Annual Activity Report. Annexes. Employment, Social Affairs and Inclusion

Transcription

1 2013 Annual Activity Report Annexes Employment, Social Affairs and Inclusion 80

2 81

3 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/Head of Service on the overall state of internal control in the DG/service. I hereby certify that the information provided in Parts 2 and 3 of the present AAR and in its annexes is, to the best of my knowledge, accurate and exhaustive. [Signed] Hélène Clark Brussels, 31 March SEC(2003)59 of

4 ANNEX 2: Human and Financial resources Human Resources by ABB activity Code ABB Activity ABB Activity Establishm ent Plan posts External Personnel Total European Social Fund Working in Europe Social dialogue and mobility Employment and social solidarity European Globalisation Adjustment Fund (EGF) AWBL- 01 Instrument for Pre-Accession Assistance (IPA) Human resources development Administrative support for the Directorate-General for Employment, Social Affairs and Inclusion 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. Code ABB Activity ABB Activity Administrative expenditure of the `Employment, social affairs and inclusion Financial Resources by ABB activity (EUR Million) implementation of Commitment Appropriations (CA) Operational Administrative expenditure expenditure (1) (2) Total European Social Fund Working in Europe - Social dialogue and mobility Employment and social solidarity European Globalisation Adjustment Fund (EGF) Instrument for Pre-Accession Assistance (IPA) - Human resources development (1) Heading 5 appropriations managed by the DG (global envelope) XX (2) BA lines (XX 01 04) and, when relevant XX and XX Total

5 IMPLEMENTATION OF THE GLOBAL ENVELOPE BUDGET LINES CONCERNED: TO (based on information received from BUDG services following the 2015 Budget circular) (IN EUROS) APPROPRIATIONS 2013 (C1) APPROPRIATIONS carried over (C8) BUDGET LINE BUDGET LINE DESCRIPTION AVAILABLE APPROP COMMITMENTS 2013 PAYMENTS 2013 AMOUNTS OF APPROPRIATIONS CARRIED OVER FROM 2012 % IMPLEMENTATION ON APPROPRIATIONS CARRIED OVER FROM % Mission expenses % Representation expenses % Meeting costs % Conference costs % Meetings committees of % Studies consultations and Development of management and information systems Further training and management training TOTAL % % % 84

6 ANNEX 3: Draft annual accounts and financial reports AAR 2013 Version 2 Annex 3 Financial Reports - DG EMPL - Financial Year 2013 Table 1 : Commitments Table 2 : Payments Table 3 : Commitments to be settled Table 4 : Balance Sheet Table 5 : Economic Outturn Account Table 6 : Average Payment Times Table 7 : Income Table 8 : Recovery of undue Payments Table 9 : Ageing Balance of Recovery Orders Table 10 : Waivers of Recovery Orders Table 11 : Negotiated Procedures (excluding Building Contracts) Table 12 : Summary of Contracts (excluding Building Contracts) Table 13 : Building Contracts Table 14 : Contracts declared Secret 85

7 TABLE 1: OUTTURN ON COMMITMENT APPROPRIATIONS IN 2013 (in Mio ) Commitment appropriations authorised Commitments made % 1 2 3=2/ Title 04 Employment and social affairs Administrative expenditure of the `Employment and social affairs- policy area 28,668 25,683 89,59 % European Social Fund , ,706 96,17 % Working in europe - Social dialogue and mobility 80,724 75,678 93,75 % Employment, social solidarity and gender equality 128, ,639 94,13 % European Globalisation Adjustment Fund (EGF) 98,282 41,541 42,27 % Total Title 04 Instrument for Pre-Accession Assistance (IPA) - Human resources development Total DG EMPL 113, , ,00 % , ,405 95,73% , ,405 95,73 % * Commitment appropriations authorised include, in addition to the budget voted by the legislative authority, appropriations carried over from the previous exercise, budget amendments as well as miscellaneous commitment appropriations for the period (e.g. % Outturn on commitment appropriations 120, % 100, % 80, % 60, % 40, % 20, % 0, %

8 TABLE 2: OUTTURN ON PAYMENT APPROPRIATIONS IN 2013 (in Mio ) Chapter P ayment appropriations authorised * Payments made % Administrative expenditure of the `Employment and social affairspolicy area 1 2 3= 2/1 39,440 21,915 55,57 % European Social Fund , ,798 99,47 % Working in europe - Social dialogue and mobility 51,667 49,611 96,02 % Employment, social solidarity and gender equality 101,120 96,677 95,61 % European Globalisation Adjustment Fund (EGF) 98,282 41,541 42,27 % Total Title 04 Title 04 Employment and social affairs Instrument for Pre-Accession Assistance (IPA) - Human resources development 65,153 65, ,00 % , ,696 98,91% Total DG EMPL , ,696 98,91 % * Payment appropriations authorised include, in addition to the budget voted by the legislative authority, appropriations carried over from the previous exercise, budget amendments as well as miscellaneous payment appropriations for the period (e.g. internal and external assigned revenue). ="% Outturn on payment appropriations" 120, % 100, % 80, % 60, % 40, % 20, % 0, %

9 Chapter TABLE 3 : BREAKDOWN OF COMMITMENTS TO BE SETTLED AT 31/12/2013 (in Mio ) 2013 Commitments to be settled Commitments to be settled from Commitments 2013 Payments 2013 RAL 2013 % to be settled financial years previous to 2013 Total of Total of commitments to commitments to be be settled at end settled at end of financial year of financial year 2013(incl 2012(incl. corrections) corrections) 1 2 3=1-2 4=1-2/1 5 6=3+5 7 Title 04 : Employment and social affairs Administrative expenditure of the `Employment and social affairs- policy area 25,683 13,535 12,148 0,473 0,000 12,148 10, European Social Fund , , ,143 0, , , , Working in europe - Social dialogue and mobility 75,678 19,016 56,663 0,749 38,731 95,393 77, Employment, social solidarity and gender equality 120,639 44,571 76,068 0,631 65, , , European Globalisation Adjustment Fund (EGF) 41,541 41,541 0,000 0,000 0,000 0,000 0, Instrument for Pre-Accession Assistance (IPA) - Human resources development 113,157 0, ,157 1, , , ,294 Total Title , , ,179 0, , , ,368 Total DG EMPL , , ,179 0, , , ,368 ="Breakdown of Commitments remaining to be settled (in Mio EUR)" , , , , , ,00 0,

