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Address https://gelex.eu/eli/EU/doc/http://publications.europa.eu/resource/cellar/042b112f-bb3b-4e42-89fa-4a688655ebfa.0006.01@2015-01-12/en
CSO civil society organisation DIS decentralised implementation system EP European Parliament EPD enhanced permanent dialogue IA Interim Agreement on Trade and Trade-related Matters IPA Instrument for Pre-accession Assistance MIFF multiannual indicative financial framework MIPD multiannual indicative planning documents NAD needs assessment document NIPAC national IPA coordinator PAR public administration reform PEFA public expenditure and financial accountability PFM public finance management ROM result-oriented monitoring SAA Stabilisation and Association Agreement SAP stabilisation and association process SEIO Republic of Serbia European Integration Service SIGMA support for improvement in governance and management SME small and medium-sized enterprise Since 2007, the EU’s financial support to Serbia through the Instrument for Pre-accession Assistance (IPA) has amounted to approximately 170 million euro per year. Governance, identified by the Commission as the most challenging area for Serbia, received a quarter of the IPA funding. The EU complements the IPA funding with some non-financial means to help Serbia prepare for EU membership. The audit objective was to assess whether the Commission is managing pre-accession support to Serbia effectively, and, in greater depth, its support for the key area of governance. The audit covered the 2007–13 period and addressed the following two questions.
(a) Has the Commission been managing IPA projects effectively?
(b) In its support for governance, has the Commission been managing non-financial assistance effectively?
The audit examined the IPA programming process and 15 IPA-funded projects from the 2007, 2008 and 2009 IPA annual programmes for Serbia, with a particular focus on the projects’ results. The non-financial assistance audited included the EU–Serbia dialogue on governance issues and cooperation to prepare Serbia for decentralised management of EU funds. The Court also reviewed another sample of 10 IPA projects from the 2010, 2011 and 2012 annual programmes to check whether governance and the fight against corruption were cross-cutting issues in projects where good governance was not a primary objective. The audit found that, overall, the Commission is managing pre-accession support to Serbia effectively. The financial pre-accession assistance to Serbia, along with other forms of support effectively helps Serbia to implement social and economic reforms and to improve governance in the country. Based on the experience gained in other IPA beneficiary countries, the Commission is putting increasing emphasis on governance issues in planning its financial and non-financial assistance to Serbia. The Commission has been managing IPA projects effectively. Programming of the IPA financial assistance is based on a coherent strategic framework and the approach to selecting projects relevant to preparing Serbia for accession is gradually improving. On the whole, the audited projects produced their planned outputs but suffered from weaknesses regarding their design, implementation and sustainability. When drawing up the latest IPA annual programmes, the Commission took steps to address the shortcomings identified by the Court in the earlier IPA projects. The Commission was effective in managing non-financial assistance to Serbia in the area of governance. The audit found that the EU–Serbia structured dialogue adequately covered the key governance areas and made the link between political priorities and policy formulation. The emphasis put on governance in the dialogue was generally not explicit in the projects’ design, but most of the projects reviewed by the Court had indirectly contributed to better governance and/or to the fight against corruption through their activities related to building administrative capacity. Regarding Serbia’s preparation for decentralised management of EU funds, the audit found that the Commission’s approach was effective in supporting governance, but only in the limited sphere of the IPA management structures. The Commission’s audit work on the national IPA structures, in accordance with the IPA regulation, was not part of a comprehensive assessment of public finance management at country level. The report sets out concrete recommendations to improve the programming, design and implementation of IPA projects in Serbia. In relation to the non-financial assistance, the Court recommends that the Commission support the Serbian authorities in further rationalising their national strategies and finalising a fully-fledged public finance management roadmap, improve the consultation mechanism of the CSOs, systematically assess the need for specific anti-corruption or other good-governance measures during project design and take steps to integrate the Commission’s audit work on the national IPA structures into the countrywide assessment of public finance management. After the fall of Slobodan Milošević’s regime in October 2000, Serbia, the largest of the western Balkan countries in terms of both population and land area, began its route to EU pre-accession within the framework of the stabilisation and association process. Figure 1 provides an overview of the key events that marked EU–Serbia relations between 1999 and 2014. 2014
21 January — The first intergovernmental conference (Council of the European Union, European Commission and Serbia) takes place, signalling the formal start of Serbia’s accession negotiations.
2013
1 September — The EU–Serbia Stabilisation and Association Agreement enters into force. The analytical examination of the acquis (‘screening’) starts.
28 June — The European Council decides to open accession negotiations with Serbia.
2012
1 March — The European Council confirms Serbia as a EU candidate country.
2011
14 October — The Commission issues its opinion on Serbia’s application for EU membership.
20 July — Arrest of Goran Hadžić, the last fugitive sought by the International Criminal Tribunal for the former Yugoslavia (ICTY).
26 May — Arrest of Ratko Mladić.
2010
1 February — Interim Agreement on Trade and Trade-related Matters (part of the EU–Serbia Stabilisation and Association Agreement) enters into force.
2009
22 December — Serbia applies for EU membership.
19 December — Visa-free travel to Schengen area for citizens of Serbia.
2008
21 July — Arrest of Radovan Karadžić.
29 April — The EU–Serbia Stabilisation and Association Agreement, along with the Interim Agreement on Trade and Trade-related Matters, is signed.
2006
3 May — The EU suspends the EU–Serbia Stabilisation and Association Agreement talks, stating that Serbia is not fully cooperating with the International Criminal Tribunal for the former Yugoslavia (ICTY).
2005
1 October — Serbia starts negotiations with the EU on the signing of the international treaty called the EU–Serbia Stabilisation and Association Agreement.
2003
1 June — The Thessaloniki European Council confirms the EU perspective for the western Balkan countries.
2001
1 April — Arrest of Slobodan Milošević.
2000
1 June — The Santa Maria da Feira European Council states that all the stabilisation and association process countries are potential candidates for EU membership.
1999
26 May — A Commission proposal on the stabilisation and association process, the EU policy towards the western Balkan countries, is established with the aim of eventual EU membership.
