PURPOSE: to grant discharge to the European Commission in respect of the implementation of the budget of the European Development Funds for the financial year 2016.

NON-LEGISLATIVE ACT: Decision (EU) 2018/1337 of the European Parliament on discharge in respect of the implementation of the budget of the eighth, ninth, tenth and eleventh European Development Funds for the financial year 2016.

CONTENT: the European Parliament decided to grant discharge to the Commission in respect of the implementation of the budget of the eighth, ninth, tenth and eleventh European Development Funds for the financial year 2016.

This decision is accompanied by a resolution of the European Parliament containing the observations which form an integral part of the discharge decision in respect of the implementation of the general budget of the European Union for the financial year 2016 ( please refer to the summary dated 18.4.2018 ).

In this resolution, Parliament expressed its concern about the Court’s assessment of the legality and regularity of payments underlying the accounts which are materially affected by error, particularly in the field of public procurement. It called on the Commission to correct the shortcomings identified in contract management, selection procedures, document management and procurement as a matter of urgency.

Parliament insisted on:

the principles of sustainability, policy coherence and effectiveness for the Union to develop a new and cross-cutting Union development approach in view of enhancing the positive impact of its development aid and deliverables; transparency and accountability are prerequisites for both democratic scrutiny and the consistency of Union development action with the objectives of other actors such as Member States, international organisations, international financial institutions or multilateral development banks; effective coordination to limit the risk of aid fragmentation and maximising impact coherence and partners’ ownership of development priorities.

Parliament noted that budget support carries a significant fiduciary risk and should only be granted if it is accompanied by sufficient transparency, traceability and accountability and a clear commitment on the part of partner countries to reform policy. Control mechanisms for the conduct of beneficiaries in the areas of corruption, respect for human rights, the rule of law and democracy should be improved.

Parliament recognised the necessity to develop new patterns for designing development assistance instruments and related conditionalities, in line with the commitments of the Sustainable Development Goals and the new European Consensus on Development, in order to respond to new critical features such as the development and humanitarian nexus, the development, migration and mobility nexus, the climate change nexus and the peace and security nexus.

Investing in fragile countries remains a key priority of Union intervention, while maintaining a sober monitoring approach could lead, when required, to the cessation of financing; believes that the practice of outcome ratings and their sharing in relation to fragile or conflict countries must be strengthened.

With regard to the link between development and migration , Parliament called on the Commission to report in a structured manner on the impact of the programmes launched under the Africa trust fund, particularly on the basis of Union result-oriented monitoring and the Africa trust fund results framework to highlight the collective achievements. It urged the Commission to honour its commitments under the Paris Agreement and to make EU funding conditional on compliance with stricter climate conditions.

Parliament reiterated its call for the integration of the EDFs into the Union's general budget .

The European Parliament decided by 523 votes to 143, with 28 abstentions, to grant discharge to the Commission in respect of the implementation of the budget of the eighth, ninth, tenth and eleventh European Development Funds for the financial year 2016.

Members welcome the Court’s opinion that the final annual accounts of the 8th, 9th, 10th and 11th EDFs for the year 2016 present fairly, in all material respects, the financial position of the EDFs as at 31 December 2016 and that the revenue underlying the accounts for the year 2016 is legal and regular in all material aspects. They formulated a series of observations which are an integral part of the decision concerning the discharge.

Statement of Assurance: Parliament welcomed the continuous efforts made by the Commission’s services to improve the overall financial management of the EDFs with regard to old outstanding pre-financing commitments and payments. It regretted, however, that, according to the Court of Auditors, the supervisory and control systems were still assessed as only partially effective. It urges the Commission to act to solve the issue of recoveries of unspent pre-financing incorrectly recorded as operational revenue.

Members reiterated their concern about the Court’s assessment of the legality and regularity of payments underlying the accounts, which are materially affected by error. They were concerned by the recurrence and persisting typology of errors, in particular in the area of public procurement . They called on the Commission to address the shortcomings in contract management, selection procedures, document management and the procurement system as a matter of urgency.

