ANNEXES. Statement of the Resources Director. Legal_service_aar_2016_final Page 43 of 60

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1 Ref. Ares(2017) /03/2017 ANNEXES ANNEX 1: Statement of the Resources Director I declare that in accordance with the Commission s communication on clarification of the responsibilities of the key actors in the domain of internal audit and internal control in the Commission 1, I have reported my advice and recommendations to the Director-General on the overall state of internal control in the Legal Service. I hereby certify that the information provided in Section 2 of the present AAR and in its annexes is, to the best of my knowledge, accurate and complete. 28 March, 2017 (signed) William O'LEARY 1 Communication to the Commission: Clarification of the responsibilities of the key actors in the domain of internal audit and internal control in the Commission; SEC(2003)59 of Legal_service_aar_2016_final Page 43 of 60

2 ANNEX 2: Reporting Human Resources, Better Regulation, Information Management and External Communication Table 12 shows the spit of staff resources in the various ABB activities Code ABB Activity AWBL - 10 AWBL - 11 ABB Activity Quality Legislation Human Resources by ABB activity of Legal advice, litigation and infringements Policy strategy and coordination for the Legal Service Administrative support for the Legal Service Establishment Plan posts External Personnel Total Table 12: Human resources in the different activities (Source: Sysper) Total General remark: the above data rely on the snapshot of Commission personnel actually employed in each DG/service as of 31 December of the reporting year. These data do not necessarily constitute full-time-equivalents throughout the year. Table 13 shows the implementation of decentralised administrative authorised operations (missions and other administrative expenses) Budget line Credits Commitments Payments % EXECUTION Missions External meetings Representation Internal meetings Informatics systems development Training Total ,92% Table 13: Committed and paid amounts for administrative costs in 2016 (Source: ABAC) Legal_service_aar_2016_final Page 44 of 60

3 ANNEX 3: Draft annual accounts and financial reports Legal_service_aar_2016_final Page 45 of 60

4 ANNEX 4: Materiality criteria The materiality criteria only apply to the financial management of the Legal Service. It is difficult to determine a materiality level for its court actions and consultations although the impact of these actions can be extremely important for the Institution, both financially and in terms of image. In this sense, the Legal Service has selected as the materiality threshold 2% of annual appropriations. For 2016 it is set at EUR However, it still uses a second threshold in its daily management. Any transaction exceeding EUR must be brought to the attention of the Director-General or his deputy and signed by them. Controls implemented by the Legal Service in its circuits and procedures are designed to detect and correct any errors which may occur. Corrective measures taken are known by the authorising officers by sub-delegation and, as stated above. Every year, the Legal Service estimates the financial exposure linked to lost court cases and other situations in which the Legal Service must pay the legal fees of the opposing party. The procedure for identifying and determining the amount to be provided for has been applied over the past few years. Every year, the actual figures are compared with the estimates in order to improve the accuracy of the provision. The general approach is to be conservative in the assessment of the provision for lost court cases. The total exposure is split into a provision of the amount most likely to be paid (40%) with the remaining part being recorded as a contingent liability (60%). No errors which occurred in 2016 were by their nature or frequency considered to be of significant or material importance. The Legal Service considers that it has an appropriate level of management and control systems in place. On-going improvements mainly concern tools and the simplification of certain procedures or the rationalisation of certain sub-activities such as centralised monitoring of forced recoveries. Legal_service_aar_2016_final Page 46 of 60

5 ANNEX 5: Internal Control Templates for budget implementation (ICTs) 1. ICT for External legal services (44% of total expenditure) Codification Legal advice, litigation and infringements 2. ICT for Compensation to opposing parties for their legal costs (32% of total expenditure) 3. ICT for Mission expenditure (15% of total expenditure)

