Address https://gelex.eu/eli/EU/doc/http://publications.europa.eu/resource/cellar/7e1babe9-b155-4cbd-9dbb-abb6524f7ef9.0006.01@2016-09-30/en

Contents

1. Preamble
2. ANNEX
3. ANNEX I KEY EVENTS FOR UNDERSTANDING EU–WESTERN BALKAN RELATIONS
4. ANNEX II AUDIT SAMPLE OF IPA I NATIONAL PROJECTS
5. ANNEX III AUDIT SAMPLE OF IPA I REGIONAL PROGRAMMES

The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary areas or management topics. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks to performance or compliance, the level of income or spending involved, forthcoming developments and political and public interest. This performance audit was produced by Chamber III — headed by ECA Member Karel Pinxten — which is responsible for external action, security and justice. The audit was led by ECA Member Istvan Szabolcs Fazakas, supported by Márton Baranyi, Attaché of his private office, Francis Joret and Sabine Hiernaux-Fritsch, Support and Quality Control; Dennis Wernerus, Head of Task; Nicola Berloco, Balazs Kaszap, Alina Milasiute, Thomas Haellstroem and Nikolaos Zompolas, Auditors. From left to right: A. Milasiute, N. Berloco, I. S. Fazakas, M. Baranyi, D. Wernerus, T. Haellstroem. BIRN Balkan Investigative Reporting Network ECA European Court of Auditors EEAS European External Action Service ICJ International Court of Justice IPA Instrument for Pre-accession Assistance (I: 2007-2013, II: 2014-2020) MIPD Multi-annual indicative planning document RCC Regional Cooperation Council ReSPA Regional School of Public Administration ROM Results-oriented monitoring SAA Stabilisation and association agreement SIGMA Support for improvement in governance and management UNSCR United Nations Security Council Resolution WBIF Western Balkans Investment Framework From 2007 until 2014, EU financial assistance to the Western Balkans through the Instrument for Pre-accession Assistance (IPA) amounted to 5.1 billion euros. It was allocated in the context of national and regional programmes. Roughly a quarter of national programme funding went towards strengthening administrative capacity in the key sectors of the rule of law and public administration reform. In addition to this, the political dialogue contributed towards strengthening administrative capacity in the six Western Balkan countries, the legal and financial beneficiaries of the IPA. We assessed whether the Commission’s management of the IPA in the Western Balkans was effective and whether it actually did strengthen administrative capacity in the region. We mainly covered the 2007-2013 programming period, but also took developments under the new programming period (2014-2020) into account. A particular feature of this meta-audit was that we mainly assessed data from our previous special reports and Commission evaluations. We assessed the entire IPA programming process (Part I) and examined 52 national projects and three regional programmes (Part II). We concluded that the EU pre-accession assistance was broadly effective and that IPA I partly strengthened administrative capacity in the region, despite considerable shortcomings inherent to the national authorities in the Western Balkans. With regard to the Commission’s management, IPA I objectives were not always specific and measurable. Programmes and projects were based on needs but some beneficiaries’ assessments in the rule of law sector showed considerable shortcomings. The absorption of IPA I funding was hampered by weak administrative capacity in some countries and, in the case of decentralised implementation, strict requirements linked to the management of EU funds. Under IPA I, the Commission did not systematically apply strict conditions and follow up on them. Despite some shortcomings in the reporting for its results-oriented monitoring, the Commission was effective in monitoring the implementation of IPA projects. It was also partly effective in following up on the conclusions and recommendations of IPA evaluations. Finally, despite considerable beneficiary shortcomings, it was able to support donor coordination. With regard to administrative capacity in the Western Balkans, the IPA generally delivered the outputs that were contractually planned and its support for the rule of law and public administration reform was partly sustainable. In the case of rule of law projects, the Commission did not apply conditionality sufficiently and relatively little IPA I funding was provided in key areas of the rule of law, such as media freedom, public prosecution and the fight against corruption and organised crime. The beneficiaries’ lack of political will to reform institutions, insufficient budget and staffing, as well as poor coordination also affected project sustainability. In the area of public administration reform, the Commission managed to convert many project outputs into sustainable results. Whilst not an explicit IPA objective, it could have encouraged beneficiaries more to use IPA as a learning tool in the rest of their public administration. Enhancing regional cooperation and strengthening administrative capacity in the region as a whole is of high importance and has been encouraged by the Commission, notably through the Western Balkans Investment Framework. However, during the period audited, the Regional Cooperation Council did not have a significant impact on the ground. For the Regional School of Public Administration (ReSPA), it was too early to establish whether it improved administrative capacity in the Western Balkans. The political dialogue in the Western Balkans had a limited impact on the rule of law in a number of cases. It did achieve some progress with regard to public administration reform. The report sets out a number of measurable concrete recommendations both to improve the setting of objectives and the design and implementation of IPA projects in the Western Balkans and encourage greater commitment by the six Western Balkans national authorities towards strengthening their administrative capacity. Since the accession of Croatia in 2013, the EU Western Balkan enlargement policy has dealt with six countries: Albania, Bosnia and Herzegovina, Kosovo, the former Yugoslav Republic of Macedonia, Montenegro and Serbia (see Figure 1). Source: European Commission. After an economic and political crisis in the 1980s and the rise of nationalism, Yugoslavia broke up in the 1990s along its republics’ borders, at first into five countries, leading in several of these to armed conflict. Later on Montenegro (2006) and Kosovo (2008) also declared independence. As for Albania, it was a completely isolated communist dictatorship until 1991 and had to build its public administration from scratch. Although these six European countries have historically been affected by serious ethnic, political and economic conflicts, they all aspire to join the EU, where they have a unity of purpose. Indeed, all the six Western Balkan countries are candidates or potential candidates for joining the EU (see Table 1 and Box 1). Source: European Commission. Candidate status (since year) Status accession negotiations Albania 2014 No negotiations Bosnia and Herzegovina Potential candidate No negotiations Kosovo Potential candidate No negotiations the former Yugoslav Republic of Macedonia 2005 No negotiations Montenegro 2010 22 chapters opened, two closed Serbia 2012 Two chapters opened Existing EU principles, policies, laws, practices, obligations and objectives are often referred to in the EU institutions as the acquis. At the heart of accession negotiations, the acquis consists of 35 different accession chapters to be negotiated between the EU and each candidate country. For instance, chapter number 23 covers judiciary and fundamental rights and chapter number 24 covers justice, freedom and security. The Intergovernmental Conferences are the bodies that take decisions on opening and provisionally closing chapters, in line with a negotiating framework agreed by the Council. From 2012 and 2014, respectively, Montenegro and Serbia began to meet in these Conferences. There was no decision by the Council on the setting-up of an accession negotiation framework for Albania and the former Yugoslav Republic of Macedonia, so no Intergovernmental Conferences started with them. As potential candidate countries, Bosnia and Herzegovina and Kosovo were not eligible to start accession negotiations. The EU’s aim of incorporating these countries in the EU has been at the core of EU–Western Balkan relations since 2000 (see Annex I). Since 2007, the Commission has provided them with financial assistance through the Instrument for Pre-accession Assistance (IPA), as shown for IPA I in Figure 2. Within each IPA programme, the EU supported various sectors, such as the rule of law public administration reform, the environment, transport, rural development and social development. It also supported cross-border and multi-beneficiary programmes for the six Western Balkan countries, as a region. Note: Percentages rounded up. Source: European Commission, 31 December 2015. IPA support for the rule of law in the beneficiary countries was designed to bring a wide range of sensitive state bodies, such as ministries, agencies, police forces and the judiciary, closer to the EU’s fundamental rights and the acquis. The IPA also contributed towards ensuring that better national legislation was drafted and adopted. IPA support for public administration reform, including public finance management, also addressed sensitive areas like merit-based recruitment and quality training in the public administration and the full budget cycle, including tax collection, budgeting, procurement, public internal financial control, external audit and statistics. In addition to this, the Commission supported, through the design of regional programmes, the activities of regional organisations such as the Regional Cooperation Council (RCC), the Regional School for Public Administration (ResPA), as well as interventions through the Western Balkan Investment Framework (WBIF). Although it was not the WBIF’s main objective to strengthen administrative capacity in the Western Balkans, it did contribute towards it. The Commission’s annual progress reports evaluate the candidate and potential candidates’ progress towards EU accession. In particular, with regard to the Western Balkans, these reports mentioned the prevalence of corruption and organised crime and weaknesses with respect to the independence of the judiciary system. The Commission monitors the situation in each country through monitoring and expert visits and political dialogue meetings. The ‘Political Guidelines for the next European Commission’ stated that no country will join the EU before 2020. However, with this new timeframe and given that the Western Balkan countries are already strategically important partners, the Commission has the opportunity to achieve long-term strategic objectives and prepare for future EU accession, not only as individual countries, but also as a region, in the framework of a harmonised process and a coordinated regional approach. Considering the findings of previous special reports, our objective was to assess whether the Commission contributed towards strengthening administrative capacity in the Western Balkan region through the IPA programme. We addressed two main questions:

(a) Did the Commission manage well the IPA in the Western Balkans?

(b) Did the IPA strengthen administrative capacity in the Western Balkans?

Our scope was the 2007-2013 period (IPA I), but we also took into account the first stages of the 2014-2020 period (IPA II). We focused on two sectors relevant to the strengthening of administrative capacity in the Western Balkans:

(a) rule of law (fundamental rights, justice and home affairs), with a particular emphasis on the fight against corruption and organised crime; and

(b) public administration reform, including public finance management.

As shown in Table 2, out of 902 million euros of rule of law and public administration reform projects, we examined 52 projects for a total of 109 million euros contracted (12 %). Out of a total of 1.16 billion euros in regional programmes, we examined three of them for a total of 330 million euros contracted (28 %). Note: Amounts in million euros; percentages rounded up. Source: ECA based on European Commission data, 30 June 2015. IPA programmes for administrative capacity in the western Balkan countries Contracted amounts Percentage audited Number of projects/ programmes audited Total Audited National programmes, rule of law projects 485 60 12 % 29 National programmes, public administration reform projects 417 49 12 % 23 TOTAL 902 109 12 % 52 Regional programmes 1160 330 28 % 3 GRAND TOTAL 2062 439 21 % An important part of our work was assessing what EU programmes and projects had achieved in terms of results as defined in the regulation laying down common rules and procedures for the implementation of the Union’s instruments for financing external action. As part of our meta-audit approach, we firstly reviewed a series of ECA special reports and the Commission’s evaluation reports relating to the Western Balkan region (see Table 3). Taking into account the audit scope of the meta-audit and the reports reviewed, we then identified audit gaps, which led to substantial additional audit work performed between March and December 2015. This additional audit work included a desk review of Commission progress, monitoring, expert and meeting reports and interviews of staff from the Commission, the European External Action Service (EEAS), EU delegations, relevant national authorities in the Western Balkans and the RCC. Source: European Court of Auditors. Sources Document references ECA SPECIAL REPORTS 20/2016 Strengthening administrative capacity in Montenegro: progress but better results needed in many key areas 11/2016 Strengthening administrative capacity in the former Yugoslav Republic of Macedonia: limited progress in a difficult context 19/2014 EU Pre-accession assistance to Serbia 18/2014 EuropeAid’s evaluation and results-oriented monitoring systems 18/2012 European Union assistance to Kosovo related to the rule of law 14/2011 Has EU assistance improved Croatia’s capacity to manage post-accession funding? 12/2009 The effectiveness of the Commission’s projects in the area of Justice and Home Affairs for the Western Balkans 5/2007 The Commission’s management of the CARDS programme EVALUATIONS IPA support for the fight against corruption, August 2015 The principles of public administration, SIGMA baseline measurements (Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Kosovo, Montenegro, Serbia), April 2015 Meta-evaluation of IPA assistance, September 2013 IPA — Interim evaluation and meta-evaluation of IPA assistance, evaluation of multi-beneficiary programmes, June 2013 Rule of law, judicial reform and the fight against corruption and organised crime in the Western Balkans, February 2013 We assessed the Commission’s management of the IPA throughout the instrument’s programming cycle and on the basis of the following audit criteria:

(a) Did the IPA have specific and measurable objectives?

