EU REPORT 2020 - nku.cz

OCTOBER 2020

Czech Republic | Supreme Audit Office | EU REPORT 2020

EU REPORT 2020REPORT ON THE EU FINANCIAL MANAGEMENT

IN THE CZECH REPUBLIC

Supreme Audit OfficeJankovcova 2170 04 Prague 7tel.: +420 233 045 111www.nku.cz

1EU REPORT 2020

CONTENTS

List of used abbreviations ................................................................................ 5

SECTION I The CR’s use of European Union support in the 2014–2020 programming period, with the outlook for the subsequent period .................. 9

A. The CR’s use of support from European Union funds in the 2014–2020 programming period was again marred by problems ....... 10

B. The CR and its ability to utilise the EU budget in the 2014–2020 period: opportunities and reality ...................................................... 15

B.1 How well have we made use of the opportunities afforded by the EU budget during 16 years of membership? .....................................................16

B.2 How prepared are we for the EU’s future financial framework and what priority areas should we focus on? .........................................................21

SECTION II Audit work by the SAO and other external audit authorities in the field of EU budget funds earmarked for the CR .................................... 23

C. The SAO’s audit work in the period under scrutiny ............................ 24

C.1 Overview of approved audit reports .................................................................... 24

C.2 Audit of revenues ..................................................................................................27

C.3 Audit of expenditure ............................................................................................ 29

C.4 Financial audits with ties to EU budget funds ....................................................... 44

C.5 Measures adopted by the Czech government to remedy the identified shortcomings .................................................................................. 49

D. Support for small and medium-sized enterprise – a risk area ............. 52

E. Audit work by other audit authorities in 2019 ................................... 58

E.1 Audit Authority – public-administration control and audit of ESIF finances ..................................................................................................... 58

E.1.1 Horizontal audits .................................................................................................... 63

E.1.2 Auditoffinancialstatements .................................................................................. 63

E.1.3 Public-administrationcontrolandauditofotherfunds fromabroaddonebytheAA .................................................................................. 63

2 EU REPORT 2020

E.2 ECA audit work in relation to the CR .................................................................... 64

E.2.1 DAS audits ............................................................................................................... 65

E.2.2 ECASpecialReports ................................................................................................ 65

E.3 Audit missions by the European Commission in relation to the CR ....................... 69

E.3.1 Auditsofcompliancewithconflictofinterestslegislation ...................................... 69

E.3.1.1 AuditNoREGC4114CZ0133 ..................................................................................... 69

E.3.1.2 Agricultureaudit .................................................................................................... 70

E.3.2 EP-CONTmissionregardingconflictofinterestsintheCR ..................................... 72

SECTION III Financial management of EU funds in the CR in the European context ........... 73

F. EU budget and its relationship to the CR ........................................... 74

F.1 EU budget ..............................................................................................................74

F.1.1 ImplementationoftheEUbudgetfor2018 ............................................................ 74

F.1.1.1 EU budget revenues ................................................................................................ 74

F.1.1.2 EU budget expenditure ........................................................................................... 75

F.1.2 AuditoftheEUbudget(DAS2018) ......................................................................... 76

F.1.2.1 Revenues ................................................................................................................ 77

F.1.2.2 Expenditure ............................................................................................................ 77

F.1.2.3 Correctiveandpreventivemeasures ....................................................................... 78

F.2 EU budget and its relationship to the CR .............................................................. 80

F.2.1 FinancialrelationsbetweenEUbudgetsandtheCRin2018 ..................................80

F.2.2 DevelopmentoftheCR’snetpositionrelativetotheEUbudgetupto2019 ..........82

F.3 Protection of the EU’s financial interests .............................................................. 84

F.3.1 AnnualreportontheprotectionoftheEuropeanUnion’sfinancial interestsin2018 .....................................................................................................84

F.3.2 NationalStrategyfortheProtectionoftheEuropeanUnion’sFinancial Strategyandimplementationoftheactionplanfor2019 ......................................88

F.3.3 MeasurestoreducecorruptionintheCRinlinewithGRECOrecommendations ....89

F.4 Measures for implementing the EU budget in 2019 ...............................................91

F.4.1 CoordinatedmeasuresofEUeconomicpolicy ....................................................... 91

F.4.2 EuropeanCommissionreportontheCR .................................................................94

G. Sector Matters ................................................................................ 100

G.1 Revenues linked to the EU budget .......................................................................100

3EU REPORT 2020

G.1.1 DevelopmentsinEUrevenueresources ...............................................................100

G.1.2 DevelopmentsinbudgetrevenueintheCR ......................................................... 103

G.2 Expenditure co-financed from the European Structural and Investment Funds ...106

G.2.1 Developmentofeconomic,socialandterritorialcohesionpolicy,theruraldevelopmentprogrammeandcommonfisheriespolicyintheCR ........................106

G.2.1.1 Closureofthe2007–2013programmingperiod .................................................... 106

G.2.1.2 ESIFinthe2014–2020programmingperiod ......................................................... 109

G.2.2 DrawdownoftheallocationfortheCRandfulfilmentofthen+3rule inthe2014–2020programmingperiod ................................................................. 114

G.2.3 ESIFinvolvementintheresponsetotheeconomicimpacts oftheCovid-19pandemicintheCR ...................................................................... 120

G.3 Expenditure on the Common Agricultural Policy .................................................123

G.3.1 CurrentdevelopmentsintheCommonAgriculturalPolicy ................................... 123

G.3.1.1 Changesandadjustmentsforthe2021–2027programmingperiodintheEU ....... 123

G.3.1.2 Changesandadjustmentsforthe2021–2027programmingperiodintheCR ....... 125

G.3.2 StateofdrawdownofCAPfundsintheCRin2019 ............................................... 126

G.4 Expenditure on the Common Fisheries Policy ......................................................130

G.4.1 Currentdevelopmentsinthecommonfisheriespolicy .........................................130

G.4.2 StateofdrawdownofCFPfundsintheCRin2019 ...............................................130

H. Legal matters .................................................................................. 131

H.1 SAO recommendations for changes to the legal environment in 2019 .................................................................................................................131

H.2 Implementation and transposition of EU law in the CR ........................................132

H.2.1 AssessmentperformedbytheCzechgovernment ............................................... 132

H.2.2 Transpositiondeficit ............................................................................................. 132

H.2.3 Infringementprocedures ...................................................................................... 133

Sources and references ................................................................................ 136

Appendix1:OverviewofAA´sstatements,projecterrorrateandvaluesofcertified, auditedandineligibleexpenditureforindividualcohesionpolicy andterritorialcooperationprogrammesfor2019........................................... 139

Appendix2:OverviewofauditmissionsoftheEuropeanCourtofAuditors carriedoutintheCRin2018and2019 ............................................................ 140

Appendix3:OverviewofauditandverificationmissionsoftheEuropean CommissioncarriedoutintheCRin2018and2019 ........................................ 141

4 EU REPORT 2020

Editorial note:

The editorial deadline for the EU report 2020 was set for 30 April 2020. Therefore, thispublicationmainlypresentsdataandinformationthatwereavailabletotheauthorsbytheset deadline. Data published after the date of the editorial deadline are presented in thetextonlyexceptionally, theyarenot the subjectofanalysesor comparisonsandhaveonlyacomplementarycharacter.

The forecasts and development trends presented in certain analytical materials arepredicated on the state of affairs that applied up tomid-March 2020. On 12March 2020theCzechgovernmentimposedastateofemergencyinresponsetotheCovid-19pandemic,whichhadafundamentalimpactontheeconomicsituationthroughouttheCR.Thatmakesitreasonabletoassumethatpracticallyallthepredictedeconomicindicatorswilldeviatefromthepresentedvaluesandtimelimits.

Theauthorswould like to thank theMinistryofFinance (AuditAuthorityDepartment), theMinistryofRegionalDevelopment(NationalCoordinationAuthority)andtheStateAgriculturalInterventionFundforprovidingdataanddocumentsthatmadeitpossibletowriteChaptersD,G.2,G.3andG.4.SpecialthankstoMrPetrZahradníkforwritingChapterB.

5EU REPORT 2020, List of abbreviations

AA AuditAuthority (MoF–Dept.52)

AFCOS Anti-FraudCoordinatingStructure

AIS SAOAuditInformationSystem

AMIF Asylum,MigrationandIntegrationFund

Annual 2019 Growth Analysis

AnnualGrowthAnalysisfor2019

Annual Report 30thAnnualReportontheProtectionoftheEU´sfinancialinterestsin2018

Annual Reports AnnualReportsonimplementationofprogrammesin2018

Audits under scrutiny

Audits of funds relatedtotheEUbudgetandcompletedduringtheperiodunderscrutiny

CAP CommonAgriculturalPolicy

CEF ConnectingEuropeFacility

CF CohesionFund

CFP CommonFisheriesPolicy

CMGDB Czech-MoravianGuaranteeandDevelopmentBank

CMO Commonmarketorganisation

Cohesion Policy Policyofeconomy,socialandterritorialcohesion

Commission EuropeanCommission

Convergence Programme

ConvergenceProgrammeoftheCR

CPI CorruptionPerceptionIndex

CR CzechRepublic

Dialogue CleanAirDialogue

D-O-E Danube-Odra-ElbeWaterCorridor

DAS StatementofAssuranceastothereliabilityoftheaccounts(Déclarationd’assurance)

DG AGRI Directorate-GeneralforAgricultureandRuralDevelopment(DGAGRI)

DG EMPL DGforEmployment,SocialAffairsandInclusion

DG MARE Directorate-GeneralforMaritimeAffairsandFisheries

DG REGIO DGforRegionalandUrbanPolicy

EAFRD EuropeanAgriculturalFundforRuralDevelopment

EAGF EuropeanAgriculturalGuaranteeFund

ECA EuropeanCourtofAuditors

List of used abbreviations

6 EU REPORT 2020, List of abbreviations

ECJ EUCourtofJustice

EMFF EuropeanMaritimeandFisheriesFund

EP EuropeanParliament

EPPO EuropeanPublicProsecutor´sOffice

ERDF EuropeanRegionalDevelopmentFund

ESF EuropeanSocialFund

ESIF EuropeanStructuralandInvestmentFund

EU EuropeanUnion

EU-28 28EUMemberStates

GD GeneralDirectorate

GDP GrossDomesticProduct

GNI GrossNationalIncome

IB IntermediateBody

ICT InformationandCommunicationTechnologies

INTERREG CR–PL

INTERREGV-A CR–Poland

IROP IntegratedRegionalOperationalProgramme for2014–2020

IS Informationsystem

ISF InternalSecurityFund

LO LabourOffice oftheCR

MA ManagingAuthority

MCS Managementandcontrolsystem

MFF MultiannualFinancialFramework

MFFCR MilitaryForestsandFarmsoftheCR

MoA MinistryofAgriculture

MoEn MinistryoftheEnvironment

MoEYS MinistryofEducation,YouthandSports

MoF MinistryofFinance

MoH MinistryofHealth

MoI MinistryoftheInterior

MoIT MinistryofIndustryandTrade

MoJ MinistryofJustice

MoLSA MinistryofLabourandSocialAffairs

MoRD MinistryofRegionalDevelopment

MoT MinistryofTransport

MS MemberState oftheEU

National programme

NationalReformProgrammeoftheCR2018

NCA NationalCoordinationAuthority(MoRD)

NEEAP CzechNationalEnergyEfficiencyAction

NERP CzechNationalEmissionReductionProgramme

NF NationalFund (Dept.55oftheMoF)

7EU REPORT 2020, List of abbreviations

OFIs Otherfinancialinstruments(EU)

OLAF SupervisoryCommitteeoftheEuropeanAnti-FraudOffice

OP Operationalprogramme

OP EIC OPEnterpriseandInnovationforCompetitiveness

OP Em OPEmployment

OP En OPEnvironment

OP En7+ OPEnvironment 2007–2013

OPF OPFisheries

OP HRE OPHumanResourcesandEmployment

OP PA OPPrague–Adaptability

OP PGP OPPrague–GrowthPoleoftheCR

OP RDE OPResearch,DevelopmentandEducation

OP RDI OPResearchandDevelopmentforInnovation

OPT OPTransport

OPTA OPTechnicalAssistance

Other irregularities

Irregularitiesofnon-fraudulentnature

PA PartnershipAgreementforthe2014–2020programmingperiod

PCA PayingandCertifyingAuthority(MoF–Dept.55NationalFund)

Period under scrutiny

1April2019– 31March2020

PGO ProsecutorGeneral’sOffice

PP7+ ProgrammingPeriod 2007–2013



Progress Report 2019

ProgressreportontheimplementationofthePartnershipAgreement

RDP Ruraldevelopmentprogramme 2014–2020

RDP7+ Ruraldevelopmentprogramme 2007–2013

Report 2020 ReportontheCR2020

ROP Regionaloperationalprogramme

SAI SupremeAuditInstitutions

SAIF StateAgriculturalInterventionFund

SAO SupremeAuditOffice

SAO Act SAOActNo166/1993Coll.,ontheSupremeAuditOffice

SAPS SingleAreaPaymentScheme

8 EU REPORT 2020, List of abbreviations

SEF StateEnvironmentalFund

SFTI StatefundofTransportInfrastructure

SME SmallandMediumEnterprises

SMS SingleMarketScoreboard

Strategy NationalStrategyfortheprotectionoftheEUFinancialInterestsoftheEU

TFEU TreatyontheFunctioningoftheEuropeanUnion

TOR TraditionalOwnResources

Transposition Report

GovernmentReportontheTranspositionofLegislativeCommitmentsEnsuingfromMembershipoftheCRintheEuropeanUnionfor2019

VAT ValueAddedTax

WHO WorldHealthOrganisation

YEI YoungEmploymentInitiative

Abbreviations of EU Member States used in chart legends

AT Austria

BE Belgium

BG Bulgaria

CY Cyprus

CZ CzechRepublic

DE Germany

DK Denmark

EE Estonia

EL Greece

ES Spain

FI Finland

FR France

HR Croatia

HU Hungary

IE Ireland

IT Italy

LT Lithuania

LU Luxemburg

LV Latvia

MT Malta

NL Netherlands

PL Poland

PT Portugal

RO Romania

SE Sweden

SI Slovenia

SK Slovakia

UK UnitedKingdom

9EU REPORT 2020, Section I

SECTION I THE CR’S USE OF EUROPEAN UNION SUPPORT IN THE 2014–2020 PROGRAMMING PERIOD, WITH THE OUTLOOK FOR THE SUBSEQUENT PERIOD

10 EU REPORT 2020, Section I

A. The CR’s use of support from European Union funds in the 2014–2020 programming period was again marred by problems

Recapitulation of audit findings by President of the Supreme Audit Office Miloslav Kala.

With 2020 being the final year of the EuropeanUnion’s existing 2014–2020 programming period,thisisagoodtimetolookbackathowtheCRfared,intheSupremeAuditOffice’seyes,whenmanagingfinancesfromEUfundsearmarkedforjointprojectsand programmes. This is, of course, just a briefrecapitulation,becauseunderthen+3rulefinancialtransactionsforanumberofprojectswillcontinuetobebilledover the comingperiodof threeyearsandmore.

Frommid-2015,whentheEuropeanCommission(theCommission) approved theprogrammedocumentssubmitted by the CR and opened the funding ofCzechprogrammes,totheendofApril2020theSAO

published59auditreportsconcerningfinancesprovidedtotheCRfromEuropeanfunds.Eventhoughasignificantportionoftheseauditsappliedtotheprevious2007–2013programmingperiod,Ihaveenoughexamplesofcertainerrorsandsystemicproblems.Iusethewordserrorsandproblemsdeliberately,becausethepointoftheSAO’sworkistoprovidefeedbackshowingwhatisgoingwrong,wheretherearerisksofuneconomicalandinefficientmanagementofstateproperty,andwhatneedstobechanged.

WhatgivesmegreatestconcernwhenIlookbackisthenumberoffindingssignallingthatinsomeareaswedon’tknowhowtomoveaheadwithEuropeanfunding.

SomegovernmentdepartmentshavenotdefinedclearlyenoughwheretheCR issupposedto be in a given field in ten years’ time, say; they are unable to define, prepare and pushthroughprojects thatwoulddeliver thisprogressand there isoftena lackof synergywithotherstrategicobjectives.Someprojects’benefitscan’tbeevaluated,sowedon’tknowiftheprogramme’sgoalswereachieved.

ThiscanbelearntfromreadinganumberoftheSAO’sauditfindingsdealingforexamplewithtransport,industry,socialaffairs,agricultureortheenvironment.

Thelong-termfailuretomakesignificantprogressbuildingthemotorwaynetworkisnolongerasurprisetoanyone.WecastenviousglancesatournorthernneighboursandthespeedwhichtheycopedwithmotorwaybuildingwithfinancialsupportfromtheEU.TheCR’sconceptualplans for motorway building1 have largely remainedon paper, however, and the speedofconstructionstillgivesnoguaranteethattheentireplannednetworkofmotorwayswillbecompletedbytheenvisageddeadlineof2050.

Furthermore,thegoalsandparametersofcompletedconstructionworkswerenotcompliedwith,andtheinvestor,theRoadsandMotorwaysDirectorate,didnotpossessanyeffectivetoolsforcheckingandassessingthepricesofbuildingwork,puttinginplacetherightconditions

1 AuditNo17/05–Construction,modernisation,andreconstructionofmotorways.


foreconomicalexecutionofbuildingworkandsettingenvisagedpricesinawardproceduresto select contractors.Theefforts to improve the network of 2nd class and 3rd class roads2 do not givemuch cause for optimism either. The State Fund for Transport Infrastructure,whichco-financedprojectsfundedbytheEUbudget,failedtosetobjectivelymeasurableandverifiablegoalsforsomeconstructionprojects,soitcouldnotevaluatetheoverallbenefitofthefunding,theimprovementinroadqualityortheeffectivenessoftheprojectscarriedout.

One excellent example of how not to achieve defined goals through strategic projects isthe support given to the development of high-speed internet access3 under operationalprogrammeEnterpriseand Innovation forCompetitiveness. Thegoalof this supportwas toensurethat77%ofhouseholdshadhigh-speedinternetaccessby2023.Butthistargetwasalreadyachieved in2017withthehelpof investmentsbybusinesseswithoutanystateaid.With roughlyCZK13.8billionoriginallyearmarked for theHigh-speed Internet programme,theMinistryofIndustryandTradeprovidedpracticallynosubsidiesforalmostfiveyears,andhalfofthefundingnaturallyhadtoberedirectedintootheroperationalprogrammes.Thatistestimonytoinadequateprogrammepreparationandpoorinitialdesignofthesupport.

Auditscoveringagricultureandtheenvironmenthavethrownupsimilarfindings.TheCRhaslongcontendedwithawatershortage,butmitigating the impacts of drought4 isstillimpededbytheabsenceoffundamentalmeasures,actualchangeandlegislationdefiningstakeholders’rightsandobligations.Thegovernmentdepartmentsweresupposedtoaddressthequestionofdroughtandwatershortagesthroughasetoftasksdrawnupbythegovernmentin2015.Butinmanycasesthesetasksrequirednothingmorethansomepreparatoryanalyses,drawingupproposedsolutionsorassessingpotential.Therewerenofollow-uptaskstoputproposalsintopracticeandbringaboutrealchangethatmighthelp.What’smore,strategicdecision-makingondroughtandwatershortagesismadecomplicatedbythelargenumberofentitiesinvolved:itisslowandrequirescloseinterdepartmentalcooperation.

Cooperationbetweenthekeydepartments,agricultureandtheenvironment,was far fromideal.Forexample,theministriescouldnotagreeonthewordingofthe“anti-erosiondecree”that is crucial for improving theuseof farmlandand itswater retentioncapacity.The twoministries even promoted contradictory measures: the Ministry of Agriculture distributedmoney for building artificial channels for small watercourses, while the Ministry of theEnvironment went the other way, removing artificial channels on the grounds that theyacceleraterun-off.

TheSAOalsodiscoveredserioussystemicerrorsinthedesignofprojectgoalsandtherelatedmonitoringindicatorsinthefieldofsupport for young people’s employment5.TheMinistryofLabourandSocialAffairsdidnotsetmeasurabletargetsmakingitpossibletoassesswhetherprojects served their purpose. The labour offices’ statistics registered no impact from theexecutedprojectsforimprovingyoungpeople’semploymentratesintheregioninquestion.Atthesametime,theefficiencyofspendingcannotbeassessedinanyoftheauditedprojects.Despite the favourable development of the rate of youth unemployment,which had beenfallingconstantlysince2013toreachavalue lowerthanhalftheEUaverage in2018(6.7%comparedto15%),thesupportwentaheadunchangeduntil2019.

2 AuditNo17/09–Construction-likeactivitycarriedoutwithaviewtomodernisinganddeveloping the roadnetworkinselectedregionswhichwasco-fundedfromEUfundsandnationalresources.

3 AuditNo19/15–Support forthedevelopmentofhigh-speed InternetaccessprovidedfromtheOperationalProgrammeEnterpriseandInnovationsforCompetitiveness.

4 AuditNo18/27–Measuresimplementedinagricultureandtheenvironmenttomitigatetheeffectsofdroughtandwaterscarcity.

5 AuditNo 18/28 – Funds earmarked for the implementation of themeasures of the 2014–2020 operationalprogrammeEmploymenttoincreaseemploymentandadaptabilityoftheworkforce.


Inothercaseswefindthatthefundingputindeliveredlittleinreturn.

Considerable amounts ofmoney have been channelled into these specific areas formanyyearswithoutanymarkedimprovement.

Considerable amounts have been invested in support of improvements in air quality in the CR6, but air qualityhasnot improvedmuch. In fact, the limits set for someprioritypollutantshavelongbeenexceededandstillarebeingexceeded.Somemeasuresproposedin strategicdocumentswerenot carriedout;othersmissed theirdeadlines. That gave risetoseriousrisksthattheCRwouldnotmakegoodonitsairqualitycommitmentsbytheendof 2020. Cross-border transmission of pollutants makes it necessary to launch immediate cross-borderconsultationswiththecountry’sneighbours,primarilyPoland.

Asimilarproblemhasdoggedanimal production7,whichreceivedsupportworthCZK21billionfrom2015to2017,withCZK10billionofthatcomingfromtheEU.Despitethelargesubsidiesinplacesince2012,theanimalproductionsector’sgoalsofincreasinganimalproductionasaproportionof total agriculturaloutput, enlargingpiganddairy cowherdsand increasing self-sufficiencyinbeefandporkarenotbeingachieved.Onthecontrary,thenumbersofthesefarmanimalsarefalling.

There have been substantial investments in the development of water transport infrastructure8onthebasisofvariousconceptualmaterialsandstudies;theSAOauditedoverCZK600billionof thatmoneyat a systemic level. Thegoalsdefinedby theCR’s transportpolicyarenotbeingdelivered,though:waterbornegoodstransportremainslow(approx.1%of totalgoods transport)and freight isnotbeing takenoff the roads tobe transportedonwaterways.TheSAOdeclaredthatoneofthereasons ispersistingdisagreementsbetweenconceptualmaterialsandfollow-updocuments.Theefficiencyofinvestmentsisalsoaffectedbytheuseofinsufficientlyproveninputdata.

ProgresstowardsthestrategicgoalsofeGovernment9 isalsoslowandinvolveshighacquisitioncosts andoperating costs. The effectiveness andeconomyof spending is compromisedbythefactthatnewinformationsystemsforpublicadministrationarecreatedwithoutrigorousanalysisofrequirements,thelegislationisinadequateandotherconditionsensuringefficientspendingarenot inplace.Eventhoughnewkeytools liketheelectronic IDsystemandtheCitizens’Portalhavebeenputintopractice,theSAOratesthedevelopmentofeGovernmentto date as insufficient in terms of providing electronic access to digital services in publicadministration, because theMinistry of the Interior has failed to provide awide range ofaccessible services and to significantly broaden the setof citizenswhomakeactiveuseofthem.Thenewtoolsdidnotresultinamarkedimprovementintherangeofoptionsavailableforcitizensneedingtoresolveaproblemwithouthavingtovisitagovernmentofficeinperson.

Theauditfindingsoftenshowthatauthorisationproceduresarecomplicated.

The preparation of projects, especially investment projects, is hindered by considerablebureaucracy;projects stagnateandpreparationcostsgrow.Projectsare set inmotion lateandoftenwithhighacquisitioncosts.

6 AuditNo18/04–Fundsearmarkedforthesupportoftheairqualityimprovement.7 AuditNo18/08–Fundsspentonthesupportoftheanimalproductionsector.8 AuditNo18/16–Developmentofwaterwaysandsupportofinlandwaterwaytransport.9 AuditNo19/14–Introductionofelectronicidentificationandenablingofelectronicaccesstopublic

administrationservices.


Initsaforementionedauditofmotorway building theSAOfoundthattheaveragedurationof preparatorywork for building individual sections ofmotorway has grownby fourmoreyearsrecentlytoreachanincredible13years.Thiswascausedbymajorlong-termproblemswithobtainingpositiveEnvironmental ImpactAssessmentopinions,whichare required forthesubsequentissuanceofplanningpermissionandbuildingpermits.

Thepreparatoryphaseofinvestmentprojectsdesignedtoimproverail transport safety10 also involved project documentation changes necessitated subsequentlywhenbuilding permitswereappliedfor,whichledtodeadlinesbeingputback,insomecasesbythreeyears.Thefactthatpeoplehavecontinuedtodieonunprotectedlevelcrossingsdidnothingtospeedupthepreparatoryprocess.

Theconstruction and modernisation of 1st class roads11 wasnobetter:heretheSAOdeclaredboththatconceptualobjectiveswerenotbeingachievedand,aboveall,thatthepreparatoryphaseofbuildingworklasted12yearsonaverage.Themaincausesoflongpreparatoryphasesforconstructionprojectswerenotsuccessfullyresolved,withtheprovisothatitiscurrentlytoosoontotellwhethertheadoptedlegislativechangeswillshortentimes.Themainproblemsaffectedplanningpermission,buyinguplandandbuildingpermits.Thedelayedinvestmentpreparation oftenmeant that priority construction projects of national urgency were notexecuted; instead, less important projects that happened to be ready for commencementwerecarriedout.

Theconductofcertainsubsidyprovidersisalsoconcerning.

Managingauthoritiesfocusedtoostronglyontheformalsideofsubmittedsubsidyapplications,whichmadetheawardprocessinordinatelycomplicatedandprotracted.Insomecases,thedefinedconditionswerediscriminatory towardsacertaingroupofapplicantsanddeterredcertainentitiesfromapplying.

Theparametersofthefirstcallsforprojectsonsocial inclusion and the fight against poverty12 containedsomeunnecessaryrequirementsanddidnotgivepotentialapplicantsenoughtimetodrawupapplications,whichwasoneofthecausesofthelowinterestintheprogramme. Theadministrationoftherelevantprojectaxisoftheoperationalprogrammewasmademuchlessefficientbythelengthoftimeittookthemanagingauthoritytoassesstheapplications.Thisprocesstookbetween11and18months,causingthemanagingauthoritytomissthedefinedtimelimitby7months.TheSAOalsofoundseriousshortcomingsinitsauditoftheselectionofprojectstosupportsocialenterprises:onlytwoofthefourauditedprojectssatisfiedthetwo fundamentalconditions (socialenterprise in thecontextofcommunityculturecentresandactivationoflocalcommunities).

Anotherauditconclusionstatesthatthecomplicatedbureaucracyanddefinedconditionsforthemeasure calledPayments within NATURA 2000 Forest Areas13 meant that only a fewdozenapplicantstriedtoobtainthissupport.Thelowlevelofinterestamongapplicantswascausedby the longdurationof thecommitment (20years), thecomplicatedadministrativeprocessforapplicantsandthelongwaittoreceivethesubsidy.ThelowrateofcompensationforincreasedcostsinthemanagementofNATURA2000forestsalsoplayedarole.

10 AuditNo17/33–Assuranceofsecurityforrailroadoperationsandpassengers.11 AuditNo18/21–ConstructionandmodernisationofA-classroads.12 AuditNo18/33–SubsidyfromtheoperationalprogrammePrague–GrowthPoleprovidedforpromoting

socialinclusionandcombatingpoverty.13 AuditNo17/06–EUandstatebudgetfundsspentonforestrysupport.


A similar situation was found in the Cooperation measure of the rural development programme14. Although the Cooperation measure was intended to support small and medium-sizedenterprises,thisgoalwasnotachieved.Oneofthereasonswasthecomplicatedandunfavourablesubsidyconditionsthat ledtoapplicationsnotbeingapprovedandmanysmallandmedium-sizedenterpriseslosinginterestinthesubsidies.Infact,itwasmajorfoodproducersthatwereadvantaged:theconditionsallowedthemtoapplyforsubsidieswithoutrestrictionandrepeatedly,astherewasnocaponthesubsidiesthatcouldbeobtainedinthe2014–2020programmingperiod.Obtainingsubsidiesisgenerallyeasierforlargefirms,eventhoughtheycanapplyformoremoney.

Inanauditoftheimplementation of operational programme Enterprise and Innovation for Competitiveness15 theSAOfoundthatslowdrawdownispartlycausedbythetimeittakestoapproveprojectapplications.Theprojectassessmentandselectionphaselasted404daysonaverage,i.e.morethanayearafteranapplicationwasfiled.

TheoriginalpurposeofEuropeansubsidieswastofostereconomicandsocialdevelopmentinlessdevelopedregionsbybuildingupthesinglemarketandensuringitfunctionedefficiently.Development was supposed to come from infrastructure building projects and also fromsocial programmes used to finance improvements in education, support for science andemployment,forexample.

Itneedstoberecognisedthat theEuropeanemphasisonprioritieshaschanged.TheEU isrespondingtonewchallengesandfocusingonareaswhere itcanregistermoresubstantialeffects.

Theneedtoreact tothenewchallengesmeansdescribingthesechallengesaccuratelyanddecidingwhere theextraordinary funding shouldbe channelled andwhy. If the support istohavearealimpact,itisnecessarytodefinepreciselywhatwewanttoachieveandtosetmeasurablecriteriaforcheckingwhetherthemoneyspentactuallyledtochangesinthegivenareaandwhetherthedefinedgoalswereachieved.

Inadditiontothesestrategicdecisions,attentionmustbepaidtothestate’sabilitytoprepareandexecutestrategicprojects,tomanagethem,monitorthemandevaluatetheminrealtime.

The statemust also look at the transaction costs incurred in preparing, administering andassessingprojectsandindistributingfinances.

TheSupremeAuditOfficehaspaidandcontinuestopaycloseattentiontothemanagementof EU and Czech state budget finances earmarked for funding joint projects. This is borneoutbythe fact that roughlyandonaverageonethirdofeveryannualauditplanhasbeendevoted to these audits. In response to the SAO’s published findings the government andappropriateauthoritiesadoptedanumberofmeasures,threequartersofwhichweredeemedsufficient,atleastinmostrespects,bytheSAO.Evenso,nomeasureshavebeenadoptedforapproximately17percentof theauditfindings, so theSAOwill continuetomonitor theseareas.

14 AuditNo17/26–FundsearmarkedforthemeasuresofcooperationwithintheRuralDevelopmentProgrammeCR 2014–2020.

15 AuditNo17/23–Measurestoincreaseenergyefficiencycarriedoutwithinthepriorityaxis3oftheoperationalprogrammeEnterpriseandInnovationforCompetitiveness2014–2020.


B. The CR and its ability to utilise the EU budget in the 2014–2020 period: opportunities and reality

Assessment by Mr Petr Zahradník, member of the European Economic and Social Committee.

Mr Petr Zahradník is a macroeconomistspecialising in the EU’s economic policy andeconomic development. He is currently amember of the European Economic and SocialCommittee (EESC) in Brussels (since 2015) andthe European Statistical Advisory Committee(ESAC) in Luxembourg (since 2018). He is alsoanadvisortotheCzechChamberofCommerce(since2014)andamemberofthestrategicandeconomic analysis team at Česká spořitelnaand ErsteGroupBank (since 2016). From2009to 2014 hewas amember of the GovernmentNationalEconomicCouncil(NERV)andfrom1995to1998hewaseconomicsadvisortopresidentVáclavHavel.Since2005hehasbeenamemberof EuroTeam, anexpert groupof the EuropeanCommission’sDirectorate-GeneralforEconomicandFinancialAffairs.Since2010hehasbeenamember of the expert advisory group on thefuture of cohesion policy (EPOS) attached totheMinistry of RegionalDevelopment (MoRD). HewasanexternaladvisorforeconomicpolicyforamemberoftheEuropeanParliamentbetween

2014and2017.HewasdirectorofČEZGroup’sBrusselsofficefrom2014to2015.From2001to2013hetaughtasaprofessoratNewYorkUniversityPrague.HefoundedtheEUOfficeofČeskáspořitelnain2003andranitforanumberofyears.From1999to2003hewaschiefeconomist,headoftheanalysisdepartmentandboardmemberatConseqFinance/ConseqInvestmentManagement.HewasaneconomistatPatriaFinancefrom1995to1998.Intheyears 1991–1995hestudiedandperformedresearchatQueenMary&WestfieldCollege–Universityof London, Columbia University, The World Bank Group, Katholieke Universiteit Leuven,InstituteforEuropeanandInternationalStudiesLuxembourgandtheInternational InstituteforAppliedSystemsAnalysisLaxenburg.HeistheauthorofhundredsofarticlesintheCzechandinternationalmedia,includingdozensinspecialisedimpactjournals.Hehasalsowrittendozens of strategic analyses and co-authored ten books and two monographs, includingKohezní politika Evropské unie (Cohesion Policy of the European Union) (C. H. Beck, 2017). HeisagraduateofColumbiaUniversity,KatholiekeUniversiteitLeuvenandtheUniversityofEconomics,Prague.

If we talk about utilisation of the opportunities afforded by the EU budget in the CR, thediscussionveryquicklyturnstothemeaningfulnessofsubsidiesortheirimpactondistortionofmarketconditions,withthefocusonthoseprojectsthatweren’tentirelysuccessful,whetherduetounrealisticparameters,aninabilitytomanagetheseprojectsor, intheextremecase,adeliberatecriminalbackgroundthatwasn’tdetectedintime.Notthatanyoftheseviewpointshavenobasis in real life.Butat the sametime,noneof themrepresents the central thrust


ofan idealobjectiveandcomprehensive lookat theuseof thepossibilitiesavailable to theCR forover16yearsnowasa fully-fledgedmemberof theEuropeanUnion.Unfortunately,objectiveandcomprehensiveassessmentsinthebroadercontextofEUmembershiparerareintheCR.Iftheydoexist,theyareonlydiscussedinverynarrowcirclesoftheexpertcommunitywithoutinvolvingthegeneralpublic,whichthencomesupwithitsownopinionontheroleofEU funds stressing the viewpointsdescribedabove. TheCzech side’s very conservative viewofwhatthepointoftheEUbudget isforusalsoplaysasignificantrole inshapingopinionsandideasabouttheroleoftheEUbudget.AndifwetalkabouttheCzechside,wenowdon’tmeanthegeneralpublic,buttheinvolvedcommunityofgovernmentofficialsandpoliticians,forwhomcohesionpolicyandtheCAParesynonymouswiththeEUbudget,andsubsidiesandthemethodfordefiningtheallocationasaguaranteednationalenvelopegivingthecertaintyoffundingthroughoutthebudgetperiodaretheonlyredistributiontool.Inthisunderstanding,thisfundingisthedistributedandusedinastrictlydepartmentalmanner.

Thisless-than-flatteringintroductionassessingourabilitytoutilisetheopportunitiesaffordedbytheEUbudget intheCRshouldbefollowedbyabroaderdiscussionontwofundamentalissues:anobjectiveevaluationofhowwemadeuseoftheseopportunitiesinthepast16years;andhowpreparedweareforthefutureEUfinancialframeworkwiththechangingparameters,challengesandwaysofusingsharedEuropeanresources.

B.1 How well have we made use of the opportunities afforded by the EU budget during 16 years of membership?

There isnodoubtthatovertheentireperiodof theCR’sEUmembershipourbalancewithregard to theEUbudgethasbeeneasy toquantify.Thefigures showthat theEUbudget’sbenefitfortheCRisrelativelysignificantinmacroeconomicterms,andutterlyfundamental,even,whenwefocusoncertainselectedareas.

An assessment should notmerely quantify the size of this benefit, though: it should alsodraw fundamental conclusions and work out qualitative evaluations of, for example, theappropriateness of the thematic focus, the functionality of processes linked to projectexecution,andhowtheimpactsofthissupportandinterimresultsaremeasuredandevaluated.

SincejoiningtheEU,theCRhasbeenanetbeneficiaryintheEUbudget.Thevalueofthenetpositionhasrisensharply,mainlyatthebeginningof2007withthestartofimplementationofthemultiannualfinancialframework(MFF)for2007–2013.Therecordnetposition,whichwillevidentlybehardtobeat,wasCZK150billionfortheyear2015.ThetotalvalueoftheCR’snetpositionaccruedfrom2004to2019thusreachedCZK809.2billion.Thedevelopmentofthenetpositioncanbeseeninthefollowingtable.

Table 1: Development of the CR s net position in the years 2004 – 2019 (CZK billions)

2004 2005 2006 2007 2008 2009 2010 2011

7.3 2.0 6.9 15.2 23.8 42.3 47.9 30.8

2012 2013 2014 2015 2016 2017 2018 2019

73.1 84.8 75.3 150.0 80.6 56.0 44.7 68.5

Source: MoF.


ThedominantcomponentoftheCR’snetpositioniscohesionpolicyrevenues.TheseamountedtoCZK83.1billionin2019,accountingfor69.3%oftheCR’stotalrevenuesfromtheEUbudgetthatyear.ThatfigureisclosetothiskeyEUbudgetchapter’slong-termshareoftheCR’snetposition(60.4%).

It isworthadding that this structure ishighlyanomalous in theEU.Outofall EUMemberStates,itistheCRthathaslongregisteredthehighestpercentageoftotalrevenuesfromtheEUbudgetaccountedforbycohesionpolicy.GiventhattheCR’sgrossdomesticproduct(GDP)for2019canbeestimatedatapproximately92%oftheEUaverage,keepingthisproportionsohighisunsustainableandunjustifiable.Itfollows,then,thattheCR’sstrategicplansshouldfocusfarmoreonothermajorchaptersoftheEUbudget,andaboveallappropriatecentrallymanagedEUprogrammes,whoseshareintheCRisirrationallysmall(justonaverage3.5%ofrevenuesfromtheEUbudget).

If agricultural payments display considerable stability, revenues from cohesion policy arehighlyvariableovertime.

The total size of the CR’s net position for the entire duration of EU membership thuscorrespondsto14.3%ofGDPin2019.Ifwecalculatethenetpositiononanaliquotbasisperyear,thecontributionistheequivalenttoapproximately1.9%ofGDP.

Eventhoughthenetpositioncannotbemeaningfullycomparedonamacroeconomiclevel,forexamplewiththevolumeofprivateandpublic investments (whichcombinetoaccountfor approximately 27% of GDP per year), it currently represents a relatively interestingcontribution,especially if it isappropriately targetedatareaswhere it isgenuinelyneededandcandeliverpositivesocioeconomicimpacts.IfcohesionpolicyfundingandfundingfromcentrallyrunEUprogrammesareintendedtotriggersynergicchainreactionsthatbringaboutclear economic convergenceandboost theeconomicpotential of regions and the countryasawholeandservetominimisetheimpactsofmarketfailures,thenwecanregardthesefunctionsashavingbeenfulfilledintheCR.

TheCR’snetpositionisrelativelysignificantandconvincingevenwhencomparedwithotherMemberStates.EventhoughtheCRcontinuestogetvisiblyricher,itishighlylikelythatthecountrywillretainitsprivilegeasanetbeneficiarythroughoutthethirddecadeofmembership,eventhoughthesizeofthenetcontributionwillgraduallydeclineand,mostimportantly,itsstructurewillundergomarkedchanges(especiallyinthesenseofarelativefallintheweightofcohesionpolicy,counterbalancedbysubstantialgrowthintheshareofcentrallymanagedEUprogrammes).

At the sametime it is true that the size of the net position could theoretically be slightlyeven greater, if the release of EU budget funds for cohesion policy had proceeded in theoptimalmannerinlinewiththePartnershipAgreement(hereinafterreferredtoalsoas“PA”)timetable;ifthesupportedprojectswereintegratedbetter;iftheareascoveredbycohesionpolicywerecoordinatedbetterwithCAPsupporttoolsandtherelevantcentrallymanagedEUprogrammes(inparticularHorizon2020,CEF16,COSME17,Erasmus+18,DigitalEurope,LIFE and others);andifgreaterusewasmadeofcentrallymanagedprogrammesingeneral.Inaddition,moreintensiveutilisationofrepayablefinancialinstrumentslinkedtootherEUfundingwouldalsohaveincreasedthesizeofthenetpositionconsiderably.

16 ConnectingEuropeFacility.17 CompetitivenessofSmallandMedium-sizedEnterprises.18 EUeducationalprogramme.


Thehighlyunbalanceduseofcohesionpolicy fundinghasbeenaflawoftheCRpracticallythroughoutitsEUmembership:usually,theentireprocessisdelayedattheverystartoftheprogrammingperiod,thendrawdowntakesplaceinfitsandstarts,withfrequentfluctuationsoften caused by the suspension of certain programmes. This suddenly turns the potentialadvantageofacountrywithamarkedlypositivenetpositionintoahandicap,asthestatehastoassumetheburdenofexpenditureforatemporaryperiodtokeepprogrammesfunctional(inthebeliefthattheproblemwillberesolvedandEUfundswillcomebackon-streaminthefuture).

It is undeniable that the net position’s impact on convergence should bemore convincingin many regards. This is linked to the suitability of projects’ thematic focus, the respectfor performance and results based criteria, and project management and its complexity,occasionalparalysis,rigidityandformality.Atthesametime,Czechfirmsarenotbecomingsupplierstoamuchgreaterextent;thisconsiderableportionofthefundsflowsbackoutoftheCRtointernationalsuppliers.Atleastinthisareathereisalotofroomforimprovementthatwouldbothoptimisethenetpositionand,aboveall,strengthentherealeffectsthattheuseofEUfundingdeliverstotheCR.

Overall, it isfairtosaythattheCR’snetpositionintermsoftheEUbudgetisanimportantcomponent of the system of public finances in the CR, a component which ought to beoptimised, partly inorder to enhanceandmaintainfiscal discipline and consolidation. Theexistenceofthenetposition–particularlyinthepresent-daysocialandeconomicsituationofpost-pandemicdownturn,whentheeconomyneedstobekick-startedwiththehelpofrobustinvestment – is one of themost fundamental and palpable benefits that EUmembershipbrings tooureconomy.Foracertainperiodoftime (whichcanbeexpected tobeat least10years,withagradualdecline) itmakes itpossible toconsolidate the systemofnationalpublic finances and simultaneously carry out relatively substantial fiscal expansion,with apronouncedcontributionfromtaxpayers inmoredevelopedMemberStates.Thankstothenet position, the volume of non-mandatory fiscal operations can be increased to almost20%ofpublic spending–provided theallocation isutilised in fullandoptimally.Thesameconsiderationappliestoincreasedpubliccapitalexpenditure.

ThedevelopmentofthenetpositionisstronglyinfluencedbythesocioeconomicdevelopmentofregionsintheEUandtherelativepositionoftheCR’sregions.UnlikeotherVisegradFourcountries,themedianlevelforCzechregionsoscillatesbetween75%and80%ofEUGDPpercapita(i.e.abovethe75%thresholdforunderdevelopedregionsinthecontextofcohesionpolicy). Ceteris paribus, exceeding this threshold means that opportunities for utilisingcohesionpolicyresourceswillgraduallydecline(theCRisthusoneofthefewMemberStatesthathasabalancedmixtureofallcategoriesofregion).Asthetablebelowshows,in2018alltheregionsoftheCR,barNorthwestandonlyjustCentralMoravia,wereabovethisthreshold(anditisreasonabletoassumethatonlyNorthwestwillremainbelowthethresholdin2019)19.

19 ThefactthattheMoravian-SilesianandNorthwest regionsexceededthethresholdfortransitionregions in2018shouldnothaveanyconsequencesintermsofareducedcohesionpolicyallocationfortheseregionsforthe2021–2027period.


Table 2: GDP per capita for 2018 (as % of the EU-28 average)

Region GDP per capita (Ø EU-28 = 100) for 2018

CR 91

Prague 192

CentralBohemia 82

Southwest 78

Northwest 64

Northeast 76

Southeast 84

CentralMoravia 74

Moravian-Silesian 76

Source: Eurostat.

Onagenerallevel,cohesionpolicy’simpactsongrowthandconvergencecanbedividedintoshort-term (whencohesionpolicyfundingdefactorepresentsanadditionaldemandstimulusthatismanifestedduringprojectpreparationandimplementation)andlong-term (comprisingaseparateendogenouseffectbroughtaboutbyaproject’spositiveimpact).

Theproblemwithevaluatingandquantifying long-termeffectsproperly is that it canonlybedoneafteralongtimehaspassed.IntheCR,forexample,thiscancurrentlyonlybedoneforprojectsfromthefirsttwoprogrammingperiods,whereasquantifyingshort-termeffectscanbedonealmostimmediately(e.g.2015,whentheutterlyexceptionalinfluxofEUbudgetfundingrelativetoGDPcouldbeestimatedanddefinedwithinafewmonths).

Experiences to date make it possible to estimate that over the entire period of the CR’smembershipoftheEUtheshort-term impact is around 1.2–1.5% of GDPandthelong-term effect approx.0.6–0.8% of GDP.

Short-term impacts peter out very quickly after a project is carried out and completed,whereas–ifthesupportisdesignedcorrectlyandprogrammingworksproperly–theintensityof long-termimpactsshouldincreaseoverthemediumandlongterm,thuscomingtooutweightheshort-termeffectsrelativelysoon.Long-term impacts should be the primary consideration when assessing the effectiveness and meaningfulness of cohesion policy and the use of EU budget funding in general;theyshouldhaveanoticeableimpactonconvergenceandshouldincrease theeconomy’spotentialbyboosting its supply side.Thisdependencyand featureshouldbemostevident in thecaseofhard investmentprojects,e.g. in infrastructure,andsupportforthebusinessenvironment.

The ability to identify the actual results of cohesion policy is a crucial parameter of its effectiveness. The timely and full utilisation of the CR’s allocation is an importantmarkerforassessmentinthecourseoftherelevantprogrammingperiod.Havingsaidthat,aftertheprogrammingperiod’senditismuchmoreimportanttoevaluatewhat every country and its economy gained from cohesion policy and how this benefit manifested itself in the set of standard macroeconomic indicators.


Ifwelookattheresultsofthe2007–2013programmingperiod(PP7+), it isclearthatmanyof thegoalssetout in theNationalStrategicReferenceFrameworkwereachieved.Despitethisindisputablesuccess,however,weexpectmorefromcohesionpolicyandtheEUbudget:weexpect,forexample,thattheachievementofgoalswillbemeasurednotjustthroughtheprismofsimpleoutput indicatorsbutthatresultsandperformancewillcomeclosertotheindicatorsweusetomeasureincreasesinquality,prosperity,competitiveness,developmentandwealth.

FromtheperspectiveoftherequirementforoptimalefficiencyoftheEUbudget, it isgoodtopursueanapproach respecting theprinciple that this isnotonlyaquestionofensuringcompliancewith legalityandregularityrequirementsbutalsoofa targetedandsystematicfocusonresultsandperformancetheEUachievesandcontributesto.

Assimilating the rules of performance culture in connection with the EU budgetmakes itnecessaryforthevolumeandnatureofspendingontheonehandtobecloselyconnectedtoacomprehensivesetofperformance indicatorsmeasuring resultsandperformanceon theother.Assimilatingperformancecultureisnotjustaone-offstep:itisadevelopmentalprocesspredicatedbothonanappropriate legalandmanagerialenvironmentandonaselectionoftoolsthatwillsteerthekeyactorsinthedesireddirection.

Theintroductionofsomenewdesigncomponentscontributedtothisdesireddirectioninthe2014–2020programmingperiod(PP14+).Thesecomponentsincluded:• thematic focus (supporttargetingonlydefinedpriorityareasandnotjustanything;the

prioritiesmustbepreciselydefinedandbackedupwithquantitativeanalysisandfeasibilityplans;the listofprioritiesmustbestrictly limited;andsubstantiatedprioritiesmustbecoveredbysufficientfundingtoallowgenuineresultsandbenefitstobeachieved);

• integrated approach to supported projects (thekeypointistoachievesynergiesbetweenprojectsinagiventerritorywhilerespectingthesubsidiarityprinciple);

• conditionality and the performance reserve (based on the fact that EU funding takesplace under appropriate national macroeconomic and institutional circumstances asthe precondition for EU aid; the performance reserve is viewed as a bonus for goodperformance);

• streamlining (complexity and intricacy are in direct conflictwith theperformance andresults-focusrequirement).