10 TABLE 4 : BALANCE SHEET BALANCE SHEET A.I. NON CURRENT ASSETS , ,25 A.I. A.I.5. NON LT CURRENT Pre-Financing ASSETS , ,25 A.II. CURRENT ASSETS , ,34 A.II. A.II.2. CURRENT Short-term ASSETS Pre-Financing , ,07 A.II.3.2. Current Receivables and Recove A.II.3. Current Financial Assets , ,27 0,00 ASSETS , ,59 P.III. CURRENT LIABILITIES , ,24 P.III. P.III.4. CURRENT Accounts LIABILITIES Payable , ,24 LIABILITIES , ,24 NET ASSETS (ASSETS less LIABILITIES) , ,35 P.I.2. Accumulated Surplus / Deficit ,61 0 Non-allocated central (surplus)/deficit* , ,35 TOTAL 0,00 0,00 It should be noted that the balance sheet and economic outturn account presented in Annex 3 to this Annual Activity Report, represent only the (contingent) assets, (contingent) liabilities, expenses and revenues that are under the control of this Directorate General. Significant amounts such as own resource revenues and cash held in Commission bank accounts are not included in this Directorate General's accounts since they are managed centrally by DG Budget, on whose balance sheet and economic outturn account they appear. Furthermore, since the accumulated result of the Commission is not split amongst the various Directorates General, it can be seen that the balance sheet presented here is not in equilibrium. Additionally, the figures included in tables 4 and 5 are provisional since they are, at this date, still subject to audit by the Court of Auditors. It is thus possible that amounts included in these tables may have to be adjusted following this audit. 89

11 ECONOMIC OUTTURN ACCOUNT , ,69 TABLE 5 : ECONOMIC OUTTURN ACCOUNT ECONOMIC OUTTURN ACCOUNT II.1 SURPLUS/ DEF. FROM OPERATING ACTIVT , ,41 II.1.1. OPERATING REVENUES , ,07 II Own resource and contributions -72,90 II Other operating revenue , ,17 II.1.2. OPERATING EXPENSES , ,48 II Administrative Expenses , ,59 II Operating Expenses , ,89 II.2. SURPLUS/DEF. NON OPERATING ACTIVIT , ,72 II.2.1. FINANCIAL OPERATIONS , ,72 II Financial revenue , ,93 II Financial expenses , ,21 ECONOMIC OUTTURN ACCOUNT , ,69 It should be noted that the balance sheet and economic outturn account presented in Annex 3 to this Annual Activity Report, represent only the (contingent) assets, (contingent) liabilities, expenses and revenues that are under the control of this Directorate General. Significant amounts such as own resource revenues and cash held in Commission bank accounts are not included in this Directorate General's accounts since they are managed centrally by DG Budget, on whose balance sheet and economic outturn account they appear. Furthermore, since the accumulated result of the Commission is not split amongst the various Directorates General, it can be seen that the balance sheet presented here is not in equilibrium. Additionally, the figures included in tables 4 and 5 are provisional since they are, at this date, still subject to audit by the Court of Auditors. It is thus possible that amounts included in these tables may have to be It should be noted that the balance sheet and economic outturn account presented in Annex 3 to this Annual Activity Report, represent only the (contingent) assets, (contingent) liabilities, expenses and revenues that are under the control of this Directorate General. Significant amounts such as own resource revenues and cash held in Commission bank accounts are not included in this Directorate General's accounts since they are managed centrally by DG Budget, on whose balance sheet and economic outturn account they appear. Furthermore, since the accumulated result of the Commission is not split amongst the various Directorates General, it can be seen that the balance sheet presented here is not in equilibrium. Additionally, the figures included in tables 4 and 5 are provisional since they are, at this date, still subject to audit by the Court of Auditors. It is thus possible that amounts included in these tables may have to be 90

12 TABLE 6: AVERAGE PAYMENT TIMES FOR DG EMPL Legal Times Nbr of Average Total Number of Payments Nbr of Late Percentage Payment Percentage Payments within Time Payments Times (Days) Limit ,16 % 19, ,84 % 52,93 Maximum Payment Time (Days) Average Payment Times (Days) ,27 % 26, ,73 % 103, ,63 % 23, ,37 % 85, ,65 % 32,36 1 4,35 % 98,00 Total Number of Payments Average Payment Time ,33 % ,67 % 38, ,22 63,93 Target Times Nbr of Average Total Number of Payments Nbr of Late Percentage Payment Percentage Payments within Payments Times (Days) Target Time ,13 % 11, ,87 % 43,12 Target Payment Time (Days) Average Payment Times (Days) ,62 % 18, ,38 % 68,40 Total Number of Payments Average Payment Time ,05 % ,95 % 40, ,06 63,97 Suspensions Average Average Number of Amount of Report Payment % of Total Total Number % of Total Suspended Suspended Total Paid Amount Approval Suspension Number of Payments Amount Payments Payments Suspension Days ,67 % ,67 40,45 % ,37 Late Interest paid in 2013 DG GL Account Description Amount (Eur) EMPL Interest expense on late payment of charges 1 570,92 EMPL Interest on late payment of charges New FR , ,01 91

13 TABLE 7 : SITUATION ON REVENUE AND INCOME IN 2013 Revenue and income recognized Revenue and income cashed from Outstanding Chapter Current year RO Carried over RO Total Current Year RO Carried over RO Total balance 1 2 3= =4+5 7= REVENUE FROM INVESTMENTS OR LOANS GRANTED, BANK AND OTHER INTEREST , , , , , ,09 0,00 57 OTHER CONTRIBUTIONS AND REFUNDS IN CONNECTION WITH THE ADMINISTRATIVE OPERATION OF THE INSTITUTION ,97 0, , ,97 0, ,97 0,00 60 CONTRIBUTIONS TO UNION PROGRAMMES , , , , , , ,00 61 REPAYMENT OF MISCELLANEOUS EXPENDITURE , , , , , , ,79 65 FINANCIAL CORRECTIONS , , , , , , ,44 66 OTHER CONTRIBUTIONS AND REFUNDS , , , , , , ,88 Total DG EMPL , , , , , , ,11 92

14 TABLE 8 : RECOVERY OF UNDUE PAYMENTS (Number of Recovery Contexts and corresponding Transaction Amount) INCOME BUDGET RECOVERY ORDERS ISSUED IN 2013 Year of Origin (commitment) Error Irregularity TOTAL Qualified TOTAL RC(incl. non-qualified) % Qualified/Total RC Nbr RO Amount Nbr RO Amount Nbr RO Amount Nbr RO Amount Nbr RO Amount , , ,42 100,00% 100,00% , , ,04 100,00% 100,00% , , ,00 100,00% 100,00% , , ,36 50,00% 29,88% , , ,97 88,89% 99,88% , , ,35 100,00% 100,00% , , , ,63 12,00% 1,85% , , ,30 4,26% 0,05% , , ,05 8,33% 0,16% No Link , , , ,44 85,19% 96,01% Sub-Total , , , ,52 33,33% 83,06% EXPENSES BUDGET Error Irregularity OLAF Notified TOTAL Qualified TOTAL RC(incl. non-qualified) % Qualified/Total RC INCOME LINES IN INVOICES NON ELIGIBLE IN COST CLAIMS Nbr Amount Nbr Amount Nbr Amount Nbr Amount Nbr Amount Nbr Amount , , , ,85 18,52% 97,02% CREDIT NOTES , , ,40 14,71% 10,53% Sub-Total , , , ,65 17,44% 96,15% 3 273,40 GRAND TOTAL , , , ,17 24,25% 24,97% 93