6 1. EXTERNAL LEGAL SERVICES Stage 1: Procurement A - Planning The Legal Service is a horizontal service and has no program or policy spending. Codification The framework contract for codification expired in The expenditure for codification has decreased over the last years and there was zero spending in Management of the Legal Service sees no need to launch a new framework contract. Legal advice, litigation and infringements Due to the fact that legal services are provided upon request they are consequently reactive and not proactive. The Legal Service uses negotiated procedures without publication of a contract notice in the Official Journal according to the Article 134 RAP. Main control objectives: Effectiveness, efficiency and economy. Compliance (legality and regularity) Main risks It may happen (again) that Codification: Mitigating controls How to determine coverage, frequency and depth How to estimate the costs and benefits of controls Control indicators No financial consequences due to the absence of any new framework contract n/a Legal services: Reactive service and therefore contracts can only be negotiated once there is a court case or a forced recovery order n/a Legal_service_aar_2016_final Page 48 of 60

7 B Needs assessment and definition Codification The framework contract for codification expired in The expenditure in the Legal Service for codification has decreased over the last years and there was zero spending in Management of the Legal Service sees no need to launch a new framework contract. Legal advice, litigation and infringements Legal services from external providers are requested for a limited part of the Legal Service's work. The need for an external lawyer or law firm is decided on the basis of an analysis of a court case or a forced recovery order.. Thereafter, potential external providers are identified and a negotiated procedure is initiated. Main control objectives: Effectiveness, efficiency and economy. Compliance (legality and regularity) Main risks It may happen (again) that Codification: n/a Mitigating controls How to determine coverage, frequency and depth How to estimate the costs and benefits of controls Control indicators No new framework contract. Legal advice, litigation and infringements: Risk of not obtaining value for money due to sometimes - limited time available for the negotiation procedure. Risk of non-compliance with legality and regularity and criticism of choice of contract partner due to limited time available for the negotiation procedure. One of the reasons for the established authorisation chain is to ensure that proposed contracts with external providers will ensure value for money. Assessment of legal expertise of the external provider The Financial Cellule provides management with quarterly information about the contracts with external providers allowing for hierarchical control of awarded contracts 100% of the specifications are verified at Director level. Depth may be determined by the amount or the impact on the objectives of the DG 100% of the tenders above a financial threshold (EUR for Head of Unit and EUR for Director) are reviewed Depth risk-based, depending on sensitivity. Costs: Estimation of FTEs involved in assessment and approval Quantified Benefits: Value of contracts for which the approval and supervisory control detected material error (normally leading to a re-launch of the negotiation procedure with the purpose to reduce the contract amount). Non Quantified Benefits: Mitigate the risk of incorrect selection of external providers. Effectiveness: N of suspensive/negative procurements Legal_service_aar_2016_final Page 49 of 60

8 C Evaluation and Award Codification OPOCE managed the call for tender procedure for the framework contract for codification which expired in There is no new framework contract anticipated. Legal advice, litigation and infringements The Legal Service uses negotiated procedures without publication of a contract notice in the Official Journal according to Article 134 RAP. Main risks It may happen (again) that Codification: Mitigating controls How to determine coverage, frequency and depth How to estimate the costs and benefits of controls Control indicators No financial consequences due to the absence of any new framework contract. Legal advice, litigation and infringements: Due to time constraints, there may not be enough time to identify the most competent external provider The most economically advantageous offer is not selected due to the limitations in the negotiated procedure Damage to the Legal Service's reputation if conflict of interest is discovered Review of all contracts by the Financial Cellule, by the legal coordinator and approval by the Director and for contracts of more than EUR , the Director- General Declaration of non-conflict of interests requested for all tenders 100 % of contracts are controlled by the Financial Cellule before signature by the Director-General. Contracts below EUR signed by Head of Unit for the unit reporting directly to the DDG Contracts below EUR signed by the Directors Contracts above EUR signed by the Director- General Costs: Estimation of FTEs involved in the contract review procedure. Quantified Benefits: N of contracts challenged by the legal coordinators or the Director-General (or DDG) Non quantified Benefits: Value for money Effectiveness: N of contracts which lead to litigation N of errors detected by the ICC, the EAC or the IAS. Legal_service_aar_2016_final Page 50 of 60