Efficiency of the control framework: while acknowledging that development aid is often implemented in difficult, unstable or critical contexts which are error-prone, Members called for unwavering attention to be paid to the recurrent weaknesses observed within the running of key control steps, namely the vulnerability of ex ante checks carried out before project payments are made and external audit verifications on expenditure.

Parliament welcomed the fact that a residual error rate (RER) study was carried out for the fifth year in compliance with the RER methodology, thus constituting henceforth a building block of DG DEVCO’s assurance building.

They reiterated their support for the shift to the issuance of differentiated reservations as requested by Parliament to progressively reinforce the assurance mapping of the different operational processes. They supported the fact that the Commission has maintained its reservation concerning the Africa Peace Facility related to governance and reporting on corrective measures in the management of funds.

The Commission was called upon to:

improve significantly its monitoring and performance reporting arrangements to ensure that key indicators established in the different performance systems are systematically monitored; further develop its communications strategy and tools by highlighting the main results achieved, and to further strengthen the overall visibility of EDF-supported projects; closely monitor those Union delegations which have recently reached the target of 60 % of green key performance indicators (KPIs) in order to consolidate the trend analysis of Union delegations; ensure that programmes are calibrated and not overly ambitious, and report immediately on the specific remedial actions taken when a project has been classified as ‘red’ for two consecutive years; regularly remind heads of delegation of their overall accountability for managing the portfolios of projects.

Union trust funds: these were designed to provide a rapid political response in the context of a lack of resources to certain critical situations or major crises, such as the migration crisis, or the need to link relief, rehabilitation and development.

Members stressed the need to:

ensure that such trust funds add value to existing actions, contribute to increased visibility of the Union’s external action and soft powers, and avoid duplication of other financial tools; implement comprehensive control mechanisms to ensure political scrutiny from Parliament on the governance, management and implementation of these new instruments in the context of the discharge procedure; develop specific supervision strategies for Union trust funds, with specific objectives, targets and reviews.

Parliament welcomed the establishment of the Bêkou trust fund and its contribution to the international response to the crisis in the Central African Republic, recognising that this first trust fund can be considered as a major pilot project.

Budget support: Parliament noted that budget support payments financed by the EDFs in 2016 corresponded to EUR 644 million and that the number of ongoing budget support operations in the EDFs was 109 in 2016 with 56 disbursements.

While being a key driver for change and addressing the main development challenges, budget support carries a significant fiduciary risk and should only be granted if it provides sufficient transparency, traceability and accountability and is accompanied by a clear commitment from partner countries to reform policies and fight corruption;

The Commission should ensure that budget support and disbursement of funds is revised, withheld, reduced or cancelled when clear and initial objectives and commitments are not achieved and/or when the Union’s political and financial interests are at stake.

Parliament also stressed the importance of domestic revenue mobilisation in sub-Saharan Africa . It encourages the Commission to make an increased use of the micro financing instrument, which is considered to be a significant and effective tool in the fight against poverty and in lifting up local economies.

Addressing new global development priorities: Members recognised the necessity to develop new patterns for designing development assistance instruments and related conditionalities, in line with the commitments of the Sustainable Development Goals and the new European Consensus on Development, in order to respond to new critical features such as the development and humanitarian nexus, the development, migration and mobility nexus, the climate change nexus and the peace and security nexus.

In this context, the Commission was strongly urged to fulfil its commitments based on the Paris Agreement to strengthen the climate conditionalities of Union funding .

Members also supported increasing the ACP impact financing envelope, a separate window of the ACP investment facility, by EUR 300 million to reach a total capacity amount of EUR 800 million to deal with targeted projects directly tackling the root causes of migration .

Lastly, Members reiterated their call for the inclusion of the EDF Funds in the general budget of the Union.

