepted by
 the Commission. One of them was classed as very important regarding the conclusion of a
 new management agreement between the EIB and the Commission and will be completed
 by the end of 2010. All seven recommendations on the report covering 'The Commission’s
 Management of Non-State Actors’ Involvement in EC Development Cooperation' (Special
 Report N°4/2009) were accepted by the Commission and work is ongoing. None of them
 was classed as very important or critical.




48
     'The Delegations should follow the guidelines on planning the AAP in order to ensure a uniform AIDCO
       AAP' - PF-3290 of 12 May 2009


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                                                                            EuropeAid Annual Activity Report 2009




 3.2.3.3.       Analysis of significant weaknesses highlighted by the ECA in 2009

 Whilst the Court's estimation of the error rate is above 2% i.e. their given range is between
 2% and 5% (for both the General Budget and the European Development Funds), given the
 design and the results of its multiannual control architecture EuropeAid does not believe
 that the residual error rate on its portfolio merits a reservation in the Director General's
 Statement of Assurance.

 As previously set out, EuropeAid works in a high risk environment (see 2.1.2) in which it is
 recognised that multiple errors in financial execution are likely to occur due, for example, to
 the multiplicity of actors, currencies, regulations in force etc. With this is mind, EuropeAid's
 control architecture is multilayered and designed to operate over the lifetime of projects and
 other interventions with key financial checks to discover and remedy a maximum amount of
 errors. EuropeAid undertakes the most major verifications prior to final payment as
 correction at this point is a much surer means of correction than a recovery order. Therefore
 the key cut-off point in measuring 'residual' error is final payment. For most interventions,
 two major financial checks are in place at this point, external audits (see 3.1.2.1.2) and
 checks made on every transaction by Commission staff (see 3.1.2.1.3). These controls
 remedy a significant amount of errors. Taking the example of external audits contracted by
 the Commission with framework contractors49 'clear cut' potential financial findings totalled €
 93 million (i.e. 12% of the total expenditure subject to audit) with a further € 140 million
 flagged for further investigation, all of which will have been remedied (i.e. investigated and
 corrected as necessary) prior to final invoice and payment.50 In addition, subsequent ex-
 ante transactional checks remedied a further € 18.3 million (0.7% of invoiced amounts) on
 contracts closed last year. Problems discovered after final payments are reflected in
 recoveries, for which Commission issued orders in 2009 totalling € 191.1 million for 'undue
 payments' of which € 21.8 is estimated to be linked to error, irregularities or fraud (see
 'Recovery of undue payments' in 3.1.2.1.4). These figures reflect the Court's finding that a
 material level of error occurs, but what they also crucially show is that a high level of errors
 (including those discovered by the Court) are picked up by the Commission and remedied,
 even though that is likely to be in a later year – most likely at the point of final payment -
 given the multi-annual nature of our projects51.

 The Court of Auditors approach is annual, looking at all the different types of transactions
 made and accounted for in one year. Only corrections made in the year in which the error
 occurred will 'cancel out' an error. For example, Commission staff made an exchange rate
 calculation error in 2008. This mistake was revealed by the Commission's own controls in
 the same year and was corrected in the accounting system at the beginning of the following
 accounting year. From a multi annual perspective, this error is not, for the Commission,
 'residual', as it has been corrected, whereas for the Court it is a significant quantifiable error
 (which makes up 80% of the total value of payments judged by the Court to have been paid
 erroneously on the European Development Fund by EuropeAid in 2008). Moreover, final
 payments make up a minority of the Court of Auditors' annual sample for EuropeAid, which
 means that key remedying controls cited above had not yet taken place on a majority of the
 transactions audited.

49
   External audits are also contracted by beneficiaries and by implementing organisations and can be contracted
     by the Commission using other procurement mechanisms.
50
   These results are not representative as they include a risk (not sample) based assessment of audits to be carried
     out. However this approach has the merit of targeting the highest likely sources of errors for correction.
51
   EuropeAid is currently investigating what resources would be necessary to remedy errors within the same
     accounting year below the level of 2% as part of the Tolerable Risk of Error study being undertaken with
     DG Budget.


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                                                                         EuropeAid Annual Activity Report 2009




 In addition EuropeAid does not always share the same interpretation as the Court on the
 definition of errors based on its different knowledge base of the activities and procedures
 under question. For instance the Commission and the Court do not agree on the relevant
 approval process for a change in the ceiling for top up payments to public servants in the
 Palestinian Authorities. Thus the decision on payments made to the Palestinian Authorities
 (making up, once again, 80% of the total value of payments judged by the Court to have
 been paid erroneously on the EC General Budget by EuropeAid in 2008) is judged to be a
 quantifiable error by the Court but not by the Commission.