15 TABLE 9: AGEING BALANCE OF RECOVERY ORDERS AT 31/12/2013 FOR EMPL Number at 01/01/2013 Number at 31/12/2013 Evolution Open Amount (Eur) at 01/01/2013 Open Amount (Eur) at 31/12/2013 Evolution ,00 % ,27-100,00 % ,00 % ,71-100,00 % ,00 % ,29-100,00 % ,00 % , ,07 0,00 % ,00 % , ,37 0,00 % ,00 % , ,23-0,61 % ,00 % 2.074,87-100,00 % ,00 % ,30-100,00 % , ,11 % , ,11-92,44 % TABLE 10 : RECOVERY ORDER WAIVERS IN 2013 >= EUR Waiver Central Key Linked RO Central Key RO Accepted Amount (Eur) LE Account Group Commission Decision Comments ,29 Private Companies ,27 Member States Total DG ,56 Number of RO waivers 2 TABLE 11 : CENSUS OF NEGOTIATED PROCEDURES - DG EMPL Procurement > EUR 60,000 Negotiated Procedure Legal base Number of Procedures Amount ( ) Art (b) ,00 Total 1, ,00 94

16 TABLE 12 : SUMMARY OF PROCEDURES OF DG EMPL EXCLUDING BUILDING CONTRACTS Internal Procedures > 60,000 Procedure Type Count Amount ( ) Internal Procedur Exceptional Negotiated Procedure without publication of a contract notice es > (Art. 134 RAP) 60, ,00 Open Procedure (Art IR) ,00 Open Procedure (Art RAP) ,90 TOTAL ,90 Additional comments TABLE 13 : BUILDING CONTRACTS Total number of contracts : Total amount : Legal base Contract Number Contractor Name Description Amount ( ) No data to be reported 95

17 TABLE 14 : CONTRACTS DECLARED SECRET Total Number of Contracts : Total amount : Legal base Contract Number Contractor Name Type of contract Description Amount ( ) No data to be reported 96

18 ANNEX 4: Materiality criteria For direct and indirect management The qualitative factors are based on the detection of significant and/or repetitive weaknesses which would be identified through the internal control system within the framework of supervision. Based on Commission agreed principles a reserve is envisaged when the error rate resulting from the annual ex-post audit missions would account for more than 2 % of the payments of the selected files. The level of 2 % is an acceptable indicator due to the fact that the selection of the files to be audited is based on a risk analysis approach in order to select files in the area at risk. For ESF and IPA Assessment of management and control systems in the Member States and for the programming period All programmes are assessed against audit opinions at national and Commission level based on audits carried out on systems and representative samples of operations. In addition, operational line managers and authorising officers by sub-delegation also assess the level of assurance. The assessment is based on three elements as follows: 1. The first element is the assessment of the functioning of management and control systems carried out by the audit directorate. This assessment may take into account results of corrective actions implemented by the Member State in the reporting year. This assessment is complemented at the Directorate General level taking into account elements received by the operational managers and the regular contacts with regional and national programme authorities. 2. The second element is the projected error rate reported by programme audit authorities in the Annual Control Reports (ACR), based on expenditure for the year preceding the reporting year. The Directorate General assesses the reliability of the projected error rates for each programme, on the basis of all available information and audit results, including on-the-spot missions, and uses this information as the best estimate of the possible risk for expenditure in the reporting year. In case the projected error rates are not available, not accurate or found not to be reliable, the audit directorate either recalculates them when it has sufficient information to do so or, alternatively, replaces them by flat rates in line with the results of the assessment of the functioning of management and control systems. This results in an error rate validated by management for each programme for the reporting year. This is the best estimate expressed as a percentage of the value of the interim payments made in the reporting year of expenditure which is not in full conformity with contractual or regulatory provisions. 3. The third element is the consideration of the multi-annual impact of the validated error rates calculated since the beginning of the programming period, on the corresponding interim payments made during that same period, after deduction of the recoveries and withdrawals reported for each year. as well as pending recoveries at the end of the reporting year and withdrawals accepted by Certifying Authorities and recorded in their accounts prior to the date of signature of the AAR. The application of this third element results in a cumulative residual risk/error rate for each programme or where appropriate group of programmes covered by a common management and control system, expressed as a percentage of the value of the cumulative interim payments made for the programming period, up to the date of signature of the AAR. This is the DG's best estimate of expenditure which is not in full conformity with contractual or regulatory provisions and which have not been corrected at the date the report is signed. 97

19 The assessment of the relevant reports, data and other information available requires the application of professional judgement, namely when weighting contradictory information or considering abnormal statistical results. When taking into account reported corrections, the authorising officer by delegation also assesses that they effectively mitigate the risks identified and that they result in a reduction in the level of the error that remains uncorrected in the population. Materiality criteria and reservations As management and controls are considered to be specific to each operational programme, materiality is not assessed and reservations are not decided upon at the level of the ABB activity (or grouping of ABB activities), but rather at the level of operational programmes. For disclosure purposes in the AAR, overall reservations grouping the reservations at programme level are made by programming period. The Directorate-General therefore assesses each operational programme in order to identify reservations and corrective measures to be applied. Where operational programmes have management and control systems in common, they can be grouped for this assessment. At operational programme level, reservations or partial reservations are made in respect of significant weaknesses in the management and control systems in the Member States where the resulting risk to the Community budget is material independently at this stage from any calculation of the cumulative residual risk/error rate. In practice, this means that reservations or partial reservations are made in any case for programmes included in the categories limited assurance with medium risk and limited assurance with high risk (see below). Following the approach set out, reservations are made as a general rule for all programmes for which the validated error rate exceeds or equals 5% 2 and also for all programmes for which the cumulative residual risk/error rate exceeds 2%. Exceptions, if any, are clearly reported and explained in the body of the Annual Activity Report. In some cases, reservations may be made at a sub-programme level (priority axis or implementing bodies) when the systemic deficiencies only affect a specific management and control system, not used for the other activities under the same programme. In addition, in the event that the monitoring and supervisory controls reveal deficiencies of a qualitative nature (e.g. significant systemic deficiencies or major control failures) which have a significant impact on the reputation of the Commission, a reservation is made on a reputational basis. Estimation of the amount at risk The overall amount at risk is calculated by applying the validated error rate to the amount of interim payments made during the reporting year for each programme. The amount at risk for programmes under reservation is calculated on the same basis but only for those programmes under reservation. However for reservation made at subprogramme level, a flat rate depending of the deficiencies identified is applied to the part of payments made on this specific sub-programme during the year. In all cases, no financial corrections are taken into account for the quantification of the reservation as the financial corrections already implemented are mainly linked to expenditure declared in previous years. In case no payments have been made in the year concerned for a programme under reservation, the reservation could still apply, but on a reputational/qualitative basis, rather 2 When the validated error rate is above 5% and the CRR is below 2%, case by case analysis is needed to decide on a reservation 98

