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Brussels, 5 November 2008

Q&A: Progress report on Action Plan to strengthen the European Commission's supervisory role for shared management of structural actions

What is the aim of the Action Plan and what progress has been achieved so far?

  • The Action Plan adopted by the Commission on 19 February this year represents a political commitment to reduce errors occurring in payment claims coming from Member States for structural actions (Structural Funds and Cohesion Fund). It implements recommendations in last year’s report by the European Court of Auditors (ECA), which highlighted weaknesses in the shared management of structural actions in Member States.
  • Today's progress report sets out the first results and impact of the Commission’s new tougher approach.
  • The Action Plan is based on a two-pronged strategy:
  1. helping Member States to do a better job of checking the eligibility of project expenditure before they submit payment claims to the Commission, and
  2. tougher measures to suspend payments and make financial corrections where Member States fall below standards - losing money through financial corrections helps motivate improvements in controls.
  • The Action Plan sets out 37 actions to be completed by the end of the year and is well on track to being completed.
  • The Commission has, for example, already completed many actions on benchmarking, best practice, training and seminars. In June, the Commission organized a seminar on how to improve controls with 500 representatives from the bodies which manage structural fund programmes in the Member States.
  • The Commission has targeted audits on high-risk programmes, made sure that Member States have carried out remedial actions to correct deficiencies, and applied a lot more suspensions and corrections than in previous years (details below).

What is the difference between error and fraud, and how much of a problem is fraud in relation to structural spending?

  • Error is the general term used to cover any non-compliance with a condition for receiving EU funds. It does not mean fraud. The stringent audit work carried out by the Commission and the ECA each year has detected only isolated cases of fraud.
  • According to OLAF, the European Anti-Fraud Office, suspected frauds affected 0.16% of payments made by the Commission between 2000-2007 (equivalent to €290 million).
  • The Commission always takes action to recover funds which have been misused through error or fraud.

What are the most common errors?

  • Common examples are – contract awarded without a proper tender procedure; inadequate documentation to support project expenditure; incorrect co-financing rate for project; overestimated payment claims.
  • Errors mainly occur at the level of beneficiaries in the Member States who claim for expenditure which does not meet funding conditions. The fact that a Member State submits ineligible expenditure to the Commission for reimbursement means that its controls systems have not worked effectively since they did not prevent and detect the errors. The Commission can only detect errors through audits carried out after reimbursement. It then takes corrective action (see below).
  • In most cases, even if there is an error, the project is completed and operational. Money has not been wasted - it just means that that the particular project cannot receive support from the EU budget.
  • Where a Member State agrees to make a correction itself for ineligible expenditure, the funds recovered can generally be re-used for other eligible projects. Where the Commission makes a correction decision, the money is recovered from the Member State for the EU budget.

Who decides when a financial suspension or correction is necessary – and how much should be clawed back? What happens to the money that is clawed back?

  • The Commission has about 90 auditors for the Structural Funds. They carry out checks in all Member States to ensure that the national control systems, which should detect and prevent errors in the first place, are working properly.
  • The focus of the audits are the programmes by which Structural Funds money is delivered. Each programme establishes the financial allocation, priorities and objectives for the region or for the theme. For the new funding period (2007-2013), 407 programmes have been adopted. Each programme can include several hundred individual projects, from major infrastructure priorities like motorways or railways, support for small firms and help for families such as building new creches. Member States and regions decide on the individual projects after agreeing the programmes with the Commission.
  • The Commission does not check up on every programme every year. The strategy is to audit programmes following a risk-based approach, taking account especially of amounts of EU funds at stake, and risk factors related to known weaknesses in the managing bodies, types of operations and beneficiaries etc) and to make sure that by the time the programmes are closed, any problems have been sorted out.
  • Where its auditors find serious problems, the Commission can suspend payments to a programme, and ultimately claw money back if it has been misspent.

How much has the Commission clawed back in the past year? Are more suspensions and corrections in the pipeline?

  • The Action Plan progress report clearly shows the impact of the Commission's tougher approach. Seven Commission decisions have been taken to suspend payments on 2000-2006 programmes (2 in Italy, 2 for interregional programmes, and 1 each for UK-Scotland, Bulgaria, and Luxembourg), and there are about 20 more in the pipeline.
  • Financial correction actions have led to the clawback of €843 M since the start of 2008 (corrections cover all Structural Funds and periods) . €216M of this was as a result of 21 Commission correction decisions. The rest was accepted by the Member States concerned before a formal correction decision by the Commission. This compares with a clawback of €287M for the whole of 2007.
  • A further €1.5 billion of financial corrections are in the pipeline, to be finalized by end of March next year. Corrections are not fines: they are decisions to recover EU taxpayers' money, where it has been wrongly claimed and paid out to beneficiaries.

What other indicators are there on the impact of the Action Plan?

  • There are signs already of more effective functioning of control systems in the Member States. The Commission has been following up the implementation of remedial measures to correct problems in 27 programmes or groups of programmes. By the end of September 2008, in nine cases the Commission was satisfied that the national authorities had fulfilled their commitments.
  • What we cannot yet expect is a significant fall in the error rate when the European Court of Auditors reports next week on 2007 expenditure, as this pre-dates the Action Plan. We will have to wait for another year to see what the actions by the Commission have achieved.
  • For the new programmes, for the 2007-2013 funding period, there is a new preventive procedure to reduce the risk of problems arising once programme implementation is underway. For each programme, the responsible national audit body has to give a certificate of compliance on the internal control system before any payment claims can be made. The Commission verifies if the certificate is complete and consistent with the Structural Funds regulations. It is currently in the middle of this exercise – certificates have been sent in for just over one third of the 407 programmes across the EU. Only about 30 have so far been definitively accepted, which is an indicator that the process is being applied rigorously.

Who sets the rules for Member States' management and control systems for Structural Funds?

The rules are fixed in the Community legislation – the Financial Regulation which establishes general principles, the Council Regulation (EC) No 1083/2006 which sets the regulatory framework for Structural Funds, and the Commission Regulation (EC) No 1828/2006 which sets out some more detailed rules. The Commission has also issued guidance notes to promote good control practices by national authorities.

What is the Commission doing to simplify the rules?

Control requirements for structural actions are stringent in order to ensure that EU taxpayers' money is used properly, but it is also important to strike the right balance between the cost of controls and the benefits obtained.

The rules for 2007-2013 programmes were made simpler in some ways such as allowing the use of flat-rate payments for overheads, and making it possible to shorten the period for which beneficiaries have to keep supporting documents.

The Commission is committed to working with Member States to identify ways in which additional simplifications can be introduced. For example, it has proposed an amendment to the rules on projects which generate revenue, so that they will not apply to smaller projects.

How much is the Commission spending in the framework of its structural actions policy? Does the Commission audit every euro it spends in this area?

For the 2007-2013 period, the total budget for structural actions (European Regional Development Fund, European Social Fund and Cohesion Fund) is €347 billion, which is 35% of the total EU budget.

The main control and audit responsibility is at Member State level. There is a designated audit authority for each programme which delivers an audit opinion to the Commission each year on the control systems and expenditure.

The Commission role is to supervise the working of the control systems in the Member States. Where possible, it relies on the results of the national auditors and does not duplicate their work. Where necessary it carries out its own audits of control systems. It also audits a small number of projects to test how effective the control systems are. The Commission therefore applies a strategy to get assurance on all the money spent in programmes during the period of implementation through the work of the national auditors and its own audit work.

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