Council Recommendation : 8th EDF

Having regard to the Internal Agreement between the Representatives of the Governments of the Member States, meeting within the Council, on the financing and administration of the Community aid under the Second Financial Protocol to the fourth ACP-EC Convention setting up the 8th EDF, and after having examined the revenue and expenditure account and the balance sheet relating to the operations of the 8th EDF as at 31 December 2016 and the Annual Report of the Court of Auditors on the activities funded by the 8th, 9th, 10th and 11th EDFs concerning the financial year 2016, together with the Commission’s replies, the Council recommended the European Parliament to give the Commission a discharge in respect of the implementation of the operations of the 8th EDF for the financial year 2016 .

This recommendation is not accompanied by any further observations. The Council considered that the overall implementation by the Commission of the operations of the 8th EDF has been satisfactory.

Council Recommendation : 9th EDF

Having regard to the Internal Agreement between Representatives of the Governments of the Member States, meeting within the Council, on the Financing and Administration of Community Aid under the Financial Protocol to the Partnership Agreement between the African, Caribbean and Pacific States and the European Community and its Member States signed in Cotonou (Benin) on 23 June 2000 and the allocation of financial assistance for the Overseas Countries and Territories setting up the 9th European Development Fund (EDF) and having examined the revenue and expenditure account and the balance sheet relating to the operations of the 9th EDF as at 31 December 2016 and the Annual Report of the Court of Auditors on the activities funded by the 8th, 9th, 10th and 11th EDFs concerning the financial year 2016, together with the Commission’s replies contained in that Annual Report, the Council recommended the European Parliament to give the Commission a discharge in respect of the implementation of the operations of the 9th EDF for the financial year 2016 .

This recommendation is not accompanied by any further observations. The Council considered that the overall implementation by the Commission of the operations of the 9th EDF has been satisfactory.

Council Recommendation : 10th EDF

Having regard to the Internal Agreement between the Representatives of the Governments of the Member States, meeting within the Council, on the financing of Community aid under the multiannual financial framework for the period 2008 to 2013 in accordance with the ACP-EC Partnership Agreement and on the allocation of financial assistance for the Overseas Countries and Territories to which Part Four of the EC Treaty applies setting up the 10th EDF, and after having examined the revenue and expenditure account and the balance sheet relating to the operations of the 10th EDF as at 31 December 2016 and the Annual Report of the Court of Auditors on the activities funded by the 8th, 9th, 10th and 11th EDFs concerning the financial year 2016, together with the Commission’s replies, the Council recommended the European Parliament to give the Commission a discharge in respect of the implementation of the operations of the 10th EDF for the financial year 2016 .

This recommendation is not accompanied by any further observations. The Council considered that the overall implementation by the Commission of the operations of the 8th EDF has been satisfactory.

Council Recommendation : 11th EDF

Having regard to the Internal Agreement between the Representatives of the Governments of the Member States of the European Union, on the financing of European Union aid under the multiannual financial framework for the period 2014 to 2020, in accordance with the ACP-EU Partnership Agreement, and on the allocation of financial assistance for the Overseas Countries and Territories to which Part Four of the Treaty on the Functioning of the European Union applies setting up the 11th EDF and after having examined the revenue and expenditure account and the balance sheet relating to the operations of the 11th EDF as at 31 December 2016, and the Annual Report of the Court of Auditors on the activities funded by the 8th, 9th, 10th and 11th European Development Funds (EDFs) concerning the financial year 2016, together with the Commission’s replies, the Council recommended the European Parliament give the Commission a discharge in respect of the implementation of the operations of the 11th EDF for the financial year 2016 .

This recommendation is not accompanied by any further observations. The Council considered that the overall implementation by the Commission of the operations of the 11th EDF during the financial year 2016 has been satisfactory.

PURPOSE: presentation of the annual report from the Court of Auditors of the European Union on the activities funded by the 8th, 9th, 10th and 11th European Development Funds (EDFs) concerning the financial year 2016.

CONTENT: the European Development Funds (EDFs) provide EU assistance for development cooperation to the African, Caribbean and Pacific (ACP) countries and overseas countries and territories (OCTs). EDF spending and cooperation instruments aim to overcome poverty, and to promote sustainable development and the integration of the ACP countries and OCTs in the world economy.