20 than on a quantitative one. For transparency purposes, the estimation of the overall amount at risk is presented by Member State classifying the programmes in four categories levels of assurance in accordance with the assurance they provide as to the legality and regularity of interim payments made during the reporting year: - Reasonable assurance means that there is no material deficiency in key elements of the systems (only minor improvements may be needed in some cases) and the validated error rate and the cumulative residual risk are below 2%; - Reasonable assurance with low risk of irregularities covers o programmes with the existence of some deficiencies in key elements of the systems and/or with a validated error rate below 5% but with a cumulative residual risk below 2%; o programmes with a validated error rate above 5 % and a cumulative residual risk below 2 % as a result of implemented financial corrections and if on the basis of professional judgment, the implementation of the action plan has been assessed as satisfactory ; - Limited assurance with medium risk 3 of irregularities covers o programmes with the existence of some deficiencies in key elements of the systems and/or with a validated error rate below 5% and a cumulative residual risk above 2%; o programmes with a validated error rate above 5 % and a cumulative residual risk remaining above 2% or below 2 % as a result of implemented financial corrections but on the basis of professional judgment, the implementation of the action plan has not been assessed as satisfactory yet. - Limited assurance with high risk 3 of irregularities covers o programmes with material deficiencies in several key elements of the systems and/or with a validated error rate above 5% and a cumulative residual risk above 2%. 3 Exceptions duly justified are disclosed in the AAR 99

21 ANNEX 5: Internal Control Templates for budget implementation (ICTs) ESF DG EMPL distinguishes 3 main stages in the implementation of its budget for ESF: (1) Negotiation and assessment/approval of spending proposals; (2) Implementation of operations (Member States): and (3) Monitoring and supervision of the execution, including ex-post control. The table below elaborates, per stage, on the main risks identified and related benefits. DG EMPL estimates that the annual overall Commission costs incurred amounts to approximately 0.19% of total appropriations. This is made up of: - The annual cost of audit work (internal team and outsourced contract) which covers the assessment by the Commission of management and control systems in MS, including analysis of Audit Authorities reports and ACRs, own audit work 4 and drafting of interruption letters. - The annual costs of Commission staff which carries out controls throughout the different design, implementation and monitoring phases. This includes the setting-up of the management and control systems in the Member States, the Commission checks in the designation process (sampling of national designations), the Commission ex-ante checks of the periodic expenditure declarations (financial circuits). Stage 1 Negotiation and assessment/approval of spending proposals: Main control objectives: Ensuring that the Commission (COM) adopts the actions that contribute the most towards the achievement of the policy objectives (effectiveness); Main risks Mitigating controls Coverage frequency and depth Costs and benefits of controls Control indicators The Operational Programmes (OPs) financed do not adequately reflect the policy objectives or priorities. Internal consultation, hierarchical validation at DG-level of each OP. Inter-service consultation (including all relevant DGs) Adoption by Commission Decision, where foreseen by EU law. Coverage / Frequency: 100%. Depth: checklist, guidelines, lists of requirements in the relevant regulatory provisions and reflection of policy objectives and priorities in position papers and CSRs. Overall COM cost: see above Benefits: adopted OPs focus on challenges MS and regions are facing (as identified in European Semester) and have a clear intervention logic, allowing the Commission to evaluate their impact [non-quantifiable individually] Effectiveness: - % of OPs adopted/ approved Efficiency: - average time to adopt/ approve an OP Systems audit, re-performance of annual control reports (ACR), follow-up of audit authorities, closure audits, fact finding audits, etc. Impacted by the time required by Member States to react 100

22 Stage 2 Implementation of operations (Member States): A. Setting up of the systems Main control objectives: ensuring that the management and control systems are adequately designed Main risks Mitigating controls Coverage, frequency and depth Costs/benefits of controls Control indicators The process of designation of national authorities in the Member States (MS) is not effective and, as a result, the management and control systems are not compliant with the applicable rules. Supervision by Commission (for ): - Commission review (and audits) of a sample of national designations - submission of MS Audit Strategies to the Commission (on request) Coverage / Frequency: fixed in sectorspecific rules Depth: verification (desk review + audit missions where necessary) of description of management and control systems communicated by MS. Designation audits are generally done on-the-spot. B. MS controls to prevent, detect and correct errors within the declared certified expenditure Overall COM cost: see above Benefits:(part of) the amounts associated with unreliable systems for which the Commission audit work revealed substantial compliance problems (for ) [not quantifiable] Main control objectives: ensuring that the periodic expenditure declarations submitted to the Commission for each action are legal and regular For : Effectiveness: - % of authorities designated Efficiency: - number of authorities for which serious weaknesses found by designation reviews/audits (% of total checked) Main risks Mitigating controls Coverage, frequency and depth Control indicators Periodic expenditure declarations submitted to the Commission include Management verifications: first level checks by Management Authorities (MA). Coverage: fixed in sector-specific rules Depth: Effectiveness: - weighted average error rate expenditure which is irregular or - management verifications: performance of first-level checks (administrative as reported by the Member Certification, audit opinion and annual non-compliant with EU and/or and on the spot controls). States. report by the relevant authorities national eligibility rules and - certification: additional verification (desk checks and on-the-spot). Efficiency: designated/accredited. legislation. - audit opinion: system audits on the checks already carried out, where - time to lift interruption of necessary with re-performance of on-the-spot checks; where applicable, audits payments 6 of operations (on a statistical basis) and additional substantive testing on expenditure. 6 impacted by the complexity of the issues and the time required by MS to react 101