 The broad range of results from key financial controls on operations - both ex-ante and ex-
 post - indicate a low level of residual error (see 3.1.2.1) which also contributes to the
 context in which the Director's General's assesses the conclusions from the Court of
 Auditors annual results.


 3.3. Building block 3: Follow-up of action plans for audits from previous
      years

 3.3.1.     Actions in relation to Internal Audit Capability (IAC) audits

 The IAC carried out nine follow-up audits in 2009: 'Budget Support, Pool and Trust Funds';
 'Selected Internal Control Standards in Selected Delegations'; 'Risk Management in
 Delegations; Annual Management Process'; 'Identification Process'; 'Management of
 Budget Support Conditionality'; 'Office Quality Support Group Formulation Phase and link
 with operational monitoring (Results Orientated Monitoring)'; 'Financial Management
 Procedures in Directorate C and its devolved Delegations' and 'Systems aimed at
 guaranteeing the Accuracy of CRIS & OLAS Data'. Only one audit on which
 recommendations still remained outstanding was not the subject of a follow up audit.

 The chart below indicates the status of recommendations in January 2010 on audits on
 which the auditors had not formally closed all recommendations i.e. had indicated that the
 audit and action plan were not yet complete, at the beginning of 2009. Details are given
 below of action taken on the recommendations during the year.
                                   Status of IAC recom m endations at Jan 2010
                                         on audits still open in Jan 2009



                                In
                                            8
                            progress

                                                                           Very Important


                           Com pleted                32



                                        0       10        20   30   40



 3.3.1.1.       Completed implementation of IAC recommendations

 Regarding IT developments, the EDF accounting system has migrated from OLAS to
 CRIS/ABAC, the Internal Control Management (ICM) tool has been updated, and CRIS now


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                                                              EuropeAid Annual Activity Report 2009




 includes a possibility of recording 'overruling' decisions.
 As regards human resources, the recommendations on the development of the HR policy
 relating to budget support and the definition of a skills and knowledge criteria for budget
 support posts were completed. Training on risk management was also implemented. In the
 framework of the audit on the annual management process, functions were defined within
 operational directorates, the training package was reviewed and a special training for
 Activity Based Management correspondents was introduced. Other recommendations
 completed relate to the Annual Management Plan process concern guidance and templates
 for its preparation, the visibility of the link between the External Assistance Management
 Report and the Annual Management Plan, and the appropriate and timely feedback to the
 draft Annual Management Plans.

 Completed recommendations specifically aimed at Delegations related to the instruction for
 clear individual/section objectives for the year, section plans and the process for overruling
 decisions. The consultation process with EuropeAid's geographical Directorates concluded
 that for EuropeAid's purposes, the timing, the structure and task management aspects of
 the current planning and reporting cycle were appropriate to needs. The issue of the
 simultaneous publication of instructions on the web, working languages and paper
 documents was also addressed. Action has also been taken on the recommendation related
 to the retention of electronic documents and proper control over the transfer of files.

 Improvements were also made to the functioning of the Office Quality Support Group and
 actions were taken on the quality control of data the adoption of (audit) action plans for
 Delegations.

 As regards budget support conditionality, a new financial circuit designed for budget support
 tranche release was set and an instruction on its correct application and a proper electronic
 encoding was issued. Actions related to Delegation's analysis of each condition for
 disbursement and the compliance with the assessment of the budget support conditionality
 and prior consultation with DG RELEX, were also completed. New Technical and
 Administrative annexes must now include confirmation that the treasury account has been
 credited by an amount equivalent to the foreign exchange transfer. Concerning the audit on
 the financial management procedures in ACP countries, actions were also taken on the
 support of multi-currency payments by original document, on recording payment
 suspensions, on the use of standard models for financial guarantees and on the reporting of
 CRIS incidents by Delegations.


 3.3.1.2.       Ongoing implementation of IAC recommendations

 The recommendation on compulsory training for budget support and public finance
 management for all staff that work or will work in budget support area was implemented in
 January 2010. The 'Practical Handbook on the Office Quality Support Group' should be
 updated by September 2010. Regarding IT developments, the development of the 'Project
 Cycle Management Pipeline' linked to a common EuropeAid IT Platform should be finished
 by the end of 2010.

 Concerning the follow up audit on the 'Financial Management Procedures in Directorate C
 and its devolved Delegations', the four remaining recommendations should be implemented
 by the end of 2010 according to the new deadlines set by the Director-General. Even
 though many actions have been taken to mitigate the risks of the remaining
 recommendations, the remaining actions are related to a warning system for expiring
 financial guarantees, training on document management and archiving for Delegations,


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                                                                                    EuropeAid Annual Activity Report 2009




 checklists notification on the intranet and the continuous reduction of the vacancy rate.