The EDFs are funded by the EU’s Member States and are implemented through either individual projects or budget support (a contribution to a country’s general or sector budget).

Each EDF is governed by its own financial regulation.

EDFs are managed outside the framework of the EU budget by the European Commission and, for some aid, by the European Investment Bank.

EDF discharge procedure : due to the intergovernmental nature of the EDFs, the European Parliament exercises a more limited role in their functioning than it does for the development cooperation instruments financed by the EU general budget; notably, it is not involved in establishing and allocating EDF resources. However, the European Parliament is still the discharge authority , except for the Investment Facility, which is managed by the EIB and therefore outside the scope of the audit.

For 2016, expenditure subject to audit in this area was EUR 2.8 billion .

The main conclusions of the Court are included in a ‘Statement of Assurance’, the main elements of which may be summarised as follows:

Reliability of the EDF accounts : the Court concludes that the 2016 accounts present fairly the financial situation of the EDFs, the results of their operations, their cash flows, as well as the change in net assets.

Overall, the information collected indicates that for the year ended 31 December, 2016:

EDF revenue transactions did not contain a material level of error;

EDF payments were affected by a significant level of error estimated at 3.3 % (compared to 3.3 % in 2015). The Court therefore gave an adverse opinion on the legality and regularity of payments underlying the accounts.

Examples of errors : non-compliance with procurement rules accounted for around one-third of the overall error in the EDFs. The Court also examined payments for advisory services on trade matters. It found that the contracts underlying these payments had not been awarded following a competitive selection procedure, as required by the grant agreement. Other important types of error include expenditure that either has not been incurred or is ineligible .

In two cases of quantifiable error, the Commission had sufficient information to prevent, or to detect and correct, the error before accepting the expenditure. Had the Commission made proper use of all the information at its disposal, the estimated level of error for this chapter would have been 0.7 % lower.

DG International Cooperation and Development (DEVCO)’s efforts to improve the implementation of its control system : the Court noted that DG DEVCO’s control system is centred around ex ante checks conducted before the expenditure claimed by beneficiaries is accepted. In this year too, the frequency of the errors found — including some contained in final claims which had been subjected to ex ante external audits and expenditure verifications — points to weaknesses in these checks.

In 2016, DG DEVCO carried out its fifth RER study to estimate the level of error which had evaded all management checks to prevent, detect and correct errors across its entire area of responsibility.

It reviewed the 2016 RER study and found that it had been conducted in compliance with the RER methodology. All weaknesses reported in the Court’s 2013 report had been addressed, with the exception of the RER-specific estimation method, which still left too wide a margin for judgement when estimating individual error rates.

DG DEVCO reports an amount at risk at closure (EUR 105 million) taking into account the likely effect of checks in subsequent years (‘corrective capacity’). The Court believes that the reliability of the 2016 corrective capacity figure is still impaired.

Recommendations of the Court : in order to address the shortcomings noted above, the Court recommends that the Commission:

strengthens the monitoring of old open expired EDF contracts in order to further reduce their number; completes the revision of the terms of reference for all its audits and expenditure verifications by the end of 2017; extends the actions in its 2017 action plan to also cover grants and programme estimates under indirect management in the AAR reservation; considers reducing the extent of the RER substantive testing of individual low-risk budget support transactions and reallocating the saved resources to increase the substantive testing of project-related transactions; further improves the calculation of the 2017 corrective capacity by addressing the shortcomings identified in this annual report.

The Commission accepts all of these recommendations.

PURPOSE: presentation by the Commission of the annual accounts of the 8th, 9th, 10th and 11th European Development Funds (EDF) for the financial year 2016.

CONTENT: this communication presents the final accounts of the 8th, 9th, and 10th which have been prepared in accordance with Title IX of the Financial Regulation of the 11th European Development Fund and which must be presented to the European Parliament, the Council and the Court of Auditors.

The document also includes a note accompanying the accounts in which the accounting officer in charge of the EFD audit certifies that the accounts present a true and fair view of the financial position of the European Development Funds in all material aspects ( signed declaration of assurance ).