23 Stage 3 Monitoring and supervision of the execution, including ex-post control Main control objectives: ensuring that the expenditure reimbursed from the EU budget is eligible and regular Main risks Mitigating controls Coverage, frequency and depth Costs/benefits of controls Control indicators The management verifications and subsequent audits/controls by the Member States have failed to detect and correct ineligible costs or calculation errors. The audit work carried out by the audit/certifying authorities is not sufficient to obtain adequate assurance on the submitted declarations. The Commission services have failed to take appropriate measures to safeguard EU funds, based on the information it received. Commission checks of periodic MS expenditure declarations. Commission assessment of management and control systems in the Member States, in particular of work done and/or reported by the Audit Authorities, namely: - assessment of Annual Control Reports / Annual Audit Opinion - calculation of projected error rate - estimation of a residual error rate (RER) - assessment of systems audits reports from AA - assessment of annual summaries - own Commission audits - technical and bilateral meetings with MS Interruptions and suspensions of payments Financial corrections (implemented by MS resulting from Commission audit work) Coverage: verification of information provided in the annual control reports and annual audit opinions. Depth: desk checks and/or on-thespot audits based on risk assessment; verification of the quality and reliability of the information based on Commission s own audit work; validation and where necessary adjusting of error rates reported by MS to calculate a cumulative residual error risk (RER); [at closure: where applicable scrutiny of closure report and closure opinion, if needed with audits on sample of OPS] 102 Overall COM cost: see above Benefits: errors prevented [unquantifiable], errors detected or corrected (amount of financial corrections); the impact of the Commission s adjustments made on the error rates reported by the MS following its own audit work and the total amount of expenditure for which the Commission has assurance Effectiveness: - cumulative residual risk (EU and per MS) - number of programmes with a reported error rate assessed as reliable (unchanged or re-calculated) - Number of interruptions/suspensions of payments - corrections made resulting from Commission audit work (decided and implemented) - % of the expenditure for which the Commission can rely on the work of the AA (based on ACRs unchanged or recalculated error rates) - weighted average error rate after Commission analysis - Commission assessment of reliance on Audit Authorities Efficiency: - overall cost of control/financial management of the Commission checks and assessment (% of total payment appropriations) stages 1 to 3 - % of Commission payments on time - % interruptions of payments notified to MS within 2 months - % suspensions of payments notified to MS within 6 months - Audit coverage of Audit Authorities (cumulative basis)

24 Direct management (grants and procurement) DG EMPL distinguishes 3 main stages in the implementation of its budget under direct management mode: (1) Programming, evaluation, selection and contracting; (2) Monitoring the execution and (3) Ex-post controls. The table below elaborates, per stage, on the main risks identified and related controls. Benefits and costs are covered globally: Benefits: The benefits of controls at the programming stage cannot be quantified. They mainly relate to the relevance and effective implementation of activities in line with the DG's policy objectives and contributing towards the achievement of Europe 2020 Strategy. The deterrent effects of monitoring and controls also bring unquantifiable benefits. At the selection, implementation and monitoring stages, by ensuring compliance with the Financial Rules and the respect of principles for grants and procurement, DG EMPL makes sure that the selected proposals or offers bring the best value for money, i.e. fulfilling performance needs and optimising the use of EU funds and that the underlying operations are legal and regular. DG EMPL considers that the benefits of the controls in place are demonstrated by the error rates being consistently below the materiality threshold. Estimated costs: The estimated annual Commission costs is estimated to be in the range of 2.5 to 5% of DG EMPL total appropriations managed under direct and indirect management modes. The lower limit of the range includes the staff involved in financial advice, initiation, and verification tasks as well as those in charge of the ex-post audits. The upper limit of the range contains in addition a proportion of the operational staff involved in public procurement and grants actions. Their role being primarily to deliver actions in support of political objectives, a differentiation between implementation and control tasks is difficult to establish. In view of this uncertainty, and in the absence of a cost-effective way to define which elements of their tasks are assessed as part of the control chain (as opposed to ensure the adequate implementation of policy objectives), DG EMPL estimated their involvement in the financial workflow at approximately 25% of their time. 103

25 Stage 1: Programming, evaluation, selection and contracting. Main control objectives: Ensuring that the Commission (COM) selects the actions that contribute the most towards the achievement of the policy objectives (effectiveness); that funds are allocated optimally (best value for public money, effectiveness, efficiency, economy) and in compliance (legality & regularity; prevention of fraud). Main risks Grants and procurement: The annual work programme and the subsequent actions do not adequately reflect the policy objectives and priorities and or are incoherent. Budget not optimally allocated. Grants: The evaluation, ranking and selection of proposals is not carried out in accordance with the established procedures, the policy objectives, priorities and/or the essential eligibility, or with the selection and award criteria defined in the annual work programme and subsequent calls for proposals. The beneficiaries, especially smaller organisations, lack the capacity to effectively control expenditure and ensure the transparency on the operations carried out. Grants and procurement: Mitigating controls - Programming of activities (Financing Decision) through a top-down definition of policy priorities. Activities examined centrally by horizontal units (coordination and financial) for compliance, relevance and optimisation (rationalisation/simplification) - Inter-service consultation on Financing Decisions including all relevant DGs - Adoption by the Commission Grants: - implementation of a standard application form for the whole DG; - AOSD supervision and approval of terms of references with the support of adequate guidance (including support from the Financial Advice team) and using the available models - before publication, a formal opinion is issued by the Financial Unit to check if the documents are complete, have been correctly drafted and all the required procedures have been respected; - an evaluation committee is appointed by the AOSD and composed of at least 3 persons representing at least 2 directorates; - the management of the evaluation process has been standardised via the IT application Defis Evaluations; - a formal opinion is issued by the Financial Unit on the evaluation and selection procedure prior to budgetary and legal commitments - validation of beneficiaries (operational and financial viability) and planning of interim and final reports - signature of the grant agreement by the Authorising Officer - the publication on Europa of the grants awarded takes place after control by the Financial Unit. Coverage, frequency and depth Grants and procurement: Coverage/frequency: 100% Grants: Coverage : 100% of proposals are evaluated Costs/benefits of controls See above See above Control indicators Grants and procurement: - Validation of actions in the annual work programme (relevance and compliance) (%) - Budget execution (%) Grants: - Validation of calls for proposals by the Financial Unit prior to publication (%) - Formal opinion given by the Financial Unit before award (%) - Number litigation cases 104