(b) Were programmes and projects based on clear needs?

(c) Was assistance actually paid out (absorption)?

(d) Were strict conditions for assistance applied (conditionality)?

(e) Was implementation monitored and were results evaluated effectively?

(f) Was donor assistance coordinated effectively?

The EU’s Financial Regulation stipulates that specific and measurable objectives must be set for all sectors of activities covered by the budget. The IPA regulations and the Commission’s multi-annual indicative planning documents (MIPDs) all addressed the importance of the rule of law and public administration reform in the Western Balkans. During IPA I, objectives were so broad in scope that they were often not specific and measurable through specific targets. However, in the case of Montenegro and Serbia, whose accession negotiations started in 2012 and 2014 respectively, the Commission defined clear and measurable rule of law objectives which, if not met, could block enlargement negotiations. Moreover, since 2010, the Commission has moved from supporting mostly individual projects to a clearer and more measurable sector-based approach, under which programmes and projects clearly fit into sector-based strategies. The Commission planned to fully apply the sector-based approach during the implementation of IPA II. The objectives of the regional programmes that we examined were generally specific and included measurable targets. Given the history of conflict among the western Balkan countries, regional programmes generally had an explicit regional integration objective that matched the IPA’s objectives of supporting post-conflict reconciliation, confidence-building and reconstruction (see Box 2). The WBIF clearly aimed at providing finance and technical assistance for strategic investments and its objectives were measurable through clear indicators (e.g. number of project applications, technical assistance paid, financing granted). During the programming of IPA I, the Commission drafted planning documents (MIPDs), which identified key sectors for IPA support. The national authorities produced their own needs assessments, under either their own initiative or encouragement from the Commission. The MIPDs were usually based on the priorities identified in the progress reports and accession partnerships. They were not based on assessments of the beneficiary countries’ baseline for assessing administrative capacity in different sectors (e.g. the rule of law) nor did they consider the countries’ actual political will for reform. At project level, the examined projects were clearly based on needs identified by the Commission and agreed with the beneficiary countries. During the programming of IPA II, at country level, indicative strategy papers (2014-2020) replaced the IPA I planning documents. They paid more attention to the beneficiaries’ capacity to commit to sector reform at political level and manage IPA funding. Whereas all the western Balkan countries had a comprehensive national strategy with a needs assessment addressing the public administration reform sector, this was not the case for the rule of law in Albania and Kosovo. In Bosnia and Herzegovina, the justice reform strategy was adopted very late (see Box 3). The adoption of this strategy was part of the EU policy dialogue with the national authorities, notably through a structured dialogue on justice. The justice reform strategy was only adopted in 2015, as it was delayed by political divergences among the authorities in Bosnia and Herzegovina. In particular, Republika Srpska (see Figure 3) systematically challenged the needs assessed by the Commission under IPA. This undermined the relevance of national needs assessments, particularly in the case of projects which aimed to foster coordination between anti-corruption activities, police bodies and local public authorities. Source: Eurostat. In some western Balkan countries, it was difficult to make payments on contracted amounts under IPA I (see Figure 4), mainly due to weak administrative capacities. Source: ECA calculation based on Commission data, 31 December 2015. Based on an examination of different IPA operating structures in the Western Balkans, this can partly be explained by the fact that the Commission decentralised significant parts of IPA management to the national authorities. As we observed in the former Yugoslav Republic of Macedonia and Serbia (see Box 4) as well as in Albania, this required a learning period and a more demanding management structure. The Commission decentralised management in compliance with the Financial Regulation and the IPA I regulations, but these regulations did not require it to assess whether the national authorities were ready to manage the volume and complexity of the funds to be decentralised. Following decentralisation, the national administration struggled to keep deadlines and present contracting documents of adequate quality. In many cases, this resulted in the loss of projects designed to fund key reforms, and further losses are expected. The establishment of an audit authority and the operational body for managing IPA projects was affected by longstanding and serious weaknesses identified by the Commission’s own audits. Decentralised management was not linked to a preliminary comprehensive assessment of public finance management at country level, but was solely based on the compliance of Serbia’s IPA structures with the internal control requirements set out in the Financial Regulation. Under IPA II (2014-2020), more focus is being put on improving the countries’ public financial management systems as a whole. However, IPA II programmes were only adopted at the very end of 2014, due to delays in the new IPA legislative framework and procedures. Contracting and payments were further delayed by the beneficiary countries’ ratification procedures. As a result, it was too early at the time of the audit to comment on contracted and paid amounts under IPA II. The Commission’s successive enlargement strategies repeatedly referred to ‘strict conditionality’ but without defining the term specifically. Conditionality is the principle of setting certain conditions prior to contracting or payment, whether at political, programme or project level. If a beneficiary does not meet these pre-defined conditions, the Commission can take action such as suspending payment for an entire programme, reducing future assistance or cancelling a project. At programme level, the Commission only applied strict conditions in very few cases, notably in Bosnia and Herzegovina (see Box 5) and in the former Yugoslav Republic of Macedonia. In 2013, the EU integration process in Bosnia and Herzegovina came to a halt. The country’s political representatives appeared unable or unwilling to reach the consensus necessary to move forward on the pre-accession path. This was exemplified by the country’s inability or lack of political will to enforce a European Court of Human Rights judgment. This led the Commission to apply conditionality by reducing the 2013 IPA I allocation by 45 million euros and imposing further reductions of allocations under IPA II. When Bosnia and Herzegovina failed to adopt a new overall justice sector reform strategy endorsed by all four constitutional entities, including the Republika Srpska (see map in Figure 3), the Commission suspended ongoing budget support in the field of justice. At project level, the Commission did not systematically apply strict conditions, as shown by the examples given in Box 6. Although in 2011 ECA had recommended paying greater attention to ensuring that project proposals in the other pre-accession countries were sufficiently mature for implementation, it was not always ensured by the Commission. This affected project performance in several countries. For seven out of the 15 projects audited, the Commission did not set strict conditions at the contracting stage and prior to effecting payments. This was not only the case for projects featuring complex objectives (such as strengthening anti-corruption measures), but also those aiming at relatively straightforward results, like the Tirana Justice Palace project (see Annex II, project 10). For this project, the necessary permits were not in place and alleged land ownership irregularities caused further difficulties. After negotiating with the Ministry of Justice for 4.5 years, the Commission cancelled the project and reallocated part of the funding to measures that were not related to the rule of law sector. The Commission paid inadequate attention to conditionality, sequencing in project design and legal inconsistencies. This often threatened the smooth and timely implementation of the projects. After 2012, project proposals were sometimes postponed or downscaled due to missing permits or a failure to submit required feasibility studies. The Commission monitored sector reforms and project implementation both directly and through the six EU delegations in the Western Balkans. The highest level of monitoring took place at the twice-yearly joint monitoring committee meetings and, more regularly, at the sectoral monitoring committees. EU delegations also monitored implementation on the spot. The Commission conducted sector and thematic evaluations as part of its evaluation cycle. These should not be confused with the annual progress reports on candidate and potential candidate countries, which are the Commission’s official political assessments of these countries. Across sectors, the EU delegations monitored IPA projects effectively through:

(a) legality and regularity checks based on management and information systems;

(b) coordination meetings involving contractors and beneficiary administrations, including site visits;

(c) the annual Authorising Officer by Sub-Delegation (AOSD) reports;

(d) joint monitoring committee and sectoral monitoring committee meetings;

(e) for riskier projects, internal quarterly monitoring tables.

The Commission monitored the implementation of the IPA and the delivery of outputs effectively. In addition to the above monitoring tools, the results-oriented monitoring (ROM) reports followed a standard Commission methodology and mostly tracked the results of ongoing projects. However, the ROM approach showed three important shortcomings. Firstly, as a considerable number of the IPA projects that we assessed involved contracts with a value of less than 1 million euros, they were below the threshold for ROM reports. As a result, not all politically sensitive projects were subject to results-oriented monitoring. Secondly, none of the assessed reports measured compliance with conditionality. Thirdly, the absence of ex post project monitoring meant that project sustainability could not be measured. With regard to the rule of law, the Commission conducted a comprehensive cross-sector evaluation of the IPA in the Western Balkans, as well as two thematic evaluations of IPA projects regarding the rule of law and the fight against corruption respectively. In close cooperation with the Council of Europe and the Venice Commission, the Commission sponsored a large number of expert visit reports on the judiciary, which pointed out, for example, that there was no track record for successful criminal convictions yet. In spite of this, the Commission did not take advantage of its own evaluations or expert visit reports to make greater use of conditionality. It did not adjust ROM report indicators for rule of law projects, which tended to focus on the output indicators for ongoing projects. Indeed, the Commission stated that project follow-up in the IPA rule of law sector was often absent. With regard to public administration reform, the Commission did not conduct a comprehensive evaluation of IPA support, but some evaluations did cover a limited number of IPA projects in that field. The principle of country-led donors is set out in in the Paris Declaration on Aid Effectiveness (2005). Under this principle, which also applies to IPA funding, each beneficiary country should set realistic targets in a small number of sectors and avoid overlapping donor aid. Throughout the region, the Commission effectively supported the beneficiary countries in their responsibility for leading donor coordination. The Western Balkans Investment Framework (WBIF) and the Regional Cooperation Council (RCC) are both funded by IPA regional programmes. Among their objectives, they aimed at improving donor coordination between the Western Balkan countries (see Box 7). In the context of the WBIF infrastructure projects, the single infrastructure project pipeline submitted by all the Western Balkan countries in December 2015 facilitated the project appraisal and selection process. One of the objectives of the RCC included the provision of a ‘regional perspective’ in donor assistance. Except one meeting held in 2015, the Western Balkan countries did not use the RCC for donor coordination purposes. Donor coordination by the beneficiary country was effective in Serbia, partly effective in the former Yugoslav Republic of Macedonia and Montenegro and ineffective in Albania, Bosnia and Herzegovina and Kosovo (see Box 8). This was due to a lack of leadership and administrative capacity within the national structures responsible for donor coordination. However, we observed that the Commission supported the beneficiaries in ensuring some donor coordination. We examined the donor activities of the Department for Development Programming, Financing and Foreign Aid. It did not have a clear organisational structure, was understaffed and did not run a donor database. Whereas the donor sector working groups had been dormant since 2013, the Commission-driven Donor Technical Secretariat led to effective complementarity and the division of labour among donors. Based on interviews with the donor community (USA, Italy, France), the EU Delegation in Tirana was generally praised for its efforts. Effective donor coordination mechanisms were not operational by the end of 2011 and, in spite of different initiatives to coordinate donors within individual sectors ever since, the EU and other international donors have been calling for a more active role of Kosovo institutions in leading donor coordination and following it up at the technical level. This is confirmed by recent internal Commission documents. From 2007 onwards, IPA has been the only EU funding instrument established to strengthen administrative capacity in the western Balkans. In the sectors of the rule of law, on the one hand, and public administration reform, on the other, we assessed whether:

(a) the Commission had effectively delivered the intended outputs;

(b) IPA results beyond outputs were sustainable;

(c) the political dialogue effectively addressed the strengthening of administrative capacity.