Pilottestingofthedegreeofcomplianceandcoordinationbetweencohesionpolicy,orthePA,andtheEurope 2020 strategyhasbeentakingplacesincearound2016.ThisisaworthymethodologicalworkthatshouldcontinueacrosstheEUbudgetwithregardtofulfilmentofthe indicatorsdefinedbytheEuropeansemester. IntheCR’scasetheoverlapbetweenthegoalsofEurope 2020 andthePartnershipAgreementpriorities isrelatively large,butthereare thematic areaswhere there is nooverlap. Cohesionpolicy interventions aremoreovercarriedoutinaveryfragmentedway.EventhoughtheysometimeshelpachievethegoalsofEurope 2020,theydonotrespecttherequirementsofanintegratedterritorialapproach.Therulesonthematicconcentration introducedfor theprogrammingperiodthat is justendingcertainlyhelpedtheCR,butevensotargetinginterventionsmorepreciselyatissuesthatmakethebiggestcontributiontothecontinuationofconvergenceandtothecreationoffunctionalintegrationofprojects executed in the relevant territory remains ahuge challenge for thefuture.

The structure of the net position shows thatmore than a quarter stems from EU budgetfunding channelled into agriculture. This sector accounts for just less than 2% of the CR’sGDP. It is reasonable to conclude (if we compare the amount we pay into the EU budgetfromvalueaddedgenerated inagriculture, forexample),that the relatively low economic


strength of the agricultural sector and its contribution to tax revenues in the EU, and by extension the size of the CR’s payments into the EU budget, mean that the amount of funding going into agriculture is over-generous. Its proposed reduction for the 2021–2027 programming period (PP21+) is therefore warranted. OntheotherhanditmustbeconcededthatagriculturalproductionindicatorshaveimprovedsignificantlycomparedtothesituationbeforeEUaccession.Anotherargumentinfavourofgeneroussupportforfarmingisthefocusonitsnon-economicfunctionlinkedtoruraldevelopment,landscapeshapingandsupportforbiodiversity.And,lastly,theextentofaidforagricultureincompetitorcountriesisafactthatshouldbenottakenlightly.It would be preferable, however, to concentrate this support on areas where we face a problem of limited self-sufficiency and import a number of agricultural products or their resultant foodstuffs, even though the CR has suitable conditions for them.

B.2 How prepared are we for the EU’s future financial framework and what priority areas should we focus on?

ThenegotiationsontheEU’snewMFFarealwaysanendeavourtostrikeanidealcompromisebetweenMemberStates’negotiatingpositions.Comparedtothepreparationofthefinancialperspectivejustclosing,thereweresubstantialchangestotheparametersofwhatEUjointfinancingshouldsupport,especiallyifweonlyhave1%oftheEU’sGDPavailable.“Europeanvalueadded”isonetermthathasbeenheard,andnewthemeshaveemergedwithlinkstobothtechnologicalprocessesandatransformationofeconomicstructureandtheorganisationofeconomicsystems(digitisation,changesinenergyandmobility,sharedandcirculareconomy,excellentresearchand innovativeenterprise).Environmentalprioritiesarebeinggivennewsubstance.TheEuropeanPillarofSocialRightswascreated,givingrisetonewsocialpolicytopics.Theimportanceofsecurityalsogrewinconnectionwithrecentmigrationflowsandtheworsening geopolitical situation. The current response to thepandemic has presentednewchallengesfortheglobaleconomyandforthedefenceoftheEU’sstrategicinterestsandpositionsintherestoftheworld.Termslikeself-sufficiencyandresiliencearetakingonnewsignificance.

AllthatcaninfluencethenextMFF.TheMFFshouldcertainlyreflectalltheserequirementsaswellasachangetoorrealignmentswithintheEUitself.CountriesthatjoinedtheEUin2004andlaterareconvergingfarmoreconvincinglythanothercountrieswhoserelativepositionissystematicallyworsening.ItisreasonabletoassumethattheleadingcountriesfromcentralandeasternEuropewillhaverisentothemiddleoftheEUrankingsbytheendofthecomingMFF,witheconomicdevelopmentaround100%oftheEUaverage.

TheCR’sexpectationsandstrategieswhennegotiatingthefinalformoftheMFF2021–2027shouldbeadaptedtothissituation.TheCRshouldrespectthefactthatithasgotconsiderablyricherduringits16yearsofEUmembershipandthatitsapproachtotheEUbudgetcannolongerbe the sameas itwasunderentirelydifferent circumstances in2004;put simply, itmustacknowledge thedevelopmentboth thecountryand theEU itselfhaveundergone inthattime.AndoneupshotofthisdevelopmentisthatthestructureoftheproposedMFFisconsiderablydifferentfromitspredecessors,andthischangeshouldbeunderstoodasmorethanjustachangeinparameters.

ItssignificantidentifyingfeatureisthegeneraltermEuropeanvalueaddedastheencapsulationof shared EU requirements. The changes thus affect the structure of the budget and alsoa reshufflingof the respectiveweights of financial allocationsbetween itsmost importantchapters.


This realignment moves in the direction away from traditional European budget chapterstowardsnewandmoreup-to-datechapters.ThebiggestrelativedecreaseinfundingcanbeseenintheCAPandcohesionpolicy(byroughly10%onaverage,butadropofuptoaquarterismentionedinthecaseofsomeMemberStates).Thebiggestrelativeincreaseinfundingcanbeobservedincentrallymanagedprogrammes–anexampleofwhichisHorizonEurope,thebiggestresearch,developmentandinnovationprogrammeintheworld–withanallocationofalmostEUR100billion,i.e.almost8%ofthetotalbudgetallocation.AsignificantincreaseinfundingisalsogoingtoErasmus+,theexchangeschemeforstudents,academics,researchers,other professionals, young people and sports teams.Digital Europe also has no cause tocomplain. And thenwe havewhat are essentially brand newbudget chapters intended tocoverexternalsecurityrisks,absorptionofmigrants,developmentaid,borderprotectionetc.Last but not least, there is a strong push to create an environmentwhere the EU budgetis no longer automatically viewed as the equivalent of subsidy-based redistribution. Thereis a noticeable effort to add repayable financial instruments linked to greater expenditureefficiencybetterrealoutcomesandimpactstowhatarepredominatelysubsidymechanisms.

Whatdoes thismean for theCRandhowshould thecountry respond to this fundamentalchange?AstheEUMemberStatethatismostdependentoncohesionpolicyfunding,theCRshouldturnitsgazetootherpossibilities.ThefutureEUfinancialframeworkwillhavearound35programmesintotal,buttodateCzecheyeshavebeenfixedalmostentirelyontwopolicyareas:cohesionandagriculture. Ifwewanttoensurethereduction inourallocation isnotpronouncedandthenetpositiondoesnotstart towitheralarmingly,weshouldperformaserious assessmentof theopportunities offeredbyother programmes. TheproposednewprovisionaltoolforsupportingrecoveryknownasNextGenerationEUdoesnotjustwidentheoptionsoffundingfromtheEUbudget,itexpandsawholeseriesofsupportareas:forexample,itheavilybooststheequitabletransformationofeconomiesaffectedbythecoronaviruscrisis,whichisveryimportantforus.Thatisonereasonwhyweshouldbeveryresponsivetotheserecentlyproposedchanges.

What’smore,it’spossibletobeinventiveincohesionpolicy.Attentioncanbepaidtoprojectintegration,andthefinancinginstrumentsallowprivatefundingtoparticipateinthesystem.Therearemanypossibleoptions,thoughthe mainstream in the CR has not been particularly innovative to date and seems to cling to the endeavour to keep cohesion policy as traditional as possible, which is not the best solution from the long-term perspective.

Our strategy should, of course, continue to set great store by the opportunities the EU’scohesion policy offers us (as it is a reasonable assumption that the coming periodwill bethe lastone inwhich it remains generous towardsus). In cohesionpolicywe shouldmakethe fullest possible use of the space for financial instruments andwe should strive, in allthe areas where it makes sense, to ensure that additional private funding becomes partof the system through thesefinancial instruments. Cohesionpolicy in theCR should focuson maximising the integration of supported projects within a given territory, includingfunctional interconnectedness between projects supported out of EU cohesion policy andotherpartsoftheEuropeanbudget.We should make a systematic and coordinated effort to significantly increase the proportion of centrally managed programmes (as this is where the longer-term future lies from our perspective). And we should be less calculating when negotiating and far more constructive in terms of coming up with new ideas and solutions for ways to optimise the EU’s limited joint resources.

23EU REPORT 2020, Section II

SECTION II AUDIT WORK BY THE SAO AND OTHER EXTERNAL AUDIT AUTHORITIES IN THE FIELD OF EU BUDGET FUNDS EARMARKED FOR THE CR

24 EU REPORT 2020, Section II

C. The SAO’s audit work in the period under scrutinyWhendrawinguptheproposedauditplanforthegivenyear,whichtakesplaceayearinadvanceinlinewiththeActontheSAO,theSAOappliesarisk-orientedapproachtoselectingtopicalissues.Everyissue,mostofwhichariseoutofregularmonitoringandtoamuchlesserextentfromexternalsuggestions,containsadetailedriskanalysis,andanexpertunitcomposedofmembersfromallauditsectionsassessestheexpectedincidenceofsystemicshortcomingsandincreasederrorrates.Theresultoftheassessmentisoneofthekeycriteriaforincludingtheissueinthedraftauditplanandtranslatingitintoadetailedaudit.Themostsignificantrisks,whicharemostoften confirmedas regards their frequencyof incidence, include theabsenceofconceptualdocuments,orunsuitableprojectsintermsoftheirnecessityandutilityandtherealisationofthedeclaredbenefits.Theprojects’failuretocomplywiththeprinciplesof economy, efficiency and effectiveness and failure to secure financial sustainability areothercommonrisks.Incorrectdesignofprojectgoalsandinappropriatedesignofmonitoringindicatorsforprojectassessmentareoftenfound.

Inthecourseofthepastfiveyears(from2015totheendofMarch2020),theSAOhaspublished176auditreportsfromitsaudits,andhasdonesoinlinewithActNo166/1993Coll.,ontheSupremeAuditOffice,asamended (theActon theSAO).65of theseauditsconcerned theexpenditureorrevenuesideoftheEUbudget,atleastinpart.This proportion of approx. 37% of all approved audit reports is evidence thattheSAOpaysheightenedattentiontotheissueoftheCRandtheEUbudget.

C.1 Overview of approved audit reports

From1April2019to31March2020(theperiodunderscrutiny),theSAOBoardapprovedtheauditreportsof13 auditsconcerningEUbudgetfinances.

Chart 1: Breakdown of audits in the period under scrutiny by their focus

Financial audits3

Revenues1

Expenditure on Cohesion 8

Expenditure on the CAP1

13SAO Audits in the

period under scrutiny


Table 3: Overview of EU relevant audits

Audit No Audit title

Published in the SAO

Bulletin (number/year)

18/16 Developmentofwaterwaysandsupportofinlandwaterwaytransport 4/2019

18/18 SupportforthedevelopmentofdigitalisationofeducationintheCR 4/2019

18/21 ConstructionandmodernisationofA-classroads 6/2019

18/22 Supportofenvironmentalpoliciesfocusedonpublicbudgetrevenues 6/2019

18/24 SupportforpublicurbanandregionaltransportfinancedundertheIntegratedRegionalOperationalProgramme 4/2019

18/26Closingaccountofthestatebudgetchapter„MinistryofLabourandSocialAffairs“fortheyear2018,theirfinancialstatementsanddatafor2018submittedfortheassessmentoffulfilmentofthestatebudget2018

4/2019

18/27 Measuresimplementedinagricultureandtheenvironmenttomitigatetheeffectsofdroughtandwaterscarcity 6/2019

18/28Fundsearmarkedfortheimplementationofthemeasuresofthe2014–2020operationalprogrammeEmploymenttoincreaseemploymentandadaptability oftheworkforce

4/2019

18/29PromotingcompetitivenessthroughICT-supportedprojectsfundedundertheOperationalProgrammesEnterpriseandInnovationandEnterpriseandInnovationforCompetitiveness

4/2019

19/01 FundsusedfortechnicalassistancefromtheOperationalProgrammeEnterpriseandInnovationsforCompetitiveness 6/2019

19/03Closingaccountofthestatebudgetchapter„MinistryofCulture“for2018,financialstatementsoftheMinistryofCulturefor2018anddatasubmittedbytheMinistryofCultureforevaluationofimplementationofthestatebudgetin2018

6/2019

19/04 Supportforfloodprotectionmeasures 1/2020

19/08

Closingaccountofthestatebudgetchapter„MinistryofTransport“for2018,theMinistryofTransport‘sfinancialstatementsfor2018andthedatasubmittedbytheMinistryofTransportforevaluationofimplementationofthestatebudgetin 2018

1/2020

Note:ThecolourmarkingoftheEUrelevantauditscorrespondstotheirfocusaccordingtothepreviousgraph.

In total, 57 entities were audited, but many of them were scrutinised in more than oneaudit,sotheseauditedentitiesarecountedinthetotalmultipletimes20.TheSAOidentifiedshortcomings in 34 audited entities, i.e. 59.65% (here, too, many audited entities arerepresentedrepeatedly).

20 Suchauditedentitiesinclude,aboveall,ministriesintheroleoftheMAsofindividualprogrammesco-financedfromtheEUbudget.


IntheseauditstheSAOmadeatotalof355 audit findings, 93 of which were quantifiable, and77of theminfinancialaudits21. The SAO put the value of the identified transactional defects at CZK 414.00 million and the value of systemic shortcomings at CZK 635,431.54million.CZK21,129.54millionisthevalueofthequantifiedinaccuraciesidentifiedinfinancialaudits.Partofthatamountwasfoundtoberecoverable,sotheSAOfiledfivenotificationstothetax administratorsforfurtheraction.The total value of three of these notifications was CZK 5.29 million; two notifications were unquantifiable.

In one case a criminal complaint was filed.

Chart 2: Breakdown of audit findings by category

Findings in financial audits

28.73%

Formal and substantive inaccuracy

22.25%

Lack of legal regulation

2.82%

Lack of economy, efficiency, effectiveness

14.37%

Infrigement of rules and contractual

terms18.03%

Infrigement of laws and subordinate legislation

13.80%

355audit findings

Note:All102findingsfromfinancialauditareincludedinthefinancialauditfindingscategory,eventhoughtheyfallunderothercategoriesintermsoftype(withtheexceptionofonecasewherethelegislationwasfoundtobeinadequate,thesewerebreachesofaccountinglegislation).

Of the total number of253 audit findings not from financial audits, 49were categorisedas breaches of primary and secondary legislation(breachesofbindingEuropeanlegislationand acts, decrees, regulations and resolutions of the Czech government come under thiscategory).Inthecontextoffindingsinthiscategory,two notifications with a total value of CZK 5.18 million and one unquantifiable notification were filed with tax administrators.

In the case of financial audit findings, primary and secondary legislation was violatedin 101 cases22 and one notification involving CZK 0.11 million and one unquantifiable notification were filed with tax administrators.

21 The factual focusof theFA isusuallydirected to thefinalaccountof thebudget chapterand thefinancialstatementsoftheadministratoroftherelevantbudgetchapter.Forthisreason,theamountsoffundsincludedintheFAaremanytimeshigherthaninthecaseofperformanceorlegalityandregularityauditsofoperations.Theshortcomings identifiedby theFA in theareaofaccountingand reportingalso relate to incomparablyhigher amounts,whichwould further distort the presented statistical results in relation to other types ofaudits.Forthisreason,thevolumesofdeficienciesidentifiedbytheFAarelistedbelowseparately;otherdataforFAarealreadyincludedinthecommonvalues.

22 Includedinthecategoryoffindingsinfinancialaudits(Chart2).


Chart 3 shows how audit findings in the breaches of primary and secondary legislation(excludingfinancialaudit)werebrokendownintogroupsofbreaches23.

Chart 3: Type and rate of occurrence of breach of laws and regulations in EU relevant audits without FA

Public procurements46.94%

Ineligible expenditures28.57%

Deficiencies in the MCS 14.29%

Others10.20%

49cases of

infringement of laws and subordinate

legislation

The legal regulations were violated most frequently in public procurement. Along withineligible expenditure(thiscategoryincludesbothineligibleprojectsandineligiblesupportbeneficiaries), thesefindingsaccountmore than 75% of all identified cases of breaches of legal regulations (not includingfinancialaudit).TheOtherscategorycomprisesbreachesoflegalregulationsinthebuildingindustryorwastedisposal,forexample.

The situation was different in financial audit. With the exception of one finding, it wasviolations of the Act on Accounting24andrelatedregulationsthatweredetected.Thefindingsmainlycameunderthecategoryofaccounting and reporting errors.

C.2 Audit of revenues

In theperiodunder scrutiny theSAOcompletedoneauditexamining revenues,whichwasdoneincollaborationwiththeSupremeAuditInstituteofSlovakia(SAISlovakia).

Audit No 18/22 – EU and state budget funds focused on public budget revenues

The SAO constantly monitors proposed and adopted tax policy measures. Analysis of themonitoringinformationrevealedthattheimplementationoftaxsupportinclimateandenergypolicywasarealproblem.

Theaimoftheaudit,whichwasalegalitycumperformanceaudit,wastoexamine whether support in the field of taxes, fees, road tolls, customs duties and other public budget revenues was designed in a way that contributed effectively to the achievement of climate and energy policy objectives while keeping public revenues sustainable.

23 Findingsareclassifiedaccordingtotheprimarilyviolatedregulation;if,forexample,therehasbeenabreachofthePublicProcurementActand,asaresult,ineligibleexpenditurewiththequalificationofbreachofbudgetaryrules,thisfindingisincludedonlyinthecategoryofpublicprocurement.

24 ActNo563/1991Coll.,onaccounting.

https://www.nku.cz/assets/kon-zavery/K18022.pdf


The readiness of areas handled by the Ministry of Transport (MoT) and Ministry of theEnvironment (MoE) for the long-term implementationof climateandenergypolicy, and inparticular for performing tasks set by the government in this area,making use of supportinthefieldoffeesandtaxesdefinedbyEUlegislationforachievingtheEU’sgoalsinclimateandenergypolicy,andimplementingtaxesandfeesinsupportofprogresstowardsclimateandenergypolicygoals.TheauditdidnotdealwiththeCR’sclimateandenergypolicyasawhole; the SAO focusedonvarious systemic climateandenergypolicymeasures linked toEurope 2020 and Europe 2030,andinparticularmeasuresinthefollowingsectors:1. reducingemissionsintransportandhouseholds;2. increasingtheshareofrenewableenergysources.

Theauditperiodwas2015–2018and,whererelevant,theprecedingandsubsequentperiods.

TheSAIsoftheCRandSlovakiadrewupajointfinalreportontheresultsofthecoordinatedaudits targeting support in selected areas of climate and energy policy, with the focus ofpreservingthesustainabilityofpublicrevenues.RepresentativesoftheSAOandSAISlovakiachosetheareasofphotovoltaiccells,alternativefuels(CNG,LPG,LNGandbiofuel),electriccarsandsupportforhydrogenforcomparisonandsubsequentevaluationofsupportinthetwocountries.

Theauditedvalueofthefinancesatsystemiclevelisunquantifiable.

The SAO’s audit findings

• The MoF, MoT and MoE did not prepare effective and efficient tax measures that would significantly support the achievement of climate and energy policy goals.EUMemberStates use taxes, fees and, in some countries, subsidies as a key tool for the greeningof transport. TheCRhas failed toexploit thepotentialof taxes, fees and subsidies forgreeningtransport,eventhoughtheappropriatefeesandtaxesareprovidedforbythelegislation.

• While substantial financial measures in support of climate and energy policy are actively implemented in most Member States, in the CR the MoF, MoT and MoE are still only looking at them in the transport sector.

• The rates of taxes and fees linked to vehicle operation and the greening of transport have fallen in real terms since they were introduced and no longer fulfil the function they were introduced for. Theeffectivenessofappliedtaxreductionsinordertosupportgreenertransportislowandbusinesses’/vehiclebuyers’decisionsaremoremotivatedbytheideaofreducingtheirtaxbaseforcorporationtax.Theecologicalfeaturesofvehiclesplayaminorroleintherenewalandoperationoffleets.

• There is room for greater support for the greening of transport through taxes and fees,butanytaxincreasemustbeoffsete.g.bygreaterinvestmentininfrastructureandsubsidiesinthetransportsectororbyreductionsindirecttaxes.

• In the households sector, the rates of taxes on gas, electricity and coal do not reflect their carbon footprint,andconsumersaremotivatedtoswitchtogreenersourcesonlybytheconvenienceofheatingandpossiblesubsidiestowardsthepurchaseofanewheatingsystem. There is room for increased support for green sources to the detriment of coal-based heating.


Proposed remedial measures and their execution

The SAO found that the applicable tax and fee regulations linked to the acquisition andoperationofvehiclesmakeallowance forcriteria thatquicklybecomeout-of-date,e.g. theapplication of increased tax is restricted to a particular period or emissions class. Theseparametersdonotmakeitpossibletoreacttotechnicaldevelopmentsinthetransportsector,however.The SAO recommends that the parameters should not be derived from a fixed date or a specific level of a technical standard; or, if appropriate, the specific parameters should be left to a government regulation.

To ensure the transport and household heating greening objectives are fulfilled, the SAO recommends making greater use of the “polluter pays” principle in the system of taxes and fees, so the conditions governing the application of taxes and fees should be defined in terms of the fulfilment of climate and energy policy objectives.

C.3 Audit of expenditure

Themostnumerousgroupofauditsareexpenditureaudits.Nineauditstouchingonvariousareas of economic, social and territorial cohesion policy25 and the CAP and environmentalpolicywerecompletedintheperiodunderscrutiny.

Audit No 18/16 – Development of waterways and support of inland waterway transport

WatertransportisoneoftheareastheSAOregularlymonitorsandfocusesitsauditworkon.Inthepreviousyearsthis issuewascoveredbyauditsNos08/1926and14/0327.Bothauditsdetected recurrentdefects in thedesignof the systemof support for thedevelopmentofwaterwaysandwaterborne transport.Thedefectsmeant that this system failed toensureeffectiveandefficientspendingofpublicfunds.

The aim of this audit, whichwas a legality auditwith a section devoted to performance,was to check whether funds earmarked for the development of waterways and waterborne transport were being provided effectively and efficientlyinawayensuringthatthegoalssetforthisareabyconceptualandfollow-updocumentswereachieved.

TheSAOscrutinisedtheuseofstatebudget,StateFundforTransportInfrastructure(SFTI)andEUfundsearmarkedforthepreparationandexecutionofinfrastructureprojectsonwaterwaysand for supporting themodernisationof freight river craft.28 The conceptual designof thewaterways andwater transport development support systemwas also examined. Indoingso, theSAOfocusedmainlyonthe followingdocuments:ComprehensiveAssessmentof theEconomicEfficiencyofPublicInvestmentintheDevelopmentoftheInfrastructureWaterwaysSuitable for Inland Goods Transport in the CR from 2016; Water Transport Concept for 2016–2023 from 2017; and Danube-Odra-Elbe (D-O-E) Water Corridor Feasibility Studyfrom2018.

25 Cohesionpolicy.26 Audit08/19–Fundingforthedevelopmentandmodernizationofwaterwaysandports.27 Audit14/03–Fundsearmarkedforthedevelopmentandmodernizationofwaterwaysandportsandforthe

promotionofmultimodalfreighttransport.28 SixinfrastructureprojectswithtotalcostsofCZK1,388millionandsevenfreightvesselmodernisationprojects

withtotalcostsofCZK28.7millionwereexamined.


Theauditfocusedmainlyon:• theMoT’sconceptualworkinthedevelopmentofwaterwaysandwatertransport;• thedefinitionofthesupportobjectivesandthecreationofasystemofindicatorsenabling

objectiveassessmentoftheirfulfilment;• theeconomyandefficiencyofspendingonthepreparationandexecutionofinfrastructure

projectsontheElbe-Vltavawaterway;• whetherpublicprocurementbytheDirectorateofWaterwaysoftheCR(DoW),astate

agency,compliedwiththelaw;• fulfilmentoftheobligationsoftheMoT,astheadministratorofprogrammeNo127550

andmanagingauthority(MA)ofoperationalprogramme(OP)Transport(OPT),insupportforthemodernisationoffreightrivervessels;

• theeffectivenessandefficiencyoftheprovisionofsupportforthemodernisationoffreightrivercraft,includinganassessmentoftheeffectsoftheprovidedsupport.

Theauditedvalueof thefinancesat systemic levelwasCZK625,845millionandatprojectlevelCZK1,417million.


• The goals set forwater transportbyTransportPolicyof theCR for2014–2020withanoutlookupto2050andtheMoT’sfollow-updocumentsare not being achieved.Theshareoftotalgoodstransportaccountedforbywaterborne transport of goods remains low (approx.1%)andgoodsarenotbeingtakenofftheroadsfortransportbywater.Money providedforthedevelopmentofwaterwaysandtosupportwaterbornegoodstransportis therefore not being spent effectively and efficiently with regard to the defined goals, in the SAO’s opinion.

• Discrepancies persist in conceptualandfollow-updocuments of the MoTgoverningthedevelopmentofwaterways.Theassessmentoftheefficiencyofinvestmentsisbasedoninsufficiently documented input data.

• Further expenditure on the development of waterways for goods transportwithout resolving all the fundamental problems restricting the usability of the Elbe-Vltavawaterway(especiallyensuringthattheElbeisreliablynavigableintheÚstínadLabem–statebordersection)andwithoutpreparingprojectsinthecontextofacomprehensivetransportsolutionpresents the risk of ineffective and inefficient spendingofstatebudgetfunds.

• Onenecessarypreconditionfortheeffectivecontinuationofpreparationsfortheprojectto build the D-O-E corridor is achieving categorically expressed and legally confirmedconsensus between all the countries this international project directly affects. ThispreconditionremainedunfulfilledattheendoftheSAOaudit(March2019).

• Support for the modernisation of river freight vessels amounting to CZK 53.4 million,whichtheMoTdecidedtoprovide intheyears2008–2015,achievedonlypartialgoals.Theoperationofmodernisedcrafthasnotbeenmade significantlymoreefficient, andtheir long-termuse,withbenefitsfortheCR,hasnotbeensecured.TheSAOthereforeregardstheaforementionedfundingasinsufficientlyefficientandeffective.

• Unclear definition of the conditions for the optimum allocation of support does not guarantee the effectiveness and efficiencyofspendingin the subsequent years either; thisconcernssupportexpectedtobeworthCZK420million,whichtheMoTwasdecidingonatthetimeoftheaudit.


• The MoT did not create a system of indicators making it possible to measure the degree to which the set goalswereachievedandprovidingabasisforevaluatingtheefficiencyofsupportprovidedfor the modernisation of vessels.FromthestartofimplementationofprogrammeNo127550in2008tothetimeoftheSAOaudit,theMoTdidnotperformanoverallassessmentoftheeffectsoftheprovidedsupport.

• The MoTfailedinitsdutyastheadministratorofprogrammeno.127550by not checking and assessing sufficiently compliance with the conditionsitlaiddownforbeneficiariesofvesselmodernisationsupport.

• The MoT failed in its duty as the OPT managing authority by approving follow-up monitoring reports for2016and2017 in the caseof sixoutof sevenauditedprojectseven though the reports contained fundamental defects in terms of demonstratingcompliance with the defined conditions. Some conditions for the use of modernisedvesselswereformulated so vaguely by the MoT thatitisnotpossibletodeterminewithcertaintywhethertheywerefulfilled.

• In the caseof threeprojects the SAO found that the vessels were used less than the minimum requirement.ThebeneficiariesofatotalofCZK4.4millionthusviolatedtheconditionsoftheprovidedsupport.


TheMoTproposedmeasurestoeliminatediscrepanciesinthedata,forfurtheractioninthepreparationoftheD-O-Eproject,totightenuptheconditionsofsupportintendedforvesselmodernisationandtoaddressmonitoringshortcomings.TheSAOwillonlybeabletojudgetheeffectivenessofthesemeasureswhenitperformsafollow-upaudit.

Audit No 18/18 – Support for the development of digitalisation of education in the CR

AnalysisofinformationfrominterimmonitoringofsupportforthedevelopmentofeducationandthefindingsofpreviousSAOaudits29showedthatthedevelopmentofdigitaleducationintheCRisacurrentproblemarea.

TheaimofauditNo18/18,conceivedasaperformanceaudit,wasto scrutinise whether digital education measures and projects in the CR are contributing efficiently totheachievementofstrategicobjectivesinthisareas.TheSAOfocusedonthedevelopmentofdigitaleducationatelementaryandsecondaryschools.

Theauditfocusedmainlyonthedefinitionandfulfilmentofstrategicgoalsforthedevelopmentof digital education; the design of calls performed in OPs linked to digital education, i.e.mainlytheOPsResearch,DevelopmentEducation(OPRDE),IntegratedRegionalOperationalProgramme(IROP)andEducationforCompetitiveness(OPEC).Theimplementationofselectedprojects,thesecuringoffundingfortheimplementationoftheDigitalEducationStrategyupto 2020 (the“Strategy”)andforschoolsinthefieldofdigitaleducation,andthemanagementofmeasures/activitiesandprojectsbytheMinistryofEducation,YouthandSports(MoEYS),werealsoexamined.

Theauditedperiodwas2011–2018,plustheperioduptotheendoftheauditwhererelevant.

TheauditedvalueofthefinancesatsystemiclevelwasCZK7,853millionandatprojectlevelCZK181million.

29 PrimarilyauditNo16/13–FundsspentondevelopmentofeducationintheCR.



• Fundingof thedevelopmentofdigitaleducation ishighly dependent on finances from the EU and schools’ founding organisations. 6,660 projects worth CZK 22,176millionwerecarriedoutintheperiodfromthestartof2011toJuly2018.Thereisa real risk that the end of the existing programming period will leave schools without enough funding to maintain and replace information and communication technologies (ICT) for digital education.

• The implementationof two systemicprojects supportedoutofOPRDEand crucial forefficient spending at the level of projects carried out by individual schools under theStrategy did not begin until October 2017, or January 2018, i.e. midway through theStrategyimplementationperiod.TheStrategyissupposedtoendinSeptemberor,insomecasesDecember2020.Thereisa real risk that the required outputs will not be finalised and available in time for the Strategy’s goals to be achieved within the given time limit, i.e. by the end of 2020.

• The development of digital education in schools was supported in 2011 and 2012 byprojectsforsimplifiedreportingofcostsfinancedoutofOPEC.TemplatesIIIforsimplifiedreportinginthecontextofcallsNos21and34requiredthecreationofdigitalteachingmaterials,teachertrainingandtuitioninsubjectsfocusingonICTdevelopmentasprojectoutputs.ICTequipmentwasacquiredfortheuseoftheseoutputs.TheacquisitionofICTequipmentwasschools’mainreasonfortheuseofthesetemplates.However,schoolshadtojustifythesepurchaseswithasufficientquantityofcreateddigitalteachingmaterials.In4,880projectssupportedwithasumofCZK5,538million,CZK4,707millionofwhichcamefromtheEU,schools thuspurchasedthenecessary ICTequipmentandcreatedat least1.8milliondigitalteachingmaterials.Thesematerials,however,were often poor quality, duplicated each other’s contents or represented merely teachers’ digitised preparation for tuition. The SAO judged this support to be inefficient.

• In2014theMoEYSsupportedtraining for teachers in effective use of ICT andinintegrationofICTintotuitionunderOPEC.In45projectssupportedwithasumofCZK1,376million,onlyselectedteachersfromathirdofelementaryandsecondaryschoolsintheCRreceivedtraining. Furthermore, the teachers did not all receive the same training according tospecific standards, as theMoEYSdidnotdefineany for the teachers; the trainingonlyfocusedonthecontentofindividualprojects.Thissupport was not systemic andentirelyfailedtotackletheinsufficientteachertrainingintheuseofICTatnationallevel.

• TheoutputsofprojectssupportedunderOPEC(aspartofcallsNos21,34and51)arepubliclyaccessible,e.g.onthemethodologywebsiteofframeworkeducationprogrammes,the websites of beneficiaries/projects and in the database of OP EC project outputs.According to a questionnaire-based survey by the SAO, however,one third of schools has no information about any publicly accessible offer of digital teaching materials supported under OP EC.Onlyatenthofschoolsdescribetheofferedmaterialsashigh-qualityandsuitedtotheirrequirements.


Amongother things, the SAO recommended that theMoEYS reassess the regional schoolsfunding system so that schools have access to funding thatwill enable them to carry outtheplannedreplacement,maintenanceandadministrationofICTaftertheendofPP14+.Inthis context theMoEYSpledged todesign thenewOP JanAmosKomenský for thecomingprogramming period in a way ensuring that money from the European Structural and


InvestmentFunds (ESIF)30 continued tobeused for innovations in schools and schoolshadguaranteedaccess to funding thatwillenable themtocarryout theplanned replacement,maintenanceandadministrationofICT.

At the same time, the MoEYS undertook to sign a memorandum on cooperation in thepreparation and implementation of OPs for PP21+, specifically OP Integrated RegionalOperationalProgramme (PP21+),OPCompetitivenessand JanAmosKomenský,with a viewtosupportingtheacquisitionofkeyskills,includingdigitalskills,bybothpupilsandteachers.Themeasures supported under these OPs should result inmodernised infrastructure andequipment in the specialised classroomsof schools, school facilities andothereducationalfacilities,includingmodernisedICT,tuitioninanenvironmentofnewtechnologiesforpupilsstudyingallfieldsandtoimproveddigitalliteracyandcomputationalthinking.

Audit No 18/21 – Construction and modernisation of A-class roads

The SAO regularly scrutinises the construction and modernisation of roads, in particularmotorwaysand1stclassroads.InthepreviousyearsthisissuewasmainlycoveredbyauditNo17/05–Construction,ModernisationandReconstructionofMotorways.

ThepurposeofauditNo18/21,whichwasperformedasalegalityauditwithaperformancesection,wasto check whether the plans for building 1st class roads were fulfilled; whether the system for providing funding fortheconstructionandmodernisationof1stclassroadsensured effective and economical use of thismoney;and whether the defined goals and parameters were achieved by the construction projects at appropriate cost.

The examination of the actions of the Roads and Motorways Directorate (RMD) whenpreparing and executing building projects focused on a sample of ten projects with coststotallingCZK8,251.8million,includingvalueaddedtax(VAT).41kmof1stclassroadswasbuiltandmodernisedundertheseprojects.Theauditedperiodwasfrom2013to2018,includingtheprecedingandsubsequentperiodswhererelevant.Basedontheauditresults,onefindingwasdeemedtoberecoverable,soanotificationconcerningCZK3.92millionwasfiledwiththetaxadministrator.

TheauditedvalueofthefinancesatsystemiclevelwasCZK35,474millionandatprojectlevelCZK7,582million.


• The conceptual objectivesoftheconstructionandmodernisationof1stclassroadswere not achieved. Priority projects (determined according to pan-societal need and theeffectivenessof expenditure)were not executed preferentially. Instead,onlyprojects’readinessforcommencementwasconsidered.

• Construction project preparation(theperiodfromtheissuanceofapositiveEIAopinionto the granting of effective building authorisation) lasted 12 years on average. The main causesoflongpreparatoryphasesforconstructionprojectswere not successfully resolved, withtheprovisothatitiscurrentlytoosoontotellwhethertheadoptedlegislativechangeswillshortentimes.The main problemsaffectedplanning permission, buying up land and building permits.Theconsequences of the funding shortageintheperiodaftertheeconomiccrisis,whenfundingforthepreparationandexecutionofbuildingprojectswasrestricted,werecomingtoanendintheperiodunderscrutiny.

30 TheESIFconsistsoftheEuropeanRegionalDevelopmentFund,EuropeanSocialFund,CohesionFund,EuropeanAgriculturalFundforRuralDevelopmentandEuropeanMaritimeandFisheriesFund.



• The stoppage of work on selected 1st class road constructionprojectshad a negative impact onboththe effectiveness of spending(inthesenseoffundingtheconstructionofthemosturgentlyneededsectionsof1stclassroads)andthe economy of spending,astheRMDhadtopaybuildingcontractorsfinancialcompensationworthalmostCZK126millionexcl.VATforthesuspensionormothballingofconstructionprojects.

• Problemspersistedwith the transfer of ownership of 1st class roads (sectionswhereamotorwaywasbuilttorunparallelwiththe1stclassroadorwherea1stclassroadwas re-routed)to the regions or municipalities.

• Projects tendered out in the audited period displayed building costs 30% lower than the RMD envisaged in the building contractor tender documentation. Comparisonofthevaluationof selectedunitprices forbuildingworkon theauditedprojects showedthatpricesdefinedbyabindingmaterialforconstructionprojectvaluationwerenotaneffectivetoolfordefiningtheexpectedvalueinawardproceduresforbuildingcontractors.

Basedontheauditresults,one notification involving a sum of CZK 3.92 million wasfiledwith the tax administrator.


The MoT did not adopt any measures inresponsetotheauditresults,butitstatedthatit had prepared a further amendment of Act No 416/2009 Coll.31,whichthegovernmentapprovedinNovember2019andwasbeingdebatedintheChamberofDeputies(parliamentaryprint673).Thisamendmentshouldshortentransportconstructionprojectpreparationtimesbyathird.TheSAOwillonlybeabletojudgetheeffectivenessofthesemeasureswhenitperformsafollow-upaudit.

Audit No 18/24 – Support for public urban and regional transport financed under the Integrated Regional Operational Programme

In previous years the issue of regional public transportwas coveredmainly by audits Nos06/0732and14/3233.RegionalsupportwasalsocoveredbyauditNo09/2634.

The purpose of these audits, which were legality audits with a performance section, wasto scrutinise how the MA and intermediate body (IB) administered and selected subsidy applications; how they checked fulfilment of the conditions by applicants; and how they monitored and assessed the impacts of the provided support.TheSAOalsoexaminedwhether the subsidies were paid out in compliance with the law, effectively and economically.Thesubsidies provision system in the context of the territorial dimension throughtheIntegratedTerritorialInvestments(ITI)instrumentwasalsoaudited.

EUfundingprovidedviaIROPandstatebudgetco-fundingofprojectswerescrutinised.Theauditsoughttocheckwhetherprojectsinsupportofurbanandregionalpublictransporthelpincreasetheshareofsustainableformsoftransport;whethertheauditedentitiesdrawdownfundingfortheimplementationoftheselectedmeasuresinaccordancewiththelegislation,effectivelyandeconomically;whetherthemanagementoftheterritorialdimensionpossessesan effective ITI administration system; andwhether an effectivemanagement and control

31 Act No 416/2009 Coll., on accelerating the construction of transport, water, energy and electroniccommunicationsinfrastructure.

32 AuditNo06/07–Statebudgetfundsprovidedforpublicpassengertransport.33 AuditNo14/32–FundsearmarkedfortheconstructionoflineAofthePragueunderground.34 AuditNo09/26–Fundsearmarkedunderregionaloperationalprogrammesfortransportinfrastructure

projects.




system(MCS)hasbeenputinplacefortheprovisionoffunding.Theauditedperiodwasfrom2014to2018,includingtheprecedingandsubsequentperiodswhererelevant.

TheauditedvalueofthefinancesatsystemiclevelwasCZK12,588millionandatprojectlevelCZK1,551million.


• Thesupportdidnotresult in increaseduseofpublic transport (thetargetvalue of the public transport’s share of total passenger transport indicator –35%–wasoverambitiousand hard to achieve asaresultofnumerousexternalfactors).

• In the audited projects, a lowproportion of vehicleswas acquired in order to enlargevehiclefleetsandthusincreasethenumberofpeoplecarriedbypublictransport(simplyreplacingageingvehicleswithoutenlargingthevehiclefleetandincreasingthenumberscarried is not sufficient for increasing the use of public transport to the detriment ofindividual transport, which is themain statistically quantifiable result targeted by theprovidedsupport).

• Reliablepreconditionsforinterimmonitoringandassessmentofprojects’benefitsrelativetotheplannedresult,i.e.increasingpublictransport’sshareoftotaltransportintheCR,werenotputinplace(untrustworthyvaluesofthenumberoftransportedpersons–theincreaseinthenumberofpeopletransportedcannotbeascertained).

• The MCS for the provision of support under IROP is only partially effectivewithregardtopriorityaxis1,specificobjective(SO)1.2:

– whenassessingapplicationsforsupportforindividualprojects,the data featuring in one of the criteria forjudgingproject eligibility (discrepancyatsystemlevel)were not adequately verified;

– shortcomings inboththe design and performance of checks to judge expenditure eligibility –ineligibleexpenditureandtheproceduresfordetectingitwerenotclearlydefined(discrepancyatsystemlevel);

– projectmanagement ismarredbyother functional shortcomings in the MS2014+ monitoring system (monitoring the progress of integrated tools; failure to judgeproject impacts in terms of environmental impact and boosting public transport);theseshortcomingsconfirmsomeoftheSAO’sconclusionsfromauditNo16/12.

ShortcomingsinthemonitoringofprojectimpactswithregardtoachievingprogrammegoalshavebeenfoundbytheSAOrepeatedly,regardlessofwhichprogrammeisbeingaudited.TheSAOthereforeregardstheseassystemicfailingsbytheresponsibleauthorities.

• The SAO also found shortcomings at the systemic level in the provision of supportthrough ITI:

– thecall for support for ITI strategiesdid not have firm rules, i.e. the contentandparticulars of such calls were not defined in any document with relevance forintegratedtools;

– some statutory towns did not respect the obligations regarding the publishing ofobligatory information in announced calls; failed to assess the synergic effectsof projects under assessment; and defined unsuitable criteria for economy andeffectivenessassessment.

• TheSAOfoundthefollowingshortcomings in beneficiaries: – provisionofsupportforineligibleexpenditure; – failuretocomplywithpublicprocurementlaw; – failuretoachieveprojectgoals.


One unquantifiable notification wasfiledwithataxadministrator.


During the courseof theaudit the MA modified the rules forapplicantsandbeneficiarieswhen discarding unecological vehicles fromtransport,wheretheSAOidentifiedtheriskthatthediscardedunecologicalvehicleswouldcontinuetobeusedinpublictransport.

InresponsetotheSAOauditthe MoRD adopted measures to remedy shortcomings concerning the inadequate rules for checking expenditure eligibility andreviewed55projectsfromtheconcerned call in collaborationwith the Centre for Regional Development of the CR (“theCentre”).TheCentrewillperformchecksatbeneficiarieswhereariskofineligibleexpenditurewas identifiedand theMoRDwill invite theaffectedbeneficiaries tovoluntarily return thefundingprovidedforineligibleexpenditure,passingoncasestothefinancialadministrationauthoritiesforrecoverywhereappropriate.Inconnectionwiththismeasure, high-risk sums linked to the concerned expenditure were deducted from the summary of expenditure for the given year.

OthermeasuresadoptedbytheMoRDareacceptableintheSAO’sview,buttheiractualeffectwill have tobeassessedbya follow-upaudit. Theadoptedmeasures should contribute tobetteruseof publicmoney inboth the currentprogrammingperiod and, above all, in thenextone.

Audit No 18/27 – Measures implemented in agriculture and the environment to mitigate the effects of drought and water scarcity

Analysisof interimmonitoringinformationanddatarevealedthatthefightagainstdroughtisahighlypressingyethighlyproblematicissue.Thisauditwasperformedasalegalityauditwith a performance section. The aim was to scrutinise the implementation of measures to mitigate the negative impacts of drought and water shortages in the agriculture andenvironmentdepartmentsandthe provision of funding linked to defined goals and progress towards these goals.

At theMinistryofAgriculture (MoA)andMoEattentionwaspaid to thestrategybasedonacomprehensivedefinitionofdroughtandwatershortageinthelandscapeandtherelatedperformance of tasks. The division of powers in watermanagement and the work of the WATER-DROUGHT interdepartmental commission were assessed. The SAO also examinedsubsidy schemes presented in the basic strategic material for mitigating the negativeconsequences of drought andwater shortages,which is theConcept of Protection againstthe Consequences ofDrought for the Territory of the CR (“the Concept”). The reporting offinancesearmarkedformitigatingtheconsequencesofdroughtandwatershortageswasalsoscrutinised.

Subsidy schemes outside the framework of the Concept35 and compensation paid out fordroughtwereauditedattheMoAalone.

TheauditedvalueofthefinancesatsystemiclevelwasCZK27,783millionandatprojectlevelCZK478million.

35 This involved 12 programmes, including RDP agricultural support (agri-environment-climate measures,greenfarming,lessfavourableareas),afforestationoffarmland,forestrymeasuresandlandalteration,plusOPFisheries2014–2020,firebrigadeairserviceandsupportfromtheNationalAgriculturalResearchAgency.



• The Act on Water36 onlytouchesontheissueofdroughtinpassingandanamendmentofthisActwithaspecialsectiondevotedtodroughthasnotbeenenactedyet.The absence of any definition of legal rights and obligations forvariousstakeholderscontributes to complications when executing measures to mitigate the impacts of drought and water shortages.Inaddition,thereisno anti-erosion decree totightenuptherulesforfarmingonlandvulnerabletoerosion.

• TheMoAandMoEweresupposed tosee to the implementationofCzech government resolution No 620 of 2015,whichcontains 49 tasks linked to drought.Manyofthetasks,however, consisted of little more than performing analyses, drawing up proposals orweighingpotential,ratherthancarryingoutthenecessarymeasures.Even though most of these tasks were completed, they were not followed up by action.

• TheConceptlists30measuresintotal.Specific,measurable,realisticandtimedgoalshavenotbeen set, however, for the individualmeasures. TheConcept’s text doesnot statewho isresponsiblefor implementingthevariousmeasures. InsomemeasurestheMoAandMoEproceedinconflictwiththeConcept(ChangetoAgriculturalPolicyintheAreaofSupportforGrowingEnergyCropsmeasure).

• TheprincipalgoalandpurposeofalmostallsubsidyprogrammesexecutedbytheMoAandMoEinthecontextofdroughtandwatershortageswasnottotackletheproblemofdrought.Thedefinedgoalsand indicatorsusedtoassess thedefinedprogrammegoalsare in linewiththis: theydonotseektomonitorandassess thebenefitof thesubsidyprogrammes in terms of mitigating the impacts of drought and water shortages Thebenefitsoftheexpenditurewithregardtodroughtwereimpossibletodetermine.

• TheMoA andMoE commenced practically no new subsidy programmes intended tomitigate the impacts of drought and water shortages; or, if there was a programme,drawdown was low. The MoA and MoE have long implemented the same subsidyprogrammes,whosemaingoalisnotthefightagainstdrought.IntheConcepttheMoApresentedalistofsubsidyprogrammesunderitscontrolthatfundmeasurestomitigatethenegativeimpactsofdrought.Thereare15nationalsubsidyprogrammes,fiveofwhichhadnotbeenlaunchedby31December2018(thesearethenewsubsidyprogrammes,e.g.areservoirconstructionprogramme).In the MoE, a new approach to drought and water shortage consists in rainwater management,knownastheRainwaterprogramme,underwhichCZK42millionofnationalfundingwasdrawndowninthe2016–2018period.

• Inmaterialsforthegovernmentthe MoA reported a total amount of CZK 29 billionspentonthefightagainstdrought.Theauditfound,however,thattheMoAmadeawholeseriesof errors in calculating this amount.The audit found that the amount ofmoney paidoutforthe issueofdroughtwas justunderCZK 26 billion.Thedifference ismorethanCZK3billion.

• Cooperation between the MoA and MoE in efforts to mitigate the impacts of drought and water shortages has not always been optimal.Thatisdemonstratedinteraliabythefailuretoadoptananti-erosiondecreethat iscrucial to improvingtheuseof farmlandand strengthening its water retention capacity. Another example is the execution ofcontradictory subsidy programmes. The MoA funds technical modifications of thechannelsofsmallwatercourseswithoutanyclose-to-naturerequirement.AnMoEsubsidyprogrammeeliminatesunsuitabletechnicalmodificationsandreturnswatercoursestoastateclosetonature.

36 ActNo254/2001Coll.,onwaterandamendingcertainacts(ActonWater).


• AccordingtotheMoA,theactualtotaldamagescausedbydroughtinfarmingandforestryreachedCZK3billionin2015,CZK7.7billionin2017andCZK24billionin2018.From2016to2018theMoAdisbursedalmostCZK2.4billionincompensationfordamagescausedbydrought,i.e.notformeasurestoactivelyfightdroughtbutmerelyfinancialassistanceforovercomingadifficultperiod. In the sameperiod theMoAspentCZK2.9billiononinvestmentsubsidyschemestomitigatethenegativeimpactsofdrought–thesecanberegardedaspreventivemeasuresinthefightagainstdrought.The growing compensation for damages shows, however, that the preventive measures being adopted to fight drought are not sufficiently effective.