9 Stage 2: Contract Management and Financial Transactions Codification: The Legal Service has had no own consumption of the framework contract in 2016, however, other DGs and services continued to use it until the end of its term. Main control objectives: Ensuring that the implementation of the contract is in compliance with the signed contracts. Main risks It may happen (again) that Codification: Mitigating controls How to determine coverage, frequency and depth How to estimate the costs and benefits of controls Control indicators Overconsumption of the framework contract The Legal Service is formally requested to approve commitments by the other DGs/ Services before making use of the framework contract. Monthly review of 100% of consumed part of the framework contract. Costs: Estimation of FTEs involved Non quantified Benefits: Ensuring no overconsumption of the framework contract Effectiveness: N (or amount) of overconsumption of the framework contract Legal advice, litigation and infringements: Poor or non-execution by the external provider due to lack of competence in the legal area The services provided for are not, totally or partially, provided in accordance with the requirements in the contract and/or the amounts paid exceed those due in accordance with the applicable contract Close monitoring of the work executed by the staff in the legal teams The Financial Cellule keeps records on total consumption of each contract 100% of contracts and invoices are controlled by the legal teams by monitoring of the work executed by the external provider 100% of received invoices are controlled by the Financial Cellule Costs: Estimation of FTEs involved Quantified Benefits: Identified irregularities, errors and overpayments prevented by the controls. Non quantified Benefits: Legal Service reputation intact Effectiveness: % error rate relating to contract management and payments N of open critical and/or very important audit recommendations. N of court cases resulting from contract execution problems Efficiency: Time-to-pay Late interest payments Legal_service_aar_2016_final Page 51 of 60

10 Stage 3: Supervisory measures Main control objectives: Ensuring that any weakness in the procedures (financial transactions) is detected and corrected. Main risks It may happen (again) that An error or non-compliance with regulatory and contractual provisions, including technical specifications, or fraud is not prevented, detected or corrected by ex-ante control, prior to payment. Mitigating controls Supervisory desk review of procurement and financial transactions Ex-post publication of contracts awarded (and subsequent publication in the EU Financial Transparency System) Regular review of exceptions or non-compliance events reported Quarterly review of the summary data of awarded contracts How to determine coverage, frequency and depth 100% of all contracts approved by a superior function 100% of all contracts of more than EUR are approved by the Director- General Quarterly report on contracts with external providers are reviewed by management 100% of all invoices reviewed by the Financial Cellule How to estimate the costs and benefits of controls Costs: estimation of FTEs involved in the controls Non quantified Benefits: Deterrents and systemic weakness corrected Control indicators Effectiveness: Amounts associated with errors detected (related to fraud, irregularities and error) and in % over total checked. N system improvements made Cost-effectiveness: Costs of the ex post controls and supervisory measures with respect to the benefits. System and transaction audits (by IAS and ECA) and subsequent monitoring of implementation of recommendations for improvement Review any significant problem that occur Sample test at least once a year to determine any errors or systemic problems or weaknesses in the procedures (procurement and financial transactions). Legal_service_aar_2016_final Page 52 of 60