 3.3.2.     Actions in relation to Internal Audit Service (IAS) audits

 The chart below indicates the status of recommendations in January 2010 on audits on
 which the auditors had not formally closed all recommendations i.e. had indicated that the
 audit and action plan were not yet complete, at the beginning of 2009. Details are given
 below of action taken on the recommendations during the year.
                                        Status of IAS recom m endations at Jan 2010
                                              on audits still open in Jan 2009



                                In
                                            11
                            progress
                                                                                       Very Important
                                                                                       Critical

                           Com pleted                      54              2



                                        0        10   20    30   40   50       60



 3.3.2.1.       Completed implementation of IAS recommendations

 Regarding IT developments, the EDF accounting system has migrated to CRIS/ABAC and
 the CRIS forecasting module has been implemented. As far as verification missions are
 concerned, the Terms of Reference for UN verification missions have been adopted and the
 Terms of Reference for 'devolution' verification missions in Delegations have been revised
 (see 3.1.2.2.2). As regards guidance given to HQ and Delegations, the guidelines for on-
 the-spot missions have been finalised, the programme estimates guide has been revised,
 reporting templates for monitoring and evaluation activities were issued, the Quality Support
 Group functioning has been revised (templates, checklists). Concerning Delegations in
 particular, actions have been taken to ensure adequate awareness of joint management
 principles and provide ACP delegations with further guidance on how to address joint
 management versus decentralised management systems and related control activities. The
 follow up of Delegations' management reports on issues raised has been strengthened.
 Improvements have also been made regarding filing and archiving and the documents to be
 systematically attached in CRIS have been defined. EuropeAid participated in the taskforce
 to clear the backlog in open recovery files, with the coordination of DG BUDG and the Legal
 Service. The result is the definition of criteria for the selection of recovery orders to be
 examined for waiver. These important and specific actions have significantly contributed to
 the sound financial management of the DG in 2009.


 3.3.2.2.       Ongoing implementation of IAS recommendations

 Regarding recommendations related to IT developments, a number of improvements to
 CRIS were ongoing in 2009 and should be completed in 2010, e.g. the CRIS Module
 'Projects Geographical Coverage', and the 'project implementation report'. The remaining
 recommendation on recoveries concerning the follow-up of audit findings related to
 ineligible expenditure should be implemented in 2010. The list of ineligible expenditure was


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                                                                        EuropeAid Annual Activity Report 2009




 issued in 2009 and follow up is in progress.

 Control mechanisms related to regional programmes have been improved (on-the-spot
 missions, annual audit plan, quality of the beneficiary's audit certificate, reporting). The
 implementation of most of the remaining recommendations for regional programmes
 depends on the adoption of new guidelines due in the spring of 2010.

 A working group is being set up to address implementation of audit recommendations to
 ensure the proper of follow-up of IAC audits. The IAC should ensure follow-up audits on key
 issues after maximum 12 months from the date of issuing the final report. Concerning
 recommendations on human resources issues, the increase of the number of EuropeAid
 operational floaters available to Delegations in order to mitigate staffing problems has been
 delayed until the new Financial Perspective.


 3.3.3.       Actions in relation to European Court of Auditors (ECA) audits

 3.3.3.1.        ECA Annual Reports published before 2009

 Regarding the annual reports covering the years 2005-2007 the European Court of Auditors
 addressed 16 recommendations to EuropeAid related to the EC General Budget, none of
 which was classed as critical. Five of them were classed as very important. Only one of
 these recommendations remained still open at the beginning of 2009 (dating from 2005),
 relating to financial instruments and banking activity. The Court recommended that the
 Commission should take appropriate actions to liquidate the European Community
 Investment Partners (ECIP) programme. The closing of this programme has proved very
 challenging. On 31 December 2009 there remained still 16 activities which had not yet been
 closed, due to pending repayment for recovery orders issued or ongoing legal procedures.
 One case is still subject to legal analysis and for one case the financial institution in charge
 is pursuing repayment from the final beneficiary. This recommendation is expected to be
 closed by the end of 2011.

 Regarding the annual reports covering the years 2005-2007 the Court of Auditors
 addressed 28 recommendations to EuropeAid related to the European Development Fund,
 none of which was classed as critical. There were three very important recommendations,
 one of which was completed prior to 2009 and one of which was not accepted. (This
 concerned the Court of Auditors call for a baseline threshold of (public finance
 management) performance for budget support eligibility with which the Commission did not
 agree, favouring a dynamic interpretation of the beneficiary's reform trends.) In the first
 semester of 2009 the last very important recommendation was completed when EuropeAid
 adopted new Terms of Reference for the expenditure verification of EDF programme
 estimates on the 8th June 2009.