The stabilisation and association process initiated by the EU in 1999 after a decade of turmoil and armed conflicts in the former Socialist Federal Republic of Yugoslavia was underpinned by the idea that only the real prospect of integration into the EU could bring sustainable peace, stability and democracy to the Balkan countries. The stabilisation and association process combines contractual links in the form of the Stabilisation and Association Agreements (SAAs), trade measures providing the region with free access to the EU markets for almost all goods and substantial financial assistance from the EU budget. The EU insisted that Serbia both deliver suspected war criminals to the International Criminal Court in The Hague and find a lasting solution to its relations with Kosovo before it could make significant progress towards EU membership. Serbia submitted its application for EU membership on 22 December 2009 and was granted the status of candidate country on 1 March 2012 by the European Council on the basis of the conclusions of the General Affairs Council of 28 February. In particular, the conclusions noted Serbia’s progress in its dialogue with Kosovo. Progress made by Serbia towards meeting the political elements of the Copenhagen criteria
and the surrender to the judicial authorities of several alleged war criminals were also determining factors in the Council decision. Accession negotiations with Serbia were formally opened on 1 January 2014. The European Commission had previously indicated that it viewed governance issues as the main challenge faced by Serbia and decided that this most difficult area should be tackled early in the chapter-by-chapter negotiations. The priorities of EU pre-accession assistance include helping the beneficiary countries to strengthen their administrative capacity and to support the adoption and implementation of the acquis communautaire. To strengthen administrative capacity, the Commission funds activities such as institution building, the setting up of management systems and training. Over the 2007–13 period, the EU provided assistance to Serbia in the field of administrative capacity through Component I (Transition assistance and institution building) of the Instrument for Pre-accession Assistance (IPA). IPA funding — about 170 million euro per annum on average — has been quite evenly allocated over a broad range of sectors as shown in Table 1. The area of governance — ‘justice and home affairs’, including the fight against corruption, and ‘public administration reform’, including public finance management (or PFM) reform — received a quarter of the funding, which reflects the Commission’s recognition of the importance of tackling shortcomings in this area. Source: Multiannual indicative planning document for Serbia, 2011–13. Sector Allocation (million euro) Percentage of total allocations Justice and home affairs 117 9,7 % Public administration reform 164 13,6 % Social development 171 14,2 % Private sector development 109 9,1 % Transport 146 12,1 % Environment, climate change and energy 192 16,0 % Agriculture and rural development 109 9,1 % Other EU acquis and horizontal activities 195 16,2 % Total 1203 The audit objective was to assess whether the Commission is managing pre-accession support to Serbia effectively and, in greater depth, its support for the key area of governance. The audit addressed two main questions:
(a) Has the Commission been managing IPA projects effectively?
(b) In its support for governance, has the Commission been managing non-financial assistance effectively?
The audit work, performed between May 2013 and January 2014, involved the following:
(a) The examination of 15 IPA-funded projects with a particular focus on the project results (see Annex I). The sample included eight governance projects to reflect the audit’s focus on governance, and seven projects from other fields of intervention — social development, transport, energy, rural development and private sector development.
(b) The desk review of another sample of 10 IPA projects selected from the 2010, 2011 and 2012 annual programmes (see Annex II) to assess the integration of governance and the fight against corruption as cross-cutting issues in projects where good governance was not a primary objective.
(c) The review of the IPA programming process, of the dialogue mechanisms on governance issues and of the procedures in place to assess Serbia’s readiness to manage a decentralised implementation system (DIS) for the IPA assistance.
(d) Audit visits undertaken from 17 to 28 June 2013 to the European Union’s delegation in Belgrade and the relevant Serbian line ministries, agencies and regional or local authorities, as well as public enterprises. Project sites were visited in Belgrade, Horgos, Kragujevac, Kraljevo, Leskovac, Niš, Novi Sad, Obrenovac, Prokuplje, Subotica, and Ušće.
The Court examined whether the strategic documents were consistent with each other and contained clear priorities and performance indicators, and whether the Commission and the Serbian authorities had developed a process to select the most relevant projects for IPA funding. The Court also examined whether IPA assistance for governance adequately involved civil society organisations and whether donor coordination was functioning. The IPA programming framework is complex and consists of numerous documents defining political goals and strategic priorities (see paragraphs 13, 14 and Figure 3). Nevertheless, the documents are generally consistent with each other in the assessment of country needs and priorities. The IPA programming documents for Serbia are also consistent with the national strategy for EU integration, as well as the national needs assessments. The Serbian authorities have developed more than 70 national strategies and action plans to address various political and socio-economic issues, but their quality was not always uniform. In addition, the broad range of national strategies did not cover two major governance-related areas:
due to the politically sensitive nature of territorial decentralisation in Serbia, the decentralisation process has been implemented without a strategic framework fixing the national priorities and a time frame for their implementation;
there was no overarching strategy to coordinate the implementation of public finance management (PFM) reform.
