Calculation of the correction

D/661767/2011-ANN2-EN


|[pic] |EUROPEAN COMMISSION |
| |DIRECTORATE-GENERAL FOR AGRICULTURE AND RURAL DEVELOPMENT |
| | |
| |Directorate J. Audit of agricultural expenditure |
| |J.1. Coordination of horizontal questions concerning the |
| |clearance of accounts |


Brussels, 24 June 2011
D(2011)661767
Ad Hoc 36 EN













SUMMARY REPORT

_______________________






on the results of the Commission's inspections


in the context of the conformity clearance


pursuant to Article 7(4) of Regulation (EC) No 1258/1999


and Article 31 of Regulation (EC) No 1290/2005


CONTENTS

________________



1 : Introduction

2 : Export refunds

3 : Sugar

4 : Fruit and vegetables

5 : Milk products

6 : Intervention storage

7 : Wine

8 : Tobacco

9 : Potato starch

10 : POSEI

11 : Livestock premiums

12 : Area aids / Arable crops

13 : Cross-compliance

14 : Cotton, flax and hemp, silk worms

15 : Olive oil and other oils and fats

16 : Dried fodder and seeds

17 : Rural development

18 : Late payments

19 : Other corrections

ANNEX I - Appeals to the Court of Justice, Conciliation Body
procedure

ANNEX II - Table of corrections






Introduction

The European Commission's audit procedure is a vital instrument for
controlling common agricultural policy (CAP) expenditure, permitting
the recovery of sums paid out without sufficient guarantees as to the
legality of the payments or the reliability of the control and
verification system in the Member States.

The Member States are responsible for making payments, charging levies
and recovering all undue payments within the framework of the EAGGF
(European Agricultural Guidance and Guarantee Fund) Guarantee Section
and European Agricultural Guarantee Fund (EAGF). The clearance of
accounts procedure requires the Commission to ensure, primarily by
means of on-the-spot inspections, that the Member States have made
correct use of the funds placed at their disposal by the EAGGF. Under
Article 31 of Regulation (EC) No 1290/2005, the Commission excludes
expenditure by the Member States' accredited paying agencies from
Community financing if the expenditure concerned has not been effected
in compliance with Community legislation.

The Commission recovers the amount misspent by the Member States
concerned by means of compliance decisions, which constitute the final
stage of investigations by the clearance of EAGGF account units. Each
decision is accompanied by a summary report on the investigations
completed which enables assessment of whether the Member States have
been treated equally as regards the conclusions drawn.

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



Export refunds

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







Sugar




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



Fruit and vegetables


1 Germany - Operational Programmes of Producer Organisations (POs)

Enquiry No: FV/2006/303/DE

Legislation: Regulations (EC) Nos 2200/96, 609/2001,
1432/2003 and 1433/2003

Dates of the mission: 13-17.11.2006

Observation letter: AGRI 4987 of 21/02/2007

Reply of the Member State: ELV 42.01.18 of 11/06/2007

Minutes of the bilateral meeting: AGRI 23621 of
17/09/2007

Reply to minutes of bilateral: ELV 42.01.18 of 23/11/2007

Conciliation letter: AGRI 27954 of 20/11/2008

Conciliation reference:
09/DE/390

Final letters: Ares(2010) 042108 of
27/1/2010 and Ares(2010) 020145 of
14/1/2010




The present summary report is a continuation of the one which was
submitted to the Committee on Agricultural Funds earlier, to be
covered by Commission Decision 2010/399/EU of 15/7/2010 (OJ L 184,
17.7.2010, p. 6). In that respect, the Main findings and the Summary
of the Member State's arguments remain identical, and legal
references need not be repeated here.





1 Main findings

(a) Weaknesses in the control system concerning the
recognition of POs

Significant weaknesses have been revealed in the control system on
the recognition of POs in the Land Brandenburg. Two out of the three
POs visited did not fulfil important recognition criteria. The
Commission services established that at both POs the marketing of the
production of the members was not carried out by the POs as required
by EU legislation. In fact, the role played by the POs has been too
limited in this context. The members or certain groups of members
remained responsible for selling their produce. Furthermore, other
functions related to marketing, which shall be carried out by a PO,
remained with the producers.

(b) Weaknesses in the control system concerning operational
programmes

Ineligible expenditure: charges for planting fruit trees

At one PO, in addition to the purchasing cost of the plants, the
costs for planting (e.g. preparation of the soil, wire support,
personnel cost) have been also included in the operational programme
as lump sums. These amounts were said to be based on an independent
analyses. On this data a 20% deduction was applied resulting in a
lump sum of EUR 1,50 per tree. The representatives of the PO argued
that these costs were an integrated part of the costs for plants.

The Commission services pointed out that Annex 1 of Regulation (EC)
No 1433/2003 envisages the "costs of plants in the case of perennial
crops" and does not envisage lump sums. Those services took the
opinion that lump sums therefore may not be utilised if they were not
explicitly mentioned in the Regulation. Furthermore, personnel costs
are only permitted in actions linked to point 4 (a) or (b) of Annex I
of Regulation (EC) No 1433/2003, which were not applicable in the
given case.


Overstatement of the Value of Marketed Production (VMP)

The audit mission revealed that at one producer organisation the VMP
was wrongly calculated for a given programme year (2004) as it
included one member's production which, in part, should not have been
considered.

In particular, the VMP reference year for this programme year was
2002 and it included the turnover of the Polish members as from May
2002. In fact, the Polish members were said to be active members only
as from October 2004, it was also established that the PO has
commenced with the marketing of this member's production as from that
time of the year, i.e. in a period when production was nearly over.


2 Summary of the Member State's arguments

(a) Weaknesses in the control system concerning the
recognition of POs

The German authorities maintained their position that the two POs
concerned fulfilled the recognition criteria. Historical
particularities with which POs in the East were faced, were
highlighted. Furthermore, it was stressed that the entities were
specialised POs handling sensitive products which required to be
close to the customer, i.e. the POs were bound to have a
decentralised structure.

The German authorities also did not see incompliance with Community
law as far as tasks to be performed by a PO were concerned.

Moreover, the German authorities argued that EU law permits
outsourcing and that POs can therefore delegate the work to the
producers themselves (or to their marketing agents). According to
those authorities this implied that individual producers could remain
responsible for the storage, packaging, sale, invoicing, bookkeeping
etc. of their produce.





(b) Weaknesses in the control system concerning operational
programmes

Ineligible expenditure: costs incurred for planting fruit trees

The German authorities argued that these costs formed an integral
part of the costs for plants, and that investments of individual
holdings are eligible for funding in accordance with point 17 of
Annex I to Regulation (EC) No 1433/2003. Moreover, the German
authorities did not consider the amounts applied as lump sums in the
strict sense as, in their opinion, they were