11 2. COMPENSATION TO OPPOSING PARTIES FOR THEIR LEGAL COSTS Stage 1: Compensation to opposing parties for their legal costs The court may decide that the legal costs incurred by the opposing party should be compensated, fully or partly, by the Legal Service. By its nature, there is no procurement procedure. The obligation arises as a result of the court decision. Upon receipt of the cost claim from the opposing party, the Legal Service assesses the amount claimed. The claim is then either accepted or re-negotiated or the court is asked to determine the amount to be paid. A Planning Not applicable (compensation to the opposing party for their legal fees is not part of a policy or a program) B Needs assessment In the budget planning, the Legal Service assesses the future amount expected to be paid as compensation to the opposing party for their legal fees. It is based on court decisions, estimates and follow up/comparisons with historical data. Main control objectives: Effectiveness, efficiency and economy. Compliance (legality and regularity) Main risks It may happen (again) that Mitigating controls How to determine coverage, frequency and depth How to estimate the costs and benefits of controls Control indicators Risk that the budget request will be sufficient to cover future expenditure for compensation claims by opposing parties Risk that the year-end closing provision will not be sufficiently conservative to cover future expenditure for compensation claims by opposing parties. The database for litigation requires all closed court cases to be assessed to have a financial consequence. Based on this information, a yearly provision of expenditure to opposing parties is calculated (for the year end closure). Actual payments are compared with the estimates. The ratio is used for future budget requests. 100% of closed cases identified with a financial consequence are covered. Yearly assessment based on best estimate is compared with actual outcome. This procedure has, over the years, proved to provide estimates of good precision. Costs: Estimation of FTEs involved in assessment and approval Non Quantified Benefits: Mitigate the risk of incorrect estimated budget and provision in the year end closure. Effectiveness: Comparison of estimate with actual figures. Legal_service_aar_2016_final Page 53 of 60

12 C Evaluation Not applicable (A court decision which obliges the Legal Service to compensate the opposing party for their legal fees is an obligation) Stage 2: Financial Transactions Main control objectives: Ensuring that the implementation of the contract is in compliance with the signed contracts. Main risks It may happen (again) that Mitigating controls How to determine coverage, frequency and depth How to estimate the costs and benefits of controls Control indicators Year-end closure: Risk that claims for compensation by the opposing party are not identified for the year end closure. The data base for litigation requires the lawyer in charge to provide information about financial consequences and regular analysis is made to ensure that the information is up to date and disclosed according to the instructions Yearly assessment at yearend closure. Year-end assessment at budget Costs: Estimation of FTEs involved Non quantified Benefits: Ensuring no overconsumption of the contract Effectiveness: Comparison of claimed amounts with actual paid amounts Individual claims/payments Acceptance of too high claims for compensation by the opposing party resulting in unnecessarily high expenditure for the Legal Service. Analysis and assessment, followed by discussion with hierarchy in order to determine the reasonable amount for the opposing party's legal costs Claims above EUR , informed of (in an explicatory note if proposed to be negotiated) for approval by the Director- General 100% of claims are approved by the hierarchy, only thereafter is the invoice recorded and the payment procedure initiated. 100% of invoices are controlled by the Financial Cellule Costs: Estimation of FTEs involved Quantified Benefits: Prevention of irregularities, errors and overpayments. Effectiveness: Amounts associated with errors detected (related to fraud, irregularities and error) and in % over total checked. Cost-effectiveness: Costs of the ex post controls and supervisory measures with respect to the benefits. Legal_service_aar_2016_final Page 54 of 60

13 Stage 3: Supervisory measures Main control objectives: Ensuring that any weakness in the procedures (financial transactions) is detected and corrected. Main risks It may happen (again) that Mitigating controls How to determine coverage, frequency and depth How to estimate the costs and benefits of controls Control indicators A claim is not identified and discussed with the hierarchy Yearly review of all payments to opposing parties distributed to all Directors for review and approval. 100% of all payments for opposing parties' legal costs are reviewed by the hierarchy 100% of all payments for opposing parties' legal costs of more than EUR are approved by the Director-General 100% of all payments are reviewed by the Financial Cellule Costs: estimation of FTEs involved in the controls Effectiveness: Amounts associated with errors detected (related to fraud, irregularities and error) and in % over total checked. Cost-effectiveness: Costs of the ex post controls and supervisory measures with respect to the benefits. Legal_service_aar_2016_final Page 55 of 60