The coalition government in power between July 2012 and spring 2014 made great efforts to consolidate the Serbian strategic framework for EU accession preparations, i.e. the adoption, in December 2012, of an action plan to follow up the findings of the Commission’s progress reports and, in February 2013, of the ‘national plan for the approximation with the acquis’. In the meantime, the Commission and the Republic of Serbia European Integration Service (SEIO) also took measures to improve the coherence of the Serbian strategic framework, for instance, by their efforts to consolidate the numerous national strategies in the 2011–13 needs assessment document (NAD). Alignment between the national strategies and the IPA goals has become even more consistent by virtue of the sector-based approach since 2012. The latest European Partnership with Serbia, prepared in 2007, served as a policy framework to encourage reforms and, through a conditionality clause, the basis for potentially suspending financial assistance. It gave a very broad set of short and medium-term priorities covering the accession criteria and the enforcement of EU standards, but without any ranking of these priorities according to their importance to Serbia’s EU accession or receipt of EU funding. The multiannual indicative planning documents (MIPDs), the Serbian NAD and the subsequent programming documents defined a number of objectives and performance indicators, but these were often too broad. This made it difficult to evaluate progress in the areas of intervention objectively. The newly created sector-monitoring sub-committees (SMSCs, see paragraph 58) confirmed the seriousness of the problem. For example, the SMSCs for the rule of law and public administration both reported in November 2012 that it was generally not possible to measure progress due to poorly defined indicators and recommended improving the definition of indicators in future programming cycles. However, with the gradual move to the sectoral approach, changes were introduced during the 2012 and 2013 IPA programming processes. RACER indicators, baselines and targets for the period until 2020, linked to the latest Serbian NAD, were agreed at the sector working groups for inclusion in the 2013 sector and project documents. In the first part of the 2007–13 programming period, project prioritisation by the SEIO, the EU delegation and Commission headquarters did not prevent the selection of immature or problematic projects. Those projects should not have been selected or should have been kept in reserve for a subsequent annual programme. Problems relevant to programming identified by the Commission’s monitoring work include the lack of national authority support; a lack of interinstitutional coordination; weak project design; poor definition of terms of reference; unsustainable financing solutions; and inadequate use of lessons learnt from previous projects. The level of co-funding of the projects and the leverage effect expected from the IPA funding were not criteria used in the selection process. Up to 2012 there were no European Commission-issued guidelines on parallel co-financing in relation to the IPA. Serbia committed to a contribution of 289 million euro co-financing to the 2007–12 IPA annual programmes, i.e. 24 % of the overall national and EU IPA funding. However, it was difficult to monitor whether the national co-financing commitment had been met and there were no guidelines on action to be undertaken when such commitments were not fulfilled. Both the EU delegation and the Serbian authorities made genuine efforts to resolve the problems identified and to take them into account in the subsequent programming exercises. In addition, selection process improvements introduced by the Commission together with the SEIO under the IPA 2012 and 2013 programmes included:
(a) stricter requirements on project readiness;
(b) a 2012 Commission agreement with Serbian authorities on guidelines for parallel co-financing.
The European enlargement strategy places an emphasis on strengthening civil society organisations (CSOs) and their involvement in policy development. Four support for civil society projects were approved within the 2007–10 IPA annual programmes for Serbia, for a total amount of 9 million euro. Since 2007, the status of CSOs and the government’s cooperation with them has considerably improved. The CSOs in Serbia are now very active in the field of governance and anti-corruption. More generally, since 2010, it has been possible to consult the CSOs on IPA programming on a regular basis, but at the time of the audit the use of the consultation mechanism was not yet widespread. Despite some efforts, there was no strict discipline in the coordination of early IPA projects with those of other donors with a view to ensuring complementarity and avoiding overlaps, notably in the rule-of-law sector (see Box 1). Project 3, ‘Judiciary system’, is a clear example of poor coordination, from design to implementation. Indeed, the EU-funded case management system ran in parallel with another system funded by USAID. The lack of coordination and local ownership with regard to IT issues in the rule-of-law sector is demonstrated by the fact that major IPA IT investments have been implemented without a proper IT strategy. However, since implementation of the sector approach, IPA documentation testifies to improved and more systematic donor coordination. Donors are now regularly consulted by the sector working groups and, in its dialogue with Serbia, the Commission relies extensively on the involvement of international organisations in their respective areas of expertise, notably the World Bank (PEFA reports), the European Bank for Reconstruction and Development, the Organisation for Economic Cooperation and Development (SIGMA assessments), the Organisation for Security and Cooperation in Europe, the Council of Europe and United Nations organisations. The Court examined whether the 15 projects audited (see Annex I) pursued precise objectives and were based on a specific needs assessment, and whether the project design included relevant conditionality. The Court also examined whether the projects were implemented according to the planned timetable and properly monitored, and whether corrective actions were taken where appropriate. All the projects examined matched the priorities set out in the IPA strategy documents but about half of them pursued objectives that were too vague or unrealistic (see Box 2). At the same time, the Commission was flexible in adjusting the list of objectives and expected deliverables where the long period of time — up to 4 or 5 years — between the project outline and the actual delivery of the outputs made it necessary. This flexibility counterbalanced substantially — though not fully — the adverse effect of initial vague or unrealistic project objectives. Some audited projects were designed and implemented without reference to a precise needs assessment, which in some cases has led to inefficient allocation of IPA funds (see Box 3). In 2012 the Commission started to introduce measures that placed more emphasis on needs assessment in the intervention design, as demonstrated by the Court’s review of the 2012 IPA project and sector documents. As no benchmark data were provided, it was difficult to assess the extent of the achievement of project purposes such as ‘strengthen the role of the Ministry of Health’ in project 10, ‘Emergency medical service’; or ‘enhancing the accession process through the promotion and improvement of mutual knowledge and the understanding of Serbia’s EU integration process’ in project 15, ‘Serbia–EU civil society dialogue’. Project 7, ‘Public Procurement Office’, included an e-procurement element, which subsequently proved to be unrealistic. In project 14, ‘Rural development’, 40 % of the IT equipment delivered was not used and some of it was still in the paying agency warehouse at the time of the audit visit. The design of the audited projects made little use of the lessons learnt from the implementation of previous projects. The lessons learnt sections in the project documents were more of a formal exercise. In addition, none of the audited project fiches mentioned specific lessons learnt from similar projects in other beneficiary countries. In fact, the lessons-learnt mechanisms within the Commission relied principally on the findings of macro-level