26 Main risks Mitigating controls Coverage, frequency and depth Costs/benefits of controls Control indicators Procurement: Procurement: Procurement: See above Procurement: The best offer/s are not submitted due to the poor definition of the tender specifications The most economically advantageous offer not being selected, due to a biased, inaccurate or unfair evaluation process - AOSD supervision and approval of specifications with the support of adequate guidance and using the available models - Prior Information Notices and invitations to tender are checked for compliance with the Financial Regulation and Financing Decision by the Central Financial Unit before publication - Opening and evaluation committees appointed by the AOSD - Formal advisory opinion by consultative committee CIAME (conformity of procurement rules and application of selection and award criteria) - Formal opinion issued after verification by the Central Financial Unit on the evaluation and selection procedure prior to budgetary and legal commitments (framework contracts with reopening of competition and negotiated procedures) 100% of the specifications are scrutinised. 100% of calls > EUR are scrutinized by the CIAME 100% of calls > EUR are scrutinized by the Financial Unit - Formal opinion given by the Financial Unit (for transactions above EUR ) and the CIAME (for transactions above EUR ) before award - Number of positive opinions given by the CIAME in first instance (%) Stage 2: Monitoring the execution Main control objectives: ensuring that the operational results (deliverables) from the projects are of good value and meet the objectives and conditions (effectiveness & efficiency); ensuring that the related financial operations comply with regulatory and contractual provisions (legality & regularity); prevention of fraud (anti-fraud strategy) Grant/Procurement: Main risks The actions foreseen are not, totally or partially, carried out in accordance with the technical description and requirements foreseen in the agreement/contract and/or the amounts paid exceed that due in accordance with the applicable contractual and regulatory provisions Grant/Procurement: Mitigating controls Operational and financial checks in accordance with the financial circuits. Operation authorisation by the AOSD Grants: Ex ante verification of financial report Coverage, frequency and depth Grants: 100% of projects are controlled (desk review) with 5% being controlled in depth Procurement: 100% of contracts are controlled Costs/benefits of controls See above Grants: Control indicators - Verification of transactions by operational and financial agents (%) - Ex-ante in depth check of final cost claims - sample representing 5% of each call total value (% error) Procurement - Verification of transactions by operational and financial agents 105

27 Stage 3: Ex post controls Main control objectives: Measuring the effectiveness of ex-ante controls by ex-post controls; detect and correct any error or fraud remaining undetected after the implementation ex-ante controls (legality & regularity; anti-fraud strategy); addressing systemic weaknesses in the ex-ante controls, based on the analysis of the findings (sound financial management) Main risks Mitigating controls Coverage, frequency and depth Costs/benefits of controls The ex-ante controls fail to Strategy of ex-post audit : Ex post controls relate only to See above prevent, detect and correct (a) combine risk-based and ad random selection grant aided projects which have erroneous payments or attempted (b) consider operational aspects whenever possible been closed by the Operational fraud. during the on-the-spot audit. Units. Contracts bear no risk to be audited ex-post. Control indicators Grants/procurement: - Cost of control/financial management of the Commission checks and assessment (as a % of total payment appropriations) - Ex-post audits finalised (number) - % amount controlled by ex-post audit vs. total amount - Error rate 106

28 ANNEX 6: Performance information included in evaluations Title of the Evaluation: ABB activity: Type of evaluation: Evaluation of Directive 2002/14/EC (Information and consultation), Directive 98/59 (collective dismissals) and Directive 2001/23 (transfer of undertakings) Employment and Social Solidarity (PROGRESS) Regulatory instrument (R) Summary of performance related findings and recommendations: Part of the FITNESS CHECK exercise. Accountability purpose. Collect evidence to inform future decision making. The results of the evaluation were published in a Staff Working Document, that found that the three I&C directives are broadly fit for purpose being generally relevant, effective, coherent and mutually reinforcing, and that benefits generated are likely outweighing costs. I&C at company level plays an important role in finding solutions to problems including optimal means of maintaining employment and lowering adjustment costs through the use of internal flexibility, and contributes to easing conflicts and promoting a cooperative climate at workplace level. I&C is of crucial importance to develop good practices of anticipation of change and good preparation and management of restructuring; widely observed good practices on anticipation of change and restructuring would greatly contribute to a better application of the I&C Directives and to more effective enforcement of the rights provided for therein. The 'fitness check' brought also to light, however, a number of gaps and shortcomings. A significant share of the workforce is not covered by their scope of application due to the exclusion of smaller SMEs, of public administration and of seafarers. Furthermore, some stakeholders voiced concerns relating to the coherence of the Directives in particular possible inconsistencies as regards different definitions in EU law of the terms 'information' and 'consultation'. The SWD set out a number of possible responses on the basis of good practice of meaningful social dialogue at different levels and by different actors, and pointed to the areas which need further examination and discussion including a possible consolidation/simplification of the three Directives on information and consultation. As a follow up, the Commission announced that it would consider a possible consolidation of the three directives, subject to the results of a consultation of social partners 7. With regard to seafarers, the Commission presented on a proposal for a Directive with a view to lifting the exclusion of seafaring workers from the personal scope of application of a number of EU labour law directives 8. The exclusion of the public administration was, subsequently, discussed within the sectoral social dialogue committee which brings together central government administrations. With regard to SMEs, work is currently under way by Eurofound in this area including on identification of good practice. Further analysis is expected to be carried out on the basis of the results of the 3 rd European Company Survey. Availability of the report on Europa: catid=22 7 See Commission communication on 'Regulatory Fitness and Performance (REFIT): Results and Next Steps' (COM(2013) 685 final) 8 Proposal for a Directive on seafarers amending Directives 2008/94/EC, 2009/38/EC, 2002/14/EC, 98/59/EC and 2001/23/EC, COM(2013) 798 final. 107

29 Title of the Evaluation: Evaluation of Directives 97/81/EC (part time work) and 1999/70/EC (fixed term work) ABB activity: Type of evaluation: Employment and Social Solidarity (PROGRESS) Regulatory instrument (R) Summary of performance related findings and recommendations: Accountability purpose. Collect evidence to inform future decision making, improvement of application of EU law An external independent study finds that the Directives, although adopted in the 90s, are still relevant and provide for a balance between protection of workers, quality of work and flexibility. Explanations are provided regarding limitations in achieving all the original goals of the Directives mainly because of extraneous drivers (in particular business cycles, societal changes, unemployment). The external study contains no recommendations for legislative intervention. A Commission Staff Working Document drawing on and complementing these findings is being prepared to fine-tune Commission' services own conclusions and recommendations for an adoption in 2Q2014. It will support dialogue with stakeholders in and guidance for analysis in MS against the background of the European Semester. The report and SWD will support the infringement policy by the Commission, dialogue with stakeholders in and guidance for analysis of law reforms in MS against the background of the European Semester. Availability of the report on Europa: Not published yet (foreseen adoption date 21 st march 2014) Title of the Evaluation: Evaluation of the European Strategy on safety and health at work ABB activity: Type of evaluation: Employment and Social Solidarity (PROGRESS) Regulatory instrument (R) Summary of performance related findings and recommendations: The purpose was to collect evidence on the implementation of the European strategy on safety and health, which would feed into the Commission's SWD on the evaluation of the strategy. The Health and Safety strategy was relevant and its merit has lied especially in providing a clear policy basis and framework for coordination, and a common sense of direction for many of the actors involved in the OSH policy area. The strategy served as an important policy signal and driver for national action on OSH and also facilitated useful coordination in respect to public health initiatives. However, there remains room for improvement in the integration and coordination between OSH and other policy areas and between the various actors involved at the EU level. In particular, coordination with environmental policy and the important area of the REACH regulation on chemicals and their safe use has been inadequate. Also, the articulation between the strategy implementation and the European social dialogue has been limited and European social partners have felt a limited degree of ownership towards the strategy and have mainly implemented those parts of the strategy which they would have implemented in any case. There are good indications that the 25% target for reducing the incidence rate of accidents at work in the EU-27 has been achieved Specific conclusions can be made with regard to the six objectives (or priority areas) of the H&S Strategy. Objective 1: Legislation: Almost all planned actions have been implemented and the Commission, the ACSH and SLIC have been active with drafting supporting guidance; the exchange of best practices; and preparing the development or revision of legislation. However, the guidance produced has not been sufficiently disseminated and is not sufficiently targeted at SMEs. In addition, in terms of the updating and simplification of the regulatory framework, little substantive progress has been made, and two outstanding gaps remain in relation to the issues of subcontracting and preventive services. 108