It should be noted that the layout of the financial statements and the explanatory notes were changed in 2016. The changes are purely in the presentation of the financial information and aim at giving a closer alignment to the other EU entities'.

1. EDF objectives and implementation : the EDF is the main instrument for providing Union aid for development cooperation to the African, Caribbean and Pacific (ACP) States and Overseas Countries and Territories (OCTs). The 1957 Treaty of Rome made provision for its creation with a view to granting technical and financial assistance, initially limited to African countries which at that time were still colonised and with which some Member States had historical links.

The EDF is not funded by the European Union's budget . It is established by an internal agreement of the Representatives of the Member States, sitting within the Council, and managed by a specific committee . The European Commission is responsible for the financial implementation of the operations carried out with EDF resources and the European Investment Bank (EIB) manages the Investment Facility.

How is the EDF funded : unlike the EU, the EDF is a fund operating on the basis of multiannuality. Each EDF establishes an overall fund to implement development cooperation during a period of usually five years . The EDF resources are “ad hoc” contributions from the EU Member States. Approximately every five years, Member State representatives meet at intergovernmental level to decide on an overall amount that will be allocated to the fund and to oversee its implementation. The Commission then manages the fund in accordance with the Union policy on development cooperation. Since Member States have their own development and aid policies in parallel to the Union policy, the Member States must coordinate their policies with the EU to ensure they are complementary.

During the period 2014-2020, the geographic aid granted to ACP States and OCTs will continue to be mainly funded by the EDF. Each EDF is governed by its own Financial Regulation which requires the preparation of financial statements for each individual EDF. Accordingly, financial statements are prepared separately for each EDF in respect of the part that is managed by the Commission. These financial statements are also presented in an aggregated way so as to provide a global view of the financial situation of the resources for which the Commission is responsible.

11th EDF : the Internal Agreement establishing the 11 th EDF was signed by the participating Member States, meeting within the Council, in June 2013. It came into force on 1 March 2015. In order to assure continuity between the end of the 10 th EDF and the entry into force of the 11 th EDF, the Commission proposed transitional measures.

At the same time the 10 th EDF Financial Regulation was amended and the new Financial Regulation applicable to the transition period was adopted. They entered into force on 30 May 2014.

At the adoption of the Multi-annual Financial Framework for 2014-2020, it was decided that geographical cooperation with the ACP States would not be integrated into the EU budget (budgetised), but would continue to be funded through the existing intergovernmental EDF.

Discharge procedure : the EDF annual accounts and resource management are overseen by its external auditor, the European Court of Auditors (hereinafter referred to as the ECA), which draws up an annual report for the European Parliament and the Council.

The final control is the discharge of the financial implementation of the EDF resources for a given financial year. The European Parliament is the discharge authority of the EDF. This means that following the audit and finalisation of the annual accounts it falls to the Council to recommend and then to the European Parliament to decide whether to grant discharge to the Commission for the financial implementation of the EDF resources for a given financial year .

This decision is based on a review of the accounts and the annual report of the ECA (which includes an official statement of assurance) and replies of the Commission, and also following questions and further information requests to the Commission.

On 2 March 2015, the Council adopted the 11th EDF Financial Regulation and the Implementation Rules. They entered into force on 6 March 2015.

Investment facility : within the framework of the ACP-EU Partnership Agreement, the Investment Facility was established. This Facility is used to support private sector development in the ACP States.

As the Investment Facility is not managed by Commission, it is not consolidated in the first part of the annual accounts – the financial statements of the EDF and the related report on financial implementation.

EDF not budgeted : when the Multi-annual Financial Framework for 2014-2020 was adopted, it was decided that geographical cooperation with the ACP States would not be integrated into the EU budget (budgetised), but would continue to be funded through the existing intergovernmental EDF .