evaluations, sometimes years after the fact, and therefore were not geared to feeding into timely responses at project design level. Inadequate attention to conditionality and sequencing in project design often threatened smooth and timely implementation of the IPA projects (see Box 4). The Commission usually checked whether national legislation was in place to ensure that the intervention was effective. Elements of two of the audited projects, however, were not sufficiently aligned with the current or prospective Serbian legislation and were therefore useless (see Box 5). In projects made up of complementary contracts for supply and capacity building, the conditionality did not include in-depth preparatory market analysis, particularly in the case of specialised or sensitive equipment. No market research was requested for instance in project 1, ‘Police reform’. Failure of the supply contract fundamentally affected the relevance and effectiveness of the complementary twinning contract. There was poor sequencing between the two service contracts that made up project 9, ‘Regional development’. The regional development strategies were drafted before the national plan for regional development and therefore had to be subsequently redrafted to be aligned with it. In project 12, ‘Žeželj bridge’, obtaining the necessary building permits was not a prerequisite but was an activity within the project. This proved to be a problem because obtaining building permits is a lengthy process in Serbia. Indeed, the project started in March 2011 but the contractors did not receive the essential permits until April 2012, consequently delaying the project. An element of project 1, ‘Police reform’, had to be dropped as the beneficiary claimed that integrity testing of police was not allowed under Serbian law. In project 10, ‘Emergency medical service’, the defibrillators that were ordered for public display and use have gone virtually unused since Serbian law does not permit the use of defibrillators by persons other than medical staff. At the same time, conditionality was robust and strictly implemented in calls for proposals, e.g. in project 15, ‘Serbia–EU civil society dialogue’, which benefited from the high level of commitment among the CSOs and their project partners. Compared to IPA 2007 and 2008, the programming documents after 2012 reflect increased emphasis on conditionality. Project proposals were postponed due to missing permits or downscaled following the lack of the required feasibility study. Implementation of all the audited projects was affected by sometimes significant delays, which may indicate that the capacity of some of the Serbian project partners to implement the intervention was overestimated. There were frequent bottlenecks in relation to the absorption capacity in large infrastructure projects such as project 12, ‘Žeželj bridge’ (see paragraph 43). Better absorption of IPA funds was reflected by the success of the calls for proposals, notably in the grant scheme included in project 5, ‘Municipal support programme’, where more than 200 projects were submitted, of which 67 were financed and mostly completed their activities within the planned time frame. At the same time, despite delays and no-cost extensions of the contracts in the audited sample, the high contracting and payment rates reported by the EU delegation for the whole 2007–13 programming cycle suggest rather high absorption capacity at national level for the entire IPA scheme. IPA interventions were not monitored systematically at project level. Steering committees, though misleadingly called ‘project steering committees’, were only in charge of certain contracts and not the overall project. Practices regarding on-site inspections by the EU delegation initially varied but the EU delegation improved the overall situation in 2011 by launching a formal mechanism for internal monitoring. The result-oriented monitoring (ROM) initiated in 2009 is now a prevalent external monitoring mechanism for capacity-building projects. The Court found that the ROM reports on the audited projects generally provided adequate information on the progress of projects. In projects where a national element and an IPA element coexisted, such as project 6, ‘Support for customs’, the two elements were managed separately without any formal flow of information between the Serbian authorities and the EU delegation. The time constraints applicable to national elements were also less demanding than those applicable to IPA components. Since 2012, the agreement concluded with the Serbian authorities on parallel co-financing has allowed the Commission to step up its efforts to address this lack of coordination (see paragraphs 17 and 18). The Commission’s corrective actions taken, where necessary, during the implementation process, did not address the difficulties which caused delays (see paragraph 16). They mainly consisted in flexibly extending the duration of the contract without incurring any extra cost or amending the contract activities. Where, for instance, a project was blocked because of inadequate commitment from the Serbian authorities, the IPA-funded resources were reallocated to other new activities. Stronger reaction, e.g. postponement of the implementation until issues were resolved or even cancellation of the project, was not considered by the Commission. The conditions embedded in the project design were generally not restrictive enough to automatically lead to corrective action (see paragraphs 27 to 29). At the same time, the EU delegation addressed and resolved important problems on the beneficiary side that might jeopardise the tendering, contracting, and implementation processes. Issues that could not be resolved at EU delegation level were escalated to the monitoring committees and ultimately to the IPA Joint Monitoring Committee. The Court examined whether the planned outputs and other results were obtained and whether the tendering and procurement procedures were properly implemented. The Court also examined whether the project outputs and other results were likely to remain sustainable after the end of the IPA funding. Table 2, for governance-related projects, and Table 3, for projects in areas other than governance, show a detailed view of the Court’s findings regarding the projects’ outputs and other results. The Court’s assessment took into account, where available, relevant conclusions from ROM reports and evaluations. Despite systematic delays, the audited projects completed at the time of the audit had delivered most of the outputs initially planned or revised during project implementation. Delivering the outputs was in fact a prerequisite for the execution of final payments by the Commission, which explains why there were very few cases of outputs which had not been fully achieved upon project completion (see Boxes 7, 9 and 10). However, some of the audit findings raised the issue of the usefulness of certain, often relatively minor, project outputs in the medium or long term (see paragraph 48). The projects generally achieved good results, even beyond the outputs, contributing to the achievement of the IPA assistance goals. Overall, the eight audited governance-related IPA projects have helped to increase the capabilities of the beneficiary institutions and/or to improve the national legal framework (see Box 6). The Court identified material shortcomings in terms of results in four governance projects (see Box 7). Project 2, ‘Fight against corruption’, successfully supported the strengthening of the administrative capacity of the Anti-Corruption Agency (ACA), notably by providing IT solutions. It also improved the legal and institutional framework for the fight against corruption by contributing to the drafting of a revised anti-corruption strategy and action plan. Project 5, ‘Municipal support programme’, contributed to enhancing the capabilities of local administrations and improving the quality of services to citizens. This was confirmed by the Court’s on-site audits in Kraljevo (Geographic Information System) and Niš (Call Centre and Building Permits Centre). The project also helped improve communication and cooperation between the municipalities and the public utility companies active in their areas. Within the framework of project 5, ‘Municipal support programme’, the specific module supporting the municipal bonds initiative had limited results. The Standing Conference