Across sectors, the examined projects under both national and regional programmes delivered outputs against what was contractually planned. For instance, the Fier prison in Albania and Bosnia and Herzegovina’s High Judicial and Prosecutorial Council information technology system were delivered on time and according to contract specifications (see Pictures 1 and 2). ©Eriton Hasaj, 2014. Source: European Commission (7th interim and final report, p. 33). ©High Judicial and Prosecutorial Council BiH (HJPC BiH). Source: European Commission (project final narrative report, p. 23). The Commission only partly managed to convert project outputs into sustainable results in the various areas of the rule of law sector that were supported by IPA (e.g. law enforcement, public prosecution, courts, anti-corruption agencies). Out of the 29 rule of law projects in the audit sample of national projects, 15 were unsustainable. The reasons why results were unsustainable were often found to be at beneficiary country level and included insufficient budget and staffing, poor coordination and the lack of political will to reform institutions and carry out follow up. For these 15 projects, the Commission did not apply sufficiently relevant conditions prior to authorising contracts. IPA contracts could have included the condition that better safeguards were introduced in the judiciary reform sector. Failing this, the payment of annual IPA allocations could have been suspended until further notice. At regional level, RCC’s ‘South East Europe 2020 Strategy’ prominently included justice and the fight against corruption. Even though RCC was heavily reliant on IPA funding, during the audited period and with regard to the rule of law, we did not observe significant activities of this international organisation of Western Balkan countries. Since 1995, Transparency International has ranked countries according to a worldwide corruption perception index — the higher the ranking, the higher the level of perceived corruption. Figure 5 shows the rankings of the six Western Balkan countries over the past 6 years, which corresponded to the latter part of the IPA I implementation period and beyond. Source: European Court of Auditors, based on Transparency International’s corruption perception index (2010-2015). In 2015, the corruption perception index ranked Albania and Kosovo at the 88th and 103rd position respectively, which put these countries on a par with Egypt and Ethiopia. The index ranked the other four Western Balkan countries between 60th and 80th from 2010 till 2015. The annual progress reports, surveys and two thematic evaluations indicated that the Commission was aware that political interference in the work of the judiciary was widespread in the Western Balkans, as was high-level corruption and organised crime (see Box 9). However, in Montenegro and Serbia, two countries with which the EU had opened accession negotiations, the level of preparedness for judiciary reform was better than in the other four countries. The full independence and accountability of judges and prosecutors was not guaranteed. The slow administration of justice and judicial decisions that were not always enforced led to a negligible number of final convictions that effectively dismantled criminal organisations. Political commitment was not translated into successful convictions. For instance, in a 2015 RCC survey, 90 % of the respondents surveyed in Bosnia and Herzegovina disagreed with the statement that their government was fighting corruption effectively. Disputed appointments, unclear mandates and a consistent shortage of national funding undermined the activities of key rule of law institutions in Kosovo. The investigations into cases of corruption at a high level were rare and did not result in final convictions. Furthermore, the involvement of Kosovo citizens in organised crime in the region threatened regional inter-ethnic stability. For monitoring purposes, the Commission asked each beneficiary country for track record tables of effective investigation, prosecution and final convictions in judicial cases involving high-level corruption and organised crime. Depending on the country, the high-level corruption and organised crime cases included in these varied from a few (Serbia) to zero (Kosovo), which does indicate a lack of political will. According to the Commission, the lack of political will was often reflected in the insufficient financial and human resources allocated to the relevant institutions, which limited the ambition and absorption capacity of IPA I. The two examples given in Box 10 show that the impact of IPA I projects on the fight against corruption and organised crime was only limited. The purpose of the ‘Project against corruption in Albania’ was to support the Albanian government in implementing its anti-corruption strategy (2007-2013). Not only did it fail to deliver on measurable targets, but its sustainability was also affected by the fact that the national anti-corruption coordinator was not independent and coordinated policies at national and local level without adequate budget or staff. This project aimed to strengthen the work of the main body responsible for preventing corruption. However, it did not address the fact that the State Commission for Preventing Corruption was not in a position to exercise its mandate effectively in the face of inadequate commitment by the national authorities, a lack of independence on the part of its senior management and insufficient resources. Free media and a strong civil society are key drivers for raising public awareness of corruption and organised crime; they often encourage anti-corruption agencies and the public prosecution to act. These, in turn, contribute directly to a track record of effective investigation, prosecution and final convictions in judicial cases of high-level corruption and organised crime. In the context of the rule of law in the Western Balkans, the pervasive problems with judiciary independence and the effectiveness of the fight against corruption and organised crime (see paragraphs 46 to 50), combined with the Commission’s own views on the importance of the media, civil society, anti-corruption agencies and public prosecution, were sufficient grounds for sustained support in these key areas. However, under IPA I, the Commission allocated relatively little funding to media freedom and civil society in the Western Balkans (0.5 % of total allocations). For instance, Albania received no national allocations for media freedom and civil society in the context of the fight against corruption. Likewise, the Commission allocated little funding to the fight against corruption and organised crime (2 %) and support for public prosecution services (1 %). Building and maintaining administrative capacity were particularly challenging, mainly because of widespread corruption and constant political interference in civil service recruitment and career management. This resulted in high staff turnover and a lack of qualified staff in the national authorities. In this context, the Commission managed to convert many project outputs into sustainable results, which IPA I had supported (e.g. civil service reform, customs, public procurement, public internal financial control, audit). Out of the 23 projects in the audit sample of national projects, 14 were sustainable. Where they were not, it was mainly because of insufficient budget and staffing, poor coordination and, most important of all, the beneficiary’s lack of political will to reform institutions and follow up on reform. In some cases, prior to authorising contracting, the Commission could have predefined additional conditions with regard to legislation and project terms of reference, but had failed to do so (see Box 11). In that country, budgets were adopted late and budget coordination and planning remained poor. Furthermore, at the state level, the entities and Brčko District had their own budgets and laws on civil service and administration and the public administration remained fragmented. This hampered the sustainability of a country-wide administrative coordination project and a public finance statistics project. With regard to regional programmes (see Annex III), the WBIF was designed as a blending instrument for infrastructure projects in the Western Balkans. Between 2008 and 2014, 2.8 billion euros in project loans were contracted, as compared with 305 million euros in EU funding. The WBIF was a good instrument for improving donor coordination and providing technical support to national authorities in charge of infrastructure (e.g. preparing project pipelines, drafting project finance documentation), thereby strengthening the beneficiary’s administrative capacity. We examined a typical example of a WBIF project (see Box 12). This 3.5 million euros regional project, sponsored by the European Bank for Reconstruction and Development, consisted of technical assistance for a feasibility study for a gas interconnection pipeline from Albania to Croatia. The project deliverable (a technical report) was completed on time and provided technical expertise to the Albanian Ministry of Energy and Industry. It will be used for the gas pipeline’s masterplan and future construction. Governed by the six western Balkan countries, the Regional School of Public Administration (ReSPA) is an international organisation based in Danilovgrad, Montenegro. It received 2.4 million euros in IPA technical assistance, equipment and furniture and an annual allocation of 1.2 million euros in IPA funding to support its operational activities. Whereas its aim was to contribute to an effective and professional public administration in the Western Balkan countries, public officials from these countries made little use of ReSPA’s training offer, which was not commensurate with the volume of IPA and national funds invested in ReSPA over nearly a decade. The Commission made proposals to improve ReSPA’s results, including by ensuring coordination between IPA regional and national assistance. Although these proposals had been acted upon at the time of the audit, it was too early to establish whether ReSPA actually improved administrative capacity in the Western Balkans. We found that the Commission’s approach to IPA I was mainly restricted to the IPA structures specifically set up for the purpose of managing IPA funds. It could also have actively encouraged the national authorities to use the good practice developed in these IPA structures as a learning tool for strengthening other parts of the public administration outside these structures, although this was not a specific IPA objective. However, it did not do so, and, as a result, the IPA’s contribution towards strengthening administrative capacity remained confined to bodies closely associated with IPA public administration reform. Box 13 and Box 14 show two high-profile examples where the beneficiaries failed to apply good practice that could have been learnt from IPA. This was announced in 2010 as an 80 million euro project. However, in 2015, total costs were estimated at seven