Directorate-general for agriculture and rural development

Organismo pagatore	Linea di bilancio	Tipo di rettifica	Valuta	Rettifica Importo lordo	Rettifica Importo netto (incidenza finanziaria effettiva)
Esercizio finanziario 2005
IT01	050208091515	forfettaria 25%	EUR	-17 098 044,58	-17 098 044,58
Esercizio finanziario 2006
IT01	050208091515	forfettaria 25%	EUR	-817 132,99	-817 132,99
Esercizio finanziario 2007
IT01	050208091515	forfettaria 25%	EUR	1 201,24	1 201,25
TOTALE EUR					-17 913 976,32

4.2.Poland – Aid scheme for producers of tomatoes for processing

Enquiry No: FV/2008/314/PL

Legislation: Regulations (EC) Nos 2200/96, 2201/96 and 1535/2003

Mission dates: 22 – 26.9.2008

Observation letter: AGRI 28872 dated 1/12/2008

Reply of the Member State: WR/AB/4023/7-345/2009 dated 4/02/2009

Invitation to bilateral meeting: Ares(2009)382304 dated 16/12/2009

Bilateral meeting: 26/1/2010

Minutes of the bilateral meeting: Ares(2010)168469 dated 30/03/2010

Reply to minutes of the bilateral: WR/AB/4023/7-171/2010 dated 28/05/2010

Conciliation letter: Ares(2012)550810 dated 4/05/2012

Request for conciliation: WR/9406-144/KO/2012 dated 13/06/2012

Conciliation reference: 12/PL/528

Conciliation Body's opinion: N/A

Supplementary info by Member State: WR/9406-145/KO/2012 dated 13/06/2012

Final letter: Ares(2012)1184772 - 09/10/2012

All references are from Regulation (EC) No 1535/2003. Producer organisation is abbreviated as “PO”.

4.2.1.Main findings

4.2.1.1.Weaknesses in physical checks on deliveries concerning their unannounced nature

The audit mission revealed that the deliveries of the raw material for processing were not subject to physical checks during weekends or nights pursuant to Article 31(1)(a). Moreover, the practice seemed to have been in breach of Article 28(1)(e) which requires that checks are to be carried out unannounced during the appropriate periods.

4.2.1.2.Weaknesses in administrative and accounting checks on at least 5% of the producers concerning the verification of the consistency between all required details

The audit mission raised doubts whether administrative and accounting checks on the producers pursuant to Article 31(1)(b) properly covered the verification of the consistency between the areas and the total harvest and that the consistency check between the price paid for the raw material with other elements.

4.2.1.3.Weaknesses in administrative and accounting checks - lack of evidence for the use of accounting information

The audit mission did not find evidence in the authorities' control files that the books of accounts or other accounting data was consulted during the checks pursuant to Articles 28(1)(d) and 31.

4.2.1.4.Weaknesses in administrative and accounting checks concerning their unannounced nature

The audit mission raised doubts that the sample for the checks on at least 5% of the producers pursuant to Article 31(1)(b) was taken from the sample of the physical checks on the 5% of the areas pursuant to Article 31(1)(a). Consequently, there seemed to be a risk that producers whose plots were verified on-the-spot were also selected for administrative and accounting checks.

The auditors considered that this practice was non compliant with Article 28(1)(e) as, in case the producers were drawn from an already known sample, the unpredictable nature of the resulting checks would not have been guaranteed.

4.2.1.5.Late aid payments

Prior to the audit mission the auditors verified the aid payments and noted that the 60-day deadline for payments of aid to the POs, provided for in Article 27(4)(a), was not met in a number of cases. The authorities were accorded with ample opportunities to justify the delays in payments.

However, the submissions received, including the reference made to the need to remove formal errors from the payment order before the payments were made, did not duly justify the late payments.

Article 16 of Council Regulation (EC) No 1290/2005 provides that where payment deadlines are laid down by Community legislation, any overrun of those deadlines by the paying agencies shall make the payments ineligible for Community financing, except in the cases, conditions and limits determined, according to the principle of proportionality.