of Towns and Municipalities (SCTM) encouraged municipal bonds as an alternative to traditional bank loans, but had to face opposition from the banks and resistance to change by the municipalities. The volume of municipal bonds was extremely weak. By mid 2013 only two cities had issued municipal bonds: the City of Novi Sad, for 35 million euro, and the City of Pančevo, for 1 million euro. The secondary market funded by IPA had never started working due to the low number of issuances. Project 8, ‘Public internal financial control’, was successful in establishing a central harmonisation unit (CHU) within the Ministry of Finance, but at the time of the audit the unit was focusing all its resources on training activities and did not yet exercise other traditional responsibilities of a CHU, like developing internal audit strategies and standards. In particular, the CHU had not yet provided support on risk assessment and fraud management to financial managers and internal auditors. The planned internal audit units were formally in place but were facing personnel problems. The project, however, succeeded in developing a certification scheme for internal auditors. IPA-funded elements of project 13, ‘Electric power of Serbia’, had achieved the expected results concerning capacity building for procurement and the installation of anti-pollution systems compliant with the acquis. The corruption-related CSO grants included in project 15, ‘Civil society dialogue’, achieved sustainable results such as the development of hands-on methodologies for fighting corruption in the health sector and monitoring public procurement procedures by citizens, and the realisation of a national integrity system survey. Out of the seven projects audited in fields of intervention other than governance, four had achieved or were largely on track to achieve the planned results beyond the outputs (see Box 8) and two were assessed as partially effective (see Box 9). The seventh project, project 12, ‘Žeželj bridge’, at the time of the audit was ongoing and expected to face an 18-month delay. The large infrastructure projects are prevalent in the bottleneck lists and reveal a recurring problem of stalled progress and missed deadlines. The EU had previously funded two other projects to support the reconstruction of the Žeželj bridge: a CARDS 2004 project to finance the detailed design specification and an IPA 2008 project for the supervision of the reconstruction. Despite substantial EU funding and technical assistance, Serbian authorities remain weak in planning and implementing investment projects. The availability of building permits continues to be a serious issue that the Commission is progressively addressing in the IPA programming (see paragraph 31). Project 11, ‘Private sector competitiveness’, partially achieved the expected results regarding strengthening institutions: at government level, the cluster strategy needs to be redesigned and there is a need to develop effective support measures for local chain development. Partial achievement of the objectives was also noticed for internationalisation: five out of eight objectives were achieved. Project 14, ‘Rural development’, was also partially effective. The paying agency and managing authority had been set up, but their accreditation had been delayed (by 1,5 years at the time of the audit) due to developments outside the control of the project. The paying agency was unable to absorb the planned project activities, particularly training. The second project element (Leader) also achieved partial results. Efforts to form the planned local structures were successful but the project was not able to develop a critical mass of trained personnel. Tendering and procurement procedures were found generally adequate to ensure the timely delivery of the expected outputs. However, in four audited projects there were severe problems with procuring all or part of the equipment planned, in particular where it concerned specialised and sensitive equipment (see Box 10). The Commission did not require any summary monitoring document on the history of failed tenders and did not analyse the reasons why some tenders failed, even repeatedly. No evidence has been found that the provisions of IPA programming guide 2008 on specialised equipment were adhered to. In two thirds of the audited projects, the Court found problems related to the sustainability of certain individual outputs and other results. The sustainability of the benefits provided by the purchased goods was particularly at risk when crucial decisions were missing or when the beneficiary had insufficient budget resources and was donor dependent (see Box 11). The sustainability of governance-related projects was especially jeopardised by personnel issues, made more difficult by the austerity measures taken by the government of Serbia in the wake of the global crisis (see Box 12). In project 1, ‘Police reform’, the tendering process for the equipment needed for covert surveillance ran out of time and the allocated funds were finally decommitted. The failure to procure the equipment has undermined the beneficiary’s commitment and is still impairing the internal control department’s capability to effectively combat corruption within the police force, which was a key aim of the project. In project 6, ‘Support for customs’, lot 2 of the IPA-funded equipment (clothing) was finally dropped from the tender because of difficulties in complying with the EU rules of origin and has been funded directly by Serbia. For the sustainability of project 3, ‘Judiciary system’, the crucial decision on which system (EU SAPS or US AVP) to roll out to the Serbian court network had not been yet taken by the Serbian authorities at the time of the audit. The availability of funding for a nationwide rollout was unclear and it was likely to be hampered by software lifetime issues and insufficient or outdated hardware. Around 70 % of the IT budget for the judiciary in Serbia was provided through IPA or other donors, with the remaining 30 % coming from the state budget, which is not a sustainable solution for IT development and ensuring beneficiary ownership. The main sustainability issue in project 9, ‘Regional development’, was the unclear organisational set-up for the regional development policy at both national and regional levels. There was no clear consensus about the extent of decentralisation and how regionalisation would fit. There was a substantial risk that the supported regional development agencies (RDAs) could not survive without clear roles and responsibilities. They also faced significant financial problems and were still donor-dependent. There was no planning and scheduling for replacement of the IPA-funded ambulances which would shortly reach the end of their useful lives and had constantly increasing maintenance costs. It was therefore not certain whether enhanced capabilities resulting from project 10, ‘Emergency medical service’, could be sustained in the long run. The sustainability of the results of project 8, ‘Public internal financial control (PIFC)’, depends on the ability of the Ministry of Finance to create an adequate permanent pool of skilled internal auditors in the public sector. As it is in competition with the private sector and the state audit institution, it has had difficulty finalising its recruitment plan and limiting staff turnover. Staff turnover also puts at risk the institutional capacity of the new bodies in charge of implementing the rural development component of IPA, funded through project 14, ‘Rural development’. Whereas legislation proved to be an obstacle to the effectiveness of certain project elements (see paragraph 28), in some cases it has been conducive to the sustainability of whole projects. The new Serbian public procurement law, for instance, has ensured the sustainability of many of the results of project 7, ‘Public procurement’, as well as some of the efforts financed from the audited action grants under project 15, ‘Civil society dialogue’. Audit criteria Project Police reform Fight against corruption Judiciary system Prosecutors and penal system Municipal support programme Serbian customs Public Procurement Office Public internal financial control (PIFC) phase 3 Planned outputs were delivered. Expected results beyond the outputs were achieved. NA ongoing Tendering and procurement procedures were adequately prepared in order to ensure