TheSAOidentifiedthefollowingrisksbasedontheaudit:• Thereisalackoflegislationondrought,whichmakesitdifficulttoenforceobligationsin

thisarea.• Thereisnolegislationdefiningobligationsandlegalrightsinthisarea.• There is no anti-erosion decree, which prevents a more effective fight against soil

degradation.• Giventheabsenceofahard-to-insure risks fund, compensation fordamagescausedby

droughtinagriculturewillcontinuetobepaidoutofthestatebudget.• StatebudgetandEUfundsspentonthefightagainstdroughtwillnotresultintheConcept’s

goalsbeingachieved.• Differences of opinion between the MoA and MoE prevent effective action to tackle

droughtandwatershortages.• Thedamagescausedbydroughtwillgrow.• A shortage of drinking water will not cause only material damages: it will harm the

population’slifeandhealth.

Thefollowingrecommendations weredrawnupinthelightoftheserisks:• adopt legislation on drought (a drought section of the Act on Water) and pass an

anti-erosiondecree;createahard-to-insurerisksfund;• adapt existing subsidy schemes to the need to combat drought; launch new subsidy

programmesspecificallydesignedto combat drought(inparticular,buildinganddredgingreservoirs);

• ensure sufficient water for the population, interaliabybuildingreservoirsandconnectinggroupmainstowatersupplysystems.

Audit No 18/28 – Funds earmarked for the implementation of the measures of the 2014–2020 operational programme Employment to increase employment and adaptability of the workforce

TheSAOhaslongpaidattentiontosupportforthedevelopmentofhumanresourcesundertheauthorityof theMinistryofLabourandSocialAffairs (MoLSA).V Inpreviousyears thisissuewascoveredbyauditsNos08/0637,12/1938and14/2439.

37 AuditNo08/06–FundsoftheOPHumanResourcesDevelopmentintendedforactiveemploymentpolicy. 38 AuditNo12/19–FundsearmarkedfortheimplementationoftheHumanResourcesandEmployment

OperationalProgramme.39 AuditNo14/24–EUandstatebudgetfundsprovidedforsettlementofexpendituresofnationalprojectswithin

theOperationalProgrammeEducationforCompetitiveness.


Analysisofmonitoringinformationandfindingsfrompreviousauditsrevealedthatsupport for youth employment wasahighlytopicalissue.OneofthenationaltargetssetinconnectionwithEurope 2020 istoreducetheunemploymentofyoungpeople(aged15to24)by1/3from2010 to 2020. TheNational ReformProgramme (NRP) for 2016 stated that unemploymentamongpeopleaged15to24hadbeenreducedsubstantiallyfrom18.3%in2010to15.9%in2014.Itcontinuedtofallin2015.Inthesecondquarterof2015,whenyouthunemploymentstoodat12%,thenationaltargethadalreadybeenhit.

Thisauditwasperformedasalegality/regularityauditwithaperformancesectionandwasdesignedtoscrutinise whether the audited entities provide and draw down funding for the selected measures in accordance with the law, effectively, efficiently and economically, and whether the selected projects in support of youth employment and workforce adaptability are delivering progress towards the goal set by Europe 2020 for youth employment.

TheauditlookedatEUfundingthroughOPEm,includingnationalco-funding,andattheMCS,itsdesignandworking.

Theauditperiodwas2014–2018and,whererelevant,theprecedingandsubsequentperiods.

TheauditedvalueofthefinancesatsystemicandprojectlevelwasCZK469.63million.


AttheMoLSAandLabourOfficeoftheCR(LO)theSAOdetecteda number of shortcomings both at systemic level and, most notably, in the utilisation of support targeted at youth employment from OP Em.Theshortcomingsmainlyconcernedeffectiveness and efficiency.

• TheSAOfoundserious errors in the design of project goals and monitoring indicators. TheMoLSA did not setmeasurable goals for projects that would permit a judgementwhethertheprojectsfulfilledtheirpurpose.

• TheLOdoesnottrackparticipantsintheprojectandtheirsuccessinfindingworkafterthe project. The LO’s statistics registered no impact from the executed projects forimprovingyoungpeople’semploymentratesintheregioninquestion.Atthesametime,the effectiveness of spending cannot be assessedinanyoftheauditedprojects.

• TherateofyouthunemploymentintheCRfellcontinuallyfrom2013tothetimewhentheauditfinished,reaching6.7%in2018.CzechyouthunemploymenthaslongbeenverylowcomparedtotheEUaverage(currentlyaround15%).Despite this favourable situation the MoLSA continued to provide the same extent of supportasatthetimewhenOPEmwaslaunched,i.e.towardstheendofthe2008–2013economiccrisis.In2017theMoLSA even decided to increase support foryoungpeopleaged15–29byCZK339million,withoutfocusingthissupportonthegroupofyoungpeoplewithmultipledisadvantages(astheresultsofexternalevaluationrecommended).The MoLSA did not react to the low rate of youth unemployment until 2019.

• The MoLSA is unable to quantify objectively the total costs of the programme Guaranteesfor Youth,becausethestatetreasuryinformationsystemdoesnotenableit.

• The MoLSA did not perform any of the intended updates of GuaranteesforYouthfrom2014;itdidnotdefinetheresponsibilitiesofvariousinstitutionsforPP14+;anditdidnotdefinethefinancialcostsofkeyinitiatives.

• The MoLSA does not provide the Commission with all the required dataonhowyoungpeople’ssituationchangedinthelongrunaftertakingpartinGuaranteesforYouth.

• There are no significant differences between the treatment of a client of the project and the standard active labour market policy. Atthesametime,continuouscoordinated


supportforsociallybeneficialjobsisnotsecured,eventhoughthissupportwouldmakeitpossibletohelpevenaftertheprojectends.

• In the case of some clients in the audited sample it was clear that there were no barriers stopping them finding work. Theseyoungpeoplefoundaninternshiporajobthemselves.TheSAOregardsthisasanexampleofa“deadweighteffect”40.

• Paradoxically, in theTRANSFER project intendedpreferentially for thosenot registeredwiththeLO,mostprojectsclientswereregisteredwiththeLO.

• Some individuals were supported under two projects at once.TheMoLSAdidnottakeappropriatestepstostopthisundesirableduplication.

• Therewereminorshortcomingsininformationsystems(especiallyISMS2014+).

One criminal complaint was filed onthebasisoftheauditresults.


During theaudit theMoLSAdrewupanew internal regulation limiting thebreadthof theprovidedsupport. It isnotpossible to saywhether thismovewas linked to theSAOaudit,however.

The MoLSA proposed remedial measures as part of its opinion on the audit conclusionsubmittedtoasessionofgovernment.TheSAOwillmonitorsevenofthesemeasures.

Audit No 18/29 – Promoting competitiveness through ICT-supported projects funded under the Operational Programmes Enterprise and Innovation and Enterprise and Innovation for Competitiveness

The SAO pays systematic attention to support for ICT development intended to improveCzechbusinesses’competitivenessontheglobalmarketandgrowtheICTsector intheCR. It monitors the management of funds primarily intended for small and medium-sizedenterprises(SMEs)tosupportthebuildingandmodernisationofdatacentres,thecreationofnewIS/ICTsolutionsandthefoundingandoperationofsharedservicescentres.

The aim of audit no. 18/29 was to examine the efficiency of the support provision and progress towards ICT objectives underOPEnterpriseandInnovation(OPEI)andOPEnterprise andInnovationforCompetitiveness(OPEIC).TheSAOcheckedwhetherthegoalsofselectedprojects carried out as part of the ICT and shared/strategic services support under bothOPs,whosesupportwasprimarily intended forSMEs,wereachieved.TheSAOalsosoughtto identify whether the projects contributed towards the achievement of goals targetingbusinesses’improvedcompetitivenessinthefieldofICTintheCR.

Both OPs are supposed to give precedence to SMEs, which account for the majority ofbusinessesintheCR.ThecallsannouncedforICTprojectsalsoallowedlargefirmstoaccessthesupport,however.

37%ofsupportprovidedunderOPEIwenttolargefirms,i.e.CZK2.3billionoutofatotalofCZK6.3billion.ThemajorityofOPEICsupport(87%)wenttoSMEs–CZK0.9billionoutoftotalsupportexceedingCZK1.0billion.

TheauditedvalueofthefinancesatbothsystemicandprojectlevelwasCZK8,610.12million.

40 Asituationwhereasubsidyisdrawndownbyabeneficiarythatwouldhavecarriedoutitsactivity/investment/workevenwithoutpublicfunding(inthiscasemediatingemploymentinasubsidisedjobforaclientwhoiscapableoffindingemployment/workexperience/aninternshipunaided).






• UnlikethealreadycompletedOPEI,theexistingOPEIC iscoveredbyRegulationoftheEPandof theCouncilNo1301/2013.This regulationprovides thatapplicants fromthecategory of large enterprises must provide evidence that they cooperate with SMEs.The Ministry of Industry and Trade(MoIT)therefore,astheOPEICmanagingauthorityincluded this condition in the OP EIC handbook,solargefirmsshouldonlybesupportedtotheextenttowhichtheyuseSMEsassubcontractors.The MoIT did not specify this condition in the calls, however.

• Under OP EIC the MoIT supported large firms that did not present any evidence of cooperation with SMEs,ineithertheirapplicationsorrequestsforpayment.Acheckofaselectedsampleof15projectscarriedoutbylargefirmsrevealedthattheapplicantshadnotdemonstratedcooperationwithSMEsintwocases.TheSAOthusconcludedthattheMoIThadnotprovidedCZK15.5millioninsupporttothesetwoapplicantsinlinewiththeOPEIChandbookandRegulationoftheEPandoftheCouncilNo1301/2013.

• Despite the primary support for SMEs, the MoIT supported projects submitted by Czech branches of international concerns for building shared services centres, eventhoughthebeneficiaries’primaryobjectivewastosaveontheconcerns’costsandnottoboostthebeneficiary’scompetitivenessontheopenmarket.InOPEIalonethisinvolved16projectsthat received CZK 702 million. These projects were mainly based on creating a largenumberofjobs,fromthetenstothehundreds,eventhoughtherewasamajorshortageofITexpertsonthelabourmarket.TheMoITwaswarnedaboutthesenegativeimpactsbytheexternalprojectassessorbutapprovedaprojectofthiskindanyway.Creatingnew,subsidisedjobsintheICTsectorwhenthereispronouncedshortageoftheseprofessionalsisnotefficientandbeneficialtoimprovingtheCR’scompetitiveness,intheSAO’sopinion.


1. Project assessment and selectionThe MoIT has increased its personnel capacities in the implementation departments,created a new checklist in theMS2014+ system for checking support applications andrequestsforpayment,launchedregulartrainingofinternalassessorsetc.

2. Design of the support provision rulesThe MoIT eliminated any unequal and discriminatory approach to assessing projectchanges by support beneficiaries by means of two-phase assessment of the changes,which can be statistically traced down in the data in order to ensure consistency. Fornewprojects,theMoITdrewupanew,simplerandclearerformofthesubsidyprovisionconditionstodispelanyconfusion.

3. Monitoring indicators relative to the set goalsFor the sustainability reports that beneficiaries submit 5 years after the project ends,theMoITenlargedtherequired informationcontent to includebeneficiaries’economicindicatorsandchangestheretoasaresultoftheproject(turnover,profit,newcustomers,newmarkets,expansionetc.).Thesedataaggregatedovertimearebetterabletodescribethe economic impacts of executed projects in line with the substance of ICT supportprogrammes.

4. Evaluation of support provided under the operational programmesThis issue was covered by the existence of the MS2014+ information system andthe existence of annual data lockers in which the data are locked to prevent furtheradjustments.Thereporteddatawillsubsequentlybevalidatedonacross-sectionalbasisusingthelockeddataandtheiraccuracywillbeconfrontedwiththevariousmanagementsectionstoeliminatepossibleerrors.


Audit No 19/01 – Funds used for technical assistance from the Operational Programme Enterprise and Innovations for Competitiveness

TechnicalassistancewasauditedinauditsNos12/1341and15/2642.

Theaimoftheauditwasto scrutinise whether money earmarked for technical assistance under OP EIC was spent economically and effectively. Thisauditwasperformedasalegalityauditwithaperformancesection.

BothEUfundingoutofOPEICandstatebudgetco-fundingwereaudited.Theauditperiodwas2014–2018and,where relevant, theprecedingand subsequentperiods. Theaudit focusedmainlyon:• the specification of supported activities in connectionwith support fromOPTechnical

Assistance;• thedesignofindicatorsforassessingthesupportgoals;• thepurposeofthesupport,theeffectivenessandeconomyofexpenditure;• thespecificationoftheallocationanddrawdownthereof;• publicprocurement;• useofservicesandassetsacquiredwiththehelpofsubsidies.

Theauditedvalueofthefinancesatsystemic levelwasCZK2,503.21millionandatprojectlevel43CZK842.47million.


• TheMoIT did not define the result indicators in a waymaking it possible to evaluatethe overall benefits of the support and the achievement of specific goals of technicalassistance.

• One of the indicators measuringpersonnelstabilisationintheimplementationstructure,viewedasoneoftheprerequisitesforeffectivemanagementandcontrolofOPEIC,was not fulfilled by the MoIT.

• OPEICdisplayedthelowest interim rate of drawdownoutofallOPsintheCR44andtheAuditBody(AB)detectedahigh error rate in projects,whichindicatesthatthereisroomfor improvement inmanagement and controlworkby theMA fundedoutof technicalassistancefinances.

• The MoIT substantially overestimated the funding neededforcertaintechnicalassistanceprojectsandwasnotsufficientlytransparentinprojectselection.

• Bara fewexceptions, theexpenditureon thevarious technicalassistanceprojectswaseffective,economicalandcompliantwiththerelevantregulationsandrules.Oneexceptionwas ineligibleexpenditureof theMoIT totallingapprox.CZK1.26million,whichmainlycomprised the costs of three “annual seminars” amounting to CZK 1.23million. These

41 AuditNo12/13–EuropeanUnionandstatebudgetfundsearmarkedfortheimplementationoftheTechnicalAssistanceOperationalProgramme.

42 AuditNo15/26–EUandStatebudgetfundsspentwithintechnicalassistancefortheactivitiesrelatedtopublicityandpromotionofoperationalprogrammesandprojectsimplementedintheprogrammingperiod2007–2013.

43 Variousactivitiesunder12projectswerescrutinised.ThevolumeoftheseprojectswasCZK842.47million,withCZK716.10millionof thatcomingfromtheEU.TheactivitieswereworthCZK59.48million, includingEUfunding.

44 Asat31March2019accordingtodatapresentedintheQuarterlyReportontheImplementationofESIFundsintheCRinthe2014–2020ProgrammingPeriod–1stquarterof2019.




seminarswerenoteducational,aswouldbefittingfor theproject,butmore likesocialeventsforimplementationstructureemployees.

Basedontheauditresults,onenotificationinvolvingasumofCZK1.26millionwasfiledwiththetaxadministrator.


TheMoITadoptedmeasures toensure transparentproject selectionandprevent ineligibleexpenditurebeingreimbursed.

Audit No 19/04 – Support for flood protection measures

Anti-floodmeasuresareanareathat isconstantlymonitoredbytheSAO.InpreviousyearsthisissuewascoveredbyauditsNos09/2045and12/2746.

The purpose of the audit, which was a legality audit with a performance section, was to scrutinise whether funding for anti-flood measures was used effectively, economically and in compliance with the law. Themain focus of the audit of financeswas to see howthe managing authorities, i.e. the MoE and MoA, and the intermediate body, the StateEnvironmentalFund(SEF),administeredandselectedsubsidyapplications;howtheycheckedapplicants’compliancewiththesubsidyconditions;andhowtheymonitoredandevaluatedtheimpactsoftheprovidedsector.TheSAOalsoassessedthedesignandworkingoftheMCSandexaminedasampleofprojectstodeterminewhetherthesubsidieswereusedinlinewiththelaw,effectivelyandeconomically.

TheauditcoveredbothEUfundsunderOPEnvironment (OPEn)andstatebudgetfinancespaidoutofbudgetchapter329–MinistryofAgriculture.Theexecutionofflood-protectionmeasuresundertheauthorityoftheMoE,MoAandfourauditedstateriverbasinmanagingauthorities(Elbe,Morava,OdraandVltava)wasalsoscrutinised.Theauditedperiodwasfrom2016to2018,includingtheprecedingandsubsequentperiodswhererelevant.

Theauditedvalueofthefinancesatsystemic levelwasCZK9,558.14millionandatprojectlevelCZK861.17million.


Theresultsofthe audit revealed shortcomingsinthestate’spreparednessforfloodthreats.More than 50% of the specific measures proposedbytheMoEandMoAinplansformanagingfloodrisksfor the 2015–2021 period will not even be commenced by the end of that period and new construction is taking place in risk areas.

Theidentifiedsystemicshortcomingsincludethefollowing:• The CRhas not created suitable precautions to prevent flooding andminimise flood

damagesin line with the requirements of conceptual and strategic documents.Themainreasonsarethelateexecutionofanti-floodmeasures;thesmallextentofclose-to-naturemeasures;andbuildinginactivefloodareas.

• The state river authorities did not carry out close-to-nature measures in the periodunderscrutinyanddidnotmakeuseofOPEnco-financingforbuildingprojectsunderSO1.3 Ensurefloodprotectionforbuilt-upareasandrainwatermanagement.TheMoEhaslongfailedtopushthroughasignificantextentofclose-to-naturemeasures.

45 AuditNo09/20–Fundsspentonfloodprotectionmeasuresandsupportforpreventioninareasatriskofadverseclimaticinfluences.

46 AuditNo12/27–Fundsearmarkedforfloodpreventionprogrammes.


• Two results indicators – “number of inhabitants affected by Q100 river flooding” and“kilometres ofwatercourses dealt with and volume of retarded rainwater” – used forassessingSO1.3displayedvery low valuesasat30June2019,whichcorrespondstothelow drawdownunder thisSO.There is thus a risk that theseSO1.3outputand resultindicators will not be achieved in PP14+.

• Theauditalsoexaminedopinionsissuedbyriverbasinauthoritiesonproposedbuildingprojectsinthefloodzonesofwatercourses.Theaimofthefloodriskmanagementplansistopreventnewrisksarisingandtoreducetheareasoflandwithanunacceptablefloodthreat risk.Usinga sampleof40buildingprojects completedbetween2015and2018,however,theauditfoundthatnew construction is still taking places in active flood zones.


TheMoEandMoA’sproposedremedialmeasureswerestillunknownbytheEU Report 2020 deadline.TheSAOwillcontinuetomonitorthisprocess.

Ina2March2020pressrelease(TheMoE’sreactiontotheSAO’slatestreportonanti-floodmeasuresintheCR),theMoEstatedthatitwoulddiscusswiththeMoRDwaystoremedythesituationandprovideconsistentmethodologicalassistancetothebuildingauthorities,whichcomeundertheMoRD,intermsofpermitstobuildinactivefloodzones.

C.4 Financial audits with ties to EU budget funds

TheremainingthreeauditswhichtheSAOcompletedintheperiodunderscrutinyandareatleastpartlylinkedtoEUbudgetfundsarefinancialaudits.

Asarule,financialauditsseektoscrutinisethecompilationoftheclosingaccountofastatebudgetchapter,accountingandthecompilationoffinancialstatementsandtheaccuracyofdata presented for evaluation of the implementation of the state budget. Financial auditshavespecificfeaturesthatdistinguishthemfromlegalityorperformanceaudits,themainonebeingthattheauditedfinancialvolumesaremanytimesgreater.Thenatureofauditfindingsisalsodifferent.Topreventdistortionofthestatistics,financialauditsaretreatedasaseparatepartoftheSAOAuditInformationSystem(AIS).

Audit No 18/26 – Closing account of the state budget chapter “Ministry of Labour and Social Affairs” for the year 2018, their financial statements and data for 2018 submitted for the assessment of fulfilment of the state budget 2018

The aim of this financial audit was to check whether the MoLSA proceeded in line withthe relevant legal regulations when putting together the closing account, performingbookkeeping,compilingthefinancialstatementsandsubmittingdatafortheevaluationoftheimplementationofthestatebudgetfor2018.

TheSAOscrutinisedtheclosingaccount,bookkeeping,thefinancialstatementsanddataforevaluatingimplementationofthestatebudgetfor2018andtherelatedcompliancewithkeypiecesof legislation:ActNo563/1991Coll.47,DecreeNo410/2009Coll.48,CzechAccountingStandards for Certain Selected Accounting Units, Decree No 323/2002 Coll.49 and Decree

47 ActNo563/1991Sb.,onaccounting.48 Decree No 410/2009 Coll., implementing certain provisions of Act No 563/1991 Coll., on accounting, as

amended,forcertainselectedaccountingunits.49 DecreeNo323/2002Coll.,onthebudgetstructure.


No419/2001Coll.50,onthescope,structureandtimingofdatasubmittedfortheelaborationof the draft state closing account and on the scope and times of the compilation of draftclosingaccountsforstatebudgetchapters.

The operations selected for testing were checked for compliance with other legislation51. The SAO also assessed themeasures adopted to remedy shortcomings identified by auditNo16/2952.

As theMoLSAwas themanaging authority forOPEmployment (OP Em) andOP Food andMaterial Assistance53 (OP FMA), the SAO also examined the accuracy of the reporting ofoperationsundertheseOPsintheclosingaccount,financialstatementsandfinancialreportsfor2018.TheauditalsolookedatthepaymentofthefinalbalancewhichtheMoLSAreceivedin2018fromtheNationalFund54(NF)underOPHumanResourcesandEmployment(OPHRE).


When auditing operations co-funded by the EU under the aforesaid OPs the SAO foundshortcomings with a material impact on the data presented in the financial statements and reports:• in 2018 the MoLSA reported revenuesofCZK1.96billionfromthepaymentoftheOPHRE

finalbalancedonein2018,even though these revenuesoftheMoLSArelated to 2016 in terms of content and timing, as they derived from certain aggregated requests forpaymentunderOPHREapprovedbytheNFin2016;

• in its financial statements for 2018 the MoLSA did not report receivables and relatedcircumstanceswithavalueofCZK924.26millionderivedfromOPHREaggregaterequestsforpaymentthatwereapprovedbytheNHin2016andhadnotbeenpaidoutbytheNFasat31December2018;

• inthefinancialstatementsfor2018the MoLSA did not report a receivable and revenues amounting toCZK111.1millionderived fromanaggregate request forpaymentunderOPEmwhichtheNFapprovedin2018;

• inthefinancialstatementsfor2018 the MoLSA did not report a preliminary payments for advances under OP FMA which it received in 2014andamountedtoCZK70.78million;this payment had not been settled up between the Commission and theMoLSA as at31December2018;

• in the financial statements for 2018 the MoLSA incorrectly reported conditional receivables from foreign transfer pre-financing; in connectionwith the receipt of thepaymentoftheOPHRE,forexample,in2018theMoLSA incorrectly accounted for the reduction of a conditional receivablefromtransferpre-financingdonein2015and2016

50 DecreeNo419/2001Coll.,onthescope,structureandtimingofdatasubmittedfortheelaborationofthedraftstateclosingaccountandthescopeandtimesof thecompilationofdraftclosingaccountsofstatebudgetchapters.

51 In particular Act No 218/2000 Coll., on budgetary rules and amending certain acts (the budgetary rules),ActNo219/2000Coll.,onthepropertyoftheCRandrepresentationoftheCRinlegalaffairs,ActNo340/2015Coll.,onspecialconditionsoftheeffectofcertaincontracts,thepublicationofsuchcontractsandtheregisterof contracts (the Act on the Register of Contracts), Act No 320/2001 Coll., on financial control in publicadministrationandamendingcertainacts(theActonFinancialControl),andtherelatedimplementingdecrees.

52 AuditNo16/29–ClosingaccountofthestatebudgetchaptertheMinistryofLabourandSocialAffairsfortheyear2016,theirfinancialstatementsanddatafor2016submittedfortheassessmentoffulfilmentofthestatebudget 2016.

53 OPFoodandMaterialAssistanceisfinancedfromtheFundforEuropeanAidtotheMostDeprived(FEAD)andisthereforenotpartofthePartnershipAgreement.

54 MinistryofFinance-Department55-NationalFund.


andamountingtoCZK 1.93 billion,whichithadnotenteredintheaccounts.Conversely,it reported a claimonOPEmfinancesamountingtoCZK 111.1 millionasaconditionalreceivableasat31December2018,eventhoughithadalreadyexercisedthisclaimwiththeNFviathesummaryrequestforpaymentin2018andtheNFapprovedthisclaim;inotherwords,itshouldhavebeenenteredasanon-conditional receivable;

• the MoLSA incorrectly reported subsidies under OP FMA provided to regions for freeschoolmealsforchildrenatriskofpovertytotallingCZK66.81millionasexpenditureonmiscellaneousadministrationinsocialsecurity,eventhoughunderthetermsofDecreeNo323/2002Coll.,theywereexpenditureonmiscellaneoussocialcareandassistancetochildrenandyoungpeople.

BasedontheauditresultstheSAOfiledanunquantifiablenotificationtothetaxadministrator.


TheMoLSA reacted toall the identifiedshortcomings. Itwillonlybepossible toverify theeffectivenessofthemeasureswhenafollow-upauditisconducted.

Audit No 19/03 – Closing account of the state budget chapter “Ministry of Culture” for 2018, financial statements of the Ministry of Culture for 2018 and data submitted by the Ministry of Culture for evaluation of implementation of the state budget in 2018

Thisauditwasdoneasanex-postfinancialaudit.ItsaimwastocheckwhethertheMinistryofCulture(MoC)proceededinlinewiththerelevantlegalregulationswhenputtingtogethertheclosingaccount,performingbookkeeping,compilingthefinancialstatementsandsubmittingdatafortheevaluationoftheimplementationofthestatebudgetfor2018.

The SAO scrutinised the closing account of the MoC chapter, bookkeeping, the financialstatementsanddataforevaluatingimplementationofthestatebudgetfor2018andtherelatedcompliancewithkeypiecesof legislation:ActNo563/1991Coll.,DecreeNo410/2009Coll.,CzechAccountingStandardsforCertainSelectedAccountingUnits,DecreeNo323/2002Coll.andDecreeNo419/2001Coll.Asampleofoperationswasselectedtocheckcompliancewithother legislation55. The SAO also assessed themeasures adopted to remedy shortcomingsidentifiedbyauditNo15/1956.

InthisaudittheSAOalsoexaminedthecorrectnessofreportinganddatalinkedtoEUfinancesandfinancialmechanisms.ThesewerefinanceswhichtheMoCreceivedandprovidedunderOPEm,IROP,OPHREandtheEEA/Norwayfinancialmechanism.

55 In particular Act No 218/2000 Coll., on budgetary rules and amending certain acts (the budgetaryrules), Act No 219/2000 Coll., on the property of the CR and representation of the CR in legal affairs,ActNo340/2015Coll.,onspecialconditionsoftheeffectofcertaincontracts,thepublicationofsuchcontractsandtheregisterofcontracts(theActontheRegisterofContracts),ActNo320/2001Coll.,onfinancialcontrolinpublicadministrationandamendingcertainacts(theActonFinancialControl),andtherelatedimplementingdecrees.

56 AuditNo15/19–ClosingaccountofthestatebudgetchaptertheMinistryofCulturefortheyear2014,thefinancialstatementsoftheMinistryofCulturefor2014anddatasubmittedbytheMinistryofCulturefortheassessmentofstatebudgetfulfilmentfortheyear2014.







In connection with EU finances and financial mechanisms the SAO identified risks andshortcomingsofasystemicnaturewithamaterialimpactonthereporteddata,specifically:• as the end beneficiary of a transfer the MoC did not report funds of CZK 3.55 million

received as own revenuebutasarevenuefrompre-financingCzechstatebudgetfundsthatshouldsubsequentlyberefundedoutoftheEUbudget;

• the MoC did not report a conditional claim on the refunding of finances out of the EU budget with a value of at least CZK 60.42 million. ThisclaimwasbasedontheprovisionoffundingoutoftheCzechstatebudgetthatwaspre-financingforfinancessubsequentlyprovidedoutoftheEUbudget;

• the MoC did not report a conditional payable established in respect of established contributory organisations based on subsidy provision decisions worth CZK 752.95 million that already existed as at the date of the financial statements.Consequently,thefinanceswereplannedasaclaimonafuturebudgetonthegroundsofpre-financingoutoftheCzechbudgetthatshouldsubsequentlyberefundedoutoftheEUbudget.The MoC did not report this as a conditional payable, but incorrectly as a conditional claim in respect of contributory organisations.

Basedon theaudit results the SAOfiledonenotificationwith the tax administrator in theamountofCZK0.11million.


TheMoCreactedtoalltheidentifiedshortcomingsmentionedintheauditconclusionfromaudit No 19/03; a follow-up audit will be required to check the measures’ effectiveness.One exception is a measure consisting in entering the correct and complete balances of off-balance-sheet accounts of conditional receivables from transfer pre-financing as at31December2019,wherethereisariskthatthecorrectionwasnotdonecorrectly.

Audit No 19/08 – Closing account of the state budget chapter “Ministry of Transport” for 2018, the Ministry of Transport’s financial statements for 2018 and the data submitted by the Ministry of Transport for evaluation of implementation of the state budget in 2018

TheaimoftheauditwastocheckwhethertheMinistryofTransport(MoT)proceededinlinewith the relevant legal regulationswhen putting together the closing account, performingbookkeeping,compilingthefinancialstatementsandsubmittingdatafortheevaluationoftheimplementationofthestatebudgetfor2018.

TheSAOmainlyscrutinisedtheclosingaccount,bookkeeping, thefinancial statementsanddataforevaluatingimplementationofthestatebudgetfor2018andtherelatedcompliancewith key pieces of legislation: Act No 563/1991 Coll., Decree No 410/2009 Coll., CzechAccountingStandards forCertain SelectedAccountingUnits,DecreeNo323/2002Coll. andDecreeNo419/2001Coll.






The operations selected for testing were checked for compliance with other legislation57. The SAO also assessed themeasures adopted to remedy shortcomings identified by auditNo13/3958.

Audit No 19/08 was an ex-post financial audit and it included checks of the accuracy ofreportingofsignificantdatarelatedtoEUandUnionprogrammefunds.ThesewerefundstheMoTreceivedandprovidedunderPP14+operationalprogrammes(OPTandOPE)andPP07+(OPTransport(OPT7+))andtheCEFprogramme.Theauditedperiodwastheyear2018,aswellastheprecedingandsubsequentyearswhererelevant.


Whenauditingoperationsco-fundedbytheEUundertheaforesaidprogrammestheSAOfoundshortcomings with a material impact on the data presented in the financial statements and reports:• In2015and2016theMoTreceivedCEFfundinginthereservefundbankaccount,which

fundingitprovidedtoendbeneficiariesviatheSFTIin2018.The MoT classified the use of this reserve fund money amounting to CZK 717 million to the wrong revenue account (theMoTenteredtheuseofthefinancesasrevenuesfromtransferpre-financinginsteadofdrawdownfromthereservefund);

• In2018theMoTcarriedoutprojectsunderOPsinwhichitfeaturedastheendbeneficiaryof transfers. However, the MoT reported these revenues from transfers received under technical assistance and amounting to CZK 115 millionasrevenuesfromtransfer pre-financing,eventhoughinthiscaseitwastheendbeneficiaryofthesetransfers.

• The MoT reported non-existent long-term conditional receivables from transfer pre-financing amounting to CZK 2.4 billioninrelationtoOPT;

• The MoT did not convert into Czech currency receivables and payables expressed in foreign currency andlinkedtotheprovisionofCEFfinancesanddidnotaccountforarisingexchangeratedifferencesworthCZK15million;

• The MoT classified the release of CEF financing to the tune of CZK 2.4 billion as an incorrect budget item under the terms of Decree No 323/2002 Coll.

SAO recommendations concerning informational quality under the accounting regulations

TheSAOdrewattentiontothefactthatcertain provisions of the regulations ontheaccountingoforganisationalcomponentsofthestatecause problems of application; otherprovisionsoftheseregulationsundermine the meaningfulness of some information in the MoT’s financial statements.InthecaseofEUfinances,thisinvolvesthefollowing:• The MoT entered transfers received from abroad for CEF financial settlement as the

creation of a reserve fund and reported them in its financial statements as equity inaccount414–Reserve fund forotherprogrammes.TheMoT’sprocedureconformed toitem3.3ofCzechAccountingStandard703–Transfers,butitmeansthatifforeigntransfersintendedforfinancialsettlementarereceivedinareservefundtheorganisationalunitof

57 Inparticular,ActsNo218/2000Coll.,onbudgetaryrulesandontheamendmentofsomerelatedacts(budgetaryrules),No219/2000Coll.,onthepropertyoftheCRanditsappearanceinlegalrelations,No340/2015Coll.,onSpecialConditionsfortheEffectivenessofCertainContracts,PublicationofTheseContractsandontheRegister of Contracts (Act on the Register of Contracts), No 320/2001 Coll., on Financial Control in PublicAdministrationandonAmendmentstoCertainActs(FinancialControlAct).

58 AuditNo13/39–ClosingaccountofthestatebudgetchapteroftheMinistryofTransportfor2013,financialstatementsandfinancialstatementsoftheMinistryofTransportfor2013.


thestatereportsthereceivedadvancepayments(i.e.payablesthatwillfirsthavetobesettled)asequity,eventhoughtheireconomicnaturewouldrequirethemtobereportedasexternalfinances. IntheSAO’sopinion,theaccountingforandreportingofpayableslinkedtotransfersfromabroadasequityisnotinlinewiththeactualnatureofequity;

• TheMoTreportedtheuseofreservefundfinanceslinkedtoCEFinaccordancewithitem6.1.2ofCzechAccountingStandard704–Fundsoftheaccountingunitviarevenueaccount648 –Utilisation of funds, not via revenue account 675 –Revenues of selected centralgovernmentinstitutionsfromtransferpre-financing.Thatmakesitimpossibletoenterthesametypeofrevenueintheusedcostaccount575–Costsofselectedcentralgovernmentinstitutions for transfer pre-financing. The rules on accounting for and reporting theserevenuesgivesprecedencetoform(reservefundfinances)overcontent(pre-financingoftransfersco-fundedfromabroad).


• TheMoT’sproposedremedialmeasureswerenotknownbythe EU Report 2020deadline,butitisreasonabletoassumethattheMoTwilladoptthekindofmeasuresthatwouldpreventthisinaccuraciesarisingagaininfuture.

C.5 Measures adopted by the Czech government to remedy the identified shortcomings

At its sessions theCzechgovernmentdiscusses all the SAO’s audit reports,which the SAOpresidentdispatchesimmediatelyaftertheyareapprovedbytheSAOBoard.Accordingtothegovernment’srulesofbusiness,auditreportsaresubmittedtothegovernmentsessionbyitsmembers,alongwiththeiropinionsontheSAO’sfindingsandproposalsforconcretemeasurestoeliminate the identifieddeficiencies.TheSAOmaycommenton theproposedmeasuresand,intheeventoffundamentaldisagreements,thesemeasurescanbediscussedwiththerelevantministriesoverseveralroundsoftalks.TheSAOmaythereforedirectlyinfluenceboththeextentandqualityoftheproposedmeasures.TheSAO’sopinionmaybecommunicatedtothegovernmentbytheSAOpresident,whoisauthorisedtoattendsessionsofgovernment59 atwhichtheSAO’sauditfindingsandresponsestheretoarediscussed;hemayalsoaddressthegovernmentatthesesessions.

TheSAOhas systematicallymonitoredandprogress in the implementationofmeasures toremedyshortcomingsdiscussedbythegovernment;since2015ithaskeptrecordsoftheminaseparateregisteroftheAIS.At the end of the period under scrutiny, i.e. 31 March 2020, the AIS contained data on 72 SAO audits focusing entirely or in part on programmes and projects co-funded by the EU. 723 audit findings discussed by the government wereinputtedinto the database. For each audit separately, execution of declared remedial measures ismonitoredandthedegreeofsatisfactionwiththestandardofthemeasuresisassessed.Theassessmentoftheremedialmeasuresintermsofthesufficiencyoftheirexecutionisdividedintofourcategories,asshowninthefollowingchart.

59 ProvisionsofSection8,Paragraph7ofActNo166/1993Coll.,ontheSupremeAuditOffice.


Chart 4: Evaluation of measures adopted by the government to remedy ascertained deficiencies

Fully sufficient measures336 (46.47%)

Sufficient measures in most respects197 (27.25%)

Not adopted or insufficient measures

120 (16.60%)

Not needed measures 70 (9.68%)

723findings discussed by

the government

Source:AIS,dataasat31March2020.

In response to the total number of identified shortcomings discussed by the government,336 remedial measures wereadoptedin full and 197 reacted to the shortcomings in most regards. No measures were adopted or the measures adopted were judged insufficient by the SAO in the caseof120 shortcomingsmentioned in theSAO’saudit reports.Measures were not required for various reasons fortheremaining70 shortcomings.60 The SAO’s overall satisfaction withtheadoptedmeasureswas 66.9%.

Chart4revealsthat73.7% of measures wereadopted in full or at least in most regards;ontheotherhand,26.3% of measures were adopted in only certain regards or insufficiently or possiblywere not required. Compared to the results published in theEU Report 2019,the relative sizes of the various categories with regard to the adoption or non-adoption of remedial measures stayedthesame.

Based on the results of analyses into the nature, extent and standard of execution of thevariousmeasuresfocusingontheaforesaid72audits, inpreviousyearsthe SAO discarded 264 cases from themonitoringasno longer relevant.The SAO thus continues to monitor the implementation of 459 remedial measures. Ofthisupdatednumber,146 measures werefulfilledorpartlyfulfilled,andthedegreeofsatisfactionwas31.8%. Noconclusioncouldbedrawnfor248 measures,partlybecauseenactingthenecessarylegislativechangesorstrategicmaterialsisaverylengthyprocess.Theremaining65 measures were assessed as unfulfilled. Themostunfulfilledmeasurescameunder theMoA (13unfulfilledmeasures);Prague City Hall (8);andtheMoRD and MoIT (both7).

A further279 measures areexpected tobediscarded fromthemonitoring for thecomingperiod;180 measures areexpectedtobeassessedintermsoftheirrelevanceforfutureauditplans.

60 This category includesmeasures adopted in response to SAO findings at the same time when an on-siteinspectioniscompletedorcaseswheretheauditedentity itselffiledanotificationtotaxadministratorstoresolvediscrepancies.Thatalsoappliestoshortcomingsfoundinthemanagementdocumentsofprogrammesfromtheprecedingprogrammingperiodthatwerenottransposedintotheexistingmanagementdocuments.


Althoughthepercentageofentirelysufficientmeasuresincreasedbytwopercentagepointscomparedtothepreviousperiodunderscrutiny(1April2018to31March2019),theentiresegment of measures that are sufficient and sufficient in most regards decreased by onepercentage point to a value of almost 74%. The degree of satisfaction with the adoptedmeasuresremainedpracticallythesameat66.9%.

TheEuropeanCourtofAudits(ECA)alsoperformsannualmonitoringofthedegreetowhichtheCommissionadoptscorrectivemeasuresinresponsetotherecommendationspresentedin ECA special reports. In linewith its strategy for 2018–2020, it analyses responses to allrecommendations from performance audits it submitted to the Commission three yearspreviously.Inpresentingitsannualreportsfor201861theECAstatedthatthreequartersofitsrecommendationsfor2015wereimplementedbytheCommissioneitherinfullorinmostregards,asthefollowingoverviewshows.

Chart 5: Evaluation of the measures taken by the Commission to address the shortcomings identified by the ECA in 2015

Implemented in full extent

62%

Implemented in most respects

14%

Implemented in some respects

18%

Not implemented 6%

Source: 2018–EUAuditinBrief. PresentationofannualreportsoftheEuropeanCourtofAuditorsfor2018.

Comparison of the ECA’s statistics for 2015 and the SAO’s data from 2015 to the deadline of the EU Report 2020 reveals that the two audit institutions attained practically the same ratio for the adoption of remedial measures in full or in most regards.

61 2018 – EUAuditinBrief.Introducingthe2018annualreportsoftheEuropeanCourtofAuditors,PublicationsOfficeoftheEuropeanUnion,8October2019(alsoontheECAwebsite: https://www.eca.europa.eu/Lists/ECADocuments/auditinbrief-2018/auditinbrief-2018-CS.pdf).

https://www.eca.europa.eu/Lists/ECADocuments/auditinbrief-2018/auditinbrief-2018-CS.pdf


D. Support for small and medium-sized enterprise – a risk area

Smallandmedium-sizedenterprisesmakeupthevastmajorityofenterprisesbothintheCR62 andintheEUasawhole.AccordingtotheCommission,99%ofallbusinessesintheEUaresmallandmedium-sizedenterprises,whichfurthermorecreated85%ofnewjobsinthepastfiveyearsandemploytwothirdsofallprivate-sectorworkers.SupportingthemisthereforeoneofthekeyUnionpolicies.Thisaidfocusesinteraliaonsupportingenterprise,facilitatingmarket access in other countries, fostering innovation and start-ups63 and strengtheningdialoguewithinvestorsandorganisationsrepresentingSMEinterests.AnotherkeyareaofthissupportisfacilitatingaccesstofundingwithintheframeworkofboththeESIFandotherUnionfundingprogrammes,e.g.theresearchanddevelopmentsupportprogrammeHorizon2020(tobereplacedbyHorizonEuropein2021).

One keywayof recognising the status of such an enterprise is the definition givenby thelegislation.Theabsenceofacommondefinitioncouldleadtodifferencesinthewaymeasuresareimplemented,thusdisruptingeconomiccompetition.ThecurrentdefinitionofSMEcomesfromtheCommissionrecommendationadoptedbackin1996.64Overthefollowing25years,thisdefinitionwasfollowedupbyanumberofinterpretationsandmodifications,includingtwojudgementsbytheCourtofJusticeoftheEU(CJEU).Forthisreason,thecurrentCommission handbook65 designedtohelpdeterminewhetheracompanycomesundertheSMEcategoryisnow60pageslong.

TheCommissionitselfisawareofthecomplicationsandconfusionassociatedwithinterpretingthedefinitionofSME.In2017itthereforeannounceditsplantochangetothedefinitionandpresentedapreliminaryassessmentoftheimpactsofthepossibleadjustment.Subsequently,incollaborationwithMemberStates, it launchedanassessmentof the functionalityof thedefinition. In February 2018 it even announced a questionnaire-based public consultation,which brought in around a thousand replies over a three-month period. Assessing theconsultationlaterprovedhighlytime-consuming,sotheCommissionhasnotyetmadegoodonitsoriginalpledgetopresentamodifieddefinitionofSME.

Determiningthecategoryanenterprisebelongstoisbasedonfundamentalregulations,thechiefonebeingtheCommission’srecommendationfrom200366.Inaddition,caselawofcourtsbothintheCRandacrosstheEUneedstobetakenintoaccount.

The principal objective of verifying SMEs seeking support is to exclude those whose real economic power is greater.

Thedefinitiondistinguishesbetweenthreecategoriesoffirm,eachofwhichcorrespondstoaparticulartypeofrelationshipafirmcanhavewithadifferentfirm.Thiscategorisation isessentialforgainingaclearideaaboutafirm’seconomicsituationandexcludingfirmsthatare

62 AccordingtotheAssociationofSmallandMedium-sizedEnterprisesandCraftsoftheCR,SMEsaccountfor99%ofall localfirmsintheCR(95.5%ofthemaremicro-enterpriseswithupto10employees)andemployaround2millionpeople(61%ofallemployees).

63 Start-upsarerecentlyfoundedornascentcompanieswhosefocusoninnovationandadvancedtechnologiesenablesrapiddevelopmentandgreatpotentialforeconomicgrowth.

64 This definition of SME is presented in Commission Recommendation 96/280/EC, published in theOfficialJournaloftheEuropeanCommunities,L107,30April1996.

65 UserGuide to the SMEDefinition – https://op.europa.eu/cs/publication-detail/-/publication/79c0ce87-f4dc-11e6-8a35-01aa75ed71a1/language-cs.

66 Commission Recommendation of 6May 2003 concerning the definition ofmicro, small andmedium-sizedenterprises(notifiedunderdocumentnumberC(2003)1422),2003/361/EC.

https://op.europa.eu/cs/publication-detail/-/publication/79c0ce87-f4dc-11e6-8a35-01aa75ed71a1/language-cs

https://op.europa.eu/cs/publication-detail/-/publication/79c0ce87-f4dc-11e6-8a35-01aa75ed71a1/language-cs


notgenuineSMEs.Thedefinitionthereforedistinguishesbetween“autonomous enterprises” thatareentirely independentorhaveoneormoreminoritypartnerships (up to25%)withother firms. If holdings in other enterprises amount to at least 25% but to do not exceed50%,thisisdeemedtobearelationshipsbetween“partner enterprises”.Ifholdingsinotherenterprisesexceedthe50%threshold,theenterprises aredeemedtobe“linked”.Thereare,however, exceptions from partner relationships, such as public investment corporations, venture capital firms, state or public universities.

An enterprise loses or acquires the status of SME if the ceilings specified in the definition are exceeded over two consecutive accounting periods. In the event of a merger or the purchase of a stake etc., the change of status is instant, resulting in the loss of entitlement to subsidies.

Theconformityofasupportapplicant’sstatustothedefinitionofSMEandofanundertakingindifficultytendstobetheprimaryfocusofchecksbysubsidyprogrammeproviders.Actuallygetting access to the data necessary for checking, i.e. workforce size, financial data and,most notably, information on foreign companies, especially in third countries, is relativelycomplicatedinitself.Informationoftenhastobetrackeddowninpublicregisters,whichcanbeacomplicatedprocess,oradditionalinformationhastoberequestedfromtheenterprise.This entails high administrative expense while delivering a low degree of legal certainty,becauseawrongdeterminationmayresult ina lossofsubsidyandeven, inextremecases,criminalprosecution.

The SAO has long paid attention to the issue of support for SME. In its audit work itscrutinises thedesign, functionality andeffectivenessofmanagement and control systemsforprogrammesco-fundedby theEU. Indoing so, theSAOalsoexamines theapplicationsselection, assessment and approval process, including procedures designed to ensure thatthesupportisonlyprovidedtoapplicantsthatmeetthedefinedsubsidyconditionsandareauthorisedtoobtainthissubsidy.This is a matter of judging the eligibility of applicants, one aspect of which is the question of possible conflicts of interests.

InthepastfiveyearstheSAOhasconductedseveralauditsthatrevealeddeficiencieslinkedtoSMEsthatobtainedESIFsubsidies.Thekeyauditswere:

Audit No 16/01 – EU and state budget funds earmarked for financing of interventions within the Operational Programme Enterprise and Innovation with focus on the fulfilment of objectives

TheglobalobjectiveofOPEIwas“to increase theCzecheconomy’scompetitivenessby theendof theprogrammingperiod67 and tobring the industryand services sector’s innovationperformanceclosertothelevelofEurope’sleadingindustrialcountries”.

Over6,000applicantsexpressedaninterestinsupportundertheOP,submittingmorethan26,000registrationapplications68.55%ofregistrationapplicationsreceivedfinancialsupport.Roughlyeightoutoftownprojectsweresuccessfullycompleted.

In 90% of the total number of successfully completed projects the applicants were SMEs at whichOPEIwaschieflytargeted.Even so, 25% of the allocation was drawn down by large enterprises,asthesefirmsreceivedlargersubsidiesonaverage.

67 DuringPP7+.68 AregistrationapplicationwasanexpressionofinterestinsupportundertheOP.Afteritwasapproved,applicants

hadtosubmita“fullapplication”.Insomecases,applicantsdidnotsubmitone,despiteanaffirmativeresponsefromthemanagingauthority.


In some enterprises the ownership structure influencing categorisation as small, medium-sized or large enterprises was not clear, so it was not clear whether the applicant was entitled to a subsidy.TheMoIT,asthemanagingauthority, reliedentirelyonsworndeclarations insuch cases. It also dependedon informationprovided by supported enterprises if the sizeof theenterprisechangedduringproject implementation.That posed a risk that ineligible beneficiaries would be supported.

TheCZK84billionintotalsubsidieshadapositiveimpactonthesupportedenterprises,butthe degree to which the global objective of OP EI was achieved and the related efficiency could not be judged objectively.Onereasonwasthatmany of the defined indicators were relatively meaningless in terms of evaluating the programme’s results.