times this amount, or 560 million euros. This large-scale urban project in the capital city consisted of the erection of buildings and monuments (see Picture 3). It did not benefit from IPA funding. This project did not follow EU public procurement rules; there was a lack of transparency during the tender process (e.g. fees were paid for artworks that were not specified before the tender) and the alleged irregularities in the tender awards had neither been audited externally, nor investigated. Source: European Court of Auditors. In Serbia’s Autonomous Region of Vojvodina, the IPA financed parts of the Žeželj Bridge project costs. The new bridge was supposed to be completed by November 2013 in order to replace a heavily congested and hazardous rail–road bridge in the city centre of Novi Sad, which was a temporary construction built after the previous bridge was bombed during the war against Kosovo. Because of excessive administrative burden and weak coordination (e.g. the delegation of key tasks of the Serbian authorities to external parties, the incompatibility of Serbian procedures with international engineering procedures, problems with setting project milestones), considerable delays were accumulated in 2015 and the Serbian authorities failed to complete project phases not funded by the IPA (Picture 4). Source: European Court of Auditors. The IPA’s achievements very much depended on the progress achieved by the various policy dialogue structures. The political dialogue was either at intergovernmental level or at joint parliamentary level. The intergovernmental level comprised the EU Council and Member States, the EEAS, the Commission and the six governments of the Western Balkans. The relevant joint parliamentary committees of the European Parliament and the six parliaments of the Western Balkans made up the joint parliamentary level. Table 4 summarises the most important political dialogue structures involving the Commission and relevant to this audit. Source: European Court of Auditors. Political dialogue Start Albania High-level dialogue on key level priorities 12 November 2013 Bosnia and Herzegovina High-level dialogue on the accession process 27 June 2012 Structured dialogue on justice 6 June 2011 Kosovo Structured dialogue on the rule of law 30 May 2012 the former Yugoslav Republic of Macedonia High-level accession dialogue 29 March 2012 Montenegro Start accession negotiations 29 June 2012 Serbia Start accession negotiations 21 January 2014 All western Balkan countries Stabilisation and association councils Multiple dates These dialogue structures aimed to stimulate the political will to strengthen the rule of law, encourage administrative reform and improve public finance management, especially in the years 2014-2015. Depending on the country’s political status with respect to EU membership (potential candidate, candidate or candidate with active chapter negotiations), the political dialogue structures gave rise to specialised working groups. The Commission effectively set up working groups, notably on the independence of the judiciary, weaknesses in public prosecution and corruption in the judiciary and the police. Furthermore, in the case of Montenegro and Serbia with which the Council approved the opening of accession negotiations (see Table 4), the stabilisation and association process, the action plans on Chapters 23 and 24 and the IPA have given them a certain level of preparedness towards the reform of the judiciary and the fight against corruption and organised crime. In countries with which accession negotiations had not yet started, the effect of the EU–Western Balkan working groups in generating political will to promote the rule of law was limited, as shown in Box 15. Due to the political and institutional challenges, the political dialogue was partly ineffective. There was some progress in establishing functional and sustainable institutions, but little progress in the area of judicial system reform. The judiciary continued to suffer from persistent flaws in terms of independence, political interference and inefficiencies. Although the rule of law was the top priority in Kosovo, progress in the fight against corruption and organised crime suffered from important setbacks, as evidenced by various reports. The political dialogue had so far been ineffective in addressing the prevailing sense of impunity in this country, notably due to a lack of judicial independence, as well as limited results in the fight against corruption and organised crime. The political dialogue on public administration reform took place in the framework of the stabilisation and association agreements (SAAs). In partnership with the beneficiary public administrations in the whole Western Balkan region, the Commission successfully set up ‘public administration reform special groups’. These special groups systematically addressed the strategic framework for public administration reform, public service and human resources management, policy development and coordination, service delivery to citizens and businesses, accountability of the public administration, as well as public finance management. They were established in 2010 in the former Yugoslav Republic of Macedonia, in 2012 in Albania, in 2013 in Kosovo in 2014 in Montenegro and Serbia and in 2015 in Bosnia and Herzegovina. Based on the findings of previous special reports, Commission evaluations and additional audit work performed in 2015, our objective was to assess whether the Commission, through the IPA programme, had contributed towards strengthening administrative capacity in the Western Balkan region. Our scope was IPA I (2007-2013), but we also took into account the first stages of IPA II (2014-2020). We focused on the key sectors of the rule of law and public administration reform. We concluded that the EU pre-accession assistance was broadly effective and that IPA I partly strengthened administrative capacity in the region, despite considerable shortcomings inherent to the national authorities in the Western Balkans. With regard to the Commission’s management, IPA I objectives were not always specific and measurable. Programmes and projects were based on needs but some beneficiaries’ assessments in the rule of law sector showed considerable shortcomings (paragraphs 16 to 23). The absorption of IPA I funding was hampered by weak administrative capacity in some countries and, in the case of decentralised implementation, strict requirements linked to the management of EU funds (paragraphs 24 to 26). Under IPA II, the Commission should set specific objectives based on ranked priorities and measurable targets. In order to simplify management requirements, when the Commission identifies a weak administrative capacity, it should apply indirect management selectively, taking into account the volume of the funds involved and the complexity and political sensitivity of projects to be decentralised. Under IPA I, the Commission did not systematically apply strict conditions and follow up on them. Despite some shortcomings in its ROM reporting, it was effective in monitoring the implementation of IPA projects. It was also partly effective in following up on the conclusions and recommendations of IPA evaluations. Finally, despite considerable beneficiary shortcomings, it was able to support donor coordination effectively (paragraphs 27 to 37). The Commission should apply relevant conditions at sector, programme and project level and follow up on them. For instance, it could apply, where appropriate, a net reduction in future IPA allocations, suspend payments, cancel projects not yet contracted and systematically monitor project compliance with predefined conditions. The Commission should systematically monitor sensitive programmes and projects and carry out external evaluations of interventions in priority sectors in the Western Balkans. With regard to administrative capacity in the Western Balkans, the IPA generally delivered the outputs that were contractually planned and its support for the rule of law and public administration reform was partly sustainable (paragraphs 42 to 57). In the case of rule of law projects, the Commission did not apply conditionality sufficiently and relatively little IPA I funding was provided in key areas of the rule of law, such as media freedom, public prosecution and the fight against corruption and organised crime. The beneficiaries’ lack of political will to reform institutions, insufficient budget and staffing, as well as poor coordination also affected project sustainability (paragraphs 43 to 52). In the area of public administration reform, the Commission managed to convert many project outputs into sustainable results. Whilst not an explicit IPA objective, it could have encouraged beneficiaries more to use IPA as a learning tool in the rest of the public administration (paragraphs 53 to 58). In the context of the political dialogue and under IPA I and II, the Commission should engage the beneficiary countries in stronger political commitment so that they establish a convincing track record of effective investigation, prosecution and final convictions in cases of high-level corruption and organised crime. To this end, it should require each of the beneficiaries to build up their track records further. This should be done in the framework of the political dialogue and should be reflected into future national IPA allocations and other potential sources of EU funding. Furthermore, upon availability of political commitment, and better absorption capacity, the Commission should better targetresources in key areas of the rule of law where we noted a significant need for support: the fight against corruption and organised crime (with a particular focus on the public prosecution) and media freedom. Enhancing regional cooperation and strengthening administrative capacity in the region as a whole is of high importance and has been encouraged by the Commission, notably through the Western Balkans Investment Framework (paragraphs 19, 39, and 55). However, during the period audited, the Regional Cooperation Council did not have a significant impact on the ground. For the Regional School of Public Administration, it was too early to establish whether it improved administrative capacity in the Western Balkans (paragraphs 39, 45 and 57). Under IPA I and II, the Commission should support regional cooperation. In particular, it should ensure that its financial contributions to the RCC and ReSPA yield measurable and sustainable results on the ground. The political dialogue in the Western Balkans had a limited impact on the rule of law in a number of cases. It did achieve some progress with regard to public administration reform (paragraphs 59 to 64). The Commission should use political dialogue to support the delivery of results pertaining to the rule of law and public administration reform under the IPA. This report was adopted by Chamber III, headed by Mr Karel PINXTEN, Member of the Court of Auditors, in Luxembourg at its meeting of 12 July 2016. For the Court of Auditors Vítor Manuel da Silva Caldeira President