4.2.1.6.Weaknesses in quality checks on at least 5% of the finished products concerning their unannounced nature

The auditors considered that if the inspections pursuant to Article 31(2)(a) were carried out only until the required level of quantities have been reached (5%), which was understood to have been the case on the basis of the analysis of the standard operating procedures, the economic operators (who become quickly familiar with the inspection methods) could duly expect that after the given inspection day (or days) the inspectors would normally not return.

This approach undermined the effectiveness of the controls and did not comply with the requirement of Article 28(1)(e).

4.2.2.Member State’s arguments

4.2.2.1.Weaknesses in physical checks on deliveries concerning their unannounced nature

The Polish authorities claimed that neither their control system nor the national law excluded weekends or nights from the scope of the controls. They showed statistics on the deliveries and argued that there was no alarming rise in deliveries on weekends or during nights from one period to the other. Claims were made that, in principle, the working hours of the inspectors did cover all necessary periods.

In addition, the authorities claimed that the overall control system was fully effective as confirmed by other (i.e. physical and/or accounting) checks which, according to the authorities, were carried out at 100%.

Moreover, the authorities repeatedly voiced their concern over the interpretation of Article 28(1)(e) and pointed out that the term "appropriate period" was not properly defined.

4.2.2.2.Weaknesses in administrative and accounting checks on at least 5% of the producers concerning the verification of the consistency between all required details

The authorities claimed that they did carry out checks. However, during the bilateral meeting they confirmed that they were not in a position to supply the actual yield figures or any other supporting information (including the related calculations).

On the other hand, the authorities notified that for each PO inspected during the audit mission, for a 5% sample of producers subject to area checks, the weighted average of yield was established after the audit mission which did not reveal problems.

Further to the bilateral meeting the authorities maintained that the checks were implemented properly and submitted several control reports in support of this claim.

4.2.2.3.Weaknesses in administrative and accounting checks - lack of evidence for the use of accounting information

The authorities claimed that that the checks met the regulatory requirements and their scope covered more than the VAT invoices and went even further than the VAT invoice registers. The authorities also argued that they did collect documentary proof for the accounting checks in necessary situations as evidenced by the submitted statement of sales of goods of one beneficiary and the documentation of one processor.

4.2.2.4.Weaknesses in administrative and accounting checks concerning their unannounced nature

The authorities claimed that producers were not drawn from an already known sample. They also maintained that a coincidence of producers selected for the area check with producers selected for the financial and accounting checks did not contradict the applicable regulation and was rather deemed as positive.

4.2.2.5.Late aid payments

The authorities claimed that all payment deadlines under the scheme expired in January of each year.

4.2.2.6.Weaknesses in quality checks on at least 5% of the finished products concerning their unannounced nature

The authorities maintained that the quality checks on finished products were carried out, similarly to inspections of deliveries, throughout the entire canning season and the entities were not informed of inspection dates drawn.

4.2.3.Position of the Commission before conciliation

4.2.3.1.Weaknesses in physical checks on deliveries concerning their unannounced nature

DG AGRI took the view that a control can be considered unannounced if, on the one hand, the operators were not informed in advance of the date or time of the control. On the other hand, it was equally important that they did not expect that certain periods would not be (or would only scarcely be) subject to controls. Because the operators could duly expect that in certain periods the deliveries were not going to be controlled, it followed that the checks were predictable and hence not to be considered unannounced.

On the same token, as deliveries were made on an uninterrupted basis, the controls should have also covered 7 days a week and 24 hours a day. It was clear, however, that not all appropriate periods were covered. In conclusion, DG AGRI maintained that these checks were not carried as required by Regulation (EC) No 1535/2003.