Audit No 17/26 – Funds earmarked for the measures of cooperation within the Rural Development Programme CR 2014–2020

Theauditfounderrors in the focus of support and in the advantaging of a certain type of applicant,aswellasinunequal and often complicated conditions for applicants and in the assessment and selection of projects forfunding.Theauditrevealedthatmicro-enterprises and SMEs were not receiving much supporteventhoughthiswasoneofthemaingoalsoftheCooperationmeasure.The rules set by the MoA forprovidingsubsidiesmeant that the biggest beneficiaries were large enterprises which, moreover, spent the money on buying machinery and technologies instead of on science and research.OutofatotalofCZK3.8billionpreparedforCooperation intheRuralDevelopmentProgramme2014–2020 (RDP), theMoAsetasidemorethanCZK2.8billionforasinglesub-measureentitledsupportfordevelopmentintheprocessingofagriculturalproductsintendedforSMEs.Most subsidy beneficiaries (asmanyas70%)underthissub-measure,however,were large enterprises that often drew down subsidies repeatedly,inamountsrunningintothetensandhundredsofmillionkoruna.Thiswascausedbythemorefavourableandsimplerconditionsforobtainingsubsidiesforlargeandcostlyprojects.ThesubsidiesthatweresupposedtohelpSMEsstrengthentheirresearch,technologicaldevelopmentand innovation inagriculturewerethuscollectedby largefirmswhich,moreover,werereportingprofitsinthehundredsortensofmillionkorunaandwereamongthemainprivatefoodandfarmingcompaniesintheCR.

Audit No 18/01 – Support of business real estate and business infrastructure

HelpingSMEsswitchtoproductionthatensuredcompetitiveness,cutoverheads,deliveredhigh added value and brought greater success on international markets was supposed tobe the benefit of supportingbusiness real estate and infrastructure under theReal Estate 2014–2020 scheme.TheSAOauditshowedthatthe MoIT did not monitor whether enterprises were registering the expected benefits after projects had been carried out. In half of the audited sample of 12projectsthere was no confirmation at all that the enterprises were more competitive, had lower overheads and did better on international markets as a result of the support.


Audit No 18/06 – Support for the promotion of research and development for innovation provided by the OP Enterprise and Innovations for Competitiveness

Eventhoughtheemphasiswassupposedtobeonfosteringbusinesses’research,developmentandinnovationcapacitiesandconnectingthemtothesurroundingenvironment,asattheendoftheSAOaudittheMoIThadprovidedjust22%ofthetotalallocationtoprojectsfocusingon increasing the intensity andeffectivenessof cooperation in research, development andinnovation. By contrast, theMoIT had provided 55% of the amount to projects targetingenterprises’ increasedinnovationcapacity.Outoftheplannednumberof2,950enterprisescooperating with research organisations, just 326, i.e. 11%, were involved in this kind ofcooperation as of the end of 2017. Similarly, out of the planned number of 195 researchorganisationscooperatingwithbusinessestherewereinfactjust14,i.e.7%.The SAO flagged up the risk that the objectives of priority axis (PA) 1 of OP EIC would not be achieved.

TheMoIT also defined the specific objectives for PA 1 andmost of the results attributedtothemingeneralterms.Consequently, itwillbeveryhardtoevaluatethebenefitsofthesupport designed to boost research and development for innovation. By the end of 2018,fundstotallingCZK16,685million, i.e.48%ofthetotalPA1allocation,hadbeenawarded,butthedrawdownoffundingforprojectsintheimplementationphaseamountedtoapprox.just CZK 3,486 million, i.e. 10% of the total allocation. The insufficient utilisation of the support was caused by low levels of interest among SMEs and the long project application assessment and approval process, which took almost a year in some cases. The drawdown of funding worthCZK2,112millionearmarkedforintegrated territorial investments had not been even commenced atthetimeoftheSAOaudit.

Audit No 18/08 – Funds spent on the support of the animal production sector

The purpose of subsidies provided under national subsidy programme 19.1 Support for milk producers’ and processors’ participation in the Q CZ quality scheme69 is to support improvementsinmilkquality.CZK638millionwaspaidoutintheyears2016–2017.TheSAOdiscoveredthatlargefirmscouldapplyforsupportaswellasSMEs.Largefirmshadtoprove,however, that the supportwas essential for them and had amotivational effect. The EU’sguidelinesonstateaidinagricultureandfarmingandinruralareasforthe2014–2020periodstipulatethataidcompatiblewiththeinternalmarketmustnotsubsidisethecostsofbusinessanenterprisewouldincurinanycaseandmustnotmitigatestandardbusinessrisks.Insubsidyapplications,largefirms70mustdescribethesituationthatwouldcomeaboutiftheydidnotreceivesupport.Theyaresimultaneouslyrequiredtopresentdocumentsunderpinningtheirdescriptionofthisscenario.Thesupportprovisionauthoritymustthencheckthecredibilityofthescenarioandconfirmthatthesupporthasamotivationaleffect.

11outof19auditedsupportbeneficiariesundersubsidyprogramme19.Awerelargefirms.These beneficiaries’ applications merely contained a formally approached descriptionof a situation that would happen if support were not provided, without any documentssubstantiating this hypothetical scenario.The MoA failed in its duty to perform effective checks of the hypothetical comparison, so it did not confirm that the provided support had the required motivational effect. The MoA’s approach to assessing the substantiation of the support requests/declarations of large firms was merely formal.

69 Thisisaqualityschemethatgoessignificantlyfurtherthantheframeworkofstandardsforrawmilk.70 AccordingtoAnnex IofCommissionRegulation(EU)No702/2014declaringcertaincategoriesofaid inthe

agriculturalandforestrysectorsandinruralareascompatiblewiththeinternalmarketinapplicationofArticles107and108oftheTreatyontheFunctioningoftheEuropeanUnion.

http://skripty190/scripts/rka/detail.asp?cisloakce=18/06&rok=0&sestava=0

http://skripty190/scripts/rka/detail.asp?cisloakce=18/06&rok=0&sestava=0


Audit No 18/29 – Promoting competitiveness through ICT-supported projects funded under the Operational Programmes Enterprise and Innovation and Enterprise and Innovation for Competitiveness

The SAO checked whether the goals of selected projects carried out as part of ICT and shared/strategic services support under OP EI in the 2007–2013 programming period andOPEICin2014–2020,bothprimarilyintendedforSMEs,wereachieved.TheSAOalsosoughtto identify whether the projects contributed towards the achievement of goals targetingbusinesses’improvedcompetitivenessinthefieldofICTintheCR.

OPEI andOPEICare supposed to give strongprecedence to SMEs,whichaccount for themajorityofbusinessesintheCR.ThecallsannouncedforICTprojectsalsoallowedlargefirmstoaccessthesupport,however.

InOPEICZK2.3billionwasprovidedtolargefirms,roughlyathirdofthesupportgiventoICTprojects.InOPEIC,though,mostofthesupportdidgotowardsSMEs(CZK0.9billionofthetotalofCZK1.0billionchannelledintoICT),asthefollowingchartshows.

Chart 6: Support given to ICT projects according to the size of beneficiaries

SME63%

Large firms37%

OP EICZK 6.30

billion

SME87%

Large firms13%

OP EICCZK 1.04

billion

Source:datafromISOP07–13andMS2014+informationsystems(asat30June2019),preparedbytheSAO.

UnlikethecompletedOPEI,OPEICiscoveredbyRegulationoftheEuropeanParliamentandoftheCouncil(EU)No1301/2013.Thisregulationprovidesthatapplicantsfromthecategoryof largeenterprisesmustprovideevidencethattheycooperatewithSMEs.TheMinistryofIndustryandTrade(MoIT),astheOPEICmanagingauthority,thereforeincludedthisconditionintheOPEIChandbook,solargefirmsshouldonlybesupportedtotheextenttowhichtheyuseSMEsassubcontractors.TheMoITdidnotspecifythisconditioninthecalls,however.TheSAOauditfoundthattheMoIT provided OP EIC funding to applicants that were large firms that did not provide any evidence of cooperation with SMEs either in the application for support or in the request for payment.Acheckofaselectedsampleof15projectscarriedoutbylargefirmsrevealedthattheapplicantshadnotdemonstratedcooperationwithSMEsin twocases.TheSAOconcludedthat theMoIThadpaidouta totalofCZK15.5million insupporttothesetwoapplicantsincontraventionoftheOPEIChandbookandRegulationoftheEuropeanParliamentandoftheCouncil(EU)No1301/2013.

Despitethedeclaredprimarysupport forSMEs, theMoITsupportedprojectssubmittedbyCzechbranchesof internationalconcerns forbuildingsharedservicescentres,eventhoughthebeneficiaries’ primary objective was to save on the concerns’ costs and not to boost the beneficiary’s competitiveness on the open market. InOPEIalonethisinvolved16projectsthatreceivedCZK702millioninsupport.These projects focused mainly on creating a large


number of new jobs, from tens to hundreds, even though the labour market had a major shortage of ICT experts.EventhoughtheMoITwaswarnedaboutthesenegativeimpactsbytheexternalprojectassessor,itapprovedaprojectlikethisanyway.

Creating new, subsidised jobs in the ICT sector when there was major shortage of these professionals was not efficient or conducive to improving the CR’s competitiveness, in the SAO’s opinion.

TheMoIT and intermediate bodies71 were inadequate in checking whether supported ICTprojects achieved their goals and delivered actual benefits. Between 2007 and the endof the SAO audit, 727 projectswere supportedwith public funds of CZK 7.34 billion,withCZK5.22billioncomingfromtheEU.TheMoITjudgedtheeffectivenessandsuccessofthesupportprogrammesmainlyintermsoftheabilitytoutilisetheallocation.InthecaseofthisfocusofsupportunderOPEICtheMoIThadnotresolvedtheproblemstheSAOhaddrawnattentiontoinauditNo16/01concerningOPEI.

Based on the results of the aforesaid audits and findings from long-term monitoring, the SAO has identified the following substantial risks in support for SME: • support awarded to entities that are not eligible under the defined subsidy conditions.

Ownershipstructure,sizeofenterpriseandsolvencytendtobedemonstratedsolelybyanapplicant’ssworndeclaration,withoutthesupportprovidersperforminganychecks;

• insufficient assessment of the achievement of project goals and declared benefits as a result of poorly designed monitoring indicators;

• the definition of specific goals for the development of research and development forinnovationandoftheattributedbenefitsistoogeneral,whichresultsintheactualbenefitsofprojectsbeinghardtoevaluate;

• support is awarded to large enterprises even though they do not satisfy the defined condition ofestablishingcooperationwithSMEs;

• greater reluctance among SMEs to submit projects because of the lengthy applications assessment and approval process combinedwiththegenerallydefinedgoalsofmeasures.

71 InPP7+theOPEI intermediatebodywasthebusinessandinvestmentdevelopmentagencyCzechInvest; inPP14%theOPEICintermediatebodywastheBusinessandInnovationAgency.


E. Audit work by other audit authorities in 2019

E.1 Audit Authority – public-administration control and audit of ESIF finances

TheMinistryofFinanceistheAuditAuthorityforEUfundingprovidedtotheCRundersupportfromtheESIF.

In 2019 the AA’s main activities focused on auditing operations, systems and financialstatements,mainlyforOPsinthecontextofPP14+.

AsthisisthethirdyearoftheperformanceoffullauditworkforPP14+,theworkingoftheMCSfromthemultiannualperspectivecanonlybepartlyassessed.Allthatcanbesaidisthatthe MCS functioned effectively, affording reasonable certainty that statements of expenditure submitted to the Commission were correct and the related transactions were legal and regular, with the exception of two OPs, specificallyOPEICandOPFisheries 2014–2020 (OPF).

InPP14+auditwork,theAA’sprincipalactivitiesfocusedonworkleadingtotheissuanceofan annual audit report (AAR) for the variousprogrammes, i.e. bothoperational audits andscrutinyoftheworkingoftheMCSofeachOPbasedontheconductedsystemaudits,andalsoauditoffinancialstatementsfortheperiodfrom1July2018to30June2019.Tocheckthatthe reported expenditurewas correct, operational audits focusedonwhether expenditurecomplied with EU and Czech legislation, the publicity rules, the audit trail reasonablenessrules,fulfilmentoftheappropriatemonitoring indicatorsetc.Systemauditsfocusedmainlyon assessing the design of theMCSby the appropriateMAor IB, including an assessmentof theproperworkingof theMCSand theperformanceofcontrolworkby thePayingandCertifyingAuthority(PCA).Intheaccountingperiod,horizontalauditstargetedtheattainmentofmilestones,floodcontrolmeasuresundertheESIFandthesecurityandfunctionalityoftheMS2014+informationsystem.

Completeauditwork forallOPswasdone in2019.The AA performed 390 audits in 2019, 375 of them operational audits72; 14 system audits (includingfourcross-cuttingaudits73)and one audit of financial statements concerningtenOPsco-fundedbytheESIF.ThefiguresfortheOPsbrokendownbysystemaudit,operationalauditandfinancialstatementsauditaregiveninthefollowingtable.

72 OperationalauditsofexpendituresreportedtotheCommissionforthegivenaccountingperiodarebasedonarepresentativesampleandsampleselectionstatisticalmethods.

73 Cross-cuttingauditsconcernedthePCA,MS2014+,floodcontrolmeasuresandthefulfilmentofmilestones.


Table 4: Overview of audits performed by AA in individual OPs in 2019

OP title System audits

Operational audits

(sample selection)

Audit of financial

statements*

IntegratedRegionalOperationalProgramme 1 30 1

OPEnterpriseandInnovationforCompetitiveness 1 90 1

OPEmployment 1 33 1

OPPrague–GrowthPoleCR 1 36 1

OPResearch,DevelopmentandEducation 1 33 1

OPEnvironment 1 33 1

OPTransport 1 29 1

OPTechnicalassistance 1 28 1

OPFisheries2014–2020 1 32 1

INTERREGV-ACR–Poland 1 31 1

Cross-cuttingaudits 4

Total 14 375 1

Source:AA´sinformationsystem;May2020.Note:*AuditoffinancialstatementswasalwaysdoneforallthespecifiedOPstogether.

InviewoftherelevantEUregulationsandtheCommission’sguidance,theAARsforthegivenaccountingyear,includinganAuditor’sReportfortherelevantOP,weredrawnupandsenttotheCommissionby14February2020,or27February2020inthecaseofOPEIC.

Findingsfromauditsofoperationswerecollatedwiththeresultsofsystemauditsandformedabasisfordefiningsystemicfindings.

TheAAassessedeveryMA’sMCSintermsofcompliancewiththerequirementslaiddownbyRegulationoftheEuropeanParliamentandoftheCouncil(EU)No1303/201374(theGeneralRegulation),i.e.whetheritfunctionedeffectivelyandthusaffordedreasonablecertaintythatthe statementsof expenditure submitted to theCommissionwere correct and the relatedtransactionswerelegalandregular.TheAApresentedthisassessmentoftheMCSofOPsinitsAuditor’sReport.

Table 5: Category and corresponding level of the MCS s reliability

Category The level of assurance resulting from the system audit Corresponding level of system reliability

1 Functioningwell.Onlysomeminorimprovementsneededornone. High

2 Functioning.Someimprovementsneeded. Average

3 Functioningpartially.Substantialimprovementsneeded. Average

4 Basicallynotfunctioning. Low

Source:AA´sinformationsystem;May2020.

74 Regulation(EU)No1303/2013oftheEuropeanParliamentandoftheCouncilof17December2013layingdowncommonprovisionson theEuropeanRegionalDevelopmentFund, theEuropeanSocialFund, theCohesionFund,theEuropeanAgriculturalFundforRuralDevelopmentandtheEuropeanMaritimeandFisheriesFundandrepealingCouncilRegulation(EC)No1083/2006.


Table6containstheassessmentsofthemanagementandcontrolsystems(usingtheabovescale)andnumbersoffindingsforeachOP.

Table 6: Assessments of the MCSs of individual OPs according to performed system audits in 2019

OP Category of MCS

Findings in total

Findings ‘gravity

High Medium Low

IntegratedRegionalOperationalProgramme 2 6 0 3 3

OPEnterpriseandInnovationforCompetitiveness 2 13 1 8 4

OPEmployment 2 4 0 0 4

OPPrague–GrowthPoleCR 2 3 0 0 3

OPResearch,DevelopmentandEducation 2 6 0 5 1

OPEnvironment 2 5 0 2 3

OPTransport 2 7 0 0 7

OPTechnicalassistance 1 0 0 0 0

INTERREGV-ACR–Poland 2 8 0 2 6

OPFisheries2014–2020 2 7 0 5 2

Total - 59 1 25 33


A qualified statement was issued for two OPs, OP EIC and OP F; the remainingeightOPsreceivedunqualifiedstatements.Thequalifiedstatementswereissuedinviewofthehighererror rate found by audits of operations of the respective OPs. Both OPswere found to have shortcomings mainly in the fields of project assessment and detection of ineligible expenditure.

ThevolumeofinitialauditedfundsthatwereselectedforasamplebytheAAforalltheOPsfor2019wasCZK23.40billion.21.18% of the expenditure reported to the Commission was audited. The identified eligible expenditure amounted to almostCZK207.24million,whichisroughly 0.89% of the audited expenditure.SpecificdataforeachOParepresentedinTable7.

The results of operational audit shows that ineligible expenditure was identified in 92 of the 375 audits; the audit had a financial impact on the audited entity representing24.5% of audited projects.Theremaining75.5%of theperformedauditsendedwithoutfinancialimpactontheauditedentity,whereby 235 audits were entirely without findings (62.7%).


Table 7: Number of audits with findings (with financial impact and without impact) and without findings for individual OPs in 2019

OP Audits in total

Audits with findingsAudits

without findings

with financial impact

without financial impact

IntegratedRegionalOperationalProgramme 30 6 5 19

OPEnterpriseandInnovationforCompetitiveness 90 31 5 54

OPEmployment 33 3 3 27

OPPrague–GrowthPoleCR 36 4 0 32

OPResearch,DevelopmentandEducation 33 10 9 14

OPEnvironment 33 11 3 19

OPTransport 29 4 8 17

OPTechnicalassistance 28 7 2 19

INTERREGV-ACR–Poland 31 10 7 14

OPFisheries2014–2020 32 6 6 20

Total 375 92 48 235


Table8showsthatin2019288 findings were identified;149ofthemhadnofinancialimpactand139hadafinancialimpacttotalling almost CZK 207.24 million.

Table 8: Number of findings with financial and no financial impact for audits of 2019 operations

OP Findings in total Findings without financial impact

Findings with financial impact

IntegratedRegionalOperationalProgramme 24 17 7

OPEnterpriseandInnovationforCompetitiveness 74 25 49

OPEmployment 19 12 7

OPPrague–GrowthPoleCR 5 0 5

OPResearch,DevelopmentandEducation 61 40 21

OPEnvironment 16 3 13

OPTransport 17 12 5

OPTechnicalassistance 12 5 7

INTERREGV-ACR–Poland 37 22 15

OPFisheries2014–2020 23 13 10

Total 288 149 139



Table9showsthatthemostcommonshortcomingswere identified inpublicprocurement,where problems of a discriminatory nature and unreasonable qualification demandsweredetected,aswellasincorrectdefinitionofthesubjectofthepubliccontract(brands,names,technicalspecifications,vaguedefinitions),artificialsplittingofcontractsorthecombiningofunrelatedpubliccontractsubjects,non-compliancewithtimelimitsespeciallyforadditionalinformation,bidsnotbeingdiscardedorbeingdiscardedwrongfully,majorchangesmadeafterthe contractwas concludedandnon-compliancewith theprinciplesofnon-discrimination,equaltreatment,transparencyandproportionality.Theothermostcommonerrorsarefoundinpersonnel costs,eligibilityofexpenditure (claiming ineligibleexpenditureaccording toacall,handbooksforbeneficiaries),classificationofexpenditure,inadequateaudittrailetc.

The main cause of ineligible expenditure – apart from errors by beneficiaries in publicprocurement – was failings consisting in failure to comply with the conditions of a call(requirement forproduct/service innovation)or legislation in the formof failing toachievethe project goal (e.g. failure to honour a commitment specified in a business plan), non-compliance with a requirement for the acquisition of new technology (refurbishedmachinery or used machinery from previous projects that were passed off as new werebought),andapplicantineligibility(theentrepreneurgavemisleadingandincorrectdataonrevenuesintheprojectapplicationwithaviewtoobtainingsupport).

Table 9: Areas of violation of financing conditions according to audits of operations for all OPs for 2019

Areas of violation Number Relative number

(%)

Financial impact (CZK)

Financial impact

(%)

01.IPublicprocurement-contractnotice,tenderdocumentation 46 15.97 16,773,378.13 8.09

01.IIPublicprocurement-evaluationoftenderbids 13 4.51 12,050,665.11 5.81

01.IIIPublicprocurement-executionofthecontract 12 4.17 8,959,697.15 4.32

01.IVPublicprocurement-others 29 10.07 14,842.26 0.01

02.Publicsupport 1 0.35 0.00 0.00

05.Lackofsupportinginformation/documentation 43 14.93 205,754.82 0.10

06.Ineligibleproject 4 1.39 95,108,435.25 45.89

07.Errorsinaccountingandprojectcalculation 17 5.90 804,180.80 0.39

08.Otherineligibleexpenditures 94 32.64 61,753,582.47 29.80

10.Equalopportunities/non-discrimination 1 0.35 0.00 0.00

11.Informationandpromotionmeasures 2 0.69 0.00 0.00

13.Soundfinancialmanagement(3E,propermanager) 16 5.56 174,300.62 0.08

15.Performanceindicators 5 1.74 11,039,534.42 5.33

99.Others 5 1.74 354,370.16 0.17

Total 288 100.00 207,238,741.19 100.00



E.1.1 Horizontal audits

Inlinewiththeauditstrategy,thefollowingsystemaudits(horizontalaudits)wereconductedduringthereferenceperiodof2019:• audit of the fulfilment of milestones, which sought to check the reliability of data

concerningtheindicators,milestonesandprogressanOPwasmeanttodeliverinachievingthedefinedgoals.One finding of medium gravity and one with low level gravitywereidentified;

• asystemauditto check the security and functionalityoftheMS2014+informationsystem,whichmainlyverifiedkeyrequirement675.Thisaudittookplacein2019andcoveredthe2018/2019accountingperiod.Two findings of low gravitywereidentified;

• horizontal audit of flood control measuresinthecontextoftheESIF,whichwasperformedacrosstenESIF-financedOPs.Theaimoftheauditwastocheckandcomparetheeffectiveworkingof theMCS in termsofkey requirement776 and tocheckcompliancewith therequirementsoftheapplicablelegalframeworkforPP14+.One finding of medium gravity and five of low gravitywereidentified;

• auditoftheproperfunctioning of the PCA’s management and control system.Theauditsought to verify that the PCA’smanagement and control system for PP14+ functionedeffectively.Three findings of low gravitywereidentified.

E.1.2 Audit of financial statements

Financial statement audit wasperformedfortheaccountingperiodinquestionwithaviewto providing reasonable certainty that the figures presented in financial statements werecomplete,accurateandtrue.Respectingtheserequirementsandensuringcompliancewiththe3Eprinciples(economy,efficiencyandeffectiveness),theassessmentoffinancialstatementstakesintoaccounttheresultsofsystemauditsdoneatthePCAandMasandtheresultsofoperationalaudits.One finding of low gravitywasidentified.

An overview of AA statements, project error rates and figures for certified expenditure,audited expenditure and ineligible expenditure for the various OPs for 2019 is presented inAnnex1.

E.1.3 Public-administration control and audit of other funds from abroad done by the AA

Asylum, Migration and Integration Fund and Internal Security Fund during PP14+

TheMoF is the AA for both the ESIF and for assistance from the Asylum,Migration andIntegration Fund (AMIF) and Internal Security Fund (ISF). A financial statement audit wasperformedforthesefundsin2019.WorkontheISFfinancialstatementsauditwascompletedin December 2019 on the grounds of the impending decommitment. Work on the AMIFfinancialstatementswascompletedwithinatimelimitallowingthestatementtobeissuedontime,i.e.by15February2020.No findings were identifiedbythesetwofinancialstatementaudits.

75 Thecreationofareliablesystemforcollecting, recordingandstoringdata for thepurposesofmonitoring,assessment,financialmanagement,verificationandaudit,includingconnectiontosystemsforelectronicdataexchangewithbeneficiaries.

76 Effectiveimplementationofproportionatefloodcontrolmeasures.


Based on the performed audit, an unqualified statement was issued for the AMIF and ISF financial statements:“ThefinancialstatementspresentatrueandfairviewandtheEUexpenditures that theCommissionwas requested topayare legal and regular. Thefindingsidentifiedbyoperationalauditswereformalinnatureandwithoutfinancialimpact.”

In2019asystemaudit,dividedintoanAMIFsectionandISFsection,wasperformedattheResponsibleAuthority.There were two findings in the AMIF section, one of medium gravity and one of low gravity. There were two findings in the ISF section, one (the same as the AMIF finding) of medium gravity and one of low gravity.

Findingofmediumgravity:• out-of-date documentation and procedures which the Responsible Authority actually

carriesout.

Table 10: Overview of the error rate and values of expenditure audited in 2019

Fund OpinionAudited

expenditure in total in CZK

Sample in CZK Sample in %

Irregularities in CZK

Error rate in %

AMIF Unqualified 106,296,757.01 12,042,348.96 11.33 0.00 0.00

ISF Unqualified 311,386,818.40 110,072,510.47 35.35 0.00 0.00

Source: AA´sannualauditreports,May2020.

Sevenregularoperationalauditswereconductedin2019:• fourauditsconcerningtheAMIF;• threeauditsconcerningtheISF.

Table 11: Number of findings with and without financial impact (financial statements 2019)

Fund Total Findings with financial impact

Findings without financial impact

AMIF 3 0 3

ISF 12 0 12

Source:AA´sannualauditreports,May2020.

E.2 ECA audit work in relation to the CR

ECAauditorscarryoutauditmissionsbothattheCommissionanditsbodiesandinMemberStates,wheretheymainlyscrutinisespendingundersharedmanagementinEUpolicyareasandspecificrevenueareas(includingVATandexcises).

The ECA’s audit work focuses on assessing the reliability of the Commission’s financialstatements(seeE.1.2)andperformingseparateaudits,whoseresultsareusuallypublishedinSpecialReports.

Annex2containsanoverviewofauditmissionsintheCRbyECAstaffin2019.


E.2.1 DAS audits

The Annual Report on the Implementation of the EU Budget concerning the Financial Year201877,knownastheStatementofAssurance(DAS)78,doesnotspecificallymentiontheCR;theexamplesofauditfindingspresentedintheannualreportconcernotherMemberStates.

E.2.2 ECA Special Reports

In its Special Reports the ECA presents the results of selected performance and compliance audits. TheauditscoverspecificexpenditureareasorspecificareasoftheEUbudgetandEUfinancialmanagement.The ECA published 27 Special Reports in the period under scrutiny. TheCRwasincludedinanauditsampleinthefourcaseslistedbelow.

Special Report No 5/2019: Fund for European Aid to the Most Deprived (FEAD): valuable support, but its contribution to reducing poverty is not yet established.

TheECAdecidedtotimethisauditinawaythatwouldcontributetothediscussionsontheregulationthatwillreplacetheexistingFEADwiththenewEuropeanSocialFundPlus(ESF+)andwillbeinplaceforPP21+.ItassessedwhethertheFEADwasdesignedtobeaneffectivetoolforalleviatingpovertyandcontributingtowardssocialinclusionofthemostdeprived.

Toanswerthisoverallquestion,theauditors examined whether:• FEADdesignwassubstantiallydifferentfromthepreviousFoodDistributionProgramme

for the Most Deprived Persons(MDP)intermsofalleviatingpovertyandcontributingtothesocialinclusionofthemostdeprived;

• FEADprogramminginMemberStatestargetedtheaidtomakeitaneffectivetool;• thecontributionofsocial inclusionmeasures,theinnovativeelementofFEAD,couldbe

measured.

WithEUR3.8billioninfundingfor2014–2020theFEADissupposedtobemorethanafoodaidscheme:itissupposedtooffermaterialassistancecombinedwithindividualisedmeasuresforsocialinclusion.TheFEADisdesignedtoalleviatethoseformsofextremepovertywhoseimpactonsocialexclusionisgreatest,suchashomelessness,childpovertyandfoodpoverty.Relevant programmes were scrutinised in Belgium, the CR, France, Italy, Germany, Poland, Romania, Slovakia and Spain.

DespitetheEU’soverallaffluence,almosteveryfourthEuropeanisstillvulnerabletotheriskofpovertyor social exclusion. That isone reasonwhy thefight againstpovertyand socialexclusionliesattheheartoftheEU’sEurope 2020 strategy.

TheFEADcontributestoMemberStates’schemestoalleviatepoverty.However,it is primarily used to finance food assistance and does not always target the most extreme forms of poverty. Although theFEADcontainsa clear goal concerning social exclusion, theauditorsfound that it remainsa foodassistanceschemefirstand foremost.80%of itsbudgetgoestowardsfoodassistance.Thisfunctionishighlyappreciatedbystakeholderswhoworkwiththemostdeprivedpersons.Atthesametime,theauditorsregardtheFEADasanimportanttoolforprovidingfoodandmaterialassistance.Theyconcludedthatthisfundiswellintegratedintothesocialpolicyframeworkandalso contributes to the achievement of Member States’ schemes for alleviating poverty. The fund also comprises innovative measures for social inclusion. Insufficientmonitoringmeant that the auditors were not able to determine its contribution toreducingpoverty.

77 OfficialJournaloftheEuropeanUnion,C340/01,8October2019.78 FromtheFrenchdéclarationd‘assurance.


Concretegoalswerenotalwayssetandhalf the audited Member States did not target the aid on a specific vulnerable group or type of poverty.Theauditorsdrewattentiontothefactthatthiswillprobablyleadtofundingfragmentation. The Commission recommends incorporating the FEAD into the new ESF+ for PP21+.

TheSAO planstoperformanauditonasimilartopicin2021.

Special Report No 7/2019: EU Actions for Cross-border Healthcare: significant ambitions but improved management required.

ForpatientsintheEU,accessingthebenefitsofthemeasuresreckonedwithbytheEUdirectiveoncross-borderhealthcare79isstilldifficult.Only a small proportionofpotentialpatients are aware of their righttoaccesshealthcareabroad.Theauditorsfoundproblems and delays in the electronic exchange of patients’ healthcare data between Member States. Thereisalsoaneedtoimprove measures facilitating access to healthcare for patients with rare diseases.

Noexchangeofpatients’dataviatheEU’selectronichealthcareinfrastructurehadtakenplaceat thetimeof theECAaudit (November2018).Prior to that, theCommissionassessed thereadinessofsevenMemberStatestoparticipateincross-borderdataexchange.Fourofthem(CR, Estonia, Luxembourg and Finland) underwent follow-upchecks. InOctober2018, theMemberStateexpertgrouponeHealth recommended thatdataexchangebegin,providedthatallthecorrectiveactionshadbeentaken.

The aim of the EU directive oncross-borderhealthcareis to guarantee safe and high-quality healthcare intheEUandreimbursement on the same terms as in the patient’s home country. Patients intendingtoaccesshealthcareinadifferentMemberState,iftheyaretoundergoaplannedcheck-upinahospitalorifbuyingmedicines,therefore have the right to information on treatment standards, reimbursement rules and the best legal pathway to use.

The auditors examined whethertheCommissionwasmonitoringtheimplementationoftheEUdirectiveoncross-borderhealthcareinMemberStatesandprovidingsupportasregardsinforming patients of their rights. They assessed the results achieved in cross-border dataexchangeandscrutinisedtheprincipalmeasuresconcerningrarediseases.

According to the auditors’ findings, theCommissionhasoverseentheimplementationofthedirectiveinMemberStateswell.IthasalsoprovidedguidancetoMemberStatesforinformingpatientsbetterabouttheirrighttocross-borderhealthcare,eventhoughcertainshortcomingspersist.

The Commission underestimated the difficulties involved in deploying EU-wide eHealth infrastructure.Atthetimeoftheaudit,MemberStateswereonlyjustlaunchingtheelectronicexchange of patients’ data, so the benefits for cross-border patients could not yet be demonstrated. The Commission also insufficiently estimated the volumes of potential users and the cost-effectiveness of patients’ data betweenMemberStates.

The European Reference Networks for rare diseases are an ambitious innovation withwidespread support among doctors, healthcare providers and patients alike. Even thoughbetween26and27millionpeople suffer from rarediseases in theEU, theNetworkshaveconsiderable problems remaining sustainable and being able to function effectively in thecontextofvariousnationalhealthcaresystems.

79 Directive(EU)No2011/24/EUoftheEuropeanParliamentandoftheCouncilof9March2011ontheapplicationofpatients’rightsincross-borderhealthcare.


The auditors recommended that the Commission provide increased support to nationalcontact pointswith a view to improvingpatients’ awareness of their right to cross-borderhealthcare,stepuppreparationsforcross-borderhealthcaredataexchangeandimprovethesupportforandmanagementoftheEuropeanReferenceNetworkssothatpatientswithrarediseasesfinditeasiertoaccesshealthcare.

Special Report No 18/2019: EU greenhouse gas emissions: well reported, but better insight needed into future reductions.

Greenhousegasemissions in theEUare reported in line with international requirements and greenhouse gas inventories have been improving.Accordingtotheauditors,however,better information is required onspecificsectorssuchasagriculture and forestry. Theyalsopropose better reporting of how EU andMember States’mitigation policies contribute toachievingemissionstargetsby2020,2030and2050.

TheEUparticipatesintheglobaleffortstoreducegreenhousegasemissionsandset a target of reducing its emissions by 20% by 2020, by 40% by 2030 and by 80-95% by 2050.TheEUanditsMemberStatesmonitorprogresstowardsthesetargetsandsubmitannualgreenhousegasinventories.Theyalsodrawupestimatesthathelppredictprogressinemissionsreductionsandindicatewhethermitigationpoliciesandmeasureswillbeeffective.

The auditors examined whether the Commission, in collaboration with the EuropeanEnvironmentAgency,verifies the quality of greenhousegasinventories andinformationonplannedemissionsreductionsatEUlevelsatisfactorily.UsingasampleofsixMemberStates(CR, Germany, France, Italy, Poland and Romania),whichgenerated56%ofEUemissionsin2016,theauditorscheckedthefunctioningoftheEUqualityassuranceprocessforinventories,projections,policiesandmeasuresputinplacebytheMonitoringMechanismRegulationanditsimplementingrules.

The auditors found thatEUandMemberStates’inventoriesconcernthesevenmaingreenhousegasesandallkeysectors,asrequiredbytheinternationalreportingrules.TheyalsofoundthattheEU’sgreenhousegasemissionsinventorieshaveimprovedovertime.Theinventoriesqualityreviewwassatisfactoryandtheaggregateddegreeofuncertaintyhasfalleninrecentyears,eventhoughitdoesnotperformthesametypeofchecksinlanduse,landusechangesandforests(LULUCF)80

asinothersectors.

Inordertoachievetheemissionsreductionby2020,theEUsettargetsencompassingmostof the reporteddata, including internationalaviation.However, the deadline for achieving the first targets for LULUCF is set for 2030 and for international shipping for 2050, without any EU interim targets or emissions reduction measures. The EU helpedMember Statesimprovetheirprojectionsthroughguidanceandsupport.Theauditorswarn,however,that the Commission did not assess the risk of significant deviations from its own EU reference scenario. The aggregate Member State projections for the period after 2023 show loweremissionsreductionsthantheCommission’sreferencescenario.

The Commission presented a strategic long-term vision to become climate neutral by 2050. Italsodrewupseveralroadmapsforsectorsthataccountforalmost70%ofemissions,suchas transport and energy. Roadmaps do not exist for other key sectors, however, includingagriculture and LULUCF, because the CAP is defined on seven-year cycles. Although theCommission checks thequality of information supplied byMember States, reports on the current measures’ effect are incomplete. Consequently, the Commission is unable to present a detailed overview ofhowmitigation policies and measures of the EU and Member States contribute to the achievement of the 2020, 2030 or 2050 emissions reduction targets.

80 Landuse,landusechangeandforestry.


The auditors’ recommendations aretargetedat improvements intheCommission’sreviewprocessfortheLULUCFsectorandimprovingtheemissionsreductionframeworkinfuture.

InthefieldofgreenhousegasemissionstheSAOperformedanaudit81in2018toscrutinisetheprovisionanduseof funds spenton supporting improvements inairquality in theCR.TheSAOaudithadadifferentfocusfromthisECAaudit,butevensotheSAOstatedthattheair quality standard in the CRwas not improving. The SAO identified significant risks thatthetargetsset forairqualitywouldnotbeachieved.Asthe levelofairpollution intheCRis substantially influenced by cross-border transmission, the SAO recommended that theresponsibleauthoritiesconsultwithPolandwhenpreparingthenationalairpollutionreductionprogramme.

Special Report No 5/2020: Sustainable use of plant protection products: limited progress in measuring and reducing risks.

TheEU’saimistoachievesustainableuseofplantprotectionproducts(pesticides)byreducingrisksand theseproducts’ impactonhumanhealthand theenvironmentandbypromotingintegratedpestmanagement.82ThemaingoaloftheECAauditwastojudgewhethertheEUmeasuresreducedtheriskrelatedtotheuseofplantprotectionproducts.TheauditorsalsoexaminedwhetherEUlegislationprovidedeffectiveincentivestoreducedependencyonplantprotectionproducts.

TheECAaudit includedstructured interviewsat theCommission (D-G forHealthandFoodSafety, D-G for Agriculture and Rural Development (D-G AGRI), D-G for Environment, andEurostat)andtheEuropeanFoodSafetyAuthority(EFSA).83

Theauditfeatureddocumentreviewsandinformation visits tothreeMemberStates(France, Lithuania and the Netherlands). TheauditorsalsovisitedSwitzerland,aswellasreviewingtherelatednationalactionplansof18 Member States (Belgium, CR, Denmark, Estonia, Finland, France, Ireland, Cyprus, Lithuania, Luxembourg, Malta, Poland, Portugal, Austria, Romania, Slovenia, Spain and Sweden) andtheirPP14+ruraldevelopmentprogrammesformeasuresrelated to plant protection products and integrated pest management. The auditors alsointerviewed33farmersselectedatrandomfortheStatementofAssuranceexercise.

The auditors found that the Commission and Member States had adopted measures to promote sustainable use of plant protection products but little progress had been made in measuring and reducing the related risks.TheauditrevealedthatEUmeasuresencouragingthe sustainable use of these products were getting off to a slow start. Even though theapplicationofintegratedpestmanagementiscompulsoryforfarmers,theydonothavetokeepanyrecordsanditisnotaconditionforreceivingpaymentsundertheCAPandisinsufficientlypromoted.The available EU statistics and new risk indicators give no information about the degree to which this policy has succeeded in delivering sustainable use of plant protection products.

81 AuditNo18/04–Fundsearmarkedforthesupportoftheairqualityimprovement.82 Plantprotectionproductsmaybeusedonlywherepreventionandothermethodsfailorareineffective.83 EFSA(EuropeanFoodSafetyAuthority)isanEUbodyfoundedin2002.


AstheCommissionisreviewingthelegislationonthisarea,partlyinthecontextofgrowingpublicandparliamentaryconcern,the auditors recommend: • verifyintegratedpestmanagementatfarmlevel;• incorporateintegratedpestmanagementintoconditionalityinthepost-2020CAP;• improvestatisticsonplantprotectionproducts;• devisebetterriskindicators.

TheSAOwillcompleteanauditwithasimilarfocusin2021.

E.3 Audit missions by the European Commission in relation to the CR

TheCommissioncarriedoutfourauditmissionsintheCRduring2019.SAOauditorswerenotaskedtoparticipateinanyofthem.ThefocusandtimesoftheseauditmissionsaregiveninAnnex3.

E.3.1 Audits of compliance with conflict of interests legislation

E.3.1.1 Audit No REGC4114CZ0133

From 8 January to 15 February 2019 the Commission carried out thematic auditNoREGC4114CZ0133 in theCRconcerning thecomplianceof themanagementandcontrolsystemsofESIF-financedprogrammeswiththelegalframeworkrelatingtomeasuresdesignedtopreventconflictsofinterests.

The aim of the audit wasto make reasonably sure thatinthecontextofsupportprovidedtoAGROFERT84groupcompaniesthe MCS of the programmes listed below was designed in compliance with the legal framework applicable at the time and was functional intheperiodbetweenJune2011andJuly2018,i.e.beforeRegulationoftheEuropeanParliamentandoftheCouncil2018/104685(thefinancialregulation)tookeffect.Consequently,itexaminedthecorrectnessoftheallocationofEUfunding,fromthemomentofprogrammes’approvaltotheimplementationphase,focusing on measures adopted to prevent conflicts of interests.Usingarepresentativesamplesofoperations/projects,theauditalsoscrutinised whether the MCS worked effectively in the selection of operations and in the exercise of managerial control and operational audit, andwhetheritwasdesignedincompliancewiththelegalregulationsfor PP07+ andPP14+. The audit also sought to findoutwhether there was evidence of a conflict of interests in the process of allocating funding for programmes or sectors favouring AGROFERT group companies. Theaudit’s final goalwas to identify and assess changes in the structure, staffing and work procedures of the relevant national authorities, includingselection commissions, that exert influence over the allocation of support. Attentionwasalsopaidtothenationalcontrolandauditauthorities.

The Commission auditors checked the fulfilment of the key requirements for management and control systems, applyingthecriteriaforassessingtheirworking(seeGuidancefortheCommissionandMemberStatesonacommonmethodologyfortheassessmentofmanagementandcontrolsystems;EGESIF_14-0010final,18December2014).

84 AGROFERT,a.s.,isaCzechconcernoperatingmainlyinagriculture,foodproduction,chemicalsandmedia.Itiscomposedofover250subsidiaries.ThegroupwasfoundedbyprimeministeroftheCRAndrejBabiš.

85 Regulation(EU,EURATOM)2018/1046oftheEuropeanParliamentandoftheCouncilof18July2018onthefinancialrulesapplicabletothegeneralbudgetoftheUnion,amendingRegulations(EU)No1296/2013,(EU)No1301/2013,(EU)No1303/2013,(EU)No1304/2013,(EU)No1309/2013,(EU)No1316/2013,(EU)No223/2014and(EU)No283/2014andDecisionNo541/2014/EUandrepealingRegulation(EU,Euratom)No966/2012.


The audited entities were the Council for the ESIF86, the Council for Common StrategicFramework Funds87, theMoRD – National Coordination Authority (NCA), theManagementandCoordinationCommittee88,MAsand IBs:MoLSA,MoIT,CzechInvest,MoEandSEF.Theoperationalprogrammesauditedwere:• 2007–2013programmingperiod:OPEI,OPEnvironment2007–2013(OPEn7+),OPHREand

OPPrague–Adaptability(OPPA);• 2014–2020programmingperiod:OPEIC,OPEnandOPEm.

According to information from themedia, the Commission stated in its preliminary auditreportthatCzechprimeministerAndrejBabišwas inaconflictof interestsbecausehestillhasinfluenceoverAGROFERTgroupeventhoughheplaceditintrustfunds.TheCR(MoRD)repliedtotheCommission’spreliminaryreporton2September2019.On29November2019theCommissionsenttheCzechauthoritiesthefinalauditreportconcerningsubsidiesfromEUstructuralfundspaidtoAGROFERTgroupinEnglishand,atthestartofFebruary2020,inaCzechtranslation.ThecontentsoftheCommission’sreportweredesignatedconfidentialandtheauditfindingscannotbemadepublicuntiltheauditisclosed.AtthestartofApril2020theCommissionextended thedeadline for a reply (theCR’s response to theCommission’srecommendations)bytwomonths,i.e.toJune5.Itisanticipatedthattheauditwillbeclosedinautumn2020.

E.3.1.2 Agriculture audit

The Commission’s audit investigation concerning apossible conflict of interests of prime minister of the CR Andrej Babiš in the field of the utilisation of agriculture subsidies fromtheEUbudgethasbeentakingplacesinceJanuary2019andhasnotyetbeenclosed.TheauditstartedwithmaterialsbeingsenttotheCommissionbytheMoAatthebeginningofJanuary2019.ThematerialsrelatedtothepaymentofEuropeansubsidiestoAGROFERT,primarilyforexpenditureonprojectsfundedviatheruraldevelopmentprogrammesforthe2017and2018accountingperiods.TheCommissionrepresentatives’auditmissiontookplaceattheMoAandStateAgriculturalInterventionFund(SAIF)from14to18January2019.

The aim of the audit was to check whether subsidies were paid out wrongfully,not only in thenarrowtimeframefrom 2 August 2018 (whenthenewEUfinancialregulationonconflictofintereststookforce)but throughout Andrej Babiš’s time in government posts.Theauditfocused on thedesign of the conditions and procedures for providing RDP subsidies via the SAIF withregardtotheapplicabilityofSection4cofActNo159/2006Coll.,onconflictofinterests,effectivefrom9February2017,andwithregardtothefinancialregulationeffectivefrom2August2018.

In June 2019 the CR (MoA and SAIF) received the preliminary findings from the auditinvestigation,wheretheCommission stated that Section 4c of the Act on Conflict of Interests had been violated. Inresponse,theSAIF suspended the payment of subsidies approvedafter

86 ActNo248/2000Coll.,onsupportforregionaldevelopment,asamended,providesthattheCouncilforEuropeanStructuralandInvestmentFundsisanadvisorybodyoftheCzechgovernmentinthefieldofcoordinatingaidprovidedbytheEuropeanUnionfromallESIFinPP14+.Thecouncil’smembersaretheprimeminister,eightministersandtheLordMayorofPrague.

87 TheCouncilforCommonStrategicFrameworkFundsistheequivalentoftheManagementandCoordinationCommitteeforthepreparationandimplementationphaseofPP14+.Itischairedbytheprimeministeranditsexecutivedeputychairistheregionaldevelopmentminister.

88 The Management and Coordination Committee was set up to coordinate aid provided by the EuropeanCommunitiesatnational level inPP7+on thebasisof Section18ofActNo248/2000Coll.,on support forregional development. It functioned as the monitoring committee at the level of the National StrategicReferenceFramework.ItsstatutesandrulesofbusinesswereapprovedbytheCzechgovernmentanditwasheadedbytheregionaldevelopmentminister.


9February2017toAGROFERTgroupcompanieswithimmediateeffect.After a legal analysis and the opinion of the MoA89 claiming that Section 4c of the Act on Conflict of Interests does not apply to the SAIF,sotherewasnolegitimatelegalreasonforwithholdingsubsidiesforRDPprojectsapproved intheperiodbetween9February2017(entry intoeffectof theCzechActonConflictofInterests)and2August2018(entryintoeffectofthenewEuropeanrulesonconflictof interests in theutilisationof subsidies), the SAIF began to pay out the withheld subsidies on 28 November 2019. However, the SAIF ceased paying out subsidies approved after 2 August 2018 inresponsetoaCommissiondecision,takenwithregardtotheongoingauditinvestigationintoapossibleconflictofinterestsofprimeministerAndrejBabiš,tosuspendthedisbursementofroughlyCZK6.3millioninRDPinterimpaymentsthatwereintendedforAGROFERTgroupcompanies’projects.

AttheendofJanuary2020bilateral talks on the preliminary findings oftheCommissionaudittookplacebetween MoA and SAIF representatives and representatives of the Commission (D-GAGRI).Thetalksfocusedonthree areas: the Czech prime minister’s conflict of interests; the RDP subsidy provision rules; and Czech agriculture minister Miroslav Toman’s possible conflict of interests. During the talks the two sides’ positions converged as regards the disbursement of RDP subsidies through the SAIF, and they agreed that the payments could be unblocked with the exception of one project witha valueofCZK1.6million forAGROFERT.Evenso,inFebruary2020the CR filed a lawsuit with the Court of Justice against the Commission concerning the suspension of RDP subsidies for the 2014–2020 periodlinkedtoexpendituredonefrom16October2018to31March2019for AGROFERT group and amounting to EUR 246,623 (approx.CZK6.3million).

On 31March 2020 the CR received a new decisionwherein theCommission annulled its original decision to suspend the disbursement of subsidies for AGROFERT group worth EUR 246,623 and instead suspended the disbursement of payments for the 4th quarter amounting to EUR 30,607 (approx.CZK822,000).

The CR does not agree with the EU authorities’ interpretation of the rules on the application of national legislation on conflict of interests, however, and holds that payment should not have been suspended. InMay 2020 the Czech government decided to withdraw the original complaint from February 2020 and file an action with the EU Court of Justice to have the Commission’s decision of 30 March 2020 annulled. The CR is filing the action for an authoritative interpretation and clarification how to assess conflicts of interests with regard to subsidies paid out by the SAIF in future (whetherSection4coftheActonConflictofInterestsappliestothemornot).

The results of the agriculture subsidies audit are still up in the air: there isnocategoricalCommissionconclusionwhethertheCzechprimeministerisinaconflictofinterestsornot.NoristhereagreementontheapplicationofSection4coftheActonConflictofInterestsoronhowtheCommissionshouldapplynationallaw.According to a statement from the MoA, the final results of the audit could be known in autumn 2020.