ANNEX

ANNEX I KEY EVENTS FOR UNDERSTANDING EU–WESTERN BALKAN RELATIONS

Source: ECA, on the basis of European Commission data. 2000 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

1 June – The Santa Maria da Feira European Council states that all the countries involved in an SAA process are potential candidates for EU membership.

1 April – Former Yugoslav President Slobodan Milosevic, wanted on charges of war crimes, abuse of power and corruption, is arrested.

13 August – The Ohrid Framework Agreement seals the peace deal between the government of the former Yugoslav Republic of Macedonia and the country’s ethnic Albanian community.

20 June – The Thessaloniki European Council confirms the EU perspective for the Western Balkans.

22 March – The former Yugoslav Republic of Macedonia applies for EU membership.

1 April – The SAA with the former Yugoslav Republic of Macedonia enters into force

16 December – The Council confirms the former Yugoslav Republic of Macedonia as a candidate country.

3 June – After a successful referendum, Montenegro declares its independence.

1 January – IPA I enters into force

26 February – In Bosnia and Herzegovina vs. Serbia and Montenegro, the ICJ rules that the Srebrenica massacre was an act of genocide, whilst clearing the respondent for responsibility for the massacre.

17 February – Kosovo declares its independence.

11 July – At the donors’ conference for Kosovo, the Commission and EU Member States pledge nearly 800 million euros to specifically support Kosovo.

15 December – Montenegro applies for EU membership.

1 April – The SAA with Albania enters into force.

24 April – Albania applies for EU membership.

22 December – Serbia applies for EU membership.

22 December – The ECHR condemns Bosnia and Herzegovina for the violation of the democratic rights of citizens of non-majority communities.

1 May – The SAA with Montenegro enters into force.

22 July – The ICJ issues an advisory opinion that the unilateral declaration of Kosovo’s independence did not violate any applicable rule of international law.