30 Objective 2: National strategies: Almost all Member States now have a national strategy or a similar instrument and this area has reached a stage of maturity. Member States are generally actively working in the area and implementing their strategies. However, implementation is progressing at a slow pace in some countries and this indicates that future activities at the EU level in this area should not focus on establishment of strategies, but rather their implementation. National strategies have taken inspiration from the European strategy and its priorities, and adapted to their national context and key priority areas. Objective 3: Prevention: Several campaigns at European level have been successfully implemented through EU-OSHA. A risk-assessment tool for SMEs (OiRA) has been developed and information on this has been disseminated. It is now being used in several countries. However, knowledge of the actual takeup of EU-OSHA information and tools for risk assessment and management at national and company level is insufficient and this gives rise to concerns that these are not being used to their full potential. The ACSH and the Commission have not taken action in relation to mainstreaming of the OSH into training programmes as foreseen by the strategy. Member States are working to integrate OSH into their education and training programmes, but this has not been a primary concern for them and there has been limited use of the financing opportunities offered through the EU's Social Fund. Objective 4: New and increasing risks: Reports on a number of new and emerging risks have been produced and disseminated by more than one EU-level partner. They provide a valuable insight into possible future problems and areas of concern although their very nature as horizon-scanning means that many partners understandably do not see them as of immediate relevance. As also indicated under objective 1, the knowledge produced has yet to result in actual new or revised regulatory actions on how to address these risks. The OiRA tool, developed at the EU-level, provides a potentially valuable tool. However, to be of real value to SMEs it needs to either be made more directly accessible to individual employers or there needs to be a considerable growth in the number of sector-specific versions developed and distributed within the EU-27. Objective 5: Monitoring: Collection and collation of European-wide statistical data on occupational accidents was enabled through the Regulation on statistics on accidents at work (1338/2008) and its implementing Regulation (349/2011). However, there has been little progress with respect to arriving at common statistical methods for occupational diseases although a report on the current situation in the EU Member States and EFTA/EEA countries was produced and provides a good basis for additional activities in this methodologically challenging area. Objective 6: International cooperation: The Commission has been quite active in the area of the international promotion of OSH including stepping up cooperation with ILO. Bilateral cooperation with candidate countries, neighbouring countries and major economic partners has also yielded positive results. However, no progress has been made on the key issue of obtaining a global ban on the use of asbestos, or on improving the comparability of data on accidents. The analysis of the implementation of the six objectives of the Strategy shows that some intermediate impacts have been achieved. I.e. the implementation of the strategy did to some extent support the better implementation of legislation, improve awareness raising and lead to a better understanding of risks. However, lack of implementation of some areas of the strategy also meant a rather limited impact in some respects, in particular in relation to reducing administrative burdens and reaching out to SMEs and micro-enterprises. A strategic framework is planned for the future. Availability of the report on Europa: catid=22 109

31 Title of the Evaluation: Evaluation of Directive 92/91/EEC, Health and safety of workers in the extraction through drilling industries ABB activity: Type of evaluation: Employment and Social Solidarity (PROGRESS) Regulatory instrument (R) Summary of performance related findings and recommendations: Verification of existing legislation in light of DG ENER proposal for offshore safety of oil extraction (DIRECTIVE 2013/30/EU on safety of offshore oil and gas operations. A wide range of insights relating to the directive were identified as part of this work. This covered aspects such as: whether changes to the directive are required, what and where such changes should be effected (i.e. within the directive or in documents in support of directive e.g. supporting explanatory text), proposals on how these changes should be made as well the role certain parties/stakeholders can take in the change process. The study concluded that Directive 92/91/EEC should be updated, notably to include current good practice, and implemented in a manner that is proportionate to the inherent risk of the mineral extraction through drilling activity, be more balanced on its requirements in regard to the management of Major Hazard Accidents and Occupational Health and Safety, more explicit regarding the management of drilling activities and well control, clarify the roles and responsibilities, and remove elements in the current directive which would better fit in supporting guidance and standards documents. In addition, stakeholders were asking for the EC to provide guidance and support in an early phase of implementing their national legislation for the requirements of Directive 92/91/EEC to help them to build the capabilities and experience they require to effectively regulate the industry. The output of the evaluation has been used in three main areas: The evaluation was used by DG ENER to better frame the scope of Directive 2013/30/EU. In addition this evaluation will feed into the Ex-post evaluation of the H&S at work legal acquis. DG ENV also used the results in the evaluation of the Environmental impacts of shale gas extraction, which led to a Commission Recommendation on minimum principles for the exploration and production of hydrocarbons (such as shale gas) using high volume hydraulic fracturing..see Moreover the evaluation of Directive 92/92/EEC will feed into the ongoing ex-post evaluation of 24 Directives in the area of occupational health and safety. A Commission report from this exercise is expected by the end of Availability of the report on Europa: catid=22 110

32 ABB activity: Title of the Evaluation: Type of evaluation: Evaluation of the Mutual Learning Programme Employment and Social Solidarity (PROGRESS) Expenditure programme (E), Summary of performance related findings and recommendations: The purpose of the evaluation was to 1) assess the effectiveness of the MLP 2)provide recommendations on how the design and implementation of the programme could be adapted in view of improving the alignment of the programme to the new governance cycle 3) identifying good examples of mutual learning coming out of the programme's activities. The evaluation has confirmed that the MLP activities have enhanced the on-going dialogue of the EES by enabling a wider set of actors to engage in exchange with stakeholders from other countries than would be possible only through the formal processes of the EES. However, the MLP has been effective mostly in generating individual learning. The examples of influence on organisational and systemic/policy change identified in the evaluation come mostly from Peer Reviews. There was a need to clarify the objectives and intended effects of the MLP and to specify the intended model of learning. More effort in terms of follow-up activities is needed to exhaust the potential of mutual learning under the programme. The findings and recommendations helped to redesign the new MLP contract. The objectives of the programme as well as of the individual activities were rearticulated and simplified. In general, the format and balance between the individual activities was reviewed. In particular, the new Learning Exchange approach was introduced. It is based on a tailor-made, facilitated dialogue between two Member States who have a common interest in examining and sharing experiences in relation to a particular area of employment policy. A communication strategy was introduced and more efforts to engage social partners and independent experts are to be made. Availability of the report on Europa: catid=22 111