89 The SAIF provides subsidies underActNo 256/2000Coll., on the StateAgricultural Intervention Fund andamending certain acts, and is not governed by the budgetary rules. For that reason the subsidy provisionprocessisnotgovernedbySection4coftheActonConflictofInterests.Section4coftheActlinksabanonprovidingsubsidiestothesubsidyprovider’sprocedureaccordingtothebudgetaryrules.Thislegalopinioncannotbeapplied,however,tothenewEUFinancialRegulationeffectivesince2August2018.


E.3.2 EP-CONT mission regarding conflict of interests in the CR

On 26–28 February 2020 there was a fact-finding mission to the CR by members of theEuropean Parliament’s Budgetary Control Committee (EP-CONT). Sixmembers of EP-CONTtookpart in themissiontoobtain informationonthedistributionofEUfinances.Thiswasa response to the Commission’s reports on possible irregularities in the administration oftheESIFand, inparticular, indicationsofapossibleconflictof interestsoftheCzechprimeminister.Thecommitteemembersmetwithrepresentativesofministries,theSupremeAuditOffice,civilsociety,associations,journalistsandnon-governmentalorganisations.TheofficialoutputsfromthemissionwerenotavailablebytheEUReportdeadline.

73EU REPORT 2020, Section III

SECTION III FINANCIAL MANAGEMENT OF EU FUNDS IN THE CR IN THE EUROPEAN CONTEXT

74 EU REPORT 2020, Section III

F. EU budget and its relationship to the CR

F.1 EU budget

Inapressstatementof30November201790 the Council of the European Union (“the Council”) informed that the EU budget for2018had been adopted on 30 November 2017,whentheCouncil and European Parliament (EP) approved the consensus reached in the ConciliationCommitteeon18November2017.

The EU continues to place exceptional importance on investing in competitiveness, employment and growth, especially in areas that deliver substantial EU value added.Comparedto2017therewerefunding increases of 8.4% for Horizon 2020 (theEUresearchandinnovationprogramme),7.9% fortheConnecting Europe Facility (projectsintransport,energyandICT),and1.4% for COSME (supportforSME).

TheEU’s secondkeypriority remainssupport for young people.Here, fundingwasmainlyincreasedforErasmus+ (up 12.1%).Thebudgetfor2018alsotookintoaccountthecreation of the new European Solidarity Corps91,whichgivesyoungpeoplethechancetodovolunteeringorworkonprojectsbeneficialforcommunitiesthroughoutEurope.

In the field of tackling migration and security problems the Commission’s decentralisedsecurityandcitizenshipagencieswillget8.9% more than in2017.This support isprimarilyintendedtostrengthenEuropol92, Eurojust93 and the European Asylum Support Office.

Budget funding for LIFE, a programme for environmental and climate projects, was alsouppedby5.9%.

The EU is intensifying the fight against disinformation by strengthening the strategiccommunication capacity of the European External Action Service, for which a sum ofEUR0.8millionwasearmarkedinthe2018budget.

Compared to the Commission’s original proposal, however, the approved budget reduced pre-accession assistance for Turkey by EUR 105 million in response to the unsatisfactorysituationinthecountryasregardsdemocracy,theruleoflaw,humanrightsandfreedomofthepress.AfurtherEUR 70 million washeldin reserve untilTurkeymakes“measurableandsufficientimprovements”inthesefields.

F.1.1 Implementation of the EU budget for 2018

Asitdoeseveryyear,theCommissionpublishedinformationonthe implementationoftheEUbudgetfor2018inEUBudget2018–FinancialReport94.

F.1.1.1 EU budget revenues

The amount of EU budget revenues increased year-on-year from EUR 139.02 million to EUR 158.64 billion, i.e. by almost 14.11%, inconnectionwithexpectedincreaseindrawdownfromtheESIF.

90 Seehttps://www.consilium.europa.eu/en/press/press-releases/2017/11/30/2018-eu-budget-adopted/.91 EuropeanSolidarityCorps(ESC).92 EuropeanPoliceOffice.93 EuropeanUnionAgencyforCriminalJusticeCooperation.94 EUBudget2018–FinancialReport,PublicationsOfficeoftheEuropeanUnion,2019.


ThefollowingchartshowstherelativeandabsolutevolumesofthevarioussourcesofrevenuesrelativetototalEUbudgetrevenuesin2018.Correctionmechanisms95 andadjustmentstotheorganisation of own resources from gross national income (GNI) and VAT for the previousbudgetyearsarereflectedinthechartattheexpenseofGNIsources.

Chart 7: Structure of the EU budget revenues in 2018

EUR 104.50 billion; 65.87%

EUR 20.23 billion; 12.75%




0% 10% 20% 30% 40% 50% 60% 70% 100%

EU budget revenues in 2018: EUR 158.64 billion

VAT-based resourceGNI-based resource

Other revenues

Traditional own resources

Surplus from the previous year

80% 90%

Source: EUBudget2018–FinancialReport,PublicationsOfficeoftheEuropeanUnion,2019.

F.1.1.2 EU budget expenditure96

The approved EU budget for 2018 earmarked EUR 160.1 billion for commitments (0.2%increaseover the2017budgetafterbudgetamendments).AmarginofEUR1.6billionwasretainedbeneaththeMFFexpenditureceilingsforthe2014–2020periodtoallowtheEUtoreacttounforeseenrequirements.

The approved funds earmarked for payments amountedtoEUR 144.7 billion (year-on-yearincreaseof14.1%).PaymentswereincreasedsignificantlybecausedrawdownfromPP14+wasmeanttoculminatein2018.

Total expenditure on EU budget payments amounted to almost EUR 156.67 billion after all adjustments in 2018.97ThissumincludesEUR9.12billionchannelledintonon-EUcountries,EUR12.14billiongoingonexpenditurelinkedto“assignedrevenuesandexpenditure”relatedtoEFTA98 (almostEUR0.37billion)andEUR4.98billion formiscellaneousexpenditure.Thelion’sshareofEUbudgetexpendituregoesto Member States:in2018thefigurewasalmostEUR 130.44 billion.

95 UKrebate;reducedannualVAT-basedcontributionforDenmark,theNetherlandsandSweden;andreducedcontributionforDenmark,IrelandandtheUKowingtotheirnon-participationincertainsecurityandcitizenshippolicyareas.

96 TheexpendituresideoftheEUbudgethastwolevels:commitments(i.e.amountstobepaidinthecurrentyearorfutureyears)andpayments(i.e.paymentsinthecurrentyear).Apaymentcanonlybemadeifthereisavalidcommitmentforit.

97 ExpenditurefromtheEuropeanDevelopmentFundisoutsidetheEUbudget.98 TheEuropeanFreeTradeAssociationincludesIceland,Liechtenstein,NorwayandSwitzerland.


Chart 8: EU budget expenditure in 2018







0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

EU budget expenditure in 2018: EUR 156.67 billion

Smart and inclusive growthAdministrative expendituresSecurity and citizenship

Sustainable growth: natural resourcesGlobal EuropeSpecial instruments

Source: EUBudget2018–FinancialReport,PublicationsOfficeoftheEuropeanUnion,2019.

F.1.2 Audit of the EU budget (DAS 2018)

TheEuropeanCourtofAuditorsistheEU’sexternalauditor.ItsstatusandtasksarelaiddowninSection7oftheTreatyontheFunctioningoftheEuropeanUnion(TFEU).99Article287oftheTFEUprovidesthattheECAisobligedtosubmittotheEuropeanParliamentandCouncila StatementofAssurance assessing the reliabilityof theEuropeanUnion’s annualfinancialstatementsandthelegalityandaccuracyoftheunderlyingtransactions.

At its 18 July 2019 session the ECA adopted theAnnual Report on the Implementation oftheEUBudget2018.100Thisannualreport,alongwiththerelevantauthorities’responsestothe ECA’s comments,wasputbefore the EP andCouncil for discharge confirming that theCommissionperformeditsdutiesproperlyinimplementingthebudget.

Clean opinion on the reliability of the EU financial statements for2018:“Inouropinion,theconsolidatedaccountsoftheEuropeanUnionfortheyearended31December2018presentfairly,inallmaterialrespects,theEU’sfinancialpositionasat31December2018,theresultsof itsoperations, itscashflowsandthechangesinitsnetassetsfortheyearthenended,inaccordancewiththeFinancialRegulationandwithaccountingrulesbasedoninternationallyaccepted accounting standards for the public sector.” The ECA has issued a clean opinioncontinuallysince2007.

Clean opinion on the legality and regularity of revenues: “In our opinion, the revenueunderlyingtheaccountsforthefinancialyear2018islegalandregularinallmaterialrespects.”

Qualified opinion on the legality and regularity of expenditure: “Inouropinion,exceptfortheeffectsofthematterdescribedunder‘Basisforqualifiedopiniononthelegalityandregularityofpaymentsunderlyingtheaccounts’paragraph,theexpenditureacceptedintheaccountsfortheyearended31December2018islegalandregularinallmaterialrespects.”

99 Art.285etseq.consolidatedversionoftheTFEU,OfficialJournaloftheEuropeanUnion,C115of9May2008.100 OfficialJournaloftheEuropeanUnion,C340/01,of8October2019.


F.1.2.1 Revenues

No material error rate was detected in revenues. The systems linked to revenues were generally effective,butthemaininternal controls on traditional own resources examinedbyECAauditorsattheCommissionandincertainMemberStateswere only partially effective.

F.1.2.2 Expenditure

Asinpreviousyears,theerrorratefrequencydifferedfromoneformofpaymenttoanother,i.e.entitlement-basedpayments101andreimbursement-basedpayments102.

Themostprobableerror rate in entitlement-based payments wasbelow the 2% materiality threshold,while reimbursement-based payments displayedanestimated4.5% error rate, i.e.above the materiality threshold.

Theestimatedoverall error rate (2.6%)continuedtoremainabovethematerialitythresholdbut did not have an extensive impact.

TheECAalsoevaluatestheerrorrateforindividualexpenditureareas(regardlessofthetypeofpayment).Chart9presentsanoverviewoftheerrorratesinthebiggestexpenditureareas.

Chart 9: Comparison of the estimated error rates for EU spending areas in 2016-2018

4.8%

4.1%

2.5%

0.2%

3.0%

4.2%

2.4%

0.5%

5.0%

2.0%

2.4%

0.0%

Economic, social and territorial cohesion

Competitiveness for growth and jobs

Natural resources Administration

2016 2017 2018

Materiality level 2.0%

Source:AnnualReportsontheImplementationoftheEUBudget(2016-2018)publishedintheOfficialJournaloftheEuropeanUnion.

101 Entitlement-basedpayments,whichaccount for roughlyhalfofallexpenditureonpayments,are receivedbybeneficiariessatisfyingcertainspecifiedconditions.Thisislow-riskexpendituresubject to simplified/less complicated rules. Thiscategoryofpaymentsmainlycomprisesdirectsupportforfarmers,agri-environmentalmeasures(Sustainablegrowth:naturalresources),studentandresearchstipends(Competitivenessforgrowthandemployment)andpaymentsandpensiontoEUstaff(Administrativeexpenditure).

102 In the case of reimbursement-based payments theEUreimbursesbeneficiariesforeligiblecostsforeligibleactivities.Thisishigh-riskexpenditurecoveredbycomplicated rules.Thiscategoryofexpenditureincludespaymentsforresearchprojects(underCompetitivenessforgrowthandemployment),investmentsinregionaldevelopmentandruraldevelopmentandtrainingprogrammes(Economic,socialandterritorialcohesion)and(Sustainablegrowth:naturalresources)anddevelopmentassistanceprojects(GlobalEurope).


The ECA also declared the following103:

• Most expenditurewas not affected by amaterial error rate. The administration of EUfinanceshasbeenimprovingconstantly.

• In2018therewasamarked increase intheerrorrate inMemberStates’ESIFpaymentrequests.Drawdownfromthesefundswasslowerthanplanned.

• Theperformance indicators currently used for the EUbudget donot always provide agoodpictureoftheactualprogressmadetowardspolicygoals.

• TheCommissionimplemented,infullorinmostregards,75%oftheECA’srecommendationspublishedin2015.

• During2018weinformedtheEuropeanAnti-fraudOffice(OLAF)ofninecasesofsuspectedfraud.

F.1.2.3 Corrective and preventive measures104

REVENUES

The ECA’s main findings:• Systemslinkedtorevenuesweregenerallyeffective.ThemainTORinternalcontrolsinthe

CommissionandcertainMemberStateswerepartiallyeffective.• TheCommission’sauditplanwasinsufficientlyunderpinnedbystructuredanddocumented

riskassessment.ThatinfluencedthewaytheCommissionverifiedTORstatementsfromEUMemberStates.SomeshortcomingswerefoundinthewayMemberStatesadministeredimportduties,withparticularregardtothedrawingupoftheTORstatement,delaysincollectingcustomsdebtsandthelateentryofcustomsdebtintheaccountingsystem.

• For the third year, the Commission expresses a reservation regarding the accuracyof thevalueof selectedTOR in its annual reports. That is causedby certain importersundervaluingtextileandfootwearimports.

The ECA recommended that the Commission:• implement amore structured and documented risk assessment for its TOR inspection

planning,includingananalysisofeachMemberState’slevelofriskandofrisksinrelationtothedrawingupoftheAandBaccounts;

• reinforcethescopeofmonthlyandquarterlychecksofTORAandBaccountstatementsby carryingout a deeper analysis of theunusual changes in order to ensure a promptreactiontopotentialanomalies.

EXPENDITURE

Competitiveness for growth and employment

The ECA’s main findings:• Most errors involve ineligible costs (e.g. travel expenses and the cost of equipment

unrelatedtoprojects),personnelcoststhatwerenotconnectedtoprojects,andcostsformajorinfrastructureprojectsincorrectlyreportedbybeneficiaries.

103 EUauditataglance-PresentationoftheEuropeanCourtofAuditors‘2018annualreports.104 EUauditataglance-PresentationoftheEuropeanCourtofAuditors‘2018annualreports.


• Horizon 2020 and Erasmus+: Inconsistent sampling procedures and deficiencies indocumentation,inreportingandintheactualqualityofauditprocedures105.

• Legality:Annualactivityreportsfor2018fromtheDirectorateGeneralforResearchandInnovation, the Education,Audio-visual andCulture ExecutiveAgency (EACEA) and theExecutiveAgencyforSMEs(EASME)gavea fairassessmentoffinancialmanagement inrelationtotheregularityofunderlyingtransactions.

• Performance: The progress reported in some projectswas only partly in linewith theagreed objectives or reported costswere not proportionate to the progress achieved.Furthermore,projectoutputsandresultsweresometimesnotdisseminatedasintended.

The ECA recommended that the Commission:• informSMEsmoreeffectivelyoftheapplicablefinancingrulesandperformmoretargeted

checksoftheircostclaims;forthenextResearchFrameworkProgramme,furthersimplifytherulesforcalculatingpersonnelcostsandlargeresearchinfrastructurecosts;

• for Horizon 2020, address the observationsmade in the context of the review of the ex-postauditsconcerning,documentation,samplingconsistencyandreporting,aswellasthequalityoftheauditprocedures;

• promptlyaddressthefindingsoftheCommission’sInternalAuditServiceconcerning: – theEACEA’sinternalcontrolsystemsonthegrantmanagementprocessforErasmus+; – themonitoringofcompliancewithcontractualobligationsandreportingrequirements

ondisseminationandexploitationinresearchandinnovationprojects.

Economic, social and territorial cohesion

The ECA’s main findings106:• Shortcomingspersistintheregularityofexpenditurereportedbymanagingauthorities:

– ineligibleexpenditureandprojects; – violationsoftheinternalmarketrules(publicprocurementandstateaid)andmissing

fundamentaldocumentation.107

• Shortcomingsinthescope,qualityanddocumentationofworkbyseveralauditauthoritiesandtherepresentativenessoftheirsampling.

• TheCommission improved itsmechanismfor regularity reports.Dataontheerror ratein “economic, social and territorial cohesion” specified in theannualmanagementandperformancereportandannualactivityreportsstillcannotbereliedon.

• Performance:EventhoughMemberStateshavemonitoringsystemskeepingrecordsofperformanceinformation,inmanycasestheydidnotdefineresultsoroutputsindicatorsatprojectlevelandinseveralcaseshadnoindicatorsortargetvaluesthatwouldmakeitpossibletomeasureprojects’performance.Notallcompletedprojectsachievedtheirperformancegoalsinfull.

105 Forexample.:errorratecalculatedfromtotalcostsinsteadoftheauditedamount.106 InthecaseoftheCR,oneerrorwasfoundinoperationsauditedbytheauditauthority.Thiserror(asinthecase

ofothercountries)wasnotspecifiedintheAnnualReportontheImplementationoftheEUBudget2018.107 Someoftheseerrorsweretheoutcomeofcomplicatednationalregulationsoverandabovetherequirements

laiddownbytheEUlegislation.


The ECA recommended that the Commission:• ensurethatregularchecks,basedonarepresentativesampleofdisbursementstofinal

recipients, are carried out at the level of financial intermediaries either by the auditauthorityorbyanauditorselectedbytheEIBGroup;

• wheresuchcheckswereinsufficient,developandimplementappropriatecontrolmeasurestopreventthepossibilityofmaterialirregularexpenditureatclosure;

• takethenecessarystepstoensurethatchecklistsusedbymanagingandauditauthoritiesincludeverificationsincompliancewithArticle132oftheCommonProvisionsRegulation,whichstatesthatbeneficiariesmustreceivethetotalamountofeligibleexpenditurenolaterthan90daysfromthedateofsubmissionoftherelatedpaymentclaim;

• addressweaknessesfoundduringclosureandensurethatnoprogrammecanbeclosedwithamateriallevelofirregularexpenditure.

Natural resources108

The ECA’s main findings:• Directpaymentsasawholewerenotmateriallyaffectedbyerror.• Rural development, market measures, fisheries, environment and climate measures:

theriskoferrorismagnifiedbycomplexeligibilityconditions(theprincipalerrorswerepayments to ineligible beneficiaries, inaccurate information on farming conditions andanimalnumbers,failuretocomplywithpublicprocurementorgrantawardrules).

• DGAGRIreviewsidentifiedshortcomingsinworkbycertificationbodies.IftheCommissionistousethesebodies’workasitsprimarysourceofcertaintyregardingtheregularityofCAPexpenditure,continuousimprovementoftheirworkisessential.

• Performance:mostactionsproducedtheexpectedresultsandMemberStatesgenerallycheckedthereasonablenessofcosts,butmadelittleuseofsimplifiedcostoptions.

ECA recommendation to the Commission:• keepinmindtherecommendationsfrom2017fortacklingthecausesoferrorsandthe

qualityoftheworkofcertificationbodies.• ensurethatresultindicatorsproperlymeasuretheeffectsofactionsandhaveaclearlink

totherelatedinterventionsandpolicyobjectives.

F.2 EU budget and its relationship to the CR

PP14+isthethirdprogrammingperiodwhentheCRdrawsdownfundsfromtheEUbudgetontheonehandandpaysintoitontheother.ThroughouttheitsmembershipoftheEU,i.e.since2004,theCRhasreceivedmorefromtheEUthanitcontributes,making the CR a net beneficiary.

F.2.1 Financial relations between EU budgets and the CR in 2018

From2004 to theendof 2018 theCR contributedmore thanEUR21.2billion109 to theEU budget;thefigureforthecurrentprogrammingperiodwasEUR8.3billion.

108 NoerrorswerefoundintheCR’stestedoperations.109 Includingallownresources,includingtraditionalownresources.


In2018theCRcontributeditshighestamounttotheEUbudget,almostEUR2.0billion,whichrepresentsarecordyear-on-yearincreaseof27.9%.Meanwhile,theEU’stotalrevenuesbasedonownresources(i.e.traditionalownresourcesandthecontributionsofindividualMemberStatespaid in inthegivenyear) increasedby just23.33%.ThemaindriverofthisrelativelygreaterriseincontributionsfromtheCRwastheGNI-basedcontribution,whichincreasedby40.88%inthecaseoftheCR,whiletheEurope-wideincreasewas“only”34.55%.

ThedevelopmentoftheCR’spaymentsintotheEUbudgetisclearfromthefollowingchart,whichshowsbothcontributionsinabsolutetermsandyear-on-yearchanges.

Chart 10: Overview of the Czech contributions to the EU Budget (EUR million) and their year-on-year changes (in %) in the years 2007–2018

1,167.0

1,396.0 1,374.1

1,497.7

1,682.51,594.1

1,616.6

1,506.7 1,542.4

1,733.2

1,553.4

1,986.8

2007 2008 2010 2011 2013 2014 2015 2016 2018

12.72%

19.62%

−1.57%

8.99%12.34%

−5.25%

1.41%

−6.80%

2.37%

12.37%

−10.37%

27.90%

Y-o-Y change

2009 20172012

Source:EUBudget2018-FinancialReport(issuedbythePublicationsOfficeoftheEuropeanUnionin2019)andpreviousCommissionreportsontheEUbudget2008–2018.

AsChart10shows,theCR’spaymentsintotheEUbudgethavegrownrelativelyevenly,withthesharprisein2018clearlydeviatingfromthistrend.

The CR’s revenues from the EU budget totalled almost EUR 50.3 billion in the 2004–2018period. The figure for 2018 was almost EUR 4.1 billion. That is a year-on-year increase of5.8%.


Chart 11: Czech revenues from the EU budget (EUR million) and their year-on-year changes (in %) in the years 2007–2018

1,721.0

2,441.1

2,948.6

3,415.6

3,029.1

4,529.5

4,893.1

4,377.2

7,059.6

4,667.0

3 872.8

4,095.5

2007 2008 2009 2010 2012 2013 2015 2017 2018

29.4%

41.8%20.8%

15.8%

−11.3%

49.5%

8.0%

−10.5%

61.3%

−33.9%

−17.0%

5.8%

Y-o-Y change

20142011 2016

Source: EUBudget2018-FinancialReport(publishedbythePublicationsOfficeoftheEuropeanUnionin2019)andpreviousCommissionreportsontheEUbudget2008–2018.

Chart11showstheextremeriseinrevenuesin2015broughtaboutbythemassivedrivetocompletethedrawdownofthePP7+allocation,withasubsequentpalpablefallinrevenuesin 2016 and 2017. The main reason for the fall was the slow start of PP14+. In line withexpectations,2018broughtachangetothetrend,withtheCR’srevenuesfromtheEUbudgetrisingagainasthevariousOPsproceededatfullspeed.

F.2.2 Development of the CR’s net position relative to the EU budget up to 2019

In 2018 the CR’s net position stood at EUR 2.1 billion110, the sixth largest in the entire EU-28111.ThisfigureistheCR’slowestinPP14+,however,andlowestoverallsince2011,whenthe Commission suspended funding for financially significant OPs in the context of PP7+.The relatively pronounced year-on-year fall in the net position in 2018 (down 9.14%) wasmainlycausedbytherapidriseinown-resourcescontributionstotheEU(andaboveallthe

110 This figure does not include EU expenditure on the work if the Commission’s decentralised agencies orexpenditureundertheEUbudgetchapterAdministration(i.e.spendingofadministrativeworkbytheEUanditsbodies).

111 OnlyPoland,Hungary,Greece,PortugalandRomaniahadhighernetpositionvalues.


GNI-basedresource),aswellasbythefactthatthesecontributionswerenotyetfullyoffsetbyaccelerateddrawdownfromtheESIF.

Inpercapitaterms,theCR’snetpositionworkedoutatEUR197.25perperson,the11thhighestintheEU-28.Thatrepresentsasubstantialyear-on-yearpercapitafallofEUR20.92,causingthe CR to drop four places in the European standings. The highest per capita net positionvalueswerefoundintheBalticstatesandHungaryin2018.

On28January2020theMoFissuedapressstatement:In2019theCRreceivedCZK68.5billionmorefromtheEUbudgetthanitpaidin.Accordingtothispressrelease,the CR’s net position for 2018 reached CZK 68,497.97 million, or EUR 2,668.2 million112. This figure is 52.95% higher than the figure reported bytheMoF for the previous year 2018. The sharp increase in the value of the CR’s net position in 2019 was mainly driven by the accelerated drawdown under OPs and the RDP in connection with the culmination of PP14+.

TheCommissionhadnotpublishedtherelevantdatabytheEU Report 2020 deadline,buttheEUfiguresdonotusuallydiffermuchfromtheMoF’seventhoughtheMoFusesadifferentmethodologythantheCommissiontocalculatethenetposition.Itisreasonabletoexpectthisstep-changeintheCR’snetposition,whichfellconstantlyfrom2015to2018,tobeconfirmedbytheCommission’sofficialsources.

Chart 12: Net position of the CR in the years 2004–2018 (supplemented by data from the MoF for 2019) (EUR million)

237.4

70.1

279.5

538.8

1,029.1

1,557.81,899.2

1,329.7

2,920.03,260.6

2,829.9

5,502.1

2,918.0

2,303.5

2,092.8

2,668.2

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: EUbudget2018-FinancialReport (issuedbythePublicationsOfficeoftheEuropeanUnionin2019)andpreviousCommissionreportsontheEUbudget2005-2018;MoFdatafor2019publishedon28January2020.

Note:Thefiguresfor2004–2006includecontributionstotheCommission’sdecentralisedagencies.

112 AnnualexchangerateoftheCzechNationalBankfor2019:1EUR=CZK25.672.


F.3 Protection of the EU’s financial interests

F.3.1 Annual report on the protection of the European Union’s financial interests in 2018

InlinewithArticle325(5)oftheTFEU,inOctober2019theCommission,incollaborationwithMember States, issued the 30th annual report on the protection of the European Union’sfinancialinterestsandonthefightagainstfraud113(the“AnnualReport”).

IntheintroductiontotheAnnualReporttheCommissiontookstockofthepastthreedecadesas regards the nature of the action taken to enhance the protection of the EU’s financialinterests. In the Commission’s assessment, the legislative foundations for the fight againstfraud and irregularities were laid in the first decade; the second decade was a period ofconsolidation and operational reforms; and the third decade brought an intensification ofthefightagainstfraud,includingthegroundworkforthefunctioningoftheEuropeanPublicProsecutor’sOffice(EPPO)114.

Newfinancialrules115wereadoptedduring2018tomaketheuseofEUfundingsimplerandmoreefficient.Article129oftheFinancialRegulationprovidesthatallpersonsorentitieswhoarebeneficiariesofEUfundswillhavetocooperatefullyintheprotectionoftheEU’sfinancialinterests.TheywillhavetoprovidethenecessaryaccessrightstotheCommission,OLAF,theEPPOandECAandensurethatpartiesinvolvedinspendingEUfundsdothesame.

InApril2019theCommissionadoptedanewanti-fraudstrategy116totakeintoaccountthelatestdevelopments,i.e.thenewfundingsystems,newtrendsinfraud,advancesininformationtechnologiesetc.InthisstrategytheCommissionidentifiedsevenobjectives,includinganalysisofsystemicweaknesseslinkedtofraud;optimisingcoordinationandworkflowsforthefightagainst fraud, improving training for Commission staff and executive agencies in the fightagainstfraud,aswellasensuringtheyhavethenecessarytechnicalresources;and,aboveall,strengtheningactivitiesagainstfraudinTORandVAT.

Undersharedmanagement,MemberStatesadministerapprox.80%ofEUbudgetexpenditure,whichputsthemunderanobligationtoreportirregularities117,whethertheyconstitutefraudor not (other irregularities), to OLAF via IMS118, the irregularly management and analysissystem.

The Annual Report states thatMember States reported a total of 11,638 fraudulent and other irregularities in 2018,ayear-on-yearfallof25%.ThetotalvalueoftheirregularitieswasEUR 2,492 million,a similar figure as in 2017. Irregularities reported as fraudulent accounted

113 Report from the Commission to the European Parliament and the Council: 30th Annual Report on theProtection of the EuropeanUnion’s Financial Interests – Fight against Fraud – 2018,COM(2019) 444, final,of11October2019.

114 Europeanpublicprosecutor’soffice.115 Regulation (EU, EURATOM) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on

thefinancialrulesapplicabletothegeneralbudgetoftheUnion,amendingRegulations(EU)No1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU)No223/2014and(EU)No283/2014andDecisionNo541/2014/EUandrepealingRegulation(EU,Euratom)No966/2012.

116 Report from the Commission to the European Parliament, the Council, the European Economic and SocialCommittee,theCommitteeoftheRegionsandtheCourtofAuditors:CommissionAnti-fraudStrategy:enhancedactiontoprotecttheEUbudget,COM(2019)196,final,of29April2019.

117 MemberStatesareobligedtonotifytheCommissionofeverysuspicionoffraudandallirregularitieswithavalueexceedingEUR10,000fromEUsources.

118 IrregularitiesManagementSystem.


for 1,152 ofthereportedcases(10%ofthetotal),whichisconsistent with the previous year. The related value was EUR 1,197.2 million (48% of the total value), an increase of 183% over2017.

Thenumbersofirregularities,eitherreportedasfraudulentornot,reachedbyMemberStatesinthefightagainstfraudandotherunlawfulconductharmingtheEU’sfinancialinterestsfor2018canbeseeninthefollowingrundown.Thefigures,however,donotincludeirregularitiesdetected/reported in non-member countries (pre-accession policy) or direct expendituremanaged by the Commission, so they are not the same as the total figures given above.IrregularitiesinexpendituredoneunderdirectmanagementoftheEUbudgetarereportedbytheCommissionviatheABAC119accountingsystem.

Table 12: Numbers and amounts of cases of fraud suspicion and other irregularities reported by EU Members in 2018 through IMS and their year-on-year change

Budget sector (expenditures/revenues)

Number of fraud suspicions

Volume of fraud suspicions

Number of other irregularities

Volume of other irregularities

2018 Change (%)

2018 (EUR mil)

Change (%) 2018 Change

(%)

2018 (EUR mil)

Change (%)

Agriculture

EU 249 −10% 63.35 6% 2,832 −7% 163.93 −22%

Out of which CR 1 −88% 0.12 −76% 28 12% 1.35 25%

Cohesion policy and fisheries

EU 363 5% 959.63 200% 1,839 −64% 599.93 −57%

Out of which CR 28 −15% 18.19 175% 184 −35% 73.43 20%

Internal policy total

EU 1 − 0.00 − 21 600% 3.48 25%

Out of which CR 0 − 0.00 − 2 − 0.00 −

Pre accession policy

EU 2 0% 0.31 −52% 22 −12% 0.19 −86%

Out of which CR 0 − 0.00 − 0 − 0.00 −

Total expenditure

EU 615 −1% 1,023.29 169% 4,714 −43% 767.53 −52%

Out of which CR 29 −29% 18.31 158% 214 −30% 74.78 21%

Total revenue

EU 473 7% 165.23 116% 4,090 −3% 449.71 6%

Out of which CR 0 − 0.00 − 94 6% 4.70 −45%

Total

EU 1,088 2% 1,188.52 160% 8,804 −29% 1,217.24 −40%

Out of which CR 29 −29% 18.31 158% 308 −22% 79.48 13%

Source:Report from the Commission to the European Parliament and the Council: 30th Annual Report on theProtectionoftheEU´sfinancialinterests–FightagainstFraud2018,COM(2019)No444infinalversionof11October2019.

Note:Change(%)-year-on-yearchange(comparedto2017)expressedin%.

119 AccrualBasedAccounting.


Comparing thefigures for fraud in thefieldof revenues for 2018and2017 reveals that in the case of fraudulent irregularities concerningbudget revenues (473 irregularities in total) their share ofthetotalnumberoffraudcasesgrew only slightly while their share of the total value offraudulentirregularitiesfell compared to 2017 (by one percentage point).

AccordingtotheAnnualReport,fraudandirregularitiesontherevenuesside in2018werelargelylinkedtosolarpanels.TheAnnualReportwentontosaythatcross-bordere-commerceisathreattothefinancialinterestsofboththeEUanditsMemberStates.Theabuseofdutyexemptionsforlow-valueconsignmentsbyundervaluinggoodsine-commerceorsplittingupconsignmentstobringtheirvaluebelowthethresholdisaparticularrisk.

Thedataonreportedirregularitiesfor2018presentedinTable12includestheCR. Thedataandtheyear-on-yearchangeshowthatthe CR registered a fairly pronounced fall in both the number of irregularities reported as fraudulent and the number of other irregularities. On the other hand, the financial amounts involved increased in both categories, although the increase in suspected fraud was not so dramatic compared to the EU-28. In revenues, both the number and the corresponding value of suspected fraud cases remained very low; in the other irregularities category the number of cases rose but the overall value fell sharply.

Communication between the Czech authorities and OLAF takes place on two basic levels. Onelevelisregularreportsof“criminal irregularities”;theotherisreportsof“administrative irregularities”.

Criminal irregularitiesarecoveredbytheSupreme Public Prosecutor’s Office (SPPO)asthesole AFCOS120 contact point for this type of irregularity. The SPPO’s Serious Economic andFinancialCrimeDepartmentcooperateswithOLAFinthereportingofcriminalirregularitiesand in other communication and information exchange. The SPPO files regular quarterly reports giving informationaboutongoingcriminalproceedingsthat involvedormighthaveinvolved harm or a threat to the EU’s financial interests.When carrying out this role, theSPPOperformsworkaspartofitsstandardpowersasacriminaljusticeauthorityandseestoinformationexchangebetweentheCzechcriminaljusticeauthoritiesandOLAF’sinvestigativebodies.

Administrative irregularities are reported by the Ministry of Finance (Department 69 –AnalysisandReportingofIrregularities),whichacts as the AFCOS central contact point. The AFCOS central contact point gathers information from the various contact points and files reports with the Commission and OLAF on irregularities identifiedintheimplementationoftheCAP,cohesionpolicy,commonfisheriespolicyandinternalpolicies.

In the field of expenditure in 2018, the AFCOS central contact point senttheCommission,orOLAF,viatheIMS,atotalof251 cases121 ofnewirregularitiesidentifiedintheimplementationoftheESIFinvolvingasumofEUR 93.2 million. ThefiguresforPP7+were148 reports withatotalvalueofEUR 49.0 million and for PP14+ a total of 103 cases involvingEUR 44.1 million.

120 Anti-FraudCoordinatingStructure.121 ReportontheResultsofFinancialControlinPublicAdministrationfor2018,whichtheCzechgovernmentnoted

byresolutionNo524of22July2019.


In2018theAFCOS central contact point didnotreceiveanyofficialrequestfordocumentationfrom OLAF; only two requests for informationwere received.A total of four final reports were sentinconnectionwithpreviousyears’requestsfordocumentation:• two reports were without recommendations: theyonlycontained informationthatan

investigationhadnotfoundproofofanirregularityorfraud;• one report included a judicial recommendation:thatreportwassenttoOLAFdirectlyby

theSPPO,withtheAFCOScentralcontactpointmerelyinformingofthisstep;• one report included a financial recommendation:itproposedremovingtheEUshareof

funding(fromtheERDF)fromtheproject.

InthislastcaseOLAFfoundthatnationalandEuropeanlawhadbeenviolated,mostnotablylegislationonSMEandtherelatedrulesforeligibleexpenditure.TheMAinquestiondidnotagreewithOLAF’s conclusions – communicationwith the Commission is continuing in thismatter.Besidesfinalreports,theAFCOScentralcontactpointalsoreceivedinformationthatOLAFhaddecided, in linewith thesubsidiarityprinciple,not toopen investigations in fourcasesbecausethesecaseswerealreadyinthehandsofthecompetentnationalauthorities.OLAF conducted seven inspectionsofelevenentities in theCR in2018. The checksmainlyconcernedprojectsco-fundedbytheERDF;onlyonecheckedprojectwasco-fundedfromtheEuropeanAgriculturalGuaranteeFund(EAGF).

The AFCOS central contact point also acts as contact point responsible for sending information to the central exclusion database in line with Commission Regulation (EC, Euratom)No1302/2008.Proceedingas requiredby this regulation, theAFCOScentralcontactpointpassesoninformationaboutpersonsfoundguiltyofcrimesharmingtheEU’sfinancial interests, specifically violations of Section 260 of the Criminal Code, includinginformation of the overturning of convictions for these crimes. In 2018 theAFCOS centralcontactpoint reported toD-GBudget16casesof judgementswith force in law in theCR.ThesemainlyinvolveviolationsofSection260oftheCriminalCode(harmingtheEU’sfinancialinterests),orSection260inconjunctionwithSection212(subsidyfraud),Section209(fraud)or,inisolatedcases,inconjunctionwithSection181(harminganother’srights),Section348(forgingandtamperingwithpublicdocuments)andSection350(forgingandissuinguntruemedicalreports,assessmentsandfindings).

The AFCOS central contact point does more than just report: it performs statistical and analytical work,asitalsoevaluatesthereportedirregularities.Analysisoftheirregularitiesreported to OLAF for the 2007–2013 programming period revealed that the main modusoperandiinclude:• violations of Act No 137/2006 Coll., on public contracts (poorly designed selection/

assessmentcriteria,costsforadditionalwork,non-transparent/discriminatoryprocedureby the contractingorganisation, cartel agreements,wrongful applicationof negotiatedprocedurewithoutpublication,overvaluingofpubliccontractsetc.);

• violations of Act No 218/2000 Coll., on the budgetary rules and amending certain acts, (wrongfuluseofbudgetfunds,includingVAT,includingpaymentsnotlinkedtotheproject,doublepaymentetc.);

• violations of Act No 250/2000 Coll., on the budgetary rules for territorial budgets, (asinthepreviousparagraph);

• violations of the conditions of subsidies and non-compliance with the purpose of subsidies (work commencing before an agreement is signed, unauthorised letting, non-compliancewithtimelimits,failingtosubmitreportsorgivingerroneousinformationinreports,failingtoperformtherequirednotificationdutiesinconnectionwithaproject,transferringthesubjectofasubsidytoathirdpartyetc.);


• violations of Act No 320/2001 Coll., on financial control in public administration andamending certain acts (failing to respect the 3E122 principles, discrepancies betweensubmitteddocumentationandtheactualstate,poorMCSdesign,lackofcooperationbybeneficiariesduringcontrolworketc.);

• violations of Act No 563/1991 Coll., on accounting (incorrectly accounted for travelexpenses, wrongfully refunded food expenses, invoices issued before applications arefiled,errorsindocumentretentionetc.);

• suspicion of a crime under the terms of Act No 40/2009 Coll. the Criminal Code, (providingfalse data/documents, fictitious beneficiaries, incorrect information in attendancedocuments,passingoffoldequipmentasnew,connectedpersonsetc.).

F.3.2 National Strategy for the Protection of the European Union’s Financial Strategy and implementation of the action plan for 2019

Article 317 of the TFEU provides thatMember States cooperatewith the Commission “toensurethattheappropriationsareused inaccordancewiththeprinciplesofsoundfinancialmanagement”.Articles33to36ofRegulationoftheEPandoftheCouncil2018/1046fleshoutthisrequirement,inparticularwiththeobligationtocomplywiththeprinciplesofeconomy,efficiency and effectiveness and the obligation to perform effective and efficient internalcontrol.Article63(2)(c)oftheFinancialRegulationprovidesthatundersharedmanagementMemberStatesarerequiredtoprevent,detectandcorrectirregularitiesandfraud.Theyareobligedtoputinplacemanagementandcontrolsystemstoensuresoundfinancialmanagement,transparencyandnon-discrimination.Theyarealsorequiredtoimposeeffective,dissuasiveandproportionatepenaltiesonbeneficiaries.

To ensure these obligations are discharged, a National Strategy for the Protection of theEU’sFinancial Interests (“theStrategy”)wascreated. Itsprincipalgoal is toensurerigorousprotectionoftheEU’sfinancialinterestsintheCRasrequiredbyArticles310and325oftheTFEUandArticle129oftheFinancialRegulationandtoensurethatfundsprovidedtotheCRfromtheEUbudgetareutilisedasefficientlyaspossibleandprotected.Thisprotectionconsistsin preventing damages or threats to the EU’s financial interests and, where appropriate,imposingeffectivepunishment for fraud in internationalbusiness.Thecoreof theStrategylies inputting inplace controlmechanisms toprevent irregularities in thefieldoffinancialcontrol,includinginternalaudit,thefightagainstcorruption,thereporting,investigationandcorrectionof irregularitiesCorrection includesrecoveringfinancesaffectedby irregularitiesandensuringtheyarerepaidintotheEUbudget.

The Strategy is regularly updated in line with changes in legislation and assessments ofprogresstowards itsgoals. Itsfirstupdate123 fromSeptember2017reflectedthe legislationrelatingtoPP14+anddefinedthecoordinationservice’scompetencesandpowersinthefightagainstfraud;thisroleiscarriedoutbytheMinistryofFinance–AFCOScentralcontactpoint.

The AFCOS central contact point updated the Strategy to version 3124 with effect from1May 2020. Consequently, the Strategy nowmakes allowance for new legislation both atnational level (ActNo110/2019Coll., onpersonaldataprocessing) and,most importantly,at EU level (Financial Regulation, regulation establishing the European Public Prosecutor’s

122 Economy,efficiencyandeffectiveness.123 Upgradetoversion2.124 MF-3787/2020/6901.


Office125,fightagainstfraud126directive,andtheGeneralDataProtectionRegulation127).ItalsotakesintoaccounttherecommendationsfromSpecialReportNo6/2019128.AnexpansionoftheStrategyforthefollowingyearsisexpectedafterthefinancialframeworkforthecomingprogrammingperiodisfinalised.

The Assessment of the Action Plan under the National Strategy for the Protection of theEuropeanUnion’sFinancialInterestsfor2019,whichtheMoFpublishedinMarch2020,revealsthatsometasksremainedunfulfilledorwereonlypartiallyfulfilled.

F.3.3 Measures to reduce corruption in the CR in line with GRECO recommendations

The Group of States against Corruption (GRECO)129isthemostopenoftheexistingmechanismsformonitoringthefightagainstcorruptionatEuropeanlevel:allMemberStatesareGRECOmembers.GRECO has 50 members in total (47Europeanstates,theUnitedStatesofAmerica,Belarus and Kazakhstan).GRECOwas founded by the Council of Europe130 in 1999 with a view to enhancing its members’ ability to combat corruption throughchecksofcompliancewiththeircommitmentsdonebymeansofadynamicprocessofmutualevaluationandpeerpressure.

The evaluations of GRECO members takeplaceinroundsandaregoverned by the standards defined in the 20 guiding principles ofthefightagainstcorruption,intheCivilLawConventiononCorruptionandintheCriminalLawConventiononCorruption,includingitssupplementaryprotocol.

The fourthevaluationround(themostrecent)was launched in2012. Itsoutput for theCRis the Interim Compliance Report – CR131 fromDecember 2019. This report dealswith thework andexerciseof officeofmembersof parliament, judges andpublic prosecutors. Therecommendations,14oftheminall,applytoinstitutionsthatshouldremedyanunsatisfactorystate of affairs. These are mainly the Czech government, the Chamber of Deputies ofParliamentandtheMinistryofJustice(MoJ).Therecommendationsrelatingtomembersofparliamentincludeimprovingthetransparencyoftheworkofparliamentarysubcommitteesand introducing rules for dealings with lobbyists or enforceable rules on gifts and otheradvantages.Therecommendationsforjudgesincludetheadoptionofmoredetailedlegislationontherecruitmentandcareerprogressofjudgesandpresidentsofcourtsandtheadoptionof stricter legislation on judges’ secondary activities. Each recommendation ends with astatementastowhetheritwasimplemented,notimplementedoronlypartiallyimplemented.

125 Council Regulation (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on theestablishmentoftheEuropeanPublicProsecutor’sOffice.

126 Directive(EU)2017/1371oftheEuropeanParliamentandoftheCouncilof5July2017onthefightagainstfraudtotheEuropeanUnion’sfinancialinterestsbymeansofcriminallaw.

127 Regulation(EU)2016/679oftheEuropeanParliamentandoftheCouncilof27April2016ontheprotectionofnaturalpersonswithregardtotheprocessingofpersonaldataandonthefreemovementofsuchdata,andrepealingDirective95/46/EC(GDPR).

128 SpecialReportNo6/2019:TacklingfraudinEUcohesionspending:managingauthoritiesneedtostrengthendetection,responseandcoordination.

129 AbbreviationderivedfromGroupofStatesagainstCorruption. 130 TheCouncilofEuropeisaninternationalorganisationbasedinStrasbourgandaffiliating47Europeancountries;

ithasnolinktotheEUoritsinstitutions.131 The reportdealswithmeasuresadoptedby theCR in response to the recommendationsof theEvaluation

ReportoftheFourthEvaluationRoundfromApril2016.


Only one of the 14 recommendations was satisfactorily implemented in the CR,accordingtoGRECOmembers.Thatrecommendationdealtwiththeadoptionofaprofessionalcodeofethicsforallpublicprosecutors.Seven recommendations were partially implemented and the remaining six were not implemented.

ThatputtheCRinlastplaceoutof42countries,arankingitsharedwithSerbiaandBosniaandHerzegovina.

GRECO concluded in respect of the CR that the current very low standard of implementation of recommendations is “globally unsatisfactory” andrequestedthattheCRsubmitareportdetailingprogressmadeonthe13remainingrecommendationsassoonaspossible,butnolaterthanby31December2020.

This stateof affairs is also illustratedby the corruptionperception index (CPI)132 drawnupannuallybyTransparencyInternational,whosemissionistomapcorruptionatnationallevelandtocontributetothefightagainstcorruption.ThefollowingtableshowstheCPIfiguresfortheCR,PolandandSlovakiaintheyears2015to2019.

Table 13: CPI in the CR (including its year-on-year change), in Slovakia and in Poland in 2015–2019.

Year

CR Slovakia Poland

Place Points Change in points Place Points Place Points

2019 44th 56 ▼ −3 59th 50 41th 58

2018 38th 59 ▲+2 57th 50 36th 60

2017 42nd 57 ▲+2 54th 50 36th 60

2016 47th 55 ▼−1 54th 51 29th 62

2015 38th 56 ▲+5 50th 51 29th 63

Source:InformationfromTransparencyInternational (https://www.transparency.org/whatwedo/publication/corruption_perceptions_index_2019, https://www.transparency.org/whatwedo/publication/corruption_perceptions_index_2018, https://www.transparency.org/news/feature/corruption_perceptions_index_2017#regional, https://www.transparency.org/news/feature/corruption_perceptions_index_2016, https://www.transparency.org/en/cpi/2015).

TheCRrankedbetween38thand47thintheyears2015–2019.In2019itfinishedin44thplacewith56points,worsebysixplacesandthreepointsthanin2018.TheaveragescoreintheEU regionandwesternEuropewas66,meaning that theCRwasninepointsbehind thosecountries.Onefrequentoccurrence in theCPI results is thatneighbouringcountrieswithashared history and cultural environment have very similar standings, as demonstrated bySlovakiaandPolandintheyearsunderscrutiny.Inallthreecountriesthesituationwasworsein2019thanin2015–whiletheCRfellbysixplaces,SlovakiafellbynineandPolandbyasmuchas12places.

132 CorruptionPerceptions Index – the index targetspublic-sector corruptionand ranks countriesaccording tothedegreeofperceptionofcorruptionamongpublicadministrationofficialsandpoliticians.TheCPIcovers180 countries basedon 12 sources of data from11 independent institutions that havemappedperceivedcorruptionoverthelasttwoyears.Onascaleof0–100,100meansacountrypracticallywithoutcorruptionand0meansahighdegreeofcorruption.

https://www.transparency.org/whatwedo/publication/corruption_perceptions_index_2019

https://www.transparency.org/whatwedo/publication/corruption_perceptions_index_2018

https://www.transparency.org/news/feature/corruption_perceptions_index_2016


F.4 Measures for implementing the EU budget in 2019

F.4.1 Coordinated measures of EU economic policy

The European Semester for 2019 (“the Semester”), the framework within which the Commission coordinates Member States’ economic, fiscal and social policy, waslaunchedwiththereleaseoftheAnnual Growth Survey 2019133.Theintroductiontothe2019GrowthSurveypresentstheCommission’seconomicforecastforthecomingyear:“In2019Europe’seconomyissettocontinueexpanding,providingjobsforarecordnumberofpeopleandliftingmillionsoutofpovertyandsocialexclusion”.TheCommissionanalysedthedevelopmentofanumberofindicatorsoftheEuropeaneconomyandevaluatedtheprogressmadeinexecutingsoundfiscalpoliciesandstructuralreforms,supportedbycontinuouseconomicgrowthsince2014.AtthesametimeitflaggedupanumberofriskfactorsimpactingonthesustainabilityofcertainMemberStates’publicfinances.AsanexampletheCommissionmentionsthesubduedproductivity growth, the slow diffusion of digital technologies and the shortage of skilledlabour.TheCommissionidentifiedpopulationageing,climatechangeandunsustainableuseofnaturalresourcesaslong-termproblems.ItalsodescribedtheuncertaintysurroundingfuturerelationsbetweentheEUandGreatBritainasasignificantriskfactor.