2. Overall financial implementation of the EDFs in 2016 : the report concentrates on the implementation of the EDFs and presents:

- the financial statement – funds managed by the European Commission (financial statements and explanatory notes);

- the financial statement of the European Investment Bank (EIB) including the management of the Investment Facility;

- the presentation of the consolidated accounts of the Bêkou Trust Fund for external actions under an agreement concluded with other donors. These trust funds may be created for emergency, post-emergency and thematic actions.

Financial statements of the EDF : the second part of the document presents statistical tables and figures of EDF implementation, including risk management.

The document presents in particular the main projects funded by the former EDFs (they show the amounts decided, contracted and paid as regards the 6 th , 7 th , 8 th and 9 th EDF).

The first multi-donor EU Trust Fund called Bêkou, was established on 15 July 2014, by the EU and Germany, France and the Netherlands, with the aim to promote the stabilisation and reconstruction of the Central African Republic. The maximum duration of the Bêkou Trust fund is 60 months.

At the end of 2016, 7 donors contributed to the Bêkou Trust Fund: the European Development Fund (EDF), the EU Budget, 4 Member States and 1 non-Member State. The total contribution pledged to the EUTF amounted to approximately EUR 173 million: EDF with EUR 68 million, EU Budget with EUR 50 million while Member States and other donors have announced pledges of EUR 55 million.

Up to the end of 2016 an amount of EUR 91.3 million in the areas of health, food and nutrition security, infrastructure, integration of women in the society as well as aid to central african refugies in surrounding countries had been committed.

The EDF financial statements : the second part of the document presents statistical tables and figures concerning EDF implementation, including risk management.

The document presents in particular major projects funded by the previous EDFs (whose amounts have all been committed but are gradually paid as and when the implementation of projects requires it).

Previous EDFs : as the Sixth EDF was closed in 2006 and the Seventh EDF was closed in 2008, the annual accounts no longer contain implementation tables for these EDFs. However, implementation of the transferred balances can be found in the Ninth EDF .

10th EDF : the ACP-EC Partnership Agreement signed on 23 June 2000 in Cotonou by the Member States of the European Community and the States of Africa, the Caribbean and the Pacific (ACP States) entered into force on 1 April 2003. The Cotonou Agreement was amended twice, firstly by the agreement signed in Luxembourg on 25 June 2005, secondly by the agreement signed in Ouagadougou on 22 June 2010. The Internal Agreement on the financing of Community aid under the multiannual financial framework for the period 2008-2013 in accordance with the revised Cotonou Agreement, adopted by the Representatives of the Governments of the Member States of the European Community on 17 July 2006, entered into force on 1 July 2008.

Under the Cotonou Agreement, the second period (2008-2013) of Community aid to the ACP States and OCTs is funded by the 10th EDF for an amount of EUR 22 682 million, of which:

EUR 21 966 million is allocated to the ACP countries in accordance with the multiannual financial framework set out in Annex Ib to the revised Cotonou Agreement, of which EUR 20 466 million is managed by the European Commission; EUR 286 million is allocated to the OCTs in accordance with Annex IIAa of the revised Council Decision on the association of the OCTs with the European Community, of which EUR 256 million is managed by the European Commission; EUR 430 million is for the Commission to finance the costs arising from the programming and implementation of 10th EDF resources.

According to the "Sunset clause" of the 10th EDF, (articles 1(4) and 1(5) of the 10th EDF Internal Agreement) no funds could be committed after 31 December 2013. Uncommitted funds were transferred to the 11th EDF performance reserve.

11th EDF : the third period (2014-2020) of Community aid to the ACP States and OCTs is funded by the 11th EDF for an amount of EUR 30 506 million, of which:

EUR 29 089 million is allocated to the ACP countries of which EUR 27 955 million is managed by the European Commission; EUR 364.5 million is allocated to the OCTs of which 359.5 million is managed by the European Commission; EUR 1 052.5 million is for the Commission to finance the costs arising from the programming and implementation of 11th EDF resources.

The report sets out a series of tables showing how these resources were used during the financial year 2016.

At 31.12.2016, the net assets amount to EUR 1 357 million (against EUR 980 million at 31.12.2015).