timely delivery of the expected outputs. The national legislation necessary to ensure that the intervention is effective was in place. The project had good prospects for sustainability after the end of IPA funding, in particular: the post-IPA funding was guaranteed and the beneficiary had ownership and capacity to ensure the continuity of the project. Satisfactory Partly satisfactory Not satisfactory There is an absence of appropriate follow-up efforts concerning sustainability. Contract impact and usefulness are seldom assessed after contracts are over. Ex post ROM exercises have not yet been launched in Serbia with a view to checking the medium- and long-term sustainability of the IPA projects’ results. The projects/contracts themselves are not responsible for the medium- or long-term impact or sustainability of the planned results. Such responsibility ceases immediately with the end of the contracted activities. An appropriate follow-up mechanism is particularly missing when the practical usefulness of certain deliverables can only be assessed years after the project, for instance in the case of policy papers, protocols, procedures, manuals, analyses, various studies, etc., or when it is explicitly stated, e.g. in projects 1, ‘Police reform’, and 10, ‘Emergency medical service’. Audit criteria Project Regional development programme Emergency medical services Private sector competitiveness Žeželj bridge Electric power of Serbia Rural development policies Civil society Planned outputs were delivered. NA ongoing Expected results beyond the outputs were achieved. NA ongoing Tendering and procurement procedures were adequately prepared in order to ensure timely delivery of the expected outputs. The national legislation necessary to ensure that the intervention is effective was in place. NA The project had good prospects for sustainability after the end of IPA funding, in particular: the post-IPA funding was guaranteed and the beneficiary had ownership and capacity to ensure the continuity of the project. Satisfactory Partly satisfactory Not satisfactory The Court examined whether the EU–Serbia dialogue explicitly addressed key governance issues and included the establishment of action points and their follow-up. It also examined whether political priorities were taken on board in policy formulation and project design. The Court reviewed 10 recent IPA projects implemented in sectors other than governance (see Annex II) to assess the extent to which governance and the fight against corruption were embedded as cross-cutting issues into these projects. The Stabilisation and Association Agreement (see paragraph 2) includes provisions on the EU–Serbia dialogue on political matters and cooperation policies. The Commission has put in place a complex system of official and less formal meetings and documents at multiple levels to enable in-depth continuous dialogue with the Serbian partners. The structures in place for the enhanced permanent dialogue (EPD), interim agreement (IA) dialogue and higher-level IPA dialogue are represented in Figure 2. The complexity of the overall policy dialogue and IPA programming is illustrated by Figure 3. The EPD gave great importance to public administration reform (PAR) and justice sector reform, including the fight against corruption, as a part of the political criteria. These areas were consistently addressed in detail by both the EPD plenaries and designated sub-EPDs. The continued importance of judicial reform and the fight against corruption in relation to Serbia’s candidate-country status is shown by the fact that the related acquis chapters (23 and 24) are tackled early in the negotiation process, based on the experience of previous accession rounds. Source: ECA, based on information from the Commission and EEAS. Source: ECA, based on information from the Commission and EEAS. Public finance management (PFM) reform was usually addressed by the EPD plenaries under the heading of PAR, but it received somewhat less intense emphasis than the other governance areas. However, specific PFM topics — such as the state audit institution, public internal financial control (PIFC), the Central Harmonisation Unit, internal audit and budget system law — were addressed in greater detail at sub-EPD level. The Commission had an additional opportunity to discuss PFM issues with Serbia when designing the terms of the general budget support programme for Serbia under the IPA component I for 2009. The programme aimed to support macro-financial stability in Serbia in the short term and to allow the country to pursue structural reforms despite the economic crisis. The payment conditions focused notably on the reliability of financial and administrative procedures in Serbia, the submission by the Serbian government of a new budget law and the adoption of a strategy paper on financial control in the public sector. Another condition was the launch of a PEFA update with the aim of preparing a PFM roadmap. The Commission considered that all these conditions were fulfilled by the end of 2010. Although Serbia did not prepare a specific PFM roadmap, the Court found that Serbia’s PAR strategy for 2013–16 addresses some PFM issues. In addition, the 2012 law on public procurement rectified a number of the shortcomings identified in the preceding years. The multi-level structures (see Figures 2 and 3) provided a sound basis for an open dialogue to agree on, establish, follow up and monitor priorities. Action points relating to key governance issues were specifically revisited from year to year by both EPD plenary and subcommittee meetings. The Commission’s monitoring process is crystallised in the annual progress reports. The Court’s analysis has found that the Commission’s progress reports realistically assessed progress made in the key areas of governance in Serbia. According to the reports, the years 2007–13 have seen some tangible results in the fight against corruption, ranging from the setting up of an institutional framework — with the involvement of IPA assistance — through the increased participation of CSOs, to investigations into some high-profile corruption cases. Progress was also perceived in the public administration reform and the financial control element of public finance management reform, and also notable progress in the area of public procurement. Justice sector reform was most lacking among the key good-governance areas, with little progress reported since 2007. On the Serbian side, from 2010 onwards, the national action plans for the implementation of the Commission’s recommendations give evidence of transparent goals and tasks, as well as adequate monitoring and a systematic and easy-to-compare summary of follow-up action. The main IPA programming documents for Serbia from the years 2007–13 — the upstream of which are basically key dialogue documents — sufficiently covered the key governance areas, although public finance management reform received a somewhat less intense emphasis. The dialogue regularly refers to IPA assistance in general, or to specific IPA projects as important tools for improving governance in Serbia. The IPA Joint Monitoring Committee (see Figure 2), which was created in 2008, addressed specific implementation aspects of the higher-level dialogue and also covered the strategic level of financial assistance. In 2012, eight sector-monitoring sub-committees started operating under the Joint Monitoring Committee. Their primary focus is the context in which IPA assistance is delivered. They are run by the Commission and Serbia (SEIO), are structured in a transparent way and have put an effective and easy-to-compare monitoring tool in place. The sector-monitoring sub-committees have also significantly improved the coordination between national needs identification and IPA assistance. For example, projects in relation to PAR under the latest IPA national programmes addressed almost every priority defined by the PAR section of the Serbian NAD for 2011–13. High-level IPA programming took good governance specifically on board, partly in view of the governance problems faced in previous accession rounds, which was considered an indicator of inadequate preparation of the countries concerned. However, this emphasis was in general not reflected explicitly at project-planning level by the Commission and the Serbian authorities. Fewer than half of the 2007–12 project-design documents contained specific