In the 2019 Growth Survey the Commission defined the main risks, weaknesses and problems of the euro area and Member States. On that basis it specified the fundamental issues that need to be resolved:

1. High-quality investment• ensure public and private investment is well-targeted and goes hand in hand with a

well-designed set of structural reforms –aboveall,investmentinresearch,innovationandexpansionofdigital infrastructure;public investment ineducation,trainingandskillsshouldbeimproved;andequalaccesstohigh-qualityeducationandlifelongskillslearningshouldbeensured;

• precedence should be given to investment in the modernisation and decarbonisation of European industry, transport and energy systems – to achieve climate targets,decouplingofenergyandresourceusefromeconomicgrowthshouldcontinue;thereshouldbeinvestmentinsmart,sustainableandsafemobility;thereshouldbegreateralignment of the European Semester and EU cohesion funding based on analysesof Member States’ investment priorities; and priority areas for public and privateinvestmentsshouldbedefined inorder to facilitate the implementationofgrowth-enhancingreforms.

2. Focus reforms on productivity growth, inclusiveness and institutional quality• ensure broader uptake of innovations and technologies and reform the business

environment – especially in energy, telecommunications, transport, retail marketsandbusiness-to-businessservices;

• foster mobility and labour market flexibility and tackle labour market segmentation better – by adopting more effective active labour market policies and publicemployment services, increasing tax and policy incentives, promoting inclusivity,strengtheningsocialdialogue,ensuringuniversalaccesstoaffordableandqualitycareservices,improvingtheintegrationofhealthcareandstrengtheninglinkswithsocialcare;

133 CommunicationfromtheCommissiontotheEuropeanParliament,theCouncil,theEuropeanCentralBank,theEuropeanEconomicandSocialCommittee,theCommitteeoftheRegionsandtheEuropeanInvestmentBank:AnnualGrowthSurvey2019:ForastrongerEuropeinthefaceofglobaluncertainty,COM(2018)770,final, of21November2018.


• improve the quality of public institutions, the efficiency of court systems and the effectiveness of anti-corruption frameworks–stepupdigitisationinpublicservices,ensure the quality and stability of the legal environment, make the public sectortransparent, comprehensively tackle corruption through effective prosecution andsanctions,intensifyreformeffortsandmakeuseoftheReformSupportProgramme134.

3. Ensuring macroeconomic stability and sound public finances• reassess existing risks in international financial markets – reduce the high debt

levelsintheprivateandpublicsectors;strengthenthefinancialsectorbybuildingupbufferstocopewiththenextdownturn;improvethequalityandcompositionofpublicfinancesbyintroducingefficienttaxsystemsandprioritisingexpenditurethatfosterslong-termgrowth;

• ensure long-term sustainability of public finances – reform the pension systemto support retirement savings; improve governance of public procurement, reducethe stockof non-performing loans; adaptmacro-prudential frameworks to addressrisksofoverheatingandpreventnew imbalancesbuildingup;and improvenationalsupervisory frameworks to ensure full implementation of EU rules against moneylaundering.

4. Conclusions and next steps• adopt decisive and coordinated policy action to deliver on the promise of inclusive

and sustainable growth;• Member States should take account of the above priorities of the Commission in

their national policies and strategies, particularly when drawing up their national reform programmes;

• dialogue between the Commission and Member States should continue under the European Semester in order to reach a common understanding of the most pressing challenges and identify areas for priority action for individual countries.

The above 2019 Growth Survey priorities were confirmed by the European Council on21March2019.

In accordancewith the economic and social priorities set out in the 2019Growth Survey,the CR drew twoconceptualdocuments:2019 National Reform Programme of the CR135 and 2019 Convergence Programme of the CR136 (“ConvergenceProgramme”).On30April 2019it submitted them to the Commission for evaluation. Given the links between the twodocuments,theCommissionevaluatedthemsimultaneouslyandissuedrecommendations137 fortheCouncil.

134 ProposalforaRegulationoftheEuropeanParliamentandoftheCouncilontheestablishmentoftheReformSupportProgramme,COM/2018/391,final,of31May2018.

135 The2019NationalReformProgrammeoftheCRdrawnupbytheOfficeoftheCzechGovernmentwasapprovedbythegovernment’sCommitteefortheEuropeanUnionbyResolutionNo6of29April2019.

136 The2019ConvergenceProgrammeoftheCR drawnupbytheMinistryofFinancein2019wasapprovedbytheCzechgovernmentbyresolutionNo278of29April2019,alongwiththeBudgetStrategyforthePublicInstitutionsSectoroftheCR2020–2022.

137 Recommendation for a Council Recommendation on the 2019 National Reform Programme of the CR anddeliveringaCouncilopiniononthe2019ConvergenceProgrammeoftheCR,COM(2019)503,final,5June2019.


Based on the Commission’s recommendations, the Council evaluated the two programmes and issued its own recommendations138. In its recommendations the Council stated that the CR, whichiscurrentlyinthepreventivearmoftheStabilityandGrowthPact,expects,inlinewiththeconvergenceprogramme,toachieve a fall in government debt-to-GDP ratio to 29.7% in the years 2019–2022. The Council regards the macroeconomic scenario underpinningthesebudgetaryprojectionsas plausible. Havingstudiedtheconvergenceprogrammefrom2019the Council concluded that the CR would comply with the provisions of the Stability and Growth Pact in 2019 and 2020, accordingtotheCommission’sforecast.

AccordingtotheCouncil,theCRfacesmediumrisksforfiscalsustainabilityofpublicfinancesin the long term,mainly due to growing costs of pensions andhealthcare necessitated bypopulationageing.Employmentisrisingsteadily,butdespitethemeasurestakenthelabourmarketpotentialofwomenwithyoungchildren,thelow-skilledandpeoplewithdisabilitiesremainsunderutilised.Althoughfutureautomationandrobotisationofproductionwillcreateaneedforhighervocationaltechnicalskillsanddigitalskills,acomprehensiveskillsstrategyhasnotbeenputinplaceyet,variousinitiativesnotwithstanding.

Despite the fact that the CR is a transit country, the completion of European transport networks, including TEN-T corridors, is far from being finalised. The Council also regardssuburban transport infrastructure as insufficient, which limits housing affordability andpeople’sability tocommutetowork.The energy intensity of the Czech economy remains high, especially in industryandhousing.Coaldominatesthepowersector,andgreenhousegasemissionsfromroadtransporthaveincreasedinrecentyears.

Investment is hampered by the administrative and regulatory burden, in particularcomplex administrative procedures. A newdraft construction law should simplify planningprocedures,especiallyforlargeinfrastructureprojects.Inpublicprocurementtherehasbeenan improvement intransparency,butastrategicapproachhasnotbeenadoptedandmostpublicprocurementdecisionscontinuetobebasedonthelowestprice.

Despite an increase in research and development intensity, the CR remains a moderate innovator. An increased focus ondomestic innovation could boost productivity across theentirebusinessspectrum.

InthelightoftheanalysisofCzecheconomicpolicydonebytheCommissionandofitsownanalysisthe Council recommends that the CR do the following in the 2019 and 2020:

1. Improve the long-term fiscal sustainability of the pension and healthcare systems. Adopt pending anti-corruption measures.

2. Foster the employment of women with young children, including by improving access to affordable childcare, and of disadvantaged groups. Increase the quality and inclusiveness of the education and training systems, including by fostering technical and digital skills and promoting the teaching profession.

3. Focus investment-related economic policy on transport, notably on its sustainability, digital infrastructure, and low carbon and energy transition, including energy efficiency, taking into account regional disparities. Reduce the administrative burden on investment and support more quality-based competition in public procurement. Remove the barriers hampering the development of a fully functioning innovation ecosystem.

138 CouncilRecommendationof9July2019onthe2019NationalReformProgrammeofCRanddeliveringaCouncilopiniononthe2019ConvergenceProgrammeoftheCR(OfficialJournaloftheEuropeanUnion,2019/C301/03,5September2019).


F.4.2 European Commission report on the CR

InFebruary2020theCommissionpublishedaCommissionstaffworkingdocumententitledCountryReportCR2020139(“2020Report”),assessingprogressonrecommendationsissuedtotheCRandreviewingreformpriorities.The202Reportstatesthefollowing:

1. Economic situation and outlook

Economic growth continued to grow at a moremoderate pace in 2019 than in 2018,reflecting external developments. Growth stayed at 2.5%, with private consumptionthemaindriverofgrowth.Bycontrast,investmentdeceleratedsharply.Netexportsareestimatedtohavecontributedtogrowth,but theslowdown inexternaldemand ledtoa lower increase inboth importsandexports.Atight labourmarketposesa challengetogrowth,withan impactonwagegrowth.Economic convergence towards the EU-28 average continues140, withtheCRachievingalevelsimilartosomeolderMemberStates(e.g.Portugal).

Household consumption continues to be the main growth driver, but is set to slow down in the coming years,partlybecauseofhigherinterestrates.Investmentisestimatedtohaveslowedcomparedtotheprevioustwoyearsandnowstandsat1.1%,andthesamegrowthisexpectedin2020.Theeconomicslowdowninthemaintradingpartnerstranslatedintoadecreasingnumberofordersandaconsequentdeclineinprivateinvestment.Publicinvestment also slowed significantly,but even so investment activity remained above the EU average: 25.5% of GDP compared to 20.9%.Businesses’prioritywasinvestmentin automation and robotisation to keep their competitiveness. Increasing labour costscausedbyrapidpaygrowthhavenotyettranslatedintoalossofexportmarketsharefortheCR,buttheCommission’sforecastpointstoagradualworsening.Labourproductivityhasbeenincreasingsteadilyatanaverageannualrateof3.1%since2000,buttherearemajordifferencesintherateofincreasebetweenregions.

The employment rate reached 80.4% in the third quarter of 2019, 6.3 percentage points above the EU average. The rate of unemployment dropped further to 2%, the lowest in the EU.

Inflation increased by approx. 3% in 2019, andthis trendwillcontinue inthefirsthalfof2020,mainlydue tonewexciseduties foralcoholand tobacco,but is set todeclinetowards the2% targetby2021.The CZK/EUR exchange rate started to strengthen at the end of 2019 andisexpectedtoappreciatefurtherinthemediumterm.The balance of trade remained high,but it isexpectedtofallsharplyasaresultofweakerexternaldemand, especially in the euro area; this will be offset by reduced imports, however.Although residential housing price growth flattened in 2019, it remains above wage growth, reducingaffordability.Public finances are expected to remain in balance in the short term and the debt-to-GDP ratio will continue to decrease.

139 DocumentAccompanying theCommunication fromto theEuropeanParliament, theEuropeanCouncil, theCouncil,theEuropeanCentralBankandtheEurogroup:EuropeanSemester2020:Assessmentofprogressonstructuralreforms,preventionandcorrectionofmacroeconomic imbalances,andresultsof in-depthreviewsunderRegulation(EU)No1176/2011,SWD(2020)502,final,of26February2020.

140 Percapitagrossnationalincomeatpurchasingpowerparitywas88%oftheEU-28averagein2019.


2. Progress with regard to the recommendations issued to the CR

Regarding the implementation of the Council’s recommendations from 2019 theCommissionstatedthattheCRhadmade“limited progress”141.Thefollowingevaluationwasgivenfortheindividualrecommendations:• recommendation 1 (fiscal sustainability) – “limited progress” (no progress in

improving long-term fiscal sustainability of the pension and healthcare systems;limitedprogressinadoptingpendinganti-corruptionmeasures);

• recommendation 2 (employment and education) – “limited progress” (limitedprogress in fostering the employment ofwomenwith young children, including byimproving access to affordable childcare, and in employment of disadvantagedgroups;someprogresson increasing thequalityand inclusivenessof theeducationandtrainingsystems,includingbyfosteringtechnicalanddigitalskillsandpromotingtheteachingprofession);

• recommendation 3 (investment) – “some progress” (limited progress on focusinginvestment-related economic policy on transport, notably on its sustainability, andon digital infrastructure and low carbon and energy transition, including energyefficiency, all taking into account regional disparities; limited progresson reducingtheadministrativeburdenoninvestment;someprogressonsupportingmorequality-based competition inpublicprocurement; someprogresson removing thebarriershamperingthedevelopmentofafullyfunctioninginnovationecosystem).

3. Reform priorities of the CR

The Commission stated the following in its 2020Report with regard to the priorities listedinthe2019 National Reform Programme of the CR:

• Public finances and taxation

Public finances remain in balance and the public debt fell to approx. 30% of GDP. TaxrevenuesintheCRcontinuedtodisplayagrowthtrend,withtaxrevenuesreaching36.1%ofGDPin2018(theEUaveragewas39.2%);nevertheless,thatratioisoneofthelowestintheEU.Therewasamarkeddisproportionindirecttaxes,whichaccountedfor just8%ofGDPintheCR,whereastheEUaveragewas13.4%.ComparedtotheEU average, the low share of tax revenueswas particularly pronounced in naturalpersons’ incometax(12%comparedto24.2%),whilethesharewashighest in legalpersons’incometax(3.5%comparedto2.7%).ElectronicregistrationofsalesimprovedVATcollection.Taxevasionfelltoapprox.12%,roughlyin linewiththeEUaverage.Receiptsfromenvironmentaltaxesandpropertytaxesweregenerallylow.

Short-termandmedium-termfiscalsustainabilityrisksarelow,butlong-termrisksaremedium.Populationageingmakesincreasedspendingonpensionsandhealthcareorlong-termcarethemainrisk,astheretirementsystemdoesnotautomaticallytakeintoaccounttheexpectedgainsinlifeexpectancy.

141 Themeaningsofthesecategoriesareasfollows:no progress –nomeasuresannouncedoradopted;limited progress – limitedmeasuresannounced in response to the recommendations;some progress –measurespartiallyadoptedinresponsetotherecommendationsorsubstantialeffortsstillrequired;significant progress –measures adopted in response to the recommendations andmostly executed; full implementation – allmeasuresinresponsetotherecommendationshavealreadybeenexecuted.


• Financial sector

The Czech financial system remains stable.Theconcentrationofassetsofthelargestbanks increased slightly, with most of these assets taking the form of loans. Theinsurance sector remains profitable and pensionmanagement companies are wellcapitalised.Thebankingsector iswell capitalised, standingata levelabove theEUaverage.Bankscontinuedtobeprofitable.Returnonequityhasbeenstableandhasremainedindoubledigitsforseveralyears.Thenon-performingloansratioremainslow.Variousmeasurestoreducetheeconomy’sdependenceonbankswereintroducedtoboostthedevelopmentofthecapitalmarket.AnotherinitiativewasthefoundingofaNationalDevelopmentFundtorunasaQualifiedInvestorFund.

Although residential housing prices grew more slowly than in the previous years, housing affordability worsened further. According to the property prices index(Deloitte, 2019), the CR was among the Member States with the least affordablehousing:11.2grossannualsalarieswereneedtoownaresidentialproperty,upby60%from2015.Thesupplyofhousingisconstrainedbycomplicatedplanningandbuildingpermissionprocesses.Thestockofhousing loanshas increasedconstantly,but therateofincreaseslowedin2019bymorethanonetenthto7.4%.Risingpropertypricescouldbea sourceof risk forfinancial stability. For that reason, theCzechNationalBank issued macro-prudential recommendations designed to protect the bankingsectoragainstsystemicrisks.OneoftherecommendationsisthatlendersshouldnotprovideretailloanssecuredbyresidentialpropertywithaLoan-to-Value(LTV)ofover15%andshouldlimittheprovisionofloanswithLTVsof80-90%to15%ofnewloansineachquarter.The European Systemic Risk Board issued a warning in 2019 that rising property values could present a risk to financial stability.

• Labour market, education and social policies

Labour market performance in the CR was far above the EU average in 2019, e.g.in terms of the rate of employment in the 20–64 age group (6% higher) and rateof economic activity (3.3%higher). The rateof unemploymentdropped to2%, thelowest intheEU.Thelabourmarketsituationforspecificgroupshasalso improvedsignificantly,e.g.therateofyouthunemployment(age25–24)fellfrom18.9%to4.8%insixyears.Thelabourmarkethasashortageoflabour,whathasmadeasubstantialimpactoneconomicgrowth;approx.twofifthsofbusinessescitedlabourshortagesasthemainfactorlimitingproduction.Thetightnessofthelabourmarketalsopusheduptheminimumwageby9.4%.Partly with this situation in mind, the Czech government included automation and artificial intelligence among its political priorities and adopted strategies with an outlook up to 2030 that are part of an overarchinggovernmentplancalledCR – The Country for The Future.

On the other hand, women with young children continue to be underrepresented on the Czech labour compared to the EU (almost 4 times higher proportion ofwomencaringforchildrenathome),asthesupplyofplaces inchildcarefacilities isstill outstripped by demand. Some regional differences in employment and in paybetweenmenandwomenalsopersist.Thestronglabourmarketexpansionin2019ledtoahighernumberofforeignnationalsemployedintheCR,withthefigurereachingover606,000(fromtheEUandthirdcountries).In2019CRannouncedapackageofemploymentlegislationtoimprovethetargetingandsupportofactivelabourmarketpolicies,particularlyforthemostvulnerablegroups.


The standard of basic digital skills was slightly above the EU average.Thegovernmentadopted theWork4.0ActionPlan142 todevelopworkers’digital skills tohelp themadapttotechnologicalchange.Acomprehensivenationalskillsstrategyencompassinginitialeducation,lifelongandin-worktrainingisnotyetinplace.

The rate of early leavers from education fell overall, but the disparity between the rates among people with disabilities grew and people without increased – itisnowalmostdoubletheEUaverage(10.1percentagepoints).In2019CRadoptedthesecondActionPlanforInclusiveEducationwithaviewtoaddressingthehighproportionofRoma children in special schools. To increase the reform’s impact, further teachertrainingforteachingpupilswithspecialneedswillbeneeded.

Accordingtodatafrom2019,morethan60%ofschoolshavefaceddifficultieswitha shortage of qualified teachers.Despite significant pay raises for teachers, their salaries remain relatively low compared to other tertiary-educated workers and by international standards. The attractiveness of the teaching profession shouldbeboostedbytheadoptedinitialteachereducationprogrammesandacompulsory two-yearinductionperiod,whichseektopreventearlydropouts.

The share of the population at risk of poverty was around half the EU average (21.9%) in the last two years, but the shareofpeople aged65andover at riskofpovertygrew(by5.5%overtwoyears).Peoplewithdisabilitiesfaceahigherriskofsocialexclusion,specifically4percentagepointsabovetheEUaverage(9.5%accordingEurostat)Despitecoordinatedaction,improvedsocialservicesandincreasedfocusoninter-sectoralstrategies,thenumberofsociallyexcludedlocalities,largelyinhabitedbytheRomaminority,andthenumberofpeopleatriskofhomelessnessasaresultof indebtednessaregrowing. Inadditiontomunicipalities’ investmentprogrammestoexpandsocialhousing,improvementsshouldcomefromanaffordablehousingactthat is underpreparationandan inter-ministerial group for strengtheningfinancialliteracyinhigh-riskgroups.

The population’s health has improved, with life expectancy rising by four years over the past seven years.Regionaldisparitiesremain,however,asaresultofboth socio-economic factors and the distribution of healthcare personnel. Populationageing is gradually increasing pressure on long-term care services. Around 20% ofthose needing long-term care reside in healthcare or social care facilities. That iswellabovetheEUaverage(approx.13%).Onekeycauseofthisisthehighpricesofprofessionalsocialhomecareservices.

142 TheWork4.0ActionPlanwas incorporated intotheSociety4.0ActionPlan,whichwasapprovedbyCzechgovernmentresolutionNo684of25September2017.


• Competitiveness, reforms and investment

Labourproductivitygrowthsloweddownby0.7%in2018from2017,thoughitsstablegrowthcontinuedintheservicessector.Labourproductivitywasmuchhigherinlargeenterprisesthanmicro-enterprises(approx.66%gap),smallenterprises(approx.25%)andmedium-sized enterprises (15%), but the gaps have been shrinking in the pastfive years. Innovation-driven enterprises have expanded rapidly in the past years,contributing considerably to increased productivity and rising job vacancies. Czechenterprisesarehighlyintegratedinglobalandregionalvaluechains,butfocusmainlyon lowvalueaddedactivities.Toencourageventurecapitalandequity issuance, in2019 the government approved theNational Strategy for the Development of theCapitalMarket 2019–2023 and set up a Fund of Funds for the early equity stage.ThegovernmentandthefourlargestbankscreatedtheNational Development Fund withaninitialcontributionofCZK7billion(EUR275million).InvestmentsundertheFundwillbelinkedtotheNational Investment Plan (NIP)unveiledinDecember2019.TheNIPlistsover20,000projectsplannedin2020–2050withatotalcostofaroundEUR315billion.InvestmentintheCRissupportedatEUlevelviatheEuropean Fund for Strategic Investments.BytheendofDecember2019,totalfinancingunderthisfundamountedtoEUR874million,withEUR621milliongoingonfinancingSMEsandEUR254milliononinfrastructureprojects.

Ranked in terms of home-grown innovation supporting economic growth, the CR is in 14th place among Member States,but itsperformancehasbeengraduallyimproving,withtheintensityofbusinessR&DcomingclosetotheEUaverage.Totalspending on R&D has grown steadily to reach almost 2% of GDP, which is slightlybelowtheEUaverage(2.11%).The quality of the outputs is not yet sufficiently high, however, partly due to the fragmentation of the public research sector and low returns. Links between academia and business are not on the required level either. Decision-makingbodieshavemostlyworked in isolationand therehasbeena lackofcross-cuttingcoordination.Forthesereasonsandmore,the Innovation Strategy 2019–2030143 wasadoptedinFebruary2019withaviewtomovetheCRupthevaluechain.

Road and conventional rail network infrastructure projects have stagnated. Essential parts of the TEN-T road network has not been built or modernised yet. Importantcross-borderlinkstoPolandandAustriaarestillmissing.Thisispartlydueto the lackof strategicplanning,which couldbepartially resolvedby theNationalInvestmentPlan,andpartlybecauseoflengthyproceduresforsettlingpropertyrightsandauthorisingconstruction.

Fixed broadband coverage in the CR exceeds the EU average, but mobile broadband prices are almost double.EventhoughthenewDigital CR programmeissupposedto investalmostEUR 2.35 billion indigitisationandthe roll-outofnext-generationnetworktechnologies,thereisariskthatthecountrywillfailtomeettheobjectivesoftheEuropean 5G Action Plan144.

Despite the increase in living standards, regional disparities remain wide. Thericherregions,withPragueout in front, achievebettereducationaloutcomesandhaveagreater innovation capacity, making them more attractive for private investment.Poorer regions – and in particular the Northwest Bohemian Region – show lower

143 InnovationStrategyoftheCR2019–2030wasapprovedbyCzechgovernmentresolutionNo104 of4February2019.

144 European5GActionPlan,COM(2016)688,final,of14September2016.


productivity, higher indebtedness and greater inequality. The recently adoptedRegionalDevelopmentStrategy2021+145 should improvematters, including throughuseofintegratedterritorialinvestmentsandcommunity-ledlocaldevelopments.

Public sector performance and government effectiveness rank below the EU average.TheCRperformsrelativelywellonaccesstogovernment information,butperformanceisweakerine-government(fragmentationatself-governingunit level)and control of corruption. Lengthy procedures to obtain a construction permit continue to be an important barrier for investment.ChangeshouldcomefromtheamendmentoftheBuildingActthatwillenterintoeffectin2021.By contrast, the legal framework for public procurement has already improved,withthespeedofreviewproceduresrisingbyalmostaquarterandanincreasingnumberandqualityofsmartprocurement procedures. The error rate in public procurement is gradually falling,partlyasaresultofanti-corruptionmeasuresadoptedinthe2018–2022 Government Anti-Corruption Strategy.Furthertotherelatedactionplan,severalanti-corruptionmeasureswereadoptedin2019,mostnotablythepromulgationofthe“nominationact”146, the drawing up of a draft act on lobbying, a draft act on protection of whistle-blowersandadraftamendmentoftheactonthepublicprosecutor’soffice.

• Environmental sustainability

Manufacturing’s high share of GDP, moreover in a largely coal-dependent economy, and the CR’s position as a transit country are reasons why CR is one of the EU Member States with the highest greenhouse gas emissions per capita. Energyintensityalsoremainsoneofthehighest intheEU.Dependencyonoil importshasgradually increased in recent years andnowexceeds theEUper capitaaverageby3.3 percentage points. Regions where coal extraction is the dominant economicactivity and generally steeringproductionaway from fossil fuels are set to cost asmuchasEUR25billionby2050,accordingtotheNIP.

The reduction in energy consumption in industry was counterbalanced by increased consumption in transport. Road transport’s share of total energy consumptionhasrisenfrom11%to27%since1995,withthevastmajorityofthatfallingtoroadtransport.TheuseofrenewableenergyisbelowtheEUaverage(18%)andhasbeenstatic at around15% for thepast five years.One reason for this is the incompletelegalandinstitutionalframeworkforsupportingrenewableenergy.Evenso,carbonemissionshavebeenreducedbyovera third in thepast30years,with fossil fuel’sshareofenergygenerationhalvinginthatperiod.

Throughout 2019, the effects of climate change were felt by the CR in the form of serious drought and continuing damage to forests from the bark-beetle calamity. There is a particularly alarming deficit in the case of surfacewater,with just 19%of surface water bodies in good or high status. There was a fivefold increase in bark-beetledamagedwoodoverthreeyears.

145 RegionalDevelopmentStrategy2021+approvedbyCzechgovernmentresolutionNo775of4November2019.146 ActNo353/2019Coll.,ontherecruitmentofpersonstothemanagementandsupervisorybodiesof

state-ownedlegalpersons(NominationAct).


G. Sector Matters

G.1 Revenues linked to the EU budget

G.1.1 Developments in EU revenue resources

In its proposal147forthesystemofownresourcesforthenextMFFtheCommissionproposedabasketofnewownresourcesinadditiontomodificationofexistingownresources.Thebasketofnewownresourcesiscomposedof:• 20%ofrevenuesfromtheemissionstradingsystem;• a rate of 3% applied to the new common consolidated corporate tax base (once the

necessarylegislationhasbeenadopted);• anationalcontributioncalculatedontheamountofnon-recycledplasticpackagingwaste

ineachMemberState(EUR0.80perkilogram).

Comparison of the existing composition of revenues with the structure proposed for the 2021–2027 period reveals that GNI-based own resources should cover 50–60% of totalrevenuesafterthechanges.Atpresentthisresourcecoverstwothirdstothreequartersoftotalrevenues.

Thenewownresourcesshouldmakeupapproximately12%ofthetotalEUbudgetandcouldcontributeasmuchasEUR22billionperannumtowardsfundingnewpriorities.ThesefiguresarederivedfromtheapplicableratesmentionedintheCommission’sproposedimplementingrulesforthenextMFF148.

InApril2019theCommissionapprovedanewstrategyinthefightagainstfraud149(CAFS150),whichreplacesthestrategyadoptedin2011.TheCommissionstatedthatanassessmenthadshownthatthetwomainvulnerabilitieswereinsufficientanalysisoffrauddataandgapsintheCommission’ssupervisionoverfraudriskmanagement.ThepriorityobjectivesoftheCAFSarethereforetoequiptheCommissionwithastrongeranalyticalcapabilityforpurposesofpreventionanddetectionandwithamorecentralisedsystemofoversightforitsanti-fraudaction.TheCAFSfocusesonprotectingtheEU’sfinancialinterestsfromfraud,includingVATfraud, corruptionandmisappropriationharmingor threatening theEU’sfinancial interests.It also covers protection against criminal offences, irregularities and serious breaches ofprofessionalobligationsbystafformembersoftheUnionsinstitutionsandbodies.

ToimplementtheCAFSandaccompanyingactionplan,theCommissionmoreoverintendstotightenitsinternalmonitoringsystemsanddevelopindicatorstomakeanti-fraudactionmoremeasurable151.TheobjectivesoftheCAFSaresetoutinanannextothecommunication,whichisaccompaniedbytwoCommissionstaffworkingdocuments:thefirstpresentstheresultsoffraudriskassessmentandthesecondanupdatedactionplan.

147 ProposalforaCouncilDecisiononthesystemofOwnResourcesoftheEuropeanUnion,COM(2018)325,final,2May2018.

148 ProposalforaCouncilRegulationlayingdownimplementingmeasuresforthesystemofOwnResourcesoftheEuropeanUnion,COM(2018)327,final,2May2018.

149 Communication from the Commission to the European Parliament, the Council, the European Economicand Social Committee, the Committee of the Regions and the Court of Auditors: Commission Anti-fraud Strategy:enhancedactiontoprotecttheEUbudget,COM(2019)196,final,29April2019.

150 CommissionAnti-FraudStrategy.151 This should be reflected in the annual reports on the protection of the EU’s financial interests that the

Commissionregularlyissuestoinformabouttheimplementationofthisstrategy.


InthemiddleofJanuary2019theCommissionlaunchedadiscussiononagradualtransitiontomoreefficientdecision-makingonEUtaxpolicy152.MemberStates’unanimousagreementisnowrequired intaxpolicy.Thisunanimity isveryhardtoachieveformajortaxchanges,however.InitscommunicationtheCommissioncalledonallstakeholders,includingMemberStatesandtheEP,totakepartinconstructivediscussiononqualifiedmajorityvotingonEUtaxpolicyanddefineatimelyandpragmaticapproachforitsimplementation.

The Commission’s communication proposes four concrete steps153 constituting a gradualtransitiontoqualifiedmajorityvoting.Thesestepsare:• In thefirst step,qualifiedmajority votingwouldbeemployed formeasures that improve

cooperationandmutualassistancebetweenMemberStatesinfightingtaxfraud,taxevasionandtaxavoidance,aswellasadministrativeinitiativestargetingenterprisesintheEU154.

• The second stepwould involvemeasures of a fiscal nature designed to support otherpolicygoals.Qualifiedmajorityvotinginthisstepwouldapplytomeasureswheretaxationsupportsthefightagainstclimatechange,protectingtheenvironmentorpublichealth.

• Thethirdstepwouldfocusonareasoftaxationthatarealreadylargelyharmonisedbutmustevolveandadapttonewcircumstances.MajorityvotinginthisstepwouldmainlycoverVATandexciseduties,whichcouldhelpMemberStatesandenterprisesintheEUkeepupwith the latest technologicaldevelopmentsandmarket changes.This requiresMemberStatestoagreeonthedefinitiveregimetocreateasustainable,fraud-proofandbusiness-friendlyVATsystem,however.

• The fourth stepwould be to introduce qualifiedmajority voting on other initiatives inthetaxationarea,whicharenecessaryforthesinglemarketandforfairandcompetitivetaxationinEurope.Thisformofvotingwouldthusbeusedformajortaxprojectssuchasthecommonconsolidatedcorporatetaxbaseorthenewsystemofdigitaltaxation.

Inmid-May2019theCommissionunveiledtheTransactionNetworkAnalysis(TNA)155,anewtool thatshouldhelpMemberStates rapidlyexchangeand jointlyprocessVATdata. Itwasdeveloped in close cooperation betweenMember States and the Commission. The tool isdesignedtospeedupthedetectionofVATfraudandthuspreventthisfraud.Taxauthoritieswillgainfastandeasyaccesstoinformationoncross-bordertransactionsandwillbeabletotakeswiftactionfollowingnotificationsofpotentialfraud.

ItwillalsoallowmembersofEurofisc156tocheckthis informationagainstcriminalregisters,databasesandinformationinthepossessionofEuropolandOLAFandcoordinatecross-borderinvestigations. Europeanbudgets lose a significant portionof their revenues toVAT fraud. Atthesametime,VATisoneoftheEUbudget’sownresources.ThistoolthereforefollowsuppreviousactivitiesinthefieldofVAT,suchastheactionplantowardsasingleEUVATarea157 andproposedreformsoftheVATsystemintheEU158.

152 Communication from the Commission to the European Parliament, the European Council and the Council:TowardsamoreefficientanddemocraticdecisionmakinginEUtaxpolicy,COM(2019)8,final,15January2019.

153 According to the Commission’s plan,Member States should reach agreement on the first two steps soon;consensusshouldbesoughtontheremainingstepsby2025.

154 Qualifiedmajorityvotingshouldbeusedinthefirststepformeasuresthatdonothaveadirectimpactontaxlaw,taxbasesortaxratesinMemberStates.

155 European Commission: New tool to allow EU countries to crack down on criminals and recoup billion, 15May2019.

156 AmultilateralwarningsystemoftheMemberStatesforcombatingVATfraud.157 CommunicationfromtheCommissiontotheEuropeanParliament,theCouncilandtheEuropeanEconomic

andSocialCommitteeonanactionplanonVAT:TowardsasingleEUVATarea–Timetodecide, COM(2016)148,final,7April2016.

158 Proposal for a Council Directive amending Directive 2006/112/EC as regards harmonising and simplifyingcertain rules in thevalueadded taxsystemand introducing thedefinitivesystemfor the taxationof tradebetweenMemberStates,COM(2017)569,final,4October2017.


InOctober2019theCouncilcalledonMemberStatestoagreeonanapproachtotheadoptionoftworeformsoftheexistingVATrules159.Thenewrulesfacilitatingthedetectionoftaxfraudincross-bordere-commercetransactionswillallowMemberStatestocollectinaharmonisedwaytherecordsmadeelectronicallyavailablebythepaymentserviceproviders.Inaddition,anewcentralelectronicsystemwouldbesetupforthestorageofthepaymentinformationand for the further processing of this information by anti-fraud officials in the MemberStates.Theserules,whichwouldapply from2024,complement thecurrentVATregulatoryframeworkinthecontextofthecentralelectronicsystem.ThiscentralelectronicsystemtakeseffectinJanuary2021.ItwillsimplifytherulesforcompliancewithVATlegislationforonlineenterprisesandwillintroducenewVATobligationsforonlinemarketplaces.

InOctober2019theCouncil reachedagreementon thematterofproposals foradirectivelayingthegeneralarrangementsforexcisedutyandaregulationonadministrativecooperationasregardselectronicregisters160.TheaimoftheproposalsincludealigningtheEUexciseandcustomsprocedures.Other aims include reducing the administrative and legal burdens onsmallenterprisesandimprovingclarityofintra-EUmovementsofexcisegoods.

OneoutcomeshouldbethatMemberStatescollecttherightamountoftax.Consequently,theproposalscontainmeasurestostreamlineandsimplifytheprocessescoveringexportandimportinteractionofexciseproductsandbusiness-to-businessinteraction.

In2019theCouncilandtheOECD161wentaheadwithtalksondigitaltaxation162.At itsMaysessiontheOECDadoptedaprogrammeofworktodevelopaconsensussolutiontothetaxchallengesarising fromthedigitalisationof theeconomy.TheOECD’sworkcentredon thequestionwhetherdigitalisationincreasesriskslinkedtotheerosionofthetaxbaseandprofitshifting,knowntogetherasBEPS163.TheresponsetothetaxproblemsarisingfromthedigitaleconomyisbasedontwopillarsintheOECD’sapproach.

Thefirstpillarconcernspossiblesolutionstotherulesonprofitallocationandrevisedrulesontaxablerelations,i.e.wheretaxshouldbepaidandwhatportionofprofitsshouldbetaxedinthesejurisdictions,withaviewtoallocatinggreatertaxationrightstothejurisdictionoftherelevantmarketoruser.

Thesecondpillarexploresthepossibledesignofasystemthatwouldensurethattransnationalcompaniespayacertainminimumtax,bothinthedigitaleconomyandelsewhere.Thissecondpillarcomprisesaglobalanti-baseerosionproposal.Countriesshouldbegivennewtoolstoprotect their tax bases against profit shifting to jurisdictionswhere income is taxed at aneffective rate below aminimum rate. TheOECD’s final report on this project is due to bepresentedbytheendof2020.

159 TransmissionandexchangeofVAT-relevantpaymentdataa)AmendmentstotheDirectiveonthecommonsystemofVATasregardsrequirementsforpaymentserviceproviders,b)AmendmentstotheRegulationonadministrativecooperationinthefieldofVATasregardsmeasurestocombatVATfraud‒Generalapproach,13519/19FISC412ECOFIN942,31October2019.

160 Draft Council Directive laying down the general arrangements for excise duty (recast), and Draft CouncilRegulationamendingRegulation(EU)No389/2012onadministrativecooperationinthefieldofexcisedutiesasregardsthecontentofelectronicregisters‒Adoption,13634/19FISC420ECOFIN958,31October2019.

161 OrganisationforEconomicCo-operationandDevelopment.162 Digitaltaxation–Stateofplay,13405/19FISC408ECOFIN934DIGIT158,28October2019.163 BEPS(Baseerosionandprofitshifting)isanOECDprojectdealingwiththeissueoftaxavoidance.Itiscomposed

of15actions.Action1iscalled“TaxChallengesArisingfromDigitalisation”.


G.1.2 Developments in budget revenue in the CR

In its CountryReportCR2019164 theCommissioninformedthattheincreaseintaxrevenuesrelativetoGDPin2017wasmainlydrivenbyasignificantincreaseinreceiptsfromVATandimporttaxesandduties,which,asashareofGDP,havebeenconstantlyhigherthantheEUandeuroareaaverages.Eventhoughtotaltaxrevenuesbetween2016and2017increasedsomuchthattheyreachedtheirhighestlevelsince2004,theyarestillbelowtheEUandeuroareaaverages.

Revenues from direct taxes, comprising predominantly taxes on income and wealth, aresignificantlybelowthelevelsseenintheEUandEurozone,eventhoughrecurrentpropertytax ranksamong the taxes thatdo leastharmtoeconomicgrowth,according to theOECD(2010).Ontheotherhand,theimplicittaxrateonemployedlabourintheCRishigherthanthe EU averagedue to a higher relianceon social contributions. The very high taxationoflabouronemployeeson loworhigh incomespersists.SinglepersonswithchildrenearninglessthantheaveragewagehavemuchhighertaxationthantheirequivalentsintherestoftheEU.Conversely,thetaxburdenonchildlesscouplesandsingleemployeesearning167%oftheaveragewageisbelowtheEUaverage.Revenuesfromenvironmentaltaxesremainrelativelylow.Theserepresentedjust5.9%ofalltaxesandsocialcontributionscollectedin2017.HereitisworthnotingthattheSAOdrewattentiontothelowlevelofenvironmentaltaxesin2019inauditNo18/22165.

AlthoughVAT compliance is a government priority, the estimated compliance gap remainsabove the unweighted EU average and is higher than in certain neighbouring countries.Businesses’ incurred costs from compliance with the tax legislation remain above the EUaverage.AccordingtoaCommissionstudyfrom2018,moreover,almost50%ofrespondentsthinkthatthecomplexityofthetaxlegislationintheCRishighlyburdensome;afurther29%viewitasburdensome.

In February 2018, a proposed income tax reform was presented to the Commission. Thereforminvolvesthefollowing:• abolishthesolidarity-basedincreaseoftaxation;• raisetaxratesfrom15%to19%;• introduceasecondrateof23%forannualincomesaboveCZK1.5million;• abolishthesuper-grosswage;• reducethetaxbasefortheself-employedbythreequartersofthevalueofcontributions

tosocialsecurityandhealthcare.

InviewoftheintendedincometaxreformintheCRtheCommissionstatesthatfurthertaxreformsshiftingthetaxburdenawayfromlabourandontomoregrowth-friendlytaxbasescouldbeconsidered,especiallybecausetheimplicittaxrateonlabourisrelativelyhigh.

TheCR’stoppriorityintaxation,accordingtothenationalreformprogramme166,isthefightagainsttaxevasion;streamliningthecollectionoftaxisanotherpriority.Inthefightagainsttax evasion the CR wants to introduce a universal reverse charge mechanism that wouldsignificantlycutVATlosses.

164 CommissionStaffWorkingDocument:CountryReportCR2019,SWD(2019)1002,final,27February2019.165 AuditNo18/22–Supportofenvironmentalpoliciesfocusedonpublicbudgetrevenues.166 NationalReformProgrammeoftheCR2019.


FurthertodemandsfromcertainMemberStatesforatemporarygeneralisedreversechargemechanism, inDecember2018 theCouncil adoptedadirective167 permitting itsuse.Underthisdirective,atemporarygeneralisedreversechargemechanismmaybeimplementedupto30June2022attherequestofMemberStatesmeetingcertaincriteriaonsuppliesofgoodsandservicesaboveathresholdvalueofEUR17,500.

The CR asked the Commission to permit the use of thismechanism. At the same time, itprovided all the necessary information to show that the defined criteria were satisfied.Accordingly,inJune2019theCommissionissuedaproposalforadecisionauthorisingCRtoapplythismechanism168.TheimplementingdecisionwasapprovedattheNovembersessionoftheEconomicandFinancialAffairsCouncil169.ThisdecisionauthorisestheCRtoapplythegeneralisedreversechargemechanismonnon-cross-bordersuppliesofgoodsandservices,providing that theyexceed the threshold value (EUR17,500), and todo so from1 January2020 to 30 June 2022.170 In December 2019 theMoF stated that “owing to the inordinatedelayatEU levelandthestandarddurationof the legislativeprocess themeasurecouldbeintroducedintheCRattheendofnextyearattheearliest.”171 TheSAOalsocommentedontheintroductionofthemechanisminitsreportontaxes.TheSAOstatedthatthefundamentalchangetotheVATsystemwouldonlybeforaveryshorttimebutwouldrequireachangetothelegislation,achangetothedesignoftheinformationsystemsusedbytaxadministratorsandtaxpayersandchangestotheirbusinessmodels.Consequently,theenvisagedeffectsofreducedVATlossesmightnotmaterialise.TheMoFhasnotyetannouncedthatitispreparingchangestothelegislationinconnectionwiththereversechargemechanism.

Severaltaxationchangesweredrawnupwitheffectfrom1January2019and1February2019.The“2019taxpackage”,whichtookforceon1April2019172barsomeexceptions,broughtinextensivechanges.IthadafundamentalimpactonVATinparticularandtookintoaccountofchangesintheEUlegislationeffectivefrom1January2019173.ThechangesaffectedVATratesformasspassengertransportandsupplyofheat.Therewerealsochangesintheapplicationof the reverse charge mechanism for building and assembly work. Since 1 January 2019,theamendmentofthedirectiveonthecommonsystemofVAT174hasappliedtotheuseofvouchers175andtheprovisionofservicesanddistanceselling.Changesine-commercerelate

167 Council Directive (EU) 2018/2057 of 20 December 2018 amending Directive 2006/112/EC on the commonsystemofvalueaddedtaxasregardsthetemporaryapplicationofageneralisedreversechargemechanisminrelationtosuppliesofgoodsandservicesaboveacertainthreshold,OfficialJournaloftheEuropeanUnion, L329/3,27December2018.

168 ProposalforaCouncilImplementingDecisionauthorisingCRtoapplythegeneralisedreversechargemechanismderogatingfromArticle193ofDirective2006/112/EC,COM(2019)283,final,21June2019.

169 CouncilImplementingDecision(EU)2019/1903of8November2019authorisingCRtoapplythegeneralisedreverse charge mechanism derogating from Article 193 of Directive 2006/112/EC, Official Journal of theEuropeanUnion,L293/1,14November2019.

170 ResolutionNo273oftheEuropeanAffairsCommitteefromits39thsessionon11December2019.171 Moretimeforthegeneralisedreversechargeandbettercoordinationbetweentaxesandaccounting,demand

businessesandexperts,MoFpressstatementof6December2019.172 ActNo80/2019Coll.,amendingcertainactsinthefieldoftaxationandcertainotheracts.173 Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive

2009/132/ECas regardscertainvalueadded taxobligationsanddistancesalesofgoods,Official Journalofthe European Union, L 348, 29 December 2017; Council Implementation Regulation (EU) No 2017/2459 of5December2017amendingImplementingRegulation(EU)No282/2011layingdownimplementingmeasuresforDirective2006/112/EConthecommonsystemofvalueaddedtax,OfficialJournaloftheEuropeanUnion,L348,29December2017.

174 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax,OfficialJournaloftheEuropeanUnion,L347,11December2006.

175 CouncilDirective (EU) 2016/1065of 27 June2016 amending theValueAdded TaxDirective as regards thetreatmentofvouchers, OfficialJournaloftheEuropeanUnion,L177,1July2016.


totheelectronicprovisionofservicesanddistanceservicestonon-taxpayers.Forexample,atechfirmallowsapersonfromanotherMemberStatetodownloadamobilephoneappforprivateuseandforaconsideration.Theprocedureafter1January2015wasthattheserviceprovider (unlessaVATpayer)wasobligedtopayVATtothestate inwhichthecustomer isbased.Since1 January2019, theserviceprovider (as longas itdoesnotexceedafinanciallimit)maychoosewhethertoproceedaccordingtotheestablishedmodelorchoosetopaytaxinitshomestate;thisisconditionalontheprovidernothavingaplaceofbusinessinthecustomer’sMember State. Thefinancial limit (threshold value) is EUR10,000 per calendaryear.AnotherchangeintheActonVAT176isthepossibilityforataxadministratortoimposeafineofuptoCZK500,000onapayer,whoseriouslyimpedesorfrustratestheadministrationoftaxesbyfailingtodischargedutieslinkedtorecapitulativestatements.

The2019taxpackagealsobroughtinchangesinincometax.Onefundamentalchangewasthedoublingofthemaximumexpenditureamountsthatcanbeappliedasapercentageofincomefortheself-employedcomparedto2018.Additionally,thechangestoEUlegislationrestrictingprofitshiftingtostateswithlowertaxes(restrictionson“aggressivetaxplanning”)wereincorporatedintothepackage.Furthermore,theActonIncomeTax177wasamended178 withregard to theapplicationofsuper-grosswagee.g. forallemployeeswhosewagesaresubjecttotaxationintheCRbutwhosesocialandhealthinsurancecontributionsaregovernedbyEU,EuropeaneconomicareaorSwisslaw.

Inconnectionwiththetranspositionofthedirectiveonadministrativecooperationintaxation179 (known as DAC 6) into the act on international cooperation on tax administration180, from1July2020anewkindofmandatoryautomaticexchangeofdataoncross-borderarrangementsthat are reportable by obligated persons in their home jurisdiction has been established. Thedirectiveimposesanobligationonobligatedpersons(i.e.intermediariesofcross-borderarrangementsand,inthecasesspecifiedbylaw,usersofcross-borderarrangements)tofileinformation,andtodosoforcross-borderarrangementsestablishedafter1July2020,within30days after thedayonwhich theyaremadeavailable for implementationorputon themarketorthefirststepofsuchanarrangementwasimplemented(or,inthecaseofsecondaryintermediary,afteradviceorassistanceisprovidedforthegivenarrangement).

Another key piece of legislation promulgated at the end of 2019 and effective from1 January 2020 is the act181 amending certain acts in the field of taxation in connectionwithincreasingrevenuesforpublicbudgets.TheamendmentoftheActonIncomeTax,forexample,mainly concerns restrictionson taxexemptions forgamblingwinnings, aswell asbroaderexemptionfromincometaxforlegalpersons’incomewhereregionsandtheCRandothercasesofpubliccorporationsareaparentcompany.AchangetotheActonExciseDutiesraised the excise on liquor, tobacco products, raw tobacco and heated tobacco products.Beer’sexemptionfromtaxisalsobeingchanged.TheActonGamblingGamesTaxationraisedtaxratesonlotteriesfrom23%to35%;othertaxratesremainedunchanged.

176 ActNo235/2004Coll.,onvalueaddedtax.177 ActNo586/1992Sb.,onincometax.178 ActNo306/2018Coll.,amendingActNo586/1992Sb.,onincometax,asamended.179 Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory

automaticexchangeofinformationinthefieldoftaxationinrelationtoreportablecross-borderarrangementsOfficialJournaloftheEuropeanUnion,L139,5June2018.

180 ActNo164/2013Coll.,oninternationalcooperationintaxadministrationandamendingcertainrelatedacts.181 ActNo 364/2019 Coll., amending certain acts in the field of taxation in connectionwith increasing public

budgetrevenues.


G.2 Expenditure co-financed from the European Structural and Investment Funds

ApproximatelythreequartersofallEUbudgetexpenditurechapterintotheCRcomesfromtheESIF.ThesefundsareusedtofinancejointprojectsoftheCRandEUinthefieldofcohesionpolicy,includingcommonfisheriespolicy(CFP),technicalassistanceandterritorialcooperationprojects,andprojectandnon-projectactionsoftheruraldevelopmentprogramme.

G.2.1 Development of economic, social and territorial cohesion policy, the rural development programme and common fisheries policy in the CR

This subsection coversboth the closureof PP7+anddevelopments inPP14+.Whereas thefinal closureof thepreviousprogrammingperiod isdrawingnear,drawdownof thePP14+allocationisslowlyculminating.