14 3. MISSION EXPENSES 80% of the Legal Service missions are mandatory as Legal Service staff are obliged to go to the Union Courts or other courts such as the WTO and the UN in order to defend the interests of the Commission and the Union. The remaining 20% of mission expenditure are for meetings and training. Payments are not included in the main control objectives as they are executed by the entrusted entity, PMO, subject to similar management governance modalities. The corresponding controls are reported by the PMO in their AAR. Stage 1: Mission expenses Main control objectives: To ensure compliance of the mission expenses with the Commission's Mission guidelines. Main risks It may happen (again) that Mitigating controls How to determine coverage, frequency and depth How to estimate the costs and benefits of controls Control indicators The mission expenses are not cost-effective. Ex-ante authorisation and validation of the appropriateness of the mission (justification, location, number of staff, duration, ) Exception reporting 100% ex-ante authorisation and validation by the direct superior and AOD. See ex-ante verification and ex-post control. Costs: estimation of FTEs involved in the controls Efficiency: Quarterly reporting of costs including missions with zero costs (at the expense of the organiser) Cost effectiveness: Yearly analysis by the Directors of the total mission expenditure. Legal_service_aar_2016_final Page 56 of 60

15 ANNEX 6: Implementation through national or international public-sector bodies and bodies governed by private law with a public sector mission Not applicable to the Legal Service. ANNEX 7: EAMR of the Union Delegations Not applicable to the Legal Service. ANNEX 8: Decentralised agencies Not applicable to the Legal Service. ANNEX 9: Evaluations and other studies finalised or cancelled during the year Not applicable to the Legal Service. [acronym of the DG]_aar_2016_[draft/final]Page 57 of 18

16 ANNEX 10: Management" Specific annexes related to "Financial Report on sub-delegated budget line from DIGI: EUROPEAN COMMISSION DIRECTORATE-GENERAL INFORMATICS Director General Brussels, DIGIT/GI/PD/th ARES digit.r.4(2017) s File followed by Jane Davey (Tel.85621) NOTE TO MR LUIS ROMERO REQUENA DIRECTOR GENERAL, SJ Subject: Annual report on cross sub-delegation of budget line In accordance with the terms of the above-mentioned cross sub-delegation, please find herewith the annual report on the implementation of appropriations made available to DIGIT for the year Description of the work programme In 2016, no new appropriations were received on the cross sub-delegated line which in 2015 financed Memorandum of Understanding 000:46 (Legiswrite). Payments were however made on the C8 funds source in respect of the final invoices of the previous year's commitments detailed in our 2015 annual report Ares(2016) All the remaining RAL has now been paid and the commitments closed in a satisfactory manner. Financial execution The level of execution of the sub-delegated budget line and a breakdown of payments are given in annex. Internal control problems encountered Expenditure booked to the sub-delegated budget line has been managed under the internal control system put in place by the Commission and by DIGIT. The system is effective and conforms to the standards and norms defined by the Commission. [acronym of the DG]_aar_2016_[draft/final]Page 58 of 18

17 Neither the Court of Auditors, nor the IAS has made any remarks or observations on the programmes, operations or actions carried out with the use of the sub-delegated appropriations. The sub-delegated budget line has not been the subject of any reservation by the Authorising Officer by Delegation in years prior to this report. Declaration I, the undersigned, Gertrud INGESTAD, Director General of DG DIGIT In my capacity as authorising officer by delegation, Declare that the information contained in this report gives a fair and true view. State that I have reasonable assurance that the resources assigned to the activities described in this report have been used for their intended purpose and in accordance with the principles of sound financial management, and that the control procedures put in place give the necessary guarantees concerning the legality and regularity of the underlying transactions. This reasonable assurance is based on my own judgement and on the information at my disposal, such as the results of the self-assessment, ex-post controls, for years prior to the year of this declaration. Confirm that I am not aware of anything not reported here which could harm the interests of the institution. [E-signed] Gertrud INGESTAD Encl.: Budget line execution Breakdown of payments Cc: K. Ducatel, P. Kneuer [acronym of the DG]_aar_2016_[draft/final]Page 59 of 18

18 ANNEX 11: Specific annexes related to "Assessment of the effectiveness of the internal control systems" Not applicable to the Legal Service. ANNEX 12: Performance tables Not applicable to the Legal Service. [acronym of the DG]_aar_2016_[draft/final]Page 60 of 18

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