European Union Cohesion Policy Reporting of financial corrections

European Union Cohesion Policy Reporting of financial corrections by Member States Frank Rawlinson, DG REGIO “Train the trainers” European Commission seminar for managing and certifying authorities, 9 June 2009 1

• Contents • 1. Financial corrections • 2. Annual reporting of financial corrections 200006 – evolution of current reporting practice, reliability of data • 3. Reporting irregularities and corrections at closure 2000 -06 • 4. Annual reporting of financial corrections 200713 – based on proposed amendments 2

Financial corrections (1) • “Financial correction” = exclusion of irregular expenditure from statement of expenditure and recovery of unjustified public grant from beneficiary • Most irregularities detected in controls or audits by MS • MS responsible in the first instance for corrections – i. e. , removal of irregular expenditure from expenditure claim to Commission, recovery from beneficiary • When MS corrects irregular expenditure, it can reallocate the EU grant released to other projects. 3

Financial corrections (2) • Irregular expenditure can also be found in audits by Commission or the European Court of Auditors or in OLAF investigations • In that case Commission requests MS to make the necessary corrections • If MS agrees and makes the corrections, it can reallocate the EU grant released to other projects, as when it detects the irregularity itself. • If MS does not agree, the Commission can impose the financial correction by a formal decision. In this case, the correction will result in a net reduction in the EU funding to the programme – the MS will not be able to reallocate the EU grant 4

Financial corrections (3) • Part of the process of making a financial correction is for the MS to withdraw the irregular expenditure from the expenditure declared for the programme. • MS can do this either at the beginning - immediately they find the irregularity - or later, after they have recovered from the beneficiary. • The first procedure – immediate removal – is called “withdrawal”, the second – removal once recovery from beneficiary has been made – is called “recovery”. 5

2. Annual reporting of financial corrections 2000 -06 – evolution, reliability (1) • History – separate legal bases for reporting of withdrawals, recoveries and pending recoveries, with different frequency • 2005 guidance note on reporting and amendment of Regulation 448/2001 • From year 2006 onwards Commission introduced annual reporting of the three pieces of data together introduced, plus request for cumulative data for whole period • Growing pressure from Court of Auditors and Parliament for accurate and complete data on financial corrections 6

1. Annual reporting of financial corrections 2000 -06 – evolution, reliability (2) • Results – from analysis of information received, from audits of data in 10 MS in 2008 Ø Definitional problems Ø Incomplete and missing data, especially cumulative figures for whole period (problem of legal basis) Ø Misunderstanding of difference between total public funding and EU contribution Ø etc… Ø But overall, progress towards more complete and reliable data Ø By end of 2007 total MS reported having withdrawn or recovered € 2. 2 billion (but this figure does not for some MS cover the whole programme period). 7

1. Annual reporting of financial corrections 2000 -06 – evolution, reliability (3) • Definition of withdrawal and recovery Ø Withdrawal – when irregular expenditure is removed from expenditure claims immediately it is detected and confirmed Ø Recovery – when irregular expenditure is removed from expenditure claims only after recovery has been effected • Pending recoveries only to be reported when recovery option chosen • NB: Withdrawal and recovery are different phases of the correction process. The distinction hinges on the timing of the withdrawal – immediately or only after recovery from the beneficiary. • NB: To avoid double counting a given case must be reported only either as a withdrawal or a recovery 8

2. Reporting irregularities and corrections at closure 2000 -06 • Source – closure guidelines 2000 -06 - C(2006) 3424 and esp. section 4. 3 and Annex 2 “Guidance on preparation for and contents of winding-up declaration” • Requirements: Ø 1. Closure guidelines, Annex 2 guidance, section 1. 2: summary table based on debtors’ ledger of irregularities and their correction, namely amounts awaiting recovery (same as “pending recoveries”) and amounts recovered (recoveries) – details of cases, referring to irregularity report number Ø 2. Under the legal bases referred to above: Final aggregate figures on withdrawals and recoveries for the whole programme period 9

3. Annual reporting of financial corrections 2007 -13 – including proposed amendments (1) • Definitions of withdrawal and recovery (and pending recovery) unchanged • Aggregate data (priority axis level) • Differences in reporting table (as about to be amended) Ø Only two figures: total expenditure and public contribution Ø Section on part of aggregate amounts reported as irregularities 10

Examples of completion of new (amended) form Scenario 1 : Reimbursement of Funds calculated with reference to public eligible expenditure 1. Total amount of eligible expenditure paid by beneficiary € 100. 000 2. Corresponding public contribution (90%) € 90. 000 3. Co-financing rate of priority axis applied to public contribution 70% 4. Co-financing rate applied by MS at level of operation to public contribution 50% 5. Amount of total expenditure affected by irregularity € 20. 000 6. Amount of public contribution affected by irregularity € 18. 000 7. Amount of EU funds affected by irregularity € 12. 600 11

Scenario 1 (Reimbursement of Funds calculated with reference to public eligible expenditure) Option A (withdrawal) Priority axis Withdrawals Total amount of expenditure paid by beneficiaries withdrawn 1 20. 000 Corresponding public contribution withdrawn 18. 000 Total amount of expenditure withdrawn relating to irregularities reported under Art. 28 (1) 20. 000 Amount of corresponding public contribution withdrawn relating to irregularities reported under Art. 28 (1) 18. 000 2 3 4 … Total 12

Scenario 1 (Reimbursement of Funds calculated with reference to public eligible expenditure) Option B (recovery) Priority axis Recoveries Public contribution recovered 1 18. 000 Total amount of expenditure paid by beneficiaries 20. 000 Amount of public Total amount of expenditure contribution relating to irregularities reported recovered relating to under Art. 28(1)(1) irregularities reported under Art. 28 (1) 18. 000 20. 000 2 3 4 … Total 13

Examples of completion of new (amended) form Scenario 2: Reimbursement of Funds calculated with reference to total eligible expenditure 1. Total amount of eligible expenditure paid by beneficiary € 100. 000 2. Co-financing rate of priority axis applied to total eligible expenditure 70% 3. Co-financing rate applied by MS at level of operation to total eligible expenditure (assume no national public contribution) 30% 4. Amount of total expenditure affected by irregularity € 20. 000 5. Amount of EU funds affected by irregularity € 14. 000 6. Amount of public (in this case only EU) contribution to operation affected by irregularity € 6. 000 14

Scenario 2 (Reimbursement of Funds calculated with reference to total eligible expenditure) Option A (withdrawal) Priority axis Withdrawals Total amount of expenditure paid by beneficiaries withdrawn 1 20. 000 Corresponding public contribution withdrawn ─ Total amount of expenditure withdrawn relating to irregularities reported under Art. 28 (1) 20. 000 Amount of corresponding public contribution withdrawn relating to irregularities reported under Art. 28 (1) ─ 2 3 4 … Total 15

Scenario 2 (Reimbursement of Funds calculated with reference to total eligible expenditure) Option B (recovery) Priority axis Recoveries Public contribution recovered 1 6. 000 Total amount Amount of public Total amount of expenditure contribution recovered relating to irregularities reported paid by relating to under Art. 28(1)(1) beneficiaries irregularities reported under Art. 28 (1) 20. 000 6. 000 20. 000 2 3 4 … Total 16

3. Annual reporting of financial corrections 2007 -13 – including proposed amendments (3) • The statement of pending recoveries asks for similar information to that for recoveries, i. e. the actual amount of public contribution to be recovered • The statements are to be sent from 2010 • To include list of irrecoverable amounts (see previous presentation on amendments to Commission regulation with regard to irregularity reporting) 17

Thank you 18