G.2.1.1 Closure of the 2007–2013 programming period

InNovember2019theMoRDputbeforetheCzechgovernmentamaterial182 fordiscussionconcerning the state of closure of PP7+ (“PP7+ closure information”). The PP7+ closureinformation revealed that 11 of the 19 operational programmes and NUTS II regional operational programmes (ROP) had been closed.ThesewereOPT7+,OperationalProgrammeCross-border Cooperation CR–Poland, ROP Northeast, ROP Central Moravia, OP En7+,ROPCentralBohemia,ROPSoutheast,ROPMoravia-Silesia,OPTechnicalAssistance(OPTA7+),OPHREandOPFisheries 2007–2013 (OPF7+).

In its Closure date information letter183theCommissioninformedthattherelevantCommissiondepartmentshadreceivedallthedocumentsnecessarytoclosetheOPs,i.e.thefinalreportonprogrammeimplementation,certifiedstatementofexpenditure,includingtherequestforpaymentofthefinalbalance,declarationofprogrammeclosureandfinalcontrolreport.TheCommission also set a three-year compulsory archiving period184, during whichmaterialslinkedtothevariousOPsmustremainavailableforthepurposesofauditandcontrolwork.

ThefollowingtablepresentsanoverviewofcommunicationwiththeCommission.

182 InformationontheStateofClosureofthe2007–2013ProgrammingPeriod, MoRDmaterialref.no.50323/2019-27of22November2019.

183 AlsoreferredtobytheCommissionasConfirmationletter or Retentionletter.184 InaccordancewithArticle90(1)ofRegulation(EC)No1083/2006thisthree-yearperiodisinterruptedinthe

eventoflegalproceedingsoratthedulymotivatedrequestoftheCommission.


Table 14: Operational programmes and regional operational programmes for the 2007–2013 programming period concluded by the Commission

ProgrammeDate of receipt of the closure

proposal

Actual OP closure date Note

OPTransport 12December2017 28December2017

OPEnvironment 28February2018 28December2017

OPHumanResourcesandEmployment 1August2019 27December2018

OPTechnicalAssistance 1February2019 25April2019 Allocationnotfullyutilised

ROPMoravia-Silesia 8June2018 28December2017

ROPSoutheast 4June2018 28December2017

ROPCentralMoravia 28February2018 28December2017

ROPNortheast 28February2018 28December2017

ROPCentralBohemia 28February2018 28December2017

INTERREGIV-ACR–Poland2007–2013 14December2017 21December2017 Allocationnotfullyutilised

OPFisheries2007–2013 11July2019 16May2019 Allocationnotfullyutilised

Source:InformationontheclosurePO7+.Note:The“actualOPclosuredate”isthedateonwhichtheendbalancewaspaid,thedateonwhichanotificationof

adebtwasissued(OPTA7+)orthedateonwhichanotificationofadebtissentforthepurposeofrecoupingtheendbalance(OPF7+).Thecompulsorythree-yeararchivingperiodstartsonthatdate.

Six OPs were partially closed.TheseareROPSouthwest,OPResearchandDevelopmentforInnovation (OP RDI), Integrated Operational Programme, OP EC, OP PA, and OP Prague –Competitiveness(OPPC).

The CR received letters from the Commission regarding the preliminary closure of theseprogrammesbuthasnotyetreceivedaclosureproposal185.TheCR’saffirmativeresponsestothepre-closureproposal186 weresenttotheCommissionwithinthedefinedtwo-monthtimelimit,exceptforOPPC.ForthisOPtheCommissionproposeddeductingexpenditureononeproject, but theMAdid not regard that project as ineligible or even potentially ineligible. TheCRinitiallyrefusedtodeducttheexpenditure;subsequently,inaletterof9September2019,itacceptedtheremovalofthecontentiousprojectexpenditurefromthefinalstatementofexpenditure,leavingnothingstandinginthewayofclosure.

On13November2018theOPPAmanagingauthorityreceivedapre-closureproposal fromtheCommission.ThePCArespondedinaletterdated7January2019,sayingthattherewasadiscrepancybetweentheMA’sdataandtheEuropeanCommission’sinpointa)“Amountsneeding tobe collected”. In1October2019 theCommission sent apre-closure letterwiththeamountsadjusted in linewith thePCA’s letter.Subsequently, theCRwas invited in thestandardmannertoreacttotheproposedamounts.Unresolveddiscrepancieswerethusdealtwithatajointmeeting.

185 ClosureproposalistheCommission’sproposaltocloseaprogrammesenttoaMemberState.186 Pre-closureproposalistheCommission’sproposalinthematterofpreliminaryclosureofaprogrammesentto

aMemberState.


The remaining two operational programmes, i.e.OPEIandROPNorthwest(ROPNW),can only be closed once unresolved discrepancies are resolved.Thesediscrepanciesaremainlylinkedtotheongoingnationalinvestigationand/orunclosedECAaudit.

TheOP EImanaging authority sent a final report on the implementationof theOP to theCommissionon29May2017.ThenextstepsintheclosureoftheOPdependedonunresolveddiscrepanciesbeingresolved.

On28March2017ROPNWsenttheCommissionafinalreportontheimplementationoftheOP,whichwasupdatedon21September2017inresponsetotheCommission’scomments.Several discrepancies are still being dealt with in this programme. On 15 October 2019 ROPNWreceivedtheCommission’sproposalforpreliminaryclosure.TheCommissionstatesin this proposal that it cannot yet accept a final report because of the ongoing nationalinvestigation.

PERSISTING OPEN AREAS

Staged projects

The implementation of staged projects was divided between two programming periods, withthefirststagecarriedoutinPP7+andthesecondinPP14+.Oneriskinthecaseoftheseprojectsisthepossibilityofproblemswithclosureofthesecondstageorfinancialcorrectionsappliedinthesecondstage,whichcanretroactivelyaffectabsorptioninthefirststage.

FromPP7+thereareeightmajorstagedprojects (budgetoverEUR50million)and31smallstagedprojectsunderthree OPs (OPEn7+,OPT7+andOPRDI).AsatthedateofthePP7+closureinformation(November2019)thesecondstagehadbeencompletedforsixmajorand29smallstagedprojects.

Unresolved discrepancies187

Arecalculationandupdateoftheestimatednon-absorptionoffundingallocatedfortheCRforPP7+wasperformedinconnectionwithunresolveddiscrepancies.Expected non-absorption fortheentirePP7+thusstoodatapprox.CZK 25.40 billion, or CZK 25.69 billion takingintoaccountthenon-utilisationofpartoftheallocationforOperationalProgrammeCross-borderCooperationCR–Poland2007–2013andOPF7+. The final level of non-absorption will not be known until all OPs and ROPs are fully closed by the Commission.Potentialnon-absorptionrisks (in particular unresolveddiscrepancies) continue tobemonitoredand communicatedbytheNCAtotherelevantMAs,AB,PCAandtheCommission.UnresolveddiscrepanciesinOPEIwillnot increasethetotalnon-absorptioninviewoftheprogrammere-commitment,but discrepancies in ROP NW that are part of the national investigation and amount to approx. CZK 12 billion may increase the total unabsorbed amount.

Termination of regional councils

Theexistenceofregionalcouncilsofcohesionregions(RCs)remainanimportantissue.ThesecouncilswereestablishedbyActNo248/2000Coll.,onsupportforregionaldevelopment,asamended, for thepurposesof the implementationof support from theEuropeanRegionalDevelopmentFundinPP7+.Asregional councils are no longer managing authorities in PP14+, their work is gradually being scaled down in the context of the termination of PP7+.

187 Thesearediscrepanciesinexpenditurethatisincludedinthefinalprojectexpenditurestatementandwherethereisdoubtabouttheireligibility,whichischecked.


The MoRD has prepared an amendment of Act No 248/2000 Coll.188 containing rules for the termination of regional councils. Theaimof theamendment is towindup seven regionalcouncils and transfer all their rights and obligations to a legal successor, which is the CRrepresentedby theMoRDor, for the purposeof tax procedures after 1 January 2022, theMinistryofFinanceandfinancialadministrationauthorities.

G.2.1.2 ESIF in the 2014–2020 programming period

Allocation according to the Commission’s data

InPP14+entitiesfromtheCRmayutiliseEUfundingthroughtennationalprogrammes,fivecross-border cooperationprogrammes and six international programmes and interregionalcooperationprogrammes.

ThefollowingpassageswilldealsolelywithissueslinkedtoprogrammeswhoseMAisbasedin the CR, i.e. the ten national programmes and the cross-border cooperationprogrammeINTERREGV-ACR–Poland(INTERREGCR–PL).

According to data on the Commission’s website189, at the time of this report’s deadlineESIF funding of EUR 24.09 billion190 had been allocated for these 11 programmes.Addingnational funding of EUR 8.91 billion makesa total of EUR 33.01 billion. Therewasnochangeto theseaggregatevalues in2018.Thecurrentbudget ispresented in the following tables(not including INTERREG CR–PL, because the Commissionmonitors territorial cooperationseparately).

Allocation by funds

At 75.78%, ERDF and CF funding account for themajority of the total allocation. FundingallocatedintheESFandEuropeanAgriculturalFundforRuralDevelopment(EAFRD)makesup23.98%.FundingundertheEMFFandYouthEmploymentInitiative(YEI)representsjust0.24%.

Table 15: Total allocation for the CR by EU funds (EUR million)

Funds Abbrev. EU allocation National resources Total

Europeanregionaldevelopmentfund ERDF 11,940.69 5,526.77 17,467.46

CohesionFund CF 6,143.95 1,084.22 7,228.17

Europeansocialfund ESF 3,416.40 786.16 4,202.56

EuropeanAgriculturalFundfor RuralDevelopment EAFRD 2,305.67 1,464.97 3,770.64

Europeanmaritimeandfisheriesfund EMFF 31.11 10.05 41.16

YouthEmploymentInitiative YEI 27.20 2.40 29.60

Total 23,865.02 8,874.57 32,739.59

Source:Seehttps://cohesiondata.ec.europa.eu/countries/CZ,May2020.

188 Thedraftamendmentoftheactwasapprovedbythegovernmenton2March2020,beforeputtingitbeforetheChamberofDeputiesofParliament(parliamentaryprint780/0).

189 https://cohesiondata.ec.europa.eu.190 IncludingEUR226.22millionforINTERREGCR–PL.

https://cohesiondata.ec.europa.eu/countries/CZ

https://cohesiondata.ec.europa.eu


Allocation by topics

TheEUbudgetfundsallocationstructurewasmodifiedbythefifthrevisionofthePartnershipAgreementforthe2014–2020ProgrammingPeriod(seebelow).

Table16showstheallocations(orsharesoftheEUandstatebudget,includingtotals)forthevarioustopics.191ThetopicsarerankedinorderofthesizeofEUcontribution.

Table 16: ESIF allocation by topics (EUR million)

Topics EU allocation

National resources Total

Promotingsustainabletransportandkeynetworkinfrastructures 5,592.93 1,188.72 6,781.65

Protectingtheenvironmentandpromotingresourceefficiency 3,030.63 777.62 3,808.26

Strengtheningresearch,technologicaldevelopmentandinnovationStrengtheningresearch,technologicaldevelopmentandinnovation

2,561.56 1,881.29 4,442.85

Supporttowardsalowcarboneconomy 2,498.98 1,639.74 4,138.72

Investmentsineducation,vocationaleducation,includingvocationaltrainingtoobtainskillsandlifelonglearning 2,142.08 517.10 2,659.17

Promotingsocialinclusionandcombatingpoverty 2,095.95 422.15 2,518.09

IncreasingthecompetitivenessofSMEs 1,537.51 950.75 2,488.26

Promotingsustainableandqualityemploymentandpromotinglabourmobility 1,348.81 305.45 1,654.26

Promotingclimatechangeadaptation,riskpreventionandriskmanagement 1,257.11 463.31 1,720.43

Technicalassistance 844.36 177.09 1,021.45

ImprovingICTaccess,useandqualityofICT 803.81 399.55 1,203.35

Increasingtheinstitutionalcapacityofpublicauthoritiesandimprovingtheefficiencyofpublicadministration 141.41 30.25 171.65

Oldcommitments 9.90 10.10 20.00

Source:Seehttps://cohesiondata.ec.europa.eu/countries/CZ,May2020.

Allocation of programmes according to data of Czech implementing bodies

TheNCAconcedesthatitispracticallyimpossibletoachieveformalconformityatanygivenmoment between the Partnership Agreement and current financial data for individualprogrammes. That is due to various mechanisms for approving revisions of the PA andprogrammes at both national and European level. The large number of programmes andrevisionsthereofduringacalendaryear isanother important factor.TheCommission itselfwasawareofthat:itsamendmentoftheGeneralRegulation(Regulation(EU)No1303/2013of the European Parliament and of the Council of 17 December 2013) altered Article 16AdoptionandAmendmentofthePartnershipAgreement192.Inlinewiththisamendment,theCR,representedbythenationalcoordinationauthority(MoRD–NCA),submitsadraftrevised

191 TheOldCommitmentstopicconcernscommitmentsfromthecommonagriculturalpolicyfromthepreviousprogrammingperiod.

192 Subsection4aprovides:“Whereapplicable,theMemberStateshallsubmiteachyearby31JanuaryanamendedPartnershipAgreementfollowingtheapprovalofamendmentstooneormoreprogrammesbytheCommissionintheprecedingcalendaryear.”



PAtotheCommissionattheendofJanuaryeveryyear.ThisdraftincorporatesallprogrammechangesapprovedbytheCommissioninthepreviousyear.

On29April2019the Commission approved the fifth revision of the PA.193Thisrevisiontookintoaccountthetransferofpartoftheallocationworthalmost EUR 78.75 million from IROP (specifically,objective2.5ReduceEnergyIntensityintheHousingSectorandIncreasetheUseof Renewable Energy Sources). The revision also concerned reallocation within IROP and modificationstotheperformanceframework.ThefifthrevisionofthePAhad no impact on the overall allocation to the CR.

InSeptember2018theCR informedtheCommissionof its interest inperforminga furtherreallocation, thistimebetweenOPEIC, IROPandOPEnandbetweenspecificobjectives inOPEIC. TheESIFCouncil approved theproposal, basedonanMoIT actionplan, consistinginreallocatingalmosthalfthefunding(approx.EUR240.53million)originallyearmarkedforhigh-speed internet to other projects, above all in support of coal areas. Even though theCommissionhadapprovedthereallocationby20February2019194, thesechangeshavenotyetbeenfactoredintothePA.

The draft sixth revision of the PA, which contains changes impacting on the PA from allrevisionsapprovedbytheCommissionin2019,wassubmittedbytheNCAto the Commission on 31 January 2020; the Commission approved it on 24 April 2020.ThisPArevisioncomprisedchanges from six OP revisions approved by the Commission from January to April and also in December 2019.TheimplementationofthePAtodateispresentedmainlyintheProgress ReportonImplementationofthePartnershipAgreementasat31.12.2018195(ProgressReport2019),whichtheNCAdrewupduring2019. On22July2019theprogressreportwasdiscussedby the Czech government. It was then sent to the Commission, which accepted it on 18September2019.

The specific substantive goals of the PA (under EU legislation, these are designated asexpected results in the PA) have mostly been achieved by the CR. Good results wereachieved, forexample, in research,developmentand innovation (particularly in thequalityof research done by public entities and its practical application results and in enterprises’innovation performance); in SME competitiveness; rail and road infrastructure; water andair quality; cultural heritage; netmobility in public transport; employment and the labourmarket;andbuildingandmodernisingthe infrastructureofschoolsandschoolfacilities.Bycontrast,least progress was made towards objectives such as energy savings and renewable energy sources across all sectors and infrastructure for high-speed internet access.DetailedinformationisalsopresentedintheAnnualReportontheImplementationofthePartnershipAgreementfor2019196 (PAAR).

193 See:https://mmr.cz/Dotace/media/SF/FONDY%20EU/2014-2020/Dokumenty/Dohoda%20o%20partnerstv%c3%ad/Partnership-agreement-technical-revision-approved-by-the-EC-on-13-April-2016.pdf.

194 Commission implementing decision of 20 February 2019 amending implementing decision C(2015) 3039approvingcertainelementsoftheoperationalprogramme“EnterpriseandInnovationforCompetitiveness”forsupportfromtheEuropeanRegionalDevelopmentFundundertheInvestmentforgrowthandjobsgoalintheCR,C(2019)1552,final,20February2019.

195 ProgressReport2019isadocumentbymeansofwhichMemberStatesinformtheCommissionofprogressintheimplementationofthePAfortheperiodfrom1January2014to31December2018.TheaimofProgressReport 2019 is to provide evidence of whether funds provided from the EU budget through the ESIF aredeliveringtheexpectedresultsandachievingthegoalssetwhenOPswereapproved.

196 AnnualReportontheImplementationofthePartnershipAgreementfor2019,NCA,April2020.

https://mmr.cz/Dotace/media/SF/FONDY%20EU/2014-2020/Dokumenty/Dohoda%20o%20partnerstv%c3%ad/Partnership-agreement-technical-revision-approved-by-the-EC-on-13-April-2016.pdf

https://mmr.cz/Dotace/media/SF/FONDY%20EU/2014-2020/Dokumenty/Dohoda%20o%20partnerstv%c3%ad/Partnership-agreement-technical-revision-approved-by-the-EC-on-13-April-2016.pdf


Overview of the state of fulfilment of physical and financial progress milestones in OPs – implementation of the performance framework as at 31 December 2018

SomenewelementswereincorporatedinthesystemforutilisingESIFfundingforPP14+inanattempttoensuremoreefficientuseofEUbudgetfunds.Atthestartoftheprogrammingperiodtheseweremainly“ex-anteconditionalities”:ifthesewereinsufficientlysatisfied,thepreparationofprogrammescouldbepausedorinterimpaymentscouldbesuspendedfortheaffectedpartsofprogrammes.Anotherprotectivefeaturewasthe“performanceframework”.ThiswasusedtoassessthesuccessofESIFfundingdrawdownandachievementoffinancialandsubstantiveobjectivesbymeansof“milestones”andtargets.InthemiddleofPP14+theCommission reviewed theperformanceofprogrammes in termsof thedefinedmilestonesand targets; if thesewereachieved, theCommissionawardedprogrammesaperformancereservethathadbeensetaside,amountingtoapproximatelysixpercentofaprogramme’stotalallocation.

Inanefforttoforestallpossiblefailuretocomplywiththeperformanceframework,theNCAfocusedfirstonproblemareas,mainlyundertheIntegratedRiskManagementSystem(IRMS),regularlymonitoringprogress towardsmilestonesandachievementpredictions throughout2018and2019. Ifaproblemwasdetected, correctivemeasureswereadoptedby theNCAandmanaging authorities, including revisions of performance framework indicators. Thesemeasureswere consultedwith the Commission in advance and subsequently approved bytheCommission.Insomecases,fundswerereallocatedawayfromareaswithlowabsorptioncapacity. For programmeswhere the performance reservewas not awarded for the givenpriorityaxesorEUpriorities,negotiationswereheldwiththeCommissionregardingtheuseof this reserve.Thepriorityofboth theNCAandMAswas touse the funding in thegivenprogrammesothatitwasutilisedforactivitieswithhighabsorptioncapacityandtherewasnolossoffundingfortheprogramme.The total performance reserve redistribution amounted to approximately CZK 2.9 billion.

The Commission reviewed programmes’ performance and the decision to award theperformancereserveonthebasisofannualreportsontheimplementationofprogrammesfor2019(“AnnualReports”)thatweresentviaSFC2014+197upto30June2019.

AccordingtotheAnnualReports,123 milestones (45financialand78physical)out of a total of 134 milestones defined for the CR were fulfilled and 11 milestones (fivefinancialandsixphysical)were not.

Although not all milestones were fulfilled by the end of 2018, Commission ImplementingRegulations(EU)No2018/276198andNo2018/277199allowedmanagingauthoritiesin2019toincludethevalueofalleligibleexpenditurebybeneficiariesin2018inthedrawdownoftheallocation,withtheunderstandingthatitwasimportantthatthisexpenditurewasincludedin theaggregated requests and certifiedbefore thedeadline forfiling the relevantAnnualReports.Valuesof“partiallyimplementedoperations”couldbeincludedintheachievementofphysicalprogressmilestonesifthenatureofeachspecificindicatorpermitted.

197 CommissioninformationsystemintendedmainlyformonitoringdrawdownofPP14+funds.198 CommissionImplementingRegulation(EU)2018/276of23February2018amendingImplementingRegulation

(EU)215/2014withregardtochangestothedeterminationofmilestonesandtargetsforoutputindicatorsintheperformanceframeworkfortheEuropeanStructuralandInvestmentFunds.

199 CommissionImplementingRegulation(EU)2018/277of23February2018amendingImplementingRegulation(EU)2015/207withregardtochangestothemodelsfortheimplementationreportsfortheInvestmentforGrowthand Jobsgoal and for theEuropeanTerritorialCooperationgoal, aswell as for themodels for theprogressreportandannualcontrolreportsandcorrectingthatRegulationwithregardtothemodelfortheimplementationreportfortheInvestmentforGrowthandJobsgoalandannualcontrolreport.


Thankstothispossibilityandtheaforesaidmeasures,mostprogrammesattainedtherequiredvaluesandachievedtheirmilestones.Certain milestones were not achieved solelyinOP EIC (inpriorityaxis3–Efficientenergymanagement,developmentofenergy infrastructureandrenewableenergysources,supportfortheintroductionofnewtechnologiesinthemanagementof energy and secondary raw materials, and priority axis 4 – Development of high-speedinternet access networks and communication technologies); in OP Prague – Growth Pole (OPPGP)(inpriorityaxis1–Strengtheningresearch,technologicaldevelopmentandinnovationandpriorityaxis2–Sustainablemobilityandenergysavings);and in the RDP (priority5–Resourceefficiencyandclimate).

The Commission issued implementing decisions in thematter of the achievement or non-achievementofprogrammemilestones.FortheCRthesewere:• Commissiondecisionof1July2019determiningfortheCRandfortheEuropeanMaritime

and Fisheries Fund the prioritieswhich have achieved theirmilestoneswith referenceto the operational programme registered encoded under the following CCI number2014CZ14MFOP001200,C(2019)5034,final,1July2019;

• Commission implementingdecisionof19 July2019determining for theCRand for theEuropean Regional Development Fund and Cohesion Fund the operational programmeandtheprioritieswhichhaveachievedtheirmilestones,withreferencetotheoperationalprogramme encoded under the following CCI number 2014CZ16M1OP001201, C(2019)5519,final,19July2019;

• Commission implementingdecisionof24 July2019determining for theCRand for theEuropean Regional Development Fund, European Social Fund and Cohesion Fund theoperational programmes and the prioritieswhich have achieved theirmilestoneswithreference to the operational programmes encoded under the following CCI numbers2014CZ16M1OP002, 2014CZ16M2OP001, 2014CZ16RFOP001, 2014CZ16RFOP002202,C(2019)5638,final,24July2019;

• Commission implementing decision of 31 July 2019 amending implementing decision2014/190/EUasregardstheannualbreakdownoftheresourcesfromthespecificallocationfor the Youth Employment InitiativebyMember State togetherwith the list of eligibleregions,C(2019)5438,final,31July2019;

• Commissionimplementingdecisionof31July2019determiningtheUnionprioritiesthathaveachievedtheirmilestoneswithintheruraldevelopmentprogrammewithCCInumber2014CZ06RDNP001submittedbytheCRforsupportfromtheEuropeanAgriculturalFundforRuralDevelopment,C(2019)5840,final,31July2019;

• Commissionimplementingdecisionof20August2019identifyingfortheCRandfortheEuropean Regional Development Fund, European Social Fund and Youth EmploymentInitiativetheoperationalprogrammesandprioritiesthatachievedtheirmilestones,withreferencetotheoperationalprogrammesregisteredunderCCI2014CZ05M2OP001and2014CZ05M9OP001203,C(2019)6193,final,20August2019;

• Commissionimplementingdecisionof30August2019determiningfortheCRandPolandand for the European Regional Development Fund the cooperation programme andthe priorities which have achieved their milestones with reference to the operationalprogrammes encoded under the CCI number 2014TC16RFCB025204, C(2019) 6354, final,30August2019.

200 OPFisheries 2014–2020.201 OPTransport.202 OP Environment, OP Prague - Pole ofGrowthof the CR, OP Enterprise and Innovation for Competitiveness,

IntegratedRegionalOperationalProgramme.203 OPEmploymentandOPResearch,DevelopmentandEducation.204 INTERREGCR–PL.


InitsannualreportonthePartnershipAgreement,theNationalCoordinationAuthoritystatedthattheCommissionissuedadecisionontheawardoftheentireperformancereserve.Partlythanks to the aforementionedmeasures the CR obtained the entire performance reserve (approx.6%ofthetotalallocation,orapproximatelyCZK36.6billion).In consequence of the award of the performance reserve the NCA switched to a system of reporting drawdown relative to the total allocation from January 2020, i.e. themainallocationincludingtheawardedperformancereserve.

G.2.2 Drawdown of the allocation for the CR and fulfilment of the n+3 rule in the 2014–2020 programming period

Drawdown of the main allocation according to the Commission

TheCommissiontracksMemberStates’drawdownoftheirallocationandpublishesthedataon itswebsite (https://cohesiondata.ec.europa.eu).205 In thisway theCommissionpublishesdataonthevolumeoffundingcoveredbyasubsidyprovisiondecision,oranequivalentactinlaw,andthevolumeoffundingpaidouttoMemberStatesbytheCommissiononthebasisofsubmittedaggregatedrequests.

According to theCommission’sfigureson itswebsite as at 15April 2020206, the CR was in 22nd place in terms of the volume of funding covered by a legal document (79.93% of the total allocation), whichrepresentsayear-on-yearclimboffiveplacesamongEU-28countries.The CR was 6.23% below the EU-28 average (excluding data for territorial cooperationprogrammes).AsfarascomparingmemberstatesintermsofthevolumeoffundingpaidoutbytheCommissionisconcerned,the CR was in 20th place (39.45% of the allocation), 5.40% below the EU-28 average. AlthoughtheCR’sstandingisstillbelowaverageinbothcategories,therehasbeenclearimprovementcomparedtopreviousyears.

TofacilitatecomparisonsofMemberStates’progressinabsorbingtheirallocation,arankingofMemberStateswasdrawnupforbothcategories.Theserankingswerethensummedforevery year from2015 to2019.207As Table17makes clear, the CR was among the slowest Member States in terms of absorption speed inthe2015–2019period. Inthiscomparisonthe CR is third from bottom,thoughnotfarbehindRomaniaandCroatia.ThesethreeMemberStatesareontheheelsofSlovakia,whichiscurrentlyin23rdplace.Itisworthnotingthatthebottomtwoplacesareoccupiedby two“old”MemberStates, ItalyandSpain.FinlandandIrelandweretheMemberStatesdisplayingfastestdrawdown.

205 DatafortheERDF,CF,ESFandYEIareupdatedasarulethreetimesayear(31January,31July,31October);datafortheEAFRDtwiceayear(31Decemberand30August);anddatafortheEMFFonceayear(31December).

206 The data set accessible at https://cohesiondata.ec.europa.eu contained data for the ERDF, CF, ESF and YEIupdatedasof31December2019anddatafortheEAFRDandEMFFasof31December2018.

207 ThebetteraMemberState’sposition ineach“category”, the lower thepointsscore.TheEU-28average istherefore29points(14.5foritspositioninthecategoryoffundscoveredbyadecisionand14.5foritspositioninthecategoryoffundspaidoutbytheCommission).




Table 17: Ranking of MSs according to the speed of drawing for the period 2015–2019

Ranking 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th

State FI IE SE PT LU DE EE AT NL LV BE UK HU DK

Points 27 28 53 67 105 106 108 110 113 116 118 120 131 142

Ranking 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th

State LT FR SI CY EL PL MT BG SK HR RO CZ IT ES

Points 142 148 161 168 169 177 183 188 205 220 220 228 246 261

Source: https://cohesiondata.ec.europa.eu,15April2020.Note:TheEU-28averageforthisfive-yearperiodis145points.

Chart13showsacomparisonofthedevelopmentofdrawdownintheslowestsixMemberStates(theredgroupinTable17).Thepresentedvaluesagainrepresentpointsforplacementsin the two drawdown categories (themore points scored, theworse the ranking and theslowertheabsorptioninthegivenyear).

Chart 13: Development of drawing in the six slowest drawing MSs and their point loss on the EU average in 2015–2019

25

30

35

40

45

50

55

60

2015 2016 2017 2018 2019

SK HR RO CZ IT ES

Source: https://cohesiondata.ec.europa.eu,15April2020.Note:TheEUaverageistheoff-chart“0”scoreontheverticalaxis.

It isevident thatwhileRomaniaandCroatia inparticular,aftera slowerstart to theirOPs,managedtospeedupdrawdownconsiderably,Slovakiaismovingintheoppositedirection,i.e. towards Italy and Spain. TheCR recovered its big absorptiondrop in 2018 and is on apositivetrendoffasterdrawdown.




Drawdown of the allocation according to MS2014+

Atnational level, theNCAdrawsupoverviewsof theutilisationoffinances inprogrammesco-fundedoutoftheESIFeverymonth208;moredetailedreportsareproducedonaquarterlybasis209. It publishes these reports on the MoRD website. The values of the “drawdowncategories”presented in thispointarealsobasedonfigures fromtheQuarterlyReportontheImplementationofESIFundsintheCRinthe2014–2020ProgrammingPeriod,1stQuarterof 2020 published on 18 May 2020.210 That document gives information about territorialcooperationprogrammes(i.e.alsoINTERREGCR–PL)separatelyfromotherprogrammes.

Chart 14: State of drawing ESI funds in billions of CZK (for the sum as at March 31, 2020 and in % of the total allocation) as at December 31, 2019 and the increase for the first quarter of 2020.

609100.0%

869.2

489.9

278.6

238.7

232.6

23.6

31.1

20.3

20.3

20.9

Total allocation of the Partnership Agreement

Funds in registered applications

Funds in legal acts granting/transferring payment

Finances in reimbursed applications

Finances billed in payment applications

Funds in interim payment applications sent to the Commission

As at 31 December 2019 Increment as of 31 March 2020

298.949.1%

259.042.5%

253.541.2%

521.085.5%

892.8146.6%

Source:MS2014+,drawdowndataasat31March2020.

Drawdown fromprogrammes co-financedoutof the ESIF sped up during 2019 (seeChart13). Drawdown in OP PGP and OP EIC remained relatively low, however:attheendofMarch2020 they still stood below 30% of their total allocation in the “funds in interimpaymentapplicationssenttotheCommission”211.

208 MonthlyInformationontheImplementationofESIFundsintheCRinthe2014–2020ProgrammingPeriod.209 QuarterlyReportontheImplementationofESIFundsintheCRinthe2014–2020ProgrammingPeriod.210 ThesearefiguresreportedinMS2014+asat31March2020.211 Atnational level thiscategorycomesclosetothecategoryof“fundspaidoutbytheCommission”that the

Commissionkeepsacloseeyeon.


Chart 15: Drawdown of ESIF funds in % of total allocation as at 31 March 2020 by programmes

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

OP EIC OP RDE OP Em OPT OP En IROP OP PGP OPTA RDP OPF

Operations in legal acts granting/transferring payment

Funds in reimbursed payment applications

Funds billed in payment applications

Funds in interim payment applications sent to the Commission

Source: Quarterly report on the Implementation of ESI Funds in the CR in 2014–2020 Programming Period,IQuarter2020,NCA,18May2020.

Note:The “funds in interim payment requests sent to the Commission” columns include contributions fromprogrammes for financial instruments. The entire contribution of funds for a financial instrument can beincludedintherequest,regardlessofwhetherfundswerealreadyprovidedtoendbeneficiaries.ThismainlyappliestoOPEn.

As the NCA states in its quarterly report,MAs announced a total of 1,050 calls with an allocation of CZK 748.7 billion212 inPP14+.Asat31March2020thehighest-valuecallsrelativetotheprogrammeallocationcameunderOPF,OPEICandOPPGP.

By31March2020 legal documents had been issued for theprovision/transferof supportworth CZK 521.0 billion, i.e. 85.5% of the total allocation.ThelargestsharesoffundsinlegaldocumentsrelativetototalallocationwerefoundinOPEm,OPTechnicalAssistance(OPTA)andOPRDE,withthesmallestinOPEIC,OPEnandOpPGP.

The totalvalue of support disbursed as at the samedate tobeneficiarieson the basis of submitted applications for reimbursement for eligible project datawasCZK 298.9 billion, or 49.1%.ThelargestamountsoffundswaspaidoutundertheRDP,OPRDEandOPZ;thesmallestamountsundertheOPEIC,IROPandOPF.

212 ValueoftheEUcontribution.


At the end of March 2020, i.e.inthelastyearoftheseven-yearprogrammingperiod,the amount of funds in interim payment applications sent to the Commission was CZK 253.5 billion, or 41.2% of the total allocation.213

Compliance with the n+3 rule

Then+3 rule is a toolwithwhosehelp theEUensures smoothabsorptionofESIF funding.AMemberState’sallocationforyear“n”wasmustutilisedbytheendofyear“n+3”atthelatest. If thiscondition isnotmet, theMemberState faces theriskof losing theunutilisedfunding, known as automatic decommitment214. What this means for Member States inpractice is that theallocation foryear “n” is reducedby theamountofunutilised funding,whichcannotbesubsequentlydrawndownfromtheESIForspecificprogramme.UnderthecurrentdesignoftheCommission’sn+3ruleassessment,compliancewiththeruleisassessedatprogrammelevel.

InthecontextoftheRiskManagementInformationSystem,the NCA lays down measures to eliminate themostsignificantdrawdown risks relatingtoPP14+fundinginordertoensureitsutilisationisasefficientaspossible.

Given theapproaching closureofPP14+and theneed to focuson the concurrenceof twoprogrammingperiodsin2023,whentheeligibilityofexpenditurefromthecurrentperiodwillendandthen+2rulewillbeinforceforthe2021–2027programmingperiod,theNCAdefined“limits for optimal drawdown” in2019.TheselimitsweremodelledonthebasisofprogressindrawdownandexperienceswithPP7+absorption.Optimal drawdown limits were set in 2019 for OP EIC, OP PGP, IROP, OP F, OP RDE, OP En, OPT and OP TA.

As the optimal drawdown limits proved effective, they have been updated for 2020 andcontinuetobemonitored.215

Transfers of financial allocations within OPs and between OPs wereanimportantmeasureforensuringcompliancewiththen+3ruleduring2019.

Thiswasmainlyaquestionofreallocating EUR 240,531,844 from OP EIC,specificobjective4.1– Increasingcoverageofhigh-speed internetaccess,wherea riskofnon-utilisationwasidentified.Thistransferconcernscommitmentsfor2019and2020.

Of that amount, EUR 201,277,337 was transferred to IROP (specific objective 1.2 –Increasingtheshareofsustainableformsoftransport;specificobjective2.3–Developmentof infrastructure for the delivery of health services and health care; and specific objective2.4–Increasingthequalityandavailabilityofinfrastructureforeducationandlifelonglearning)and EUR 39,254,507 was transferred to OP En (specificobjective2.2–Reducingemissionsfromstationarysourcescontributingintheexposureofthepopulationtoabove-the-thresholdpollutantconcentrations).ThetransferoffundstoOPEnnecessitatedthecreationofanewspecificobjective,whichwillbefinancedfromtheERDF.

Inaddition,EUR 77,414,360 was moved within OP EIC fromspecificobjective3.2–Increasingenergy efficiency in the enterprise sector to 2.3 – Increase the utility of infrastructure forenterprise,inwhichanewfinancialinstrumentwillbecreated.

213 Seeabove(subsectionDrawdownofthemainallocationaccordingtotheCommission).214 DecommitmentmeansthecancellingoftheCommission’scommitment.215 TheselimitsweresetbeforetheCovid-19epidemic,buttheNCAispreparedtomakeallowanceforthepossible

impactsonCovid-19ontheimplementationofEuropeanfunds.


Inviewofthethematicconcentrationrules,the funding transfer was only possible because IROP activities in specific objective 1.2 – Increasing the share of sustainable forms of transport previously falling under thematic objective 7 were reclassified under thematic objective 4, including retroactive reclassification.

The reallocation was approved by the government, the monitoring committees of the relevant OPs and, subsequently, by the Commission (OPEIC–20February2019;IROP–7March2019;andOPEn–16April2019).

In part thanks to thesemeasures,all programmes managed to comply with the n+3 rule (hit then+3drawdown threshold) for 2019 in good time.216 Consequently, the CR did not lose any funding. The percentage of funding in interim payment applications sent to theCommission for the various programmes, compared against the percentage threshold forcompliancewiththen+3rulefor2019,isshowninChart16.

Chart 16: Funds in interim payment applications sent to the Commission (as a percentage of the main allocation) and comparison with the limit for meeting the n+3 rule in 2019.

0%

10%

20%

30%

40%

50%

60%

70%

OP EIC OP RDE OP Em OPT OP En IROP OP PGP OPTA RDP OPF INTERREGCR-PL

Volume of funds in interim payment applications sent to the Commission

Limit for implementation of the n+3 rule

Source: Quarterly Report on the Implementation of ESI Funds in the CR in the 2014–2020 Programming Period,IV.Quarter2019,NCA,21February2020;asat31December2019.

216 Theachievementoftheselimitsforthevariousprogrammesasat31December2019ispresentedinannex3totheannualreportonthePartnershipAgreement.


Ifwe overlook the extremedegree towhich the cumulative drawdown limit for 2019wasexceeded in the specific programme INTERREG CR–PL (210.95%)217, the threshold was exceeded most noticeably by OP Em (exceeded by 74.44%),OP TA (59.36%) and the RDP (59.05%).Bycontrast,OP PGP, OP EIC and OPF exceeded the limit by relatively small margins (4.19%,7.88%and17.63%respectively). Thesethreeprogrammes(showninredinChart16)wereamongthosewiththeslowestdrawdownin2018.218

AccordingtoNCAinformation,the vast majority of OPs had complied with the n+3 rule for 2020 by 31 March 2020. OP EIC, OP PGP and OPF were the exceptions.

In the caseofOPPGP compliancewith then+3 rule as at 31March2020 stood at 85.9%,meaning thatEUR14,789,618 still remains tobeabsorbedby theendof2020. In the caseofOPFcompliancewiththen+3ruleasat31March2020wasat99.3%,meaningthatEUR121,582 still remains tobe absorbedby theendof 2020.AsbothOPs alreadydisplayed ahighdegreeof compliancewithn+3 for this year after thefirst threemonthsof 2020 andforecastspointtothesetlimitsbeingsignificantlyexceeded,itisreasonabletoassumethatthereshouldnotbeanyproblemsinthiscase.

IntheSAO’sopinionbasedonthefactspresentedaboveandothers,there is a degree of risk that OP EIC will not comply with the n+3 rule in 2020.

G.2.3 ESIF involvement in the response to the economic impacts of the Covid-19 pandemic in the CR

ThefollowinginformationcomprisestheNCA’sanswerstotheSAO’squestions.Inviewofthetopicalnatureofthisissue,thesepassagesareincludedintheEUReport2020eventhoughtheanswerswereprovidedafterthereport’seditorialdeadline.

TheMoIT, working with the Czech-Moravian Guarantee and Development Bank (CMGDB),preparedseveralsupportschemesforentrepreneursandself-employedpeopleaffectedbythegovernment’smeasurestopreventthespreadoftheCovid-19pandemic.

The first support scheme Covid I, announced in March 2020, was conceived as an interest-free loan towards operating costs, with repayments deferred.Theacceptanceofapplicationswasstoppedfollowinghugelevelsof interestfromentrepreneurs.TheoriginalallocationofCZK 0.5 billion fromnationalresourceswasincreasedwithfundsfromOPEIC.

Covid II was announced in April 2020 as a guarantee scheme under the Expansion programme in OP EIC. The CMGDB provides guarantees for commercial bank loans to entrepreneursoutsidePrague and contributes towards interest payments. The credit canbeused topayoperatingcosts.AftertheinjectionoftheallocationfromOPEICthetotalguaranteecapacityof Covid II isapproximatelyCZK 15 billion.TheOPEICrevisionwassenttotheCommissionon16April2020forapproval.

217 ThecumulativedrawdownlimitforINTERREGCR–PLwassetatjust9.30%for2019,whiletheaveragevalueforall11programmeswhosemanagingauthoritiesareCzechentitiesis27.54%.

218 SeeEU report 2019,subsectionE.2.2.


Covid Prague waslaunchedforthecapitalattheendofApril.ItworksonasimilarprincipletoCovid IIandwillcomplementedwithaCZK 1.5 billion guarantee capacity for entrepreneurs in Prague. Theparametersof INFIN219,aschemetargeting innovativebusinesses inPrague,werealsomodified.BothschemesarefundedoutofOPPGP.TheOPPGPrevisionwassenttotheCommissionon23April2020forapproval.

Toalargeextent,thefundingfortheseoperational financing support schemestohelpfirmscopewith the immediateconsequencesofmeasuresadopted in responseto thepandemicwas transferred from other EU-funded investment-oriented support programmes (mostnotably support for cooperation in research,developmentand innovation, support for thedevelopmentofbusinessinfrastructureandenergyefficiency).

OverandabovetheEUfunds,theMoITdrewupCovid III incollaborationwiththeMoF,CzechBankingAssociationandCMGDB.Thisschemeis based on the portfolio guarantee principle. TheCMGDBconcludesa framework suretyshipagreementwith commercialbanksand thecommercialbanksthemselvesjudgewhetherclientssatisfythescheme’srequirements.Thisspeedsupprocessesconsiderablyandthebanks’clientsgetaccesstotherequiredliquiditymore quickly. The government-approved state guarantee limit of CZK 150 billion from national sources willmakeitpossiblefortheCMGDBtoguaranteeCZK600billioninprovidedcommercial operational credit. The scheme is intended for entrepreneurs in supportedeconomicactivitiesemployingatmost500people.Thisparameterderivesfromthepracticeof theEIBandEuropean InvestmentFund,whichworkwith the “smallmid-caps” category,meaningfirmswithaworkforceoffrom250to500employees,andprovidethemwiththesamesupportasSMEs.

FurthertothedeclarationofastateofemergencyandhavingassessedthepossiblenegativeimpactsonESIFimplementation,theMAsmadeadjustmentstotherulestopreventprojectimplementationandtheachievementofprojectgoalsbeingjeopardised.Alterationsweremadeto management documentation (generally modifications of expenditure eligibility, projectsustainabilityconditions,assessmentcommissionmeetingstotakeplaceelectronically)andtothecalls(generallyextendeddeadlinesforacceptanceoffundingapplications,extensionof the lastpossibledeadline for completionof thephysical implementationof theproject,adjustment of deadlines for providing supplementary information for applications). Sincethechangesweremadeandupdated,MAshavebeenpostingregular informationon theirwebsites.

TheOP EICmanagingauthorityalsoannouncedtwo thematically focused calls for the fight against Covid-19 (Innovationvouchers and Technologies).

In response to thespreadof thenewcoronavirusandwithaview tominimising its futureimpacts,extensive legislative changes were made to the rules for EU cohesion policy PP14+ in order to facilitate adjustments to the relevantOPs. The goal is both to enableMemberStatestoupdatethefocusofOPssothattheyhelpminimisetheconsequencesofthespreadofthediseaseandalsotopreventthepossiblenon-absorptionofprogrammeallocationscausedbythe impossibilityofcarryingoutprojects intheir intendedform.Basedontheamendedlegislation,theNCAdrewupananalysisofpossiblemodificationsofOPs.ItisfindingoutwhatMAsneedandpreparingproposalsforwaystotranslatethealteredlegislationintotherealityofcohesionpolicyinthefinalyearsofPP14+.

219 INFINisaschemeoftheCMGDBofferingSMEscheaploanstofundinnovativebusinessprojectsinthecityofPrague.


AccordingtoCzechgovernmentresolutionno.331of30March2020,theMoRDpreparedananalysis of the possible use of idle (non-committed)EU funds.Theanalysiswillbefollowedup by possible further reallocations in the context of existing PP14+ programmes. TheoutcomeofthisanalysisisseveraloptionsformakinguseoftheidlefundstohelpdealwiththesituationbroughtaboutbyCovid-19.Thematerialwasdiscussedatworkinglevelinthegovernment’sCommitteefortheEuropeanUnionon21April2020.Thevariousoptionswillnowbefinalised,partlyinconnectionwithdiscussionsonthenationalprogrammesinresponsetothepandemic.Aftersubsequentdiscussions,thefinalmaterialwillbeputbeforetheCzechgovernment,whichwillchoosethemostsuitableoption.TheOPrevisionswillbesubmittedtotheappropriatemonitoringcommitteesforapprovalandthentotheCommission.

The changes referred to above made it possible to use EU funds to support operational financing in PP14+. The CR hasmade considerable use of this option, as described above.Itmustbenoted,however,thatprovidingsupportforoperationalfinancingoutofEUfundssimultaneously reduces the volume of support for investments,orreducesthevolumeofsupportforcertainpriorityaxesandspecificobjectives.As a result, the expected results of thePAmight not be delivered,ortheCR’shonouringofitsinternationalcommitmentsinthefieldofenergyefficiency,forexample,mayberestricted.

TheMoRDenvisagesthatthelonger-termimpactsoftheCovid-19pandemicwillhavetobedealt with inter alia bymaking the investment environmentmore efficient (recodificationof construction law combined with the digitalisation of planning permission and buildingauthorisationprocedureswouldbeamajorcontributiontothatgoal),andmassivegovernmentinvestmentandmobilisationofprivateinvestmenttohelptacklepressingpan-societalneeds.EUfundsareoneofthegovernment’splannedresourcesinthefieldofinvestmentsassetoutinthenationalreformprogramme,forexample.

The NCA also drafted a procedure for MAs in the implementation of projects linked torestrictions in connection with the spread of the new coronavirus. Another version ofrecommendations in response to the approval of Regulation of the EP and of the Council2020/460220 (CRII)and2020/558221 (CRII+) iscurrentlyattheconsultationstage.Aswiththeprevious recommendations, theaim is toharmonise the startingpoints andbasic rulesonproceduresinawayensuringthatMAsfollowthesameprocedure.

Anotherpieceofguidancefocusingonpublicprocurementistherecommendationregardingthepossibilityofextendingdeadlinesforfilingbidsandthepossibilityofextendingacommitmentchangeinthestateofemergency.Asthepandemicappearedinthefinalcommitmentyearof the current programming period and talks on the legislation for the coming 2021–2027periodhavenotbeencompleted,animpactontheformofthislegislationcanbeexpected,but there isnotyetanywayof knowingwhat this impactwillbe.TherewillprobablyalsobeconsequencesfortheMFF,whichisalsostillawaitingapproval.Concretechangestotheproposalsarenotyetknown–thedraftMFFisexpectedonthenearfuture.

220 Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amendingRegulations (EU)No1301/2013, (EU)No1303/2013and (EU)No508/2014as regards specificmeasures tomobilise investments in healthcare systems ofMember States and in other sectors of their economies inresponsetotheCOVID-19outbreak(CoronavirusResponseInvestmentInitiative).

221 Regulation(EU)2020/558oftheEuropeanParliamentandoftheCouncilof23April2020amendingRegulations(EU)No1301/2013and(EU)No1303/2013asregardsspecificmeasurestoprovideexceptionalflexibilityfortheuseoftheEuropeanStructuralandInvestmentFundsinresponsetotheCOVID-19outbreak.


G.3 Expenditure on the Common Agricultural Policy

G.3.1 Current developments in the Common Agricultural Policy

G.3.1.1 Changes and adjustments for the 2021–2027 programming period in the EU

The Common Agricultural Policy (CAP) has been through five major reforms during itsexistence,themostrecentofwhich(for2014–2020)wasin2013.AnewformoftheCAPiscurrentlybeingpreparedfortheyears2021on.ThefirstdiscussionsabouttheCAPafter2020werebegunin2016.InJune2018theCommissionpublishedtherelevantdraftlegislation.

ThefutureCAPshouldfocus on nine objectives reflecting its economic, environmental and socio-territorial multifunctionality. Its two pillars are set to be preserved, as well as both agricultural funds tosupportnationalprogrammesfollowinguparangeofmeasuresselectedin the integrated approach. In any case, direct payments (both decoupled and coupled)should remain the priority component of the new CAP.