references to good governance. In the case of projects where governance aspects were relevant but not among the primary objectives, the project documentation referred most commonly, in general terms, to the need for transparency. Only in a few project design documents did the Commission and the Serbian authorities refer specifically to the risks of corruption or potential conflicts of interest. However, from 2011, the good-governance language in the project design became stronger. The list of cross-cutting issues in the project design did not include good governance or the fight against corruption. In fact, the project-design documents of the 2007–11 period confined themselves strictly to three cross-cutting criteria: equal opportunities, the environment and minorities. Civil society and stakeholder involvement was added as a fourth cross-cutting issue in 2012. None of the projects examined (see Annex II) included in their design a formal assessment of the need for anti-corruption or other good-governance measures specific to the beneficiary sector, with the exceptions of project E, ‘Strengthening legislation at central level’, whose project document took up corruption in a limited way, and project I, ‘Support for SME development’, which explicitly aimed at fighting corruption and the informal economy through the introduction of e-services. However, despite the absence of explicit reference to anti-corruption or governance in their design, most of the projects examined have indirectly contributed to the fight against corruption and for better governance. Activities in some projects that contributed to the dissemination of knowledge about and the use of good practices for procurement and contracts (e.g. projects A, ‘Municipal infrastructure’, and B, ‘Supervision of road construction along Corridor X’), were in line with the national anti-corruption strategy. Project A, ‘Municipal infrastructure’, also supported good governance through activities dealing with financial management, control and audit at local level and activities dealing with the setting-up of a project pipeline under EU standards. Projects supporting administrative capacity building in the environment and energy sector (projects D, ‘Strengthening environmental inspectorate’, and H, ‘Energy Agency’) and in the agriculture sector (projects C, ‘Effective land management’, and J, ‘Support for agriculture’) can also be considered as having an effect on curbing corruption. The Court examined whether the Commission systematically assessed risks in the IPA implementing bodies, whether the Serbian authorities took appropriate mitigating measures and followed them up where necessary and whether this process was part of the Commission’s comprehensive assessment of PFM issues. The IPA regulation provides that, wherever possible, management of EU funds shall be decentralised from the Commission to candidate countries to enhance beneficiary-country ownership of the management of EU assistance. This is done via new national bodies, collectively known as the decentralised implementation system, implementing the pre-accession assistance. Before deciding to confer management powers on a beneficiary country, the Commission should ensure that the country concerned meets the established conditions, in particular as regards its management and control systems. To achieve decentralisation, first with and subsequently without Commission ex ante controls, Serbia is following a detailed roadmapwith indicative benchmarks and deadlines. As part of the roadmap, the IPA implementing structures were subject to systematic risk assessments within the framework of their accreditation by the Serbian authorities and the Commission. However, the accreditation process concerned only the structures set up for decentralised management of IPA funds. There was no legal requirement to carry out a comprehensive assessment of the overall progress with PFM and the prevention of corruption and fight against it in Serbia. Consequently, the DIS accreditation procedure was effective in supporting governance in the limited sphere of the IPA management structures but was not part of a global PFM strategy at country level. A sufficiently developed internal audit capacity at the Ministry of Finance and within line ministries is expected to make a positive contribution to the management and control system required for decentralised management. Despite some recent progress, the national internal audit capacity is still in the early stages of providing effective support for the decentralised management of EU funds. The 2013 SIGMA report indicated that no policy had been adopted on fraud and irregularities in financial management and that the central harmonisation unit at the Ministry of Finance had not provided sufficient methodological support to financial managers and internal auditors on risk assessment and fraud. In its 2013 enlargement strategy, the Commission took steps in the right direction highlighting the need to address fundamentals first with the enlargement countries. It specifically mentioned that the PFM systems will need to be significantly strengthened to reduce the risk of fraud and corruption. Furthermore, IPA-sector budget support is conditional on meeting the necessary PFM standards. The measures taken to mitigate the risks identified in the IPA implementing bodies were relevant and their implementation was followed up by the Commission. Once management powers have been conferred, the Commission continues to monitor the system by following up any outstanding issues (e.g. remaining medium and low-risk audit findings). An important risk-mitigating factor is that the Commission can withdraw or suspend its conferral of management powers in the event that requirements are no longer fulfilled. Risks related to staff turnover and political change during the implementation of decentralised management that could lead to the loss of experience and synergies cannot easily be addressed at the conferral of management stage and require active follow-up. Furthermore, once hired, staff mainly attend training and have limited opportunity to gain practical experience because there are no transactions yet. This brings further risks in terms of demotivation and high staff turnover. Another risk present in the IPA structures is the limitation in the current protection of whistleblowers as recognised by the 2013–18 national anti-corruption strategy. New legislation on whistleblowing is under preparation by the Serbian authorities in order to gain the trust of potential whistleblowers. Overall, the Commission is managing pre-accession support to Serbia effectively. The financial pre-accession assistance to Serbia along with other forms of support effectively helps Serbia to implement social and economic reforms and to improve governance in the country. Based on the experience gained in other IPA beneficiary countries, the Commission is putting increasing emphasis on governance issues in planning its financial and non-financial assistance to Serbia. On the whole, the Commission has been managing IPA projects in Serbia effectively. Programming of the IPA assistance is based on a coherent strategic framework and the approach to selecting projects relevant to preparing Serbia for accession is gradually improving (see paragraphs 9 to 22). The audited projects, both in the area of governance and in areas other than governance, largely produced their planned outputs (see paragraphs 39 to 43) but suffered from problems regarding:
(a) Their design: inadequate attention was paid to definition of objectives, assessment of needs, lessons learnt from past projects and conditionality for launching projects and sequencing of operations (see paragraphs 24 to 31).
(b) Their implementation: the audited projects from the earlier IPA programmes were affected by, sometimes significant, delays; interventions were monitored systematically at contract level, but not at project level, and corrective actions taken by the Commission were mostly limited to changes in the activities; some individual tendering and procurement procedures were not fully efficient or effective (see paragraphs 32 to 38, 44 and 45).
(c) Their sustainability: results had questionable prospects for sustainability in two thirds of the projects; in particular, the sustainability of governance-related projects was at risk due to personnel issues (see paragraphs 46 to 48).