4.2.3.2.Weaknesses in administrative and accounting checks on at least 5% of the producers concerning the verification of the consistency between all required details

DG AGRI considered that the control reports submitted did not clear the doubts that the consistency between all elements had been established. Indeed, despite repeated requests, no reports were provided for the producers subject to the sample checks that would show the actual yield figures, let alone clear evidence for their verification.

Furthermore,

– the Polish authorities' claim that subsequent administrative checks covered the regulatory requirement was not substantiated with evidence;

– the review of the information submitted after the bilateral meeting suggested that the centrally established samples for MY 2006/07 did not include all producer organisations/producer groups;

– the supplementary checks carried out after the audit mission did not fully mitigate the risks.

4.2.3.3.Weaknesses in administrative and accounting checks - lack of evidence for the use of accounting information

DG AGRI noted that the reports resulting from administrative and accounting checks on the POs/PGs mention that the registers and accounting documents had been reconciled but simply as a yes or no answer on a checklist. These reports did not provide an audit trail: it is unclear which accounting documents or data were used for the verifications and how the accounting information was actually reconciled with the registers, except for an isolated case.

4.2.3.4.Weaknesses in administrative and accounting checks concerning their unannounced nature

The review of the related samples showed a very significant overlap for the MY 2006/2007. The overlap of the samples for the MY 2007/08 was less marked. DG AGRI concluded that the information received could not fully clear the initial doubts and therefore maintained its initial position.

4.2.3.5.Late aid payments

DG AGRI maintained that the payments were late. As there was no justification why the deadline had been exceeded, DG AGRI considered those payments ineligible for EU funding.

4.2.3.6.Weaknesses in quality checks on at least 5% of the finished products concerning their unannounced nature

DG AGRI verified the dates of the checks on the basis of a sample of 9 processors requested during the bilateral meeting. This verification revealed that the checks were spread over the processing period fairly evenly in 5 cases. However, no information was provided for 4 other processors. Consequently, DG AGRI remained of the opinion that the operating procedures may not have ensured that all regulatory requirements were met.

4.2.3.7.Financial consequences

DG AGRI considered that the findings warranted a flat-rate correction as they strongly suggested that there was a failure to carry out adequate verifications and did not enable DG AGRI to determine the actual loss to the Fund. Each of the weaknesses concerned (except for the one relating to late payments) was considered to warrant a 5% flat-rate correction as the controls affected were key controls which were applied, but not in the frequency or depth required by the Regulation. In conclusion, in view of the fact that flat-rate corrections are not cumulative, DG AGRI proposed a 5% flat rate correction.

In addition, a punctual correction was proposed for late aid payments in line with Working Document VI/5330/97 Annex 3 and on the basis of the method laid down in Article 9(1) of Regulation (EC) No 883/2006. Consequently, DG AGRI proposed to exclude the amount of 1.320.983.58 PLN and 340.453,82 EUR from EU financing.

4.2.4.Opinion of the Conciliation Body

N/A

4.2.5.Final Commission position

The Polish authorities submitted additional information in reply to the letter notifying the proposed correction.

DG AGRI took the view that the non compliance as regards the quality checks on at least 5% of the finished products (i.e. that these checks were systematically not carried out in an unannounced manner) has been disproved. The new submissions indeed showed that the checks in the majority of the cases were carried out throughout the processing period. Therefore no financial correction was proposed for this specific point.

However, DG AGRI recalls that each of the other weaknesses (except for late payments) warranted a 5% flat-rate correction and therefore concluded that a 5% flat-rate correction remained necessary to cover the risks concerned.

Paying Agency	Budget line	Correction type	Currency	Correction Gross amount	Correction Net amount (Effective financial impact)
Financial Year 2007
PL01	050208061511055	one-off	PLN	-163,034.87	-163,034.87
PL01	050208061511055	flat rate 5%	PLN	-1,166,100.45	-1,157,948.71
TOTAL			PLN	-1,329,135.32	-1,320,983.58
Financial Year 2008
PL01		flat rate 5%	EUR	-340,453.82	-340,453.82
TOTAL			EUR	-340,453.82	-340,453.82