Spending on the CAP has been falling constantly for several years now. While the CAPaccountedfor66%oftheEUbudgetat thestartof the1980s, inthe2014–2020period itssharewas just37.8%.AsumofEUR365billion isproposed for theCAP for2021–2027, i.e.roughlyonethirdofthetotalEUbudget.TheproposedreductionintheCAP’sbudgetis5%atcurrentprices,whichistheequivalentofan approximately 12% reduction at fixed 2018 prices without factoring in inflation. The first pillar (direct payments and common market organisation) retains its privileged position (theEAGF’sshareshouldbe78.4%),eventhoughitsfundingisdownbyroughly11% whenthetwoprogrammingperiodsarecompared.The second pillar, focusing on rural development (EAFRD), is due to shrink markedly,however,withfundingdownby28%.

The crux of the reform is the CAP implementation model, which focuses on resultsand subsidiarity222, giving Member States a much bigger role in carrying out agriculturalinterventions.InfuturetheEUshoulddefinethefundamentalparameters(objectivesoftheCAP,basicrequirements,themaintypesofinterventionsinthefirstandsecondpillars),whileMemberStatesshoulddrawupmulti-annualstrategicplansforachievingspecificgoalsandtargetsthatwerejointlydecidedon.AllMemberStateswillhavetohavetheirownstrategicplan,whichmayincluderegional“sub-plans”,butthesewillallhavetoworkasasinglewhole.Theplansmustbedrawnuptransparentlyandwiththeparticipationofstakeholders.MemberStateswillberesponsiblefororganisingpartnershipswiththeappropriateregionalandlocalauthorities.

Every Member State will be able to prioritise some of the following nine objectives of the CAP,butgoodreasonsmustbegivenifaMemberStatedoesnotintendtoimplementoneobjective.

222 Apoliticalprincipleunderwhichdecision-making inpublicmattersshouldtakeplaceat the lowest levelofpublicadministrationthatisclosesttocitizens.

https://cs.wikipedia.org/wiki/Ve%C5%99ejn%C3%A1_spr%C3%A1va


Scheme 1: Objectives of the CAP

Support viable farm income and resilience across the EU territory (to support food security)

Increase competitiveness and enhanced market orientation

Improve farmers´ position in the value chain

Contribute to climate change mitigation and adaption

Foster sustainable development and efficient management of natural resources

Preserve nature and landscapes

Attract young farmers and facilitate business development

Promote employment, growth, social inclusion and local development in rural areas, including bio-economy

and sustainable forestry

Address societal expectations on food and health

TYPES OF INTERVENTION

financedfrom

EAGF and EAFRD

STRATEGIC PLAN

Source:Seehttp://capreform.eu/cap-strategic-planning-scope-and-implications/.

AnotherkeyfeatureofthefutureCAP shouldbesubstantial simplification and modernisation. CAP funding should be much more flexibleinthecomingperiod.Greater support should be given to small and medium-sized agricultural enterprises.MemberStatesshouldstrive to fight climate change, apply environmentally friendly farming methods and focus on food quality. MemberStatesshouldbeableto transfer as much as 15% of funding allocated under the CAP from direct payments to rural development and vice versasothattheycanadaptthepolicybetter to the specificprioritiesof theiragriculture sector.A further 15% canbemoved from pillar one to pillar two for environmental and climate change measures. It is expected that40% of the total CAP budget should contribute to climate action. Anothernewfeatureistheexpecteduse of financial instruments, i.e.repayablesupportinplaceofsubsidiesorincombinationwithsubsidies.

TheproposalforthefutureCAPreckonswiththe introduction of a definition of a “genuine farmer”, inotherwordsafarmerwhoseprincipalbusinessactivity isagriculturalwork.Thenew definition is supposed to replace the “active farmer” definition that was used untilrecentlybutwasabolishedfrom2018inthewakeofoppositionfromMemberStates(including theCR).

Asfarasthefirst pillar isconcerned,therearechangesintheredistributionofdirectsupport:the Commission proposes gradually reducing payments exceeding EUR 60,000 and a mandatory ceiling on provided aid (the proposed ceiling is EUR 100,000 per beneficiary).Sectoral intervention programmes willbetransferred fromthecommonmarketorganisationto new national strategic plans.Asfarasthesecond pillar isconcerned,theEAFRD will no longer be a structural fund fallingunderthecohesionpolicyframework,and EU co-funding will be reduced bytenpercentagepoints.Intheinterestofsimplification, the Commission is


concentrating interventions,eventhoughasaresultsomemeasureslosetheirvisibility(e.g.agro-ecologicalfarming)andLeader rules will determined at cohesion policy level,althoughitsfundingiscoveredfromthe“agricultural”budget.

When the EP startedwork on reform of the CAP for the post-2020 period, itwas alreadyreckoningGreatBritain’sexitfromtheEU.The final form of the future CAP is still unknown, however, and will depend on the results of the negotiations and agreement on the future MFF. Thereareconsiderabledifferencesofopinionabout the futurebudgetary frameworkand structure of CAP spending. No agreementwas reached at talks in December 2019 orFebruary 2020.MEPs from the EP agriculture committee alone submitted 5,200 proposedamendments,whichmeansthatthefinalformoftheCAPwillbeverydifferentfromtheCAPversionpresentedinJune2018.FurthernegotiationsontheCommission’sproposalsaresetforJune2020.The new CAP will therefore start to apply later planned.

G.3.1.2 Changes and adjustments for the 2021–2027 programming period in the CR

The CR is actively preparing for the new post-2020 CAP. In 2019 the MoA published thecurrent state of preparations and an overview of proposed and discussed CAP issues for2021–2027,includingtheCR’spositiononthevariousissues.The CR’s fundamental priority in the negotiations centres on questions regarding the size of the CAP budget and adequate CAP funding,i.e.thereductioninfundingfortheCAPasawhole,thereducedallocationforruraldevelopment(asmuchas16%down),whichismostsignificantfortheCR,and ensuring sufficient levels of support for sensitive sectors.AnotherquestionisthesimplificationoftheCAP,wherethe CR does not entirely agree with the proposed system of eco-schemes,whichtheMoAthinkswillleadtoanincreaseinredtape.Anothertopiccurrentlybeingnegotiatedisthe“genuine farmer” condition, where the CR is proposing a voluntary basis and asking that the definition of a genuine farmer is not reserved to Commission but left to Member States in the interests of flexibility.Lastbutnotleast,the CR wants ceilings for direct payments to be voluntary,asitseestheimpositionofceilingsasdisadvantageousfortheCR.Mandatoryceilingscouldsubstantiallyrestrictlargeagro-enterprises’accesstosubsidiesfromEuropeanfundsand,intheMoA’sopinion,willnotdelivertheoutcomestheCommissionistalkingabout.

Under the CAP the CR is set to receive EUR 7.7 billion (roughly CZK 200 billion) in the 2021–2027period (PP21+),withEUR5.9billion fordirectpaymentsandEUR1.8billion forruraldevelopment.Thatisless than the current 2014–2020 period,whentheCRhasaccesstoEUR8.2billion.

AstheCAPdoesnothaveaclearlegalframeworkyetorahigh-qualitystrategicplandrawnupatEU level, theCRhasnotdrawnupanationalstrategicplaneither.The disagreement and uncertainty around the Commission’s requirements creates a risk that Member States will not be able to design their strategic plans correctly.Thechiefdisputescentreonthesizeofthebudget,orthesizeofsubsidiesforEuropeanfarmers,mandatoryceilingsondirectpayments, the redistributivepaymentand thedefinitionof a “genuine farmer”. In view of the delay in finalising the post-2020 CAP at European level, the CR is also pushing for a transition period topreventdelaysintheflowofmoneytofarmers.

TheCRiscoordinatingitsprioritieswiththeV4,Franceandothercountries.TheCRisgenerallyagainstmandatoryceilingsondirectpaymentsandtheproposedeco-schemessystem.Instead,it supports an increase in payments for first hectares. TheCzech agrarian sector ismainlycalling forsoilprotectionand landscapeconservationandequilibriuminrelationsbetweenthefarmingandfoodproductionsectors.


G.3.2 State of drawdown of CAP funds in the CR in 2019

AccordingtoSAIFdata223,CZK 39.70 billion wasdisbursedunder the CAP in 2019 (includingthe Horizontal Rural Development Plan of the CR224), with EU funding amounting toCZK32.76billionandanationalshareofCZK6.93billion. Directpaymentsaccountedformostoftheaid.Table18givesthedetails.

Table 18: Overview of the funds paid in the main areas of the CAP for 2019 (CZK million)

EU s contribution

CR s contribution Total

Directpayments 21,805 650 22,455

Commonorganisationofthemarkets(CMO)* 424 567 991

Ruraldevelopment** 10,517 5,703 16,220

HorizontalplanoftheruraldevelopmentintheCR 17 13 30

Total 32,763 6,933 39,696

Source:SAIFdocuments-BudgetoftheCommonAgriculturalPolicy andMarketingfor2019anditsdrawing asat31December2019.

*Partoftheitem“commonorganizationofthemarkets”istherepaymentoftheloanforinterventionpurchasesintheamountofCZK67million.

**ThisisthesumofthefundsoftheRuralDevelopmentProgrammeoftheCRfortheperiod2007–2013 (CZK99million)andtheRDP.

Direct payments

Directpaymentsmakeupthelargestpartofthedisbursedsubsidiesinagriculture.ThelastCAPreformfrom2013significantlyalteredthestructureofdirectpaymentsfor2015–2020.ThemainimpactfortheCRwasaswitchtoamulti-componentpayment.

The SAIF paid out a total of CZK 22.46 billion in direct payments in 2019, an equivalentamountto2018.Thatamountincludescompensationforfinancialdisciplinedisbursedunderthe terms of Commission Regulation (EU) 2018/1848225; the total amount awarded was CZK282million.

Thebasicdirectpaymentandmostwidespreadfarmingsubsidyisthesingle area payment scheme (SAPS).In2019,30,217applicationswerefiledforatotalareaof3.54millionhectaresoffarmland,whichisalmostidenticalto2018.ThesubsidyratewassetatCZK3,394.11perhectareoffarmland.ThepaymentofSAPSapplicationstookplacebymeansofonedecisionin2019,butintwostages.A total of CZK 11.87 billion was paid out for SAPS in 2019.

223 ThedatacomesfromanSAIFmaterial:BudgetoftheCommonAgriculturalPolicyandMarketingfor2019andDrawdownThereofasat31December2019.

224 TheHorizontalRuralDevelopmentPlanoftheCRisoneoftheprogrammesofthe2004–2006programmingperiod.

225 Commission Implementing Regulation (EU) 2018/1848 of 26 November 2018 on the reimbursement,in accordancewith Article 26(5) of Regulation (EU) No 1306/2013 of the European Parliament and of theCouncil,oftheappropriationscarriedoverfromfinancialyear2018.


Thesecondbiggestdirectpaymentscomponentisthegreening payment,whichisdisbursedto farmerswho apply climate-friendly and environmentally friendly farming procedures inconnectionwiththeawardofSAPS.Thegreeningsubsidyratein2019wasCZK1,884.30perhectare of farmland; 30,217 applicationswere filed, the same therefore as for SAPS. Thatmeans that every farmer obtaining the basic SAPS payment used farming methods thatare climate-friendly and green (practised sufficient crop alternation, conserved permanentgrasslandandusedsoilecologically).AtotalofCZK 6.53 billion was disbursed for greening in 2019,whichisroughly29%ofdirectpayments.

5,604applicationsweresubmittedforanothercomponentofdirectpayments:payments for young farmers.TheratewasCZK1,697.06perhectareandatotalofCZK 178.96 million waspaidout.Thatrepresentedamarked increase–roughlyCZK116million– inpaidsubsidiesfrom2018.

A total of CZK 2.95 billion waspaidoutundervoluntary coupled support for 12 selectedcommoditiesin2019,i.e.morethan13%oftotaldirectpayments.

Farmers continued to receive national support in 2019, known as transitional national aid, whichreplacednationalTop-Uppaymentsand isentirelypaidoutofthestatebudget.CZK 650.06 million wasdisbursed,areductionofCZK80millionfrom2018.

Common market organisation

Commonmarketorganisation(CMO)isappliedbytheEUforselectedfarmingcommodities,forwhichitsetsbindingconditionsonproductionandsale.TheEUsupportsthesecommoditiesthrough interventions,subsidies, licensingpolicyfor importsandexportstoandfromthirdcountries,rulesontermsoftradeetc.TheaimofCMOistominimisefluctuationsinthesupplyofthecommoditiesandthusalsointhepricespaidtofarmersandtostabilisepricesforendconsumers.CMOcomesunderthefirstpillaroftheCAP,butitisalessimportantpartoftheCAPexpenditurebudget.

A total of CZK 990.67 million was spent in the context of CMO in 2019, with CZK423.51millionofthatcomingfromtheEUbudget.TheamountpaidoutisCZK 66 million less than in 2018. The majority of these payments consisted in financial support worth CZK 779.62 million provided mainly to the schemes Fruit and vegetables for schools,Milk for schools and Improved production and marketing of apiarian products. A furtherCZK 138.11 million paid out under CMO was used to support the restructuring andtransformationofvineyardsandtosupportthewinemarket.InterventionmeasuresworthatotalofCZK72.88millionwerealsocarriedoutin2019.

Rural development programme

EU rural development policy was rolled out as the second pillar of the CAP during theAgenda2000reform.ThispolicyisfinancedoutofEAFRDfundsviatheRural Development Programme of the CR 2007–2013 (RDP7+)andRDP.

A total of CZK 99.21 million waspaidoutonRDP7+in2019,withCZK58.63millionofthatfromtheEUbudget.Thesearethefinalpaymentstobeneficiaries,orcommitmentsfrompreviousyears,undernon-projectmeasuresinaxesIandIIofRDP7+.Examplesarepaymentsforearlyterminationofagriculturalactivity,afforestationoffarmland,paymentsunderNATURA2000inforestsandforestry-environmentalpayments.TheRDP7+wasabsorbedverysuccessfully:theCRabsorbed99.84%ofit.


Under theRDPtheCRcandrawdowna totalofEUR3.55billion,with theEuropeansharefinanced from the EAFRD amounting to EUR 2.31 billion. Most of the allocation, 65%, isearmarkedforgeneral(non-project)measures.As at 31 December 2019 the CR had drawn down the equivalent of CZK 37.2 billion from the EAFRD, which makes 66% of the main allocation (totalallocationminusaperformancereserveofaround6%).Comparedtootherprogrammesco-financedoutoftheESIF,theRDPisthemostsuccessfulprogrammeintermsofboththeleveloffundsbilledinpaymentapplicationsandreimbursedexpenditure.

In 2019 the SAIF paid outa total of CZK 16.12 billion through theRDP (CZK 10.46 billioncomingfromtheEUbudget).Thatwasan increase of approx. 23% over2018.

Most of the subsidies are far general (non-project) measures: roughly CZK 10.08 billion, i.e. 62.5%. The biggest components of that amount are subsidies for measures for areaswithnaturalorotherlimitations(CZK4.78billion),agri-environmentalandclimatemeasures(CZK3.15billion)andgreenfarming(CZK1.35billion).CZK 6.05 billion was disbursed from the RDP for project measures,withmostofthesubsidiesspentoninvestmentintangibleassets:CZK3.95billion,morethan65%ofthefundingforprojectmeasures.

From the start of the 2014–2020 programming period to 31 December 2019, a total of CZK 47.12 billion was paid out under the RDP (including national co-financing), withCZK14.70billiongoingonprojectmeasuresandCZK32.42billionongeneral (non-project)measures.146,697subsidyapplicationswerereceivedfunding.Table19givesthedetails.


Table 19: Overview of the funds payed out under the RDP as at 31 December 2019 (CZK millions)

RDP s non-project measures Number of applications

Disbursements (CZK millions)

EU contribution

CR contribution Total

M8.1 Forestinvestments 314 10.80 3.60 14.41

M10 Agro-environmentclimate 52,039 8,950.29 2,983.44 11,933.73

M11 Organicfarming 14,905 3,652.96 1,217.66 4,870.62

M12 Natura2000 1,782 38.37 12.79 51.16

M13 Paymentsforareasfacingnaturalorotherconstrains 64,234 9,615.07 3,205.02 12,820.09

M14 Animalwelfare 3,302 1,319.75 1,346.42 2,666.17

M15 Forest-environmentalandclimate-friendlyforestryandforestprotection 147 45.81 15.27 61.08

Non-project measures in total 136,723 23,633,05 8,784.20 32,417.25

RDP s project measures Number of projects

Disbursements (CZK millions)

EU contribution

CR contribution Total

M1 Knowledgetransferandinformationactions 55 10.08 10.28 20.35

M4 Investmentsinphysicalassets 5,169 5,221.85 5,327.34 10,549.19

M6 Farmandbusinessdevelopment 1,384 620.36 632.89 1,253.25

M8Investmentsinforestareadevelopmentandimprovementoftheviabilityofforests(withoutM8.1)

942 367.93 375.36 743.29

M16 Cooperation 48 498.42 508.49 1,006.90

M19 RuralDevelopmentProgrammeLEADER 2,153 581.87 327.30 909.17

M20 Technicalassistance 223 107.99 110.17 218.16

Project measures in total 9,974 7,408.48 7,291.83 14,700.31

Total RDP 146,697 31,041.53 16,076.03 47,117.56

Source:SAIFdocumentsonfundspayedoutfromRDPasat31December2019.

As at 31March 2020, therewas a year-on-year increase of 14,499 in the number of paidapplications/projectsandyear-on-yearincreaseofCZK8.65billioninthevolumeofdisbursedsubsidies.


G.4 Expenditure on the Common Fisheries Policy

G.4.1 Current developments in the common fisheries policy

TheEU’sCommonFisheriesPolicyofthe(CFP)wasfirstformulatedintheTreatyofRome.TheCFP’sprincipalobjectivesaretoensuresustainablefishingandguaranteefishermenincomesandsecureemployment.IntheCRtheCFPisimplementedviaOPFisheries 2014–2020 (OPF),whichfocusesoncreatingsustainableandcompetitiveaquaculturebasedoninnovationandmoreefficientresourceuse.ThegoalistoexpandsustainablefishfarmingintheCRandensureasteadysupplyoftherequiredrangeoffreshwaterfishovertheyearforthedomesticmarket,includingaquaculturediversification.

Preparation for the 2021–2017 programming period226

On14June2019,aproposalforaRegulationoftheEuropeanParliamentandoftheCouncilon the EuropeanMaritime and Fisheries Fund and repealing Regulation (EU) 508/2014 ofthe European Parliament was sent to the Council via the Commission. This is, however, ageneralconceptthatwasapprovedintheCouncilofMinisterson18June2019TheregulationestablishesaEuropeanMaritime,FisheriesandAquacultureFund (EMFAF) thatshouldhavesimplerrulesandshouldgiveMemberStatesgreaterflexibility.

ThegoalistostreamlinetheexistingmodelforprovidingfundingoutoftheEMFFbyenablingMemberStatestofocusthesupportontheirownstrategicprioritiesinsteadofchoosingfroma list of eligiblemeasures. Thenew fund’sbudgetproposedby theCommission shouldbeEUR6.41billionatcurrentprices.ApreliminaryallocationofEUR0.03billionisearmarkedfortheCR.

GiventhattheMFF2021–2027hasnotbeenfinalisedyetastechnicalandpoliticaldiscussionsarestilltakingplace,thereisariskthatprogrammingdocumentswillnotbereadyintimeandimplementationoftheprogrammingperiodwillnotstartin2021.

AnewOPFisheries waslaiddownaspartofthepreparationsforthePartnershipAgreementand OPs for the 2021–2027 programming period. The managing authority (MoA) drafteda position document setting out the CR’s ideas about the future targeting of support in post-2020 freshwater aquaculture. The position document will be the basic documentunderpinning theCR’snegotiationson thenewCFP. Ingeneral, theCRprefers tokeep theexistingformofsupportunchangedforthe2021–2027period.

G.4.2 State of drawdown of CFP funds in the CR in 2019

OPF is founded out of the EMFF. The total OPF allocation for PP14+ is EUR 41.2 million,withEUR31.1millioncomingfromtheEUandEUR10.1millionfromnationalco-financing.From the start of PP14+ to 31 December 2019, the CR drew down the equivalent of CZK 283 million from the EMFF, or 37.8% of the main allocation.Thebiggestshareoffundswasutilisedinpriority2.The CR’s funding absorption in OPF is generally poor.Thatisthecasedespitethefactthatdrawdownin2018and2019improvedsomewhat,withtheCRavoidingdecommitment;theperformancereserveofEUR2millionwasawardedtotheCR.

Supportapplicationswerereceivedinfoursingle-roundcallsin2019;continualacceptanceofsupportapplicationsalsowentahead.217subsidyapplicationswereregisteredandtheMoAissued192subsidyprovisiondecisions.AtotalofCZK144millionwaspaidoutunderOPFin2019,withtheEU’sshareamountingtoCZK108millionandthenationalshareCZK36million.

226 Source:InformationontheStateofPreparationofthePartnershipAgreementandOperationalProgrammesforthe2021–2027ProgrammingPeriod,NCA,July2019.


H. Legal matters

H.1 SAO recommendations for changes to the legal environment in 2019

Section6of theActontheSAOprovides thatbothchambersof theCzechparliamentandtheirbodiesareauthorisedtorequestopinionsfromtheSAOondraftlegislationconcerningbudgetarymanagement,accounting,statestatisticsandtheexerciseofcontrol,supervisoryandinspectionpowers.Thesebodiesdidnotmakeuseofthisauthorisationin2019byfilingformalrequestsforanopinion.TheSAO’sfindingswithregardtonecessarylegislativechangeswerepresentedinduringdiscussionoftheSAO’sauditfindingsatsessionsoftheChamberofDeputiesControlCommittee.

In linewith theGovernment LegislativeRules, theSAOgave itsopinionondraft legislationas part of interdepartmental consultation when this legislation related to its powers oraffecteditasanorganisationalunitofthestate.In2019theSAOreceived139 pieces of draft legislation and other material linked to legal regulation for assessment. The SAO issuedspecificcomments,basedmainlyonfindingsfromitsauditwork,on44 ofthesedrafts.

It was mainly draft amendments of government regulations intended to implement the Commission’s new regulations on the CAP, submitted by the Ministry of Agriculture, that were linked to the issue of financial management of EU funds.

Inaddition,adraft act amending Act No 248/2000 Coll., on support for regional development,asamended,andotherrelatedacts,wasexaminedaspartoftheconsultationprocessin2019;thedraftwassubmittedbytheMinistryforRegionalDevelopment.Thisdraftenvisages the abolition of regional councils for cohesion regions and the transfer of their powers to the MoRD.

RegardingthelegislationontheSAO’spowers,thediscussionofagovernmentbillamendingtheActontheSAOandotherrelatedacts(parliamentaryprint360/0)continuedin2019.ThisbillextendstheSAO’spowerstoincludeauditoftheuseofpublicfundsandfundsprovidedfrompublicbudgets,themanagementofassetsbyterritorialself-governingunits(regionsandmunicipalitieswithextendedcompetence)andthemanagementofassetsbylegalentitiesinwhichthestateoraterritorialself-governingunitholdsthemajorityoftheregisteredcapitalorisacontrollingperson.Discussionalsowentaheadonaparliamentarydraftactdealingwiththesame issue (parliamentaryprint230/0)anda relateddraftconstitutionalactamendingConstitutionalActNo1/1993Coll., theConstitutionof theCR, as amended (parliamentaryprint229/0),amendingArticle97oftheConstitutionoftheCR,whichdealswiththestatusoftheSAO.ThedraftamendmentsoftheSAOActwouldinclude“EuropeanUnionfundsorotherfundsfromabroadprovidedtothestateonthebasisofaninternationalagreement”in thecategoryof“publicfunds”.ThisdraftlegislationpassedthefirstreadingintheChamberofDeputiesinFebruary2019.Inthefollowingmonthsoftheyear,thedraftswerediscussedinparliamentarycommittees,whichamendmentproposalsweresubmitted.Thesecondreadingof the drafts took place in January 2020. The constitutional amendment passed the thirdreadingintheChamberofDeputieson12February2020.ThethirdreadingofthedraftactsamendingtheActontheSAOwasadjourneduntilthedraftamendmentoftheConstitutionisdebatedintheSenate.

OfthedraftlegislationcommentedonbytheSAOinpreviousperiodsandlinkedtotheEU, the legislative process for the Act on Personal Data Processing was completed in 2019. This legislationadaptsCzech lawtothedirectlyapplicableRegulation(EU)2016/679of the


European Parliament and of the Council on the protection of natural personswith regardto the processing of personal data and on the freemovement of such data and repealingDirective95/46/EC(GeneralDataProtectionRegulation,GDPR),whichenteredintoeffecton25May2018.The Act waspromulgatedunderno.110/2019 Coll. andenteredintoeffecton24April2019.

InApril 2020 the SAOparticipated in theconsultation process of a draft updated version of the National Strategy for the Protection of the European Union’s Financial Interests organisedbytheMinistryofFinance.

H.2 Implementation and transposition of EU law in the CR

UponjoiningtheEUtheCRassumedtheobligationtofulfilallthecommitmentsofaMemberState.TheseincludeobligationsarisingoutofArticle4(3)oftheTreatyonEuropeanUnion227 (TEU),whichrequiresMemberStatestotakeanyappropriatemeasurestoensurefulfilmentoftheobligationsarisingoutoftheTreatiesorresultingfromtheactsoftheinstitutionsoftheUnion.IfthenatureofEUlawsorequires,itmustbetransposedintonationallawproperlyandingoodtime. Implementationandmonitoring thereofare thendonedifferentlydependingon thekindofEU legalact. In thecaseofEUdirectives,both the transposition thereofbyMemberStatesandthesubsequentcommunicationofnationaltransposingregulationstotheCommissionaremonitored.

H.2.1 Assessment performed by the Czech government

Czechlaw’scompatibilitywithEUlawisfullyassessedthroughmonthlyandannualreportsonthestateofallocationofcompetencesandfulfilmentofcommitmentsarisingoutofEUmembership. The reports are designed to present the results of the various governmentdepartments’legislativework,asregardsbothtranspositionofdirectivesandtheadaptationofCzechlawtoEUregulations.Thereportsarealwaysputbeforegovernmentfordiscussion.TheGovernmentReporton theTranspositionof LegislativeCommitmentsArisingoutof theCR’sMembershipoftheEuropeanUnionfor2019wasdiscussedbytheCzechgovernmenton20January2020andapprovedthatdaybygovernmentresolutionno.57.

H.2.2 Transposition deficit228

MemberStates’ transpositionactivitiesaremonitoredby theCommission,with the resultsfactoredintoassessmentscalledtheSingleMarketScoreboard229(SMS),whicharepublishedtwiceayearontheCommission’swebsite230.

ThefirstofthetwoSMSassessmentsfor2019waspublishedon4July2019.Thisassessmentcovered the internal market directive, whose transposition deadline fell on 30 November2018.Fullytransposeddirectivesforwhichthetranspositionregulationswerecommunicatedby10December2018werenotreflectedinthetranspositiondeficit.TheCRendedupin12th to 15thplaceinthisassessment,withatranspositiondeficitof0.7%correspondingtosevenuntransposeddirectives.

227 TreatyonEuropeanUnion(consolidatedversion),OfficialJournaloftheEuropeanUnion,C326/13,26October2012.

228 ThedifferencebetweenthenumberofsinglemarketdirectivesadoptedbytheEUandthenumbertransposedbytheMemberState.

229 Overviewofsinglemarketresults.230 See:http://ec.europa.eu/internal_market/scoreboard.

http://ec.europa.eu/internal_market/scoreboard


TheCRwasinformedoftheresultsofthesubsequentSMSevaluationon4November2019.Thistimetheassessmentcoveredthetranspositionofdirectiveswithatranspositiondeadlineof 31 May 2019. Fully transposed directives for which the transposition regulations werecommunicatedby11June2019werenotreflectedinthetranspositiondeficit.TheCRcame13th–15thamongMemberStatesinthisSMS.

According to statistics from D-G Internal Market, Industry, Entrepreneurship and SME,five internalmarket directives had not been transposed in the CR by that deadline,whichcorrespondedtoatranspositiondeficitof0.5%.

TheSMSalsotracksthenumberofproceduresbeingconductedforfailuretocommunicatethe transposition regulationsor for improperly transposed internalmarketdirectives.Herethe CR,with 30 ongoing procedures,was in 10th place amongMember States in themostrecentSMS.

It is clear from these SMS results published in 2019 that the CR, after a relatively long period with a high transposition deficit, has managed to bring this deficit down slightly to around 0.5%, which corresponds to the EU average.

H.2.3 Infringement procedures231

Asat30November2019,59 infringement procedures concerning breaches of the TFEU232 were being conducted against the CR, which is six fewer than in the previous year. 14procedureswerebeingconductedagainsttheCRundertheEU Pilot systemasatthesamedate,whichisalsosixfewerthanin2018.

According to updated data, as at 31March 202059 infringement procedures were being conducted against the CR.43ofthemwereintheformalnoticephase;15inthereasonedopinionphase;andinonecaseanactionhadbeenfiledwiththeEuropeanCourtofJustice.

Asfarasthetypeofinfringementisconcerned,failuretocommunicatetranspositionregulationswereatissuein26procedures;impropertranspositionin10procedures;applicationerrorsin11procedures;andfailuretofulfilthedemandsofregulationsin12procedures.

1. In2019,oneactionunderthetermsofArticle258oftheTFEUwasdeliveredtotheCR,andonejudgementwashandeddowninaprocedureagainsttheCRintheEuropeanCourtofJustice.

2. The action in caseC-305/19 (procedure no. 2016/2131, comingunder the authority oftheMoIT)arrivedattheOfficeoftheEuropeanCourtofJusticeon12April2019andwasdeliveredtotheCRon17April2019.TheprocedureconcernstheimpropertranspositionandapplicationofcertainprovisionsofDirective2010/31/EUoftheEuropeanParliamentand of the Council of 19 May 2010 on the energy performance of buildings. TheCommissionasserts that theCRwas inbreachof thedirectiveby failingtoensurethatenergy performance certificates were displayed in buildings with a total useful floorareaexceeding500m2forwhichacertificatewasissuedpursuanttoArticle12(1)ofthe

231 Infringement procedure is a mechanism by which the Commission discharges its duty to oversee theapplicationofEUlaw(cf.Article17(1)TEU).If, intheCommission’sopinion,thelawisbrokenbyaMemberState,theCommission,underthetermsofArticle258oftheTreatyontheFunctioningoftheEU,maylaunchproceedingsdividedintoseveralphases,withthefinalphasebeingthefilingofanactionwiththeEuropeanCourtofJustice.Inprinciple,infringementproceduremaybeinitiatedonthegroundsoffailuretoimplementanEUdirection,failuretocommunicatethenationaltranspositionregulationsfortheconcernedEUdirective(“non-communicationprocedure”)orfortheimproperimplementationofanEUregulationorapplicationoflegalregulationsincontraventionofEUlaw(substantiveprocedure).

232 TreatyontheFunctioningoftheEuropeanUnion(consolidatedversion),OfficialJournaloftheEuropeanUnion,C326/49,26October2012.


directive andwhich are frequently visitedby thepublic. Regarding thismatter,ActNo3/2020 Coll., amending Act No 406/2000 Coll., on energy management, as amended,enteredintoeffecton25January2020.ThisActbroughtthelegislationonthismatterintolinewithEUlaw.The Commission consequently withdrew the action.

3. On14March2019theECJrejectedinfullthe Commission’s action against the CR incaseC-399/17 (procedureno.2014/4234undertheauthorityoftheMoE).TheECJruledthatthe Commission had failed to prove that the substanceGEOBALwaswastewithin themeaningofDirective2006/12/ECoftheEPandoftheCouncilof5April2006onwasteatthetimewhenitwastransportedtoPoland.

4. On2April2020 the ECJ ruled onactionC-719/17 (procedureno.2017/2092under theauthority of theMinistry of the Interior) to the effect that by not reporting at regularintervals, and at least every three months, the number of asylum seekers who couldbe relocated swiftlymoved to Czech territory the CR was in breach of its obligation underArticle5(2)ofCouncilDecision(EU)2015/1523of14September2015establishingprovisional measures in the area of international protection for the benefit of ItalyandGreece,andArticle5(2)ofCouncilDecision (EU)2015/1601of22September2015establishingprovisionalmeasures intheareaof internationalprotectionforthebenefitofItalyandGreece,andthusalsoofitsotherobligationsconcerningrelocationandlaiddowninArticles5(4)to(11)oftheaforesaidCouncildecisions.

5. The Commission is conducting two infringement procedures against the CR forinfringementconsistinginfailuretofulfilcommitmentsinrespectoftheEUonthegroundsofunsatisfactoryairquality(non-compliancewithimmissionslimitsforPM10particulatematterandNO2).TheCommissiongavetheCRanextendedtimelimitforswiftcompliancewiththeimmissionslimits.AneventcalledCleanAirDialogue(“Dialogue”)tookplaceinPragueinNovember2018.TheCommissionformulatedademandthatmeasurestocomplywith immissions limits be implemented swiftly. The measures concern the transport,industryandenergysectors,agricultureandhouseholdheating.Governmentresolutionno.502wasadoptedon8July2019regardingtheconclusionsresultingfromtheDialogue.Furthertothisgovernmentresolution,inDecember2019theMinistryoftheEnvironmentlaunchedtheconsultationprocessforadraftamendmentofGovernmentRegulationNo56/2013Coll.,establishingrulesforplacingroadmotorvehicles inemissionscategoriesandonemissionslabels.Thisdraftlegislationintroducesnewvehicleemissionscategoriescorresponding to the latest EURO emissions standards and an emissions category for“cleanvehicles”.

6. TheEU Report 2019 mentioned the transposition of the directive on requirements forMember States’ budgetary framework which, under the authority of the MoF, was supposed to be transposed by 31 December 2013. Act No 126/2019 Coll., amendingActNo320/2001Coll.,onfinancialcontrolinpublicadministrationandamendingcertainacts(ActonFinancialControl),asamended,which completed the transposition, was passed in April 2019 and entered into effect on 1 January 2020.

ThefollowingchartshowsthesizeoftheCR’stranspositiondeficitinpercentageterms.


Chart 17: Evolution of the CR s transposition deficit in 2010–2018 and compared to the EU average

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018

CZ EU average

Source:Seehttp://ec.europa.eu/internal_market/scoreboard.

The CR’s transposition deficit and number of infringements remained around the EU average in the period under scrutiny, some partial improvements notwithstanding. The SAO has repeatedly reiterated the risks the CR faces on this account233.ConsequencesoflackingorincorrecttranspositionofEUdirectivesincludedirectapplicationofthedirectives,theriskofliabilityfordamagescausedtonaturalandlegalpersonsbythelackingorincorrecttransposition,andproceduresforbreachoftheTFEUwithpossiblefinancialconsequences.

233 IftheCommissionidentifiesabreachorisnotifiedofsuchabreachinacomplaint,ittriestoreachanagreementwith theMemberStateviastructureddialogue (EUPilot).Theagreementshouldresult in thecauseof thebreach,orcomplaint,beingeliminated.MemberStatesmaysupplyfactualorlegal informationonthecaseinthisphase.TheaimistofindaquicksolutionconformingtoEUlawandpreventinfringementprocedurefrombeinglaunched.IfaMemberStatedoesnotagreewiththeCommission’sopinionordoesnotimplementcorrectivemeasures,theCommissionmayopenformalinfringementprocedure.Theprocedureisasfollows:• TheCommissioninvitesthegovernmentofthegivenMemberStatetofileastatementwithintwomonths.• IftheCommissiondoesnotreceiveananswerortheanswerisunsatisfactory,theCommissionissuesan

opiniongivingreasonswhyitconsiderstheMemberStatetobeinbreachofEUlaw.TheMemberState’sgovernmenthastwomonthstoputthingsright.

• IftheCommissiondoesnotreceiveananswerortheanswerisunsatisfactory,theCommissionaskstheECJtoopenjudicialproceedings.Thematterisusuallyresolvedbeforethat,though.IftheMemberStatefailstocommunicatethemeasuresintendedtoimplementadirective,theCommissionmayinthisphaseasktheECJtoimposeaflat-ratefineand/orpenalty.

• Within twoyears,asa rule, theECJdecideswhether theMemberStatewas inbreachofEU lawornot.TheMemberState’sgovernmentisobligedtoadaptnationalregulationsorpracticesandresolvetheissueassoonaspossible.

• If a Member State continues to fail to put things right, the Commission sends another request. If theCommissiondoesnotreceiveananswerortheanswerisunsatisfactory,theCommissionmaypassonthemattertotheECJwithaproposalforimpositionofaflat-ratefineand/orpenalty.

http://ec.europa.eu/internal_market/scoreboard

136 EU REPORT 2020, Sources and references

Sources and references1. 2018-EUauditinbrief.PresentationoftheEuropeanCourtofAuditors’annualreportsfor

2018,PublicationsOfficeoftheEuropeanUnion,8October2019.

2. ActionPlanofWork4.0includedintheActionPlanforCompany4.0,whichwasapprovedbytheResolutionoftheGovernmentoftheCRNo684.on25September2017.

3. 5GActionPlanforEurope,COM(2016)688finalon14September2016.

4. Quarterly reports on the implementation of ESI funds in the CR in the 2014–2020programmingperiod.

5. PartnershipAgreementforthe2014–2020programmingperiod-CR,26August2014.

6. CommissionRecommendationof6May2003concerningthedefinitionofmicro,smallandmedium-sizedenterprises(notifiedunderdocumentnumberC(2003)1422),2003/361/EC.

7. RecommendationfortheCOUNCILRECOMMENDATIONontheNationalReformProgrammeoftheCRfor2019andCouncilOpiniononthe2019ConvergenceProgrammeoftheCR,COM(2019)503finalwordingof5June2019.

8. EUBudget2018-FinancialReport,EuropeanUnionPublicationsOffice,2019,andpreviousCommissionreportsontheEUbudgetpublishedin2008-2018.

9. EuropeanCommission:NewinstrumenttoenableEUcountriestotakeactionagainstVATfraudandreturnbillionsofeurostopublicbudgets,dated15May2019.

10. InformationoftheMoRDontheclosureofthe2007–2013programmingperiod,No50323/2019-27,datedNovember22,2019.

11. InformationonthepreparationofthePartnershipAgreementandoperationalprogrammesforthe2021–2027programmingperiod,MoRD-NCA,July2019.

12. InnovationStrategyoftheCR2019–2030approvedbytheResolutionoftheGovernmentoftheCRNo104on4February2019.

13. ConvergenceProgrammeoftheCR2019approvedbytheResolutionoftheGovernmentoftheCRNo278on29April2019togetherwiththeBudgetStrategyofthePublicInstitutionsSectoroftheCRfortheyears2020–2022.

14.Monthly information on the implementation of ESI funds in the CR in the 2014–2020programmingperiod.

15. NationalReformProgrammeoftheCR2019preparedbytheOfficeoftheGovernmentoftheCRandapprovedbytheGovernmentCommitteefortheEuropeanUnionatthelevelofmembersbyResolutionNo6of29April2019.

16. Proposal for a Council Implementing Decision authorizing the CR to apply the generalreverse chargemechanismbyway of derogation from the provisions of Article 193 ofDirective2006/112/EC,COM(2019)283finalof21June2019.

17. ProposalforaCouncilRegulationlayingdownimplementingmeasuresforthesystemoftheEuropeanUnion’sownresources,COM(2018)327finalof2May2018.

18.Proposal foraCouncilDecisionon thesystemof theEuropeanUnion’sown resources,COM(2018)325finalof2May2018.

19. Proposal for a Council Directive amending Directive 2006/112/EC as regards theharmonizationand simplificationof certain rules in the systemof valueadded taxandestablishingadefinitivesystemoftaxationapplicabletotradebetweenMemberStates,COM(2017)569finalof4October2017.

137EU REPORT 2020, Sources and references

20. Proposal foraCouncilDirective layingdowngeneral rulesonexciseduties (recast)andProposalforaCouncilRegulationamendingRegulation(EU)No389/2012onadministrativecooperationinthefieldofexcisedutiesasregardsthecontentoftheelectronicregister-politicalagreement,13634/19FISC420ECOFIN958of31October2019.

21. AccompanyingdocumenttotheCommunicationfromtheCommissiontotheEuropeanParliament, the European Council, the Council, the European Central Bank and theEurogroup: European Semester 2020: Assessing progress on structural reforms andpreventingandcorrectingmacroeconomicimbalancesandtheresultsofin-depthreviewsofstructuralreforms1176/2011,SWD(2020)502finalof26February2020.

22. Interimreportontheimplementationoftherecommendations(GRECO),evaluationofthemeasurestakenbytheCRonthebasisoftherecommendationsoftheEvaluationReportofthefourthevaluationroundofApril2016.

23. BudgetoftheCommonAgriculturalPolicyandMarketingfor2019anditsimplementationasat31December2019,SAIF2020.

24. Collectionoflaws.

25. Communication from the Commission to the European Parliament, the Council, theEuropeanEconomicandSocialCommittee,theCommitteeoftheRegionsandtheCourtofAuditors:TheCommission’santi-fraudstrategy:furthermeasurestoprotecttheEUbudget, COM(2019)196finalof29April2019.

26. CommunicationfromtheCommissiontotheEuropeanParliament,theEuropeanCouncilandtheCouncil:Stepstowardsensuringmoreeffectiveanddemocraticdecision-makinginEUtaxpolicy,COM(2019)8finalof15January2019.

27. Communication fromtheCommission to theEuropeanParliament, theCounciland theEuropeanEconomicandSocialCommitteeontheVATActionPlan:TowardsaSingleVATAreaintheEU: Timetotakeadecision,COM(2016)148finalof7April2016.

28.Communication from the Commission to the European Parliament, the Council, theEuropeanCentralBank,theEuropeanEconomicandSocialCommittee,theCommitteeoftheRegionsandtheEuropeanInvestmentBank:AnnualGrowthSurvey2019:TowardsastrongerEuropeinthefaceofglobaluncertainty,COM(2018)770finalof21November2018.

29. RegionalDevelopmentStrategy2021+approvedbytheResolutionoftheGovernmentoftheCRof4November2019No.775.

30.Press release of theMinistry of Finance of 28 January 2020: In 2019, the CR receivedCZK68.5billionmorefromtheEUbudgetthanitpaid.

31. OfficialJournaloftheEuropeanUnion.

32. JournaloftheEuropeanCourtofAuditors.

33. SAOBulletin.

34. EvaluationoftheactionplanforthenationalstrategyfortheprotectionoftheEuropeanUnion’sfinancialinterestsfor2019.

35. AnnualReportontheImplementationofthePartnershipAgreementfor2019,MoRD-NCA,April2020.

36. AnnualReportontheImplementationoftheEUBudgetfortheFinancialYear2018,OfficialJournaloftheEuropeanUnion,C340/01of8October2019,andpreviousannualreports.

37. AA´sAnnualAuditReports,informationfromtheAA,May2020.

138 EU REPORT 2020, Sources and references

38.Report fromtheCommissionto theEuropeanParliamentandtheCouncil:30thAnnualReportontheProtectionoftheEuropeanUnion’sFinancialInterests-FightagainstFraud-2018,COM(2019)No444finalof11October2019,andannualreportsforpreviousyears.

39. Reporton theResultsofFinancialControls inPublicAdministration for2018,which theGovernmentoftheCRtooknoteofinitsResolutionNo524of22July2019.

40. Government Report on the Assumption of Legislative Obligations Arising from the CR’sMembershipintheEuropeanUnionfor2019,approvedbyGovernmentResolutionNo57on20January2020.

Used web sites:

• http://ec.europa.eu

• http://www.eagri.cz

• http://capreform.eu/cap-strategic-planning-scope-and-implications/

• https://www.europarl.europa.eu

• http://www.nku.cz

• http://www.szif.cz

• http://www.vlada.cz

• https://www.consilium.europa.eu/en/press/press-releases/2017/11/30/2018-eu-budget-adopted/

• https://cohesiondata.ec.europa.eu/countries/CZ

• https://eur-lex.europa.eu/homepage.html

• https://www.dotaceeu.cz

• https://www.eca.europa.eu

• https://www.ec.europa.eu/eurostat

• https://www.transparency.org

http://ec.europa.eu

http://www.eagri.cz

https://www.europarl.europa.eu

http://www.nku.cz

http://www.szif.cz

http://www.vlada.cz

https://www.consilium.europa.eu/en/press/press-releases/2017/11/30/2018-eu-budget-adopted/

https://www.consilium.europa.eu/en/press/press-releases/2017/11/30/2018-eu-budget-adopted/


https://eur-lex.europa.eu/homepage.html

https://www.dotaceeu.cz

https://www.eca.europa.eu

https://www.ec.europa.eu/eurostat

https://www.transparency.org

139EU REPORT 2020, Appendices

Appe

ndix

1: O

verv

iew

of A

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men

ts, p

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rror

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and

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ratio

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140 EU REPORT 2020, Appendices

Appendix 2: Overview of audit missions of the European Court of Auditors carried out in the CR in 2018 and 2019

Year Date of the mission

Audit subject (programme) Audit type Audit form

2018

1 5–9Feb Auditofthecontrolsystemforecologicproductionandlabellingecologicproducts DAS on-the-spot

2 5–9Feb OPEnvironment DAS on-the-spot

3 5–9Feb OPTransportERDF/CF DAS on-the-spot

4 22–23Feb AuditconcerningtheStatementofAssurancefor2017-Erasmus+ DAS on-the-spot

5 12–13Sept

AuditconcerningtheStatementofAssurancefor2018-FP7-PROHEALTH DAS on-the-spot

6 1–5Oct,6–9Nov OPTransport DAS on-the-spot

7 8–12Oct AuditontheimplementationcostsofCohesionFunds.

Performanceaudit on-the-spot

July EUsystemformeasuringemissionsfromvehicles. questionnaire

October

PerformanceauditonhowtheCommissionandtheEuropeanEnvironmentAgencymanagetheoffsettingandreductionofgreenhousegasemissions.

questionnaire

2019

1 14–18JanAuditconcerningtheStatementofAssurancefor2018-EuropeanAgriculturalFundforRuralDevelopment.

DAS on-the-spot

2 4–7Mar RoadsconnectingEuropeanregions. Performanceaudit on-the-spot

3 18–22MarAuditofthecost-effectivenessofEU-fundedinvestmentsintheenergyefficiencyofbuildings.


4 4–7JuneAuditoftheStatementofAssuranceforthefinancialyear2019-EuropeanAgriculturalFundforRuralDevelopment.

DAS on-the-spot

5 9–11JulyEuropeanCommissionactionontheallocationoffreeallowancesissuedundertheEUEmissionsTradingScheme.


623–27Sept,12–13Nov

AuditconcerningtheStatementofAssurancefor2019-OPTransport DAS on-the-spot

January Fightagainstantimicrobialresistance. questionnaire

October

PerformanceauditrelatedtoERDFfunding: DotheCommissionandMemberStateseffectivelyaddressthechallengesofcross-borderauthoritiesininternalcross-bordercooperationprogrammes?(CR-FreeStateofBavaria,SlovakRepublic-CR,CR-FreeStateofSaxony).

documentaryreview

Source:AA´sinformation,May2020.

141EU REPORT 2020, Appendices

Appendix 3: Overview of audit and verification missions of the European Commission carried out in the CR in 2018 and 2019

Year DG Date of the mission Auditee Audit number Audit subject

State of the contradictory proceedings

2018

REGIO 22–26Oct OPEn REGC414CZ0123

ReviewoftheAA´sactivities/complianceauditsin the period 2014–2020 underthememorandumofplannedinvestigations.

Finished

EMPL 1–26Oct OPRDE EMPG314CZ0264

Earlypreventionsystemaudits2014–2020. Thematicauditofprojectsusingsimplifiedcostreporting.

Finished

REGIO 9–16Nov IROP REGC414CZ0093

Auditofreliabilityofperformanceunderthememorandumofplannedinvestigations–PO14+

Finished

REGIO 9–16Nov IROP REGC414CZ0062MemorandumofplannedinvestigationsEarlypreventionsystemaudits

Finished

EMPL 18–19AprilOPRDE,OPEm,OPPGP

EMPG314CZ0222Fact-findingmissionstoverifytheannualauditreport

Finished

2019

REGIO 24–28June OPEIC REGC414CZ0145

Thematicauditsintheperiod2014–2020-follow-uptotheactionplanforverifyingtheSMEstatusofapplicants.

Finished

REGIO, EMPL

8Jan–15Feb

SelectedOP REGC414CZ0133 Conflictofinterest Inprogress

EMPL 4–21June OPEm EMPG314CZ0243ReviewoftheAA´sactivities/complianceaudits2014–2020

Inprogress

MARE 15–19July OPF2019/CZ//Compliance//MARE/E1

ReviewoftheAA´sactivities Finished

Source: AA´sinformation,May2020.Note: DGEMPL=DGEmployment,SocialAffairsandInclusion DGMARE=DGMaritimeAffairsandFisheries DGREGIO=DGRegionalandUrbanPolicy

142 EU REPORT 2020

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