17 December – The Council confirms Montenegro as a candidate country.

26 May and 20 July – prominent Serb war criminals sought by the International Criminal Tribunal for the former Yugoslavia are arrested.

1 March – The European Council confirms Serbia as a candidate country.

29 June – Montenegro’s accession negotiations formally start.

19 April – The Prime Ministers of Kosovo and Serbia sign the Brussels Agreement, normalising relations between the two countries.

1 September – The SAA with Serbia enters into force.

1 January – IPA II enters into force

21 January – Serbia’s accession negotiations formally start.

27 June – The Council confirms Albania as a candidate country.

15 July – Declaration by the incoming President of the Commission that no new accessions will take place before 2020.

28 August – Western Balkans Summit in Berlin.

1 June – The SAA with Bosnia and Herzegovina enters into force.

20 August – Western Balkans Summit in Vienna.

15 February – Bosnia and Herzegovina applies for EU membership.

30 March – Western Balkans Summit in Durrës, Albania.

1 April – The SAA with Kosovo enters into force.

ANNEX II AUDIT SAMPLE OF IPA I NATIONAL PROJECTS

Source: ECA on the basis of European Commission data, 30 June 2015. No Beneficiary Project IPA decision year Amount (euro) Rule of law 1 Albania Police Assistance Mission of the European Community to Albania (PAMECA III) 2007 6768790 2 Project against Corruption in Albania (PACA) 2008 2000000 3 Support for Anti-Money Laundering and Financial Crime Investigations Structures 2009 1500000 4 Civil Society Facility – Civic Initiatives and Capacity Building 2009 1500000 5 Support for Witness Protection 2009 554199 6 Police Assistance Mission of the European Community to Albania (PAMECA IV) 2009 1000000 7 EURALIUS III: Technical Assistance for the Justice System 2009 2300000 8 Construction of a new prison in Fier 2010 9654814 9 Case management system for the General Prosecutor Office of Albania 2010 990396 10 Construction of the Justice Palace in Tirana 2012 0 11 Bosnia and Herzegovina Joint training of the SIPA Financial Intelligence Unit and Crime Investigation Unit, Prosecutors, financial regulatory agencies and institutions 2007 392973 12 Financing of War Crime Chamber (State Court) 2008 2999599 13 Assistance to the Directorate for coordination of police bodies 2008 1200000 14 Strengthening institutional capacities to prevent and combat corruption 2009 488048 15 Responsible Journalism’s Watching Eye: Anti-corruption and the Media 2009 102923 16 Construction of a High Security State Prison in Sarajevo - Phase II 2010 5150000 17 High Judicial and Prosecutorial Council 2010 1000000 18 Twinning assistance to the Directorate for coordination of police bodies 2008 1200000 19 Support for law enforcement institutions 2010 6999999 20 Enhancing capacity of parliaments in the context of EU accession 2012 3499966 21 the former Yugoslav Republic of Macedonia Support for the drafting of the follow-up strategic documents and corresponding action plans for the prevention and repression of corruption and conflict of interest 2008 165968 22 Exchange of EU best practices in the area of anticorruption monitoring on local level 2009 138500 Rule of law 23 Montenegro Support to the implementation of the anti-corruption strategy and action plan 2012 700000 24 Corruption in local government – zero tolerance! 2012 190308 25 Serbia Police reform: internal affairs 2007 1000000 26 Improvement of efficiency and transparency of the judiciary system (courts) 2007 2643064 27 Fight against corruption 2008 2147000 28 Improvement of transparency and efficiency (prosecutors and penal system) 2008 1891517 29 Support for civil society (I and II) 2007 2008 1983458 TOTAL 60161522 Public administrative reform 1 Albania Support for the Albanian Department of Public Administration (DOPA) 2008 958892 2 Support for the Albanian public procurement, concessions and public auctions systems 2008 899076 3 Strengthening the Assembly of Albania 2010 1454147 4 Support for the Albanian Customs Administration 2011 1424496 5 Implementation of a modern Financial Management and Control System and Public Financial Inspection 2012 2500000 6 Bosnia and Herzegovina Capacity building of the Office of the Coordinator for Public Administration Reform 2007 1824961 7 Development and implementation of a nationwide public internal financial control strategy 2007 1105904 8 Capacity Building of General Government and Public Finance Statistics 2009 1603790 9 Curricula for transparency and accountability 2010 445253 10 Support for coordination and Implementation of Public Administration Reform 2011 476450 Public administrative reform 11 the former Yugoslav Republic of Macedonia Technical assistance for the IPA training and support facility 2007 856280 12 Strengthening the capacity of institutions to manage and implement operational programmes 2008 1599710 13 Support for the Public Procurement System 2008 986442 14 Technical Assistance to the Ministry of Information Society and Administration and Strengthening the implementation of the National System for Training Coordination 2009 1095000 15 Montenegro Further development and strengthening of the public procurement system 2009 1080017 16 Strengthening the management and control systems for EU financial assistance 2009 2010 2013 2000000 17 Strengthening State Audit Institution 2014 751068 18 Audit Quality control in the State Audit Institution 2014 250000 19 Strengthening the management of EU funds and general administrative procedures 2014 1261500 20 Serbia Municipal support programme 2007 22501150 21 Support for the Public Procurement Office 2007 116650 22 Support for the development of Public Internal Financial Control 2008 2000000 23 Harmonisation of the Customs Enforcement Division with the standards, organisation and operational methodology of EU enforcement agencies 2008 1399641 TOTAL 48590427

ANNEX III AUDIT SAMPLE OF IPA I REGIONAL PROGRAMMES

Source: ECA on the basis of European Commission data, 30 June 2015. Contracted amounts represent the total contracted amounts for all projects in these programmes. No Multi-beneficiary programme in the Western Balkans IPA decision years Contracted amount (euro) 1 Regional Cooperation Council (RCC) 2008-2013 18641100 2 Western Balkans Investment Framework (WBIF) 2008-2014 305000000 3 Regional School of Public Administration (ReSPA) 2010-2013 5900000 TOTAL: 329541100

Versions

1. 2016-09-30