 In addition the migration of the EDF accounting system (OLAS) to the Commission's accrual
 accounting system CRIS/ABAC was achieved in 2009, as requested by the Court for some
 years (see 2.1.4). In response to a concern repetitively expressed by the Court of Auditors
 on the variation in audit coverage between delegations and between geographic zones52, a
 target or minimum Audit Coverage Ratio (ACR) has been established (5%).



52
     For example, in the DAS EDF 2007 Statement of preliminary findings related to the external audits of EDF
     operations (PF-2823) the Court noted a 'lack of clear set of objectives in relation to audit coverage'.


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                                                                    EuropeAid Annual Activity Report 2009




 3.3.3.2.       ECA Special Reports published before 2009

 No very important recommendations were still outstanding in 2009 for the report on
 European Commission Rehabilitation Aid following the 'European Commission
 Rehabilitation Aid following the Tsunami and Hurricane Mitch' (Special Report 6/2008).
 Work remains ongoing for the one very important recommendation on the report on 'The
 Effectiveness of EU Support in the area of freedom, security and justice for Belarus,
 Moldova and Ukraine – TACIS' (Special Report 9/2008). This concerns improving the
 supervision of funds implemented by international organisations – on which substantial
 progress has been made in 2009 with the agreement on Terms of Reference for verification
 missions with the United Nations. The 'EC Development Assistance to Health Services in
 Sub-Saharan Africa' report (Special Report 10/2008) contained no critical or very important
 recommendations.


 3.4. Building block 4: Assurance received from other Authorising Officers

 In accordance with article 59 of the Financial Regulation, article 46 of the Implementing
 Rules, and article 4.13 of the Charter of the Authorising Officer of the EDF, the Director
 General of EuropeAid has received crossed sub-delegations from seven other Directors-
 General53 and has granted crossed sub-delegations to fifteen other Directors-General. Of
 these, one is a subdelegation signed with OLAF in December 2009 concerning activities for
 2010, consequently no credits were allocated in 2009. Similarly a subdelegation was
 granted to DG HR for which no credits were allocated in 2009. The table below lists the
 remainder. Conditions covering these cross delegations given by EuropeAid include a
 written convention, setting out the conditions governing the sub-delegation, in particular the
 frequency of reports, the controls to be carried out by the authorising officer by sub-
 delegation, and the requirement to inform the authorising officer by delegation in writing of
 any management problems encountered and the solutions proposed to remedy them. At
 31/03/2010 EuropeAid had received all reports from DGs to which a crossed sub-delegation
 had been awarded and these have been scrutinised by EuropeAid's services. No major
 problems or weaknesses have been raised in these reports concerning the activities sub-
 delegated.


       List of Activities covered by crossed sub-delegations granted to AODs in another
                                  Directorate General or service

      DG receiving
                           Type of activities
      cross delegation
      DEV                  Administrative expenses of the EDF
                           Activities under the Erasmus Mundus External Co-operation Window
      EAC
                           (Tempus & Euromed-Jeunesse).
      ECFIN                Closure of old files TACIS/JOP (Joint Venture Programme).
                           EDF funds for the implementation of the provisions concerning
      ECHO                 humanitarian and emergency assistance to ACP countries in the ACP-EC
                           partnership agreement and to OCTs.
      ELARG                Follow-up to Turkey files and TAIEX activities.



53
     DGs HR, AGRI, DEV, ELARG, RELEX, TREN and TRADE


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                                                                         EuropeAid Annual Activity Report 2009




                             Priority 4 "Strengthening international environmental governance and
                             policy development" of the "Thematic Programme on Environment and
                             Sustainable Management of Natural Resources, including Energy" as
     ENV
                             defined in the Communication COM (2006)020 and in the "thematic
                             strategy for environment and sustainable management of natural
                             resources, including energy (ENRTP) 2007-2010 (C(2007)2572)".
                             Projects for cooperation with third countries on migration issues, years
     JLS
                             2001, 2002 & 2003.
     PMO                     Management of the files for special advisors, electoral observation.
                             Closure of files for information and communication and management of
     RELEX
                             individual experts
     RTD                     Management of the ISTC and STCU projects.
     SCIC                    Projects under the 'interpreters training programme'.
     TREN                    Closure of files on 'Sustainable development' activities.
     SANCO                   Raising awareness of sanitary and phytosanitary standards in the
                             production and distribution of food in Africa.