The Commission’s flexible management approach mitigated the effects of some of these design weaknesses and, when drawing up the latest IPA annual programmes, the Commission had taken steps to address the shortcomings identified in the earlier IPA programmes (see paragraphs 27 to 31 and 38). Overall, the Commission was effective in managing non-financial assistance to Serbia in the area of governance. It used its dialogue with Serbia effectively in addressing governance issues and the fight against corruption. It gradually improved its approach to take them on board in policy formulation and project design. The Commission was effective in supporting governance within the structures of EU funding but did not fully consider national public finance management (see paragraphs 50 to 71). The Commission has put in place a structured dialogue on governance issues with Serbia. The dialogue adequately covers the key governance areas, includes the establishment of action points and their follow-up and makes the link between political priorities and policy formulation. The EU enlargement strategy and the revised IPA regulation pay increasing attention to financial and economic governance in the accession countries (see paragraphs 50 to 58). The Court found that the emphasis on governance in the dialogue and the programming process was reflected to a lesser extent in project design. Account taken of risks related to governance was limited or completely absent in the segments of the project documentation concerning conditionality, the lessons learnt from the past and the cross-cutting aspects. However, despite no explicit mention of the need for anti-corruption or other good-governance measures in most of the recent projects that it reviewed, the Court found that a majority of those projects had indirectly contributed to the fight against corruption and better governance through their activities related to building administrative capacity (see paragraphs 59 to 63). In approving the DIS, the Commission assessed the Serbian structures for managing EU funds. It systematically assessed the risks within the IPA structures and monitored the measures taken to mitigate them. However, in accordance with the legal requirements, the accreditation process concerned only the IPA implementing bodies, which means that the DIS was not linked to a preliminary comprehensive assessment of public finance management and the fight against corruption at country level (see paragraphs 65 to 71). To improve the programming, design and implementation of IPA projects, the Commission should:
(a) Make the project prioritisation and selection processes more transparent and more systematically documented, reflecting the individual stages of reasoned project prioritisation.
(b) Improve the lessons-learnt process by developing a dedicated database incorporating lessons drawn from past projects in Serbia and other relevant beneficiary countries. Lessons learnt should take into account the track record or typology of failed or repeated tenders. Entering into the database significant recommendations from contract final reports should also be considered. The database could be grouped according to the major sectors used by IPA programming.
(c) Systematically document the needs assessment underlying the expected outputs from projects and contracts, notably to improve beneficiary ownership of the needs identified.
(d) Reinforce the principle of conditionality. In particular, the beneficiary’s capacity to do what is required for a high-quality project should be verified in advance and in specific measurable terms, as should whether the project elements are compliant with the national legal framework and whether the necessary building permits are available. Stronger conditionality should help to reduce the number of projects that are not ready for implementation, in particular large infrastructure projects.
(e) Set up a system for a regular brief progress report in order to ensure an appropriate audit trail for the entire project instead of individual contracts. The overview reports should include a complete list of the contracts that come under a given project/sector.
(f) Put in place a system to check the usefulness of project outputs (including studies, analyses, procedures, protocols and training materials) in the medium and long term. More emphasis on ultimate usefulness should help to shift the focus from output delivery and meeting contracting and payment target figures to more lasting results.
In relation to its structured dialogue with Serbia on governance issues and to the DIS process, the Commission should carry out the following actions.
(a) Express the need for the Serbian authorities to further rationalise their set of national strategies and finalise a fully fledged PFM roadmap, and if necessary provide technical support in that respect.
(b) Take measures, in the IPA programming, to enhance the consultation mechanism with CSOs active in the area of governance.
(c) Issue guidelines to ensure that the need for sector-specific anti-corruption or other good-governance measures is, wherever relevant, assessed in the project design.
(d) In its assessment of the countrywide PFM reforms, verify that the audit work done by the Commission in the context of the DIS accreditation process is fully taken into account.
This Report was adopted by Chamber III, headed by Mr Karel PINXTEN, Member of the Court of Auditors, in Luxembourg at its meeting of 21 October 2014. For the Court of Auditors Vítor Manuel da Silva Caldeira President
ANNEX
ANNEX I LIST OF IPA PROJECTS AUDITED
Serial No Title National programme/project No Budget (million euro) Governance projects Justice and home affairs — Fight against corruption and administrative capacity 1. Police reform: internal affairs 2007/6 1,0 2. Fight against corruption 2008/5 2,5 3. Improvement of efficiency and transparency of judiciary system 2007/4 2,6 4. Improvement of transparency and efficiency (prosecutors and penal system) 2008/8 4,5 Public administration reform (PAR) 5. Municipal support programme 2007/2 22,5 6. Harmonisation of the Serbian Customs Enforcement Division with the standards, organisation and operational methodology of EU enforcement agencies 2008/6 4,4 Public finance management (PFM) 7. Support for the Public Procurement Office 2007/7 2,0 8. Support for the development of public internal financial control (PIFC) phase 3 2008/2 2,0 Non-governance projects Social development 9. Regional economic and social development programme 2007/13 23,3 10. Health sector reform emergency medical services 2007/16 10,0 Private sector development 11. Support for private sector competitiveness 2007/22 3,5 Transport 12. Žeželj bridge — rebuilding Serbian infrastructure 2009/4 30,0 Environment, climate change and energy 13. Environmental protection at the Electric Power of Serbia company 2008/17 11,0 Agriculture and rural development 14. Capacity building to implement rural development policies to EU standards 2007/32 4,4 Other EU acquis and cross-cutting activities 15. Support for civil society I Support for civil society II 2007/12 2008/11 2,0 2,5 Total 128,4
ANNEX II LIST OF IPA PROJECTS REVIEWED FOR EXAMINATION OF GOVERNANCE AND THE FIGHT AGAINST CORRUPTION AS CROSS-CUTTING ISSUES
Serial No Title National programme/project No Budget (million euro) A. Municipal infrastructure support programme — MISP 2010 2010/3 31,1 B. Supervision of road construction works along corridor X (Grdelica — Vladicin Han and Pirot — Ciflc sections) 2010/15 10,0 C. Institutional capacity building and support for agriculture and rural development in Serbia 2010/20 2,8 D. Strengthening the Serbian Environmental Inspectorate and relevant stakeholders 2010/23 2,5 E. Strengthening legislation, policy and coordination capacities at central level 2011/3 6,5 F. Socioeconomic development in the Danube region 2011/13 18,5 G. Municipal environment grant-loan investment programme (Meglip) 2011/17 19,1 H. Capacity-building for the Energy Agency 2011/19 1,5 I. Support for SME development 2012/7 6,2 J. Support for agriculture and rural development (in particular measures 1.4 and 2) 2012/10 15,6 Total 113,8