 3.5. Conclusion

 The results of the above four building blocks inform the DG's statement of assurance and
 decisions on any potential reservations. In terms of financial controls, as set out in section
 3.1.2, EuropeAid relies principally on checks operated prior to final payment, because in the
 relatively high risk environment of development cooperation this allows for errors detected
 to be rectified in the course of determining the final payment: a surer means of correction
 than issuing a recovery order. EuropeAid does not also carry out an ex-post statistical
 sampling exercise to establish a residual error rate, although this will be under consideration
 in the future. Therefore a judgement is made based on monitoring and reporting from the
 field as well as a number of financial indicators and their identified trends. For 2009, despite
 the substantial improvements in controls made by EuropeAid and recognised by the Court
 of Auditors54, EuropeAid is aware of a number of apparently negative trends in financial
 control which could be explained by different factors. For example the results of (framework
 contract) financial audits appear to be less good in 2009 than in 2008, although this could
 clearly be the result of the new terms of reference for audits with their more rigorous
 classifications of results. In addition audit planning in 2009 is down on 2008 and
 implementation of the Annual Audit Plan remains slower than planned. Preliminary analysis
 of the 2009 errors found by the Court of Auditors appears to indicate some errors on
 payments made by Commission staff, which is of real concern, although the numbers of
 transactions involved is very small which makes it difficult to draw general conclusions. The
 Court of Auditors continues to criticise the level of our support and monitoring of
 implementing organisations and their estimation of error on payments remains above 2%.

 While these trends do not demonstrate that the residual error rate is now higher than 2% for
 any one ABB activity55, and therefore require a reservation by the Director General, they do

54
   Including – in 2009 - a revised audit methodology, new target audit coverage, development of CRIS audit,
     revised guidelines for devolution verification missions, conversion of EDF accounting to ABAC, new
     Terms of Reference for programme estimates' verification, revised financial circuits & checklists, expanded
     budget support training, adoption of Terms of Reference for verification missions to the U.N. organisations
     etc.
55
   of which EuropeAid has 13.


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                                                              EuropeAid Annual Activity Report 2009




 indicate a need for more analysis and action in 2010 on the impact of errors, their
 underlying causes and further cost effective mitigating action. It seems likely that any
 negative indicators and trends are linked to the identified internal control weakness on staff
 mobility and allocation (EuropeAid's staffing constraints making it almost impossible to
 intensify support to implementing organisations, to carry out more audits and to intensify ex-
 ante transactional controls). Both internal audits of 2009 confirm the need for action in this
 area. It may also be that EuropeAid needs more detailed information on its financial control
 performance and that the control strategy could do more to adapt to the very dynamic risk
 environment within which EuropeAid operates. One must also be very aware of the
 resource implications of any plans to quantify and/or significantly reduce the residual error
 rate. With these elements in mind the following three priorities have been established for
 2010:
     • In concert with DGs HR, RELEX, BUDG and EPSO, further action to improve staff
         allocation and mobility;
     • Detailed analysis of the Court of Auditors findings over two years and the costs of
         correction to contribute to a Commission proposal on the Tolerable Risk of Error;
     • Review of the EuropeAid control strategy including consideration of an indicator for
         the estimated impact of residual errors.


 3.6. Completeness and reliability of the information reported in the building
      blocks

 The information reported in the building blocks for this statement of assurance is complete
 and reliable as regards the coverage of the budget delegated to the Authorising Officer by
 Delegation.


 3.7. Reservations

 Not applicable.


 3.8. Overall conclusions on the combined impact of the reservations

 Not applicable.




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                                                                         EuropeAid Annual Activity Report 2009




4. DECLARATION OF ASSURANCE



I, the undersigned,

Director-General of EuropeAid Co-operation Office

In my capacity as authorising officer by delegation

Declare that the information contained in this report gives a true and fair view56.
State that I have reasonable assurance that the resources assigned to the activities
described in this report have been used for their intended purpose and in accordance with
the principles of sound financial management, and that the control procedures put in place
give the necessary guarantees concerning the legality and regularity of the underlying
transactions.
This reasonable assurance is based on my own judgement and on the information at my
disposal, such as the results of the self-assessment, ex post controls, the work of the internal
audit capability, the observations of the Internal Audit Service and the lessons learnt from the
reports of the Court of Auditors for years prior to the year of this declaration.
Confirm that I am not aware of anything not reported here which could harm the interests of
the institution.




                                                             Brussels,




                                                                               - signed -


                                                                               Koos RICHELLE




56
     True and fair in this context means a reliable, complete and correct view on the state of affairs in the
      service.


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