33 ANNEX 7: Specific annexes related to "Management of Resources" (Part 2) ESF A- Analysis of the annual control reports, annual audit opinions, and error rate 113 D. Annual summaries and national declaration 115 F. Interruptions/suspensions of payments 116 G. Financial corrections, withdrawals and recoveries 121 Financial corrections accepted/decided in 2013 relating to all programming period Financial corrections implemented in 2013 relating to the programming period Financial corrections reported by Member States H- Follow-up 2012 reservation detailed text per MS 124 I reservation detailed text per MS/OP Assessment audit results 134 DAS 2012 Typology of errors and recommendations Follow up of main DAS cases Table on the follow-up of previous DAS cases 112

34 ESF A- Analysis of the annual control reports, annual audit opinions, and error rate Table showing the Member States national audit opinions (in the ACR) per MS Member State Number of programmes RESULT: National Audit Opinions Unqualified Qualified Adverse Disclaimer AT BE BG CY CZ DE DK EE ES FI FR GR HU IE IT LT LU LV MT NL PL PT RO SE SI SK UK Total ,8% 34,2% 0.0% 0.0% 113

35 Table indicating the resulting range of the best estimate of the error rates following Commission adjustments per MS (validated error rates). The graph below shows a relative stability in the error rate since the most likely error rate has remained within the range of 2 % to 3 % over the period

36 D. Annual summaries and national declaration Table Annual Summaries of the Member States Member State (MS) Compliance with minimum requirements of Financial Regulation? Has the template in the annex of the guidance note* been followed? Has the MS used the suggested declaration on the overall level of the assurance as per guidance note*? 115 Has the MS provided an overall analysis for structural actions for the year in question? Action by the Commission by 31/03/2014 Austria Compliant Yes Yes Yes Accepted Bulgaria Compliant Yes Yes Yes Accepted with follow-up Belgium Compliant Yes No No Accepted with follow-up Czech Republic Compliant Yes Yes Yes Accepted with follow-up Cyprus Compliant Yes Yes Yes Accepted Denmark Compliant Yes Yes Yes Accepted Estonia Compliant Yes Yes Yes Accepted Finland Compliant Yes Yes Yes Accepted France Compliant Yes No No Accepted Germany Compliant Yes No No Greece Compliant Yes Yes Yes Accepted with follow-up Accepted with follow-up Ireland Compliant Yes No No Accepted Italy Compliant Yes No No Accepted with follow-up Latvia Compliant Yes No Yes Accepted Lithuania Compliant Yes No Yes Accepted with follow-up Luxembourg Compliant Yes No No Accepted Hungary Compliant Yes Yes Yes Accepted Malta Compliant Yes No No Accepted Netherlands Compliant Yes No No Accepted with follow-up Poland Compliant Yes No Yes Accepted with follow-up Portugal Compliant Yes Yes Yes Accepted Republic of Croatia Compliant Yes No No Accepted Romania Compliant Yes Yes Yes Accepted with follow-up Slovenia Compliant Yes Yes Yes Accepted Republic of Slovakia Compliant Yes Yes Yes Accepted Spain Compliant Yes No Yes Accepted with follow-up Sweden Compliant Yes No No Accepted United Kingdom Compliant Yes Yes Yes *European Commission Guidance note on annual summaries COCOF 07/0063/09 Accepted with follow-up

37 F. Interruptions/suspensions of payments INTERRUPTIONS MS Region OP CCI N DATE AMOUNT Payments resumed as of Main weaknesses identified INTERRUPTIONS DECIDED IN 2013 EMPL audit report identifying significant deficiencies and irregularities concerning: BE Etat Fédéral 2007BE052PO003 31/01/2013 7,088, N - the beneficiary guidance; - the first level-control; - the audit trail; - the rules on eligibility of expenditure. DE Nordrhein- Westfalen 2007DE052PO008 05/02/ ,252, Y ACR 2011 and national audit report identifying significant deficiencies concerning: - the first-level management verifications and their follow-up. EMPL audit report identifying significant deficiencies concerning: - the verification of the management and control bodies; - the first-level management verifications and their follow-up. ES FR Comunidad Valenciana Comunidad Valenciana Comunidad Valenciana 2007ES052PO003 24/01/2013 3,059, ES052PO003 24/01/2013 2,321, ES052PO003 24/01/ ,762, Cataluña 2007ES052PO007 24/01/ ,413, N Madrid 2007ES052PO008 25/02/2013 4,960, N Extremadur a 2007ES051PO003 05/02/2013 5,401, Melilla 2007ES051PO008 15/02/2013 1,077, Y Murcia 2007ES052PO009 05/02/2013 9,951, Y Pais Vasco 2007ES052PO010 25/02/2013 8,112, Y La Rioja 2007ES052PO011 20/02/2013 2,376, N FPSPP (volet national) 2007FR052PO001 21/01/2013 4,923, N N N Y N DG EMPL audit report and ACR 2012 identifying deficiencies and irregularities concerning: - the guidance to the beneficiaries; - the first level management verifications of the managing authority; - the certification of the statements of expenditure of the certifying authority; - the audit trail; - the rules on eligibility of expenditure; - the rules on audit trail. DG EMPL audit report and ACR 2012 identifying deficiencies concerning: - the organisation of the management and control bodies; -the guidance to the beneficiaries; - the first level management verifications of the managing authority; - the second level audit controls of the audit authority. DG EMPL audit report and ACR 2012 identifying deficiencies and serious irregularities for one collaborating body concerning: - the organisation of the management and control bodies; - the selection of operations; - the first level management verifications of the managing authority; - the certification of the statements of expenditure; - the audit trail; - the rules on eligibility of expenditure; - the rules on the audit trail. ACR 2012 identifying significant deficiencies and serious irregularities concerning: - the first level management verifications of the managing authority; - the follow-up to the second level audit controls of the audit authority; - the rules on eligibility of expenditure; - the rules on public procurement; - the rules on audit trail. ACR 2012 identifying significant deficiencies concerning: - the second level audit controls of the audit authority. ACR 2012 identifying significant deficiencies concerning: - the second level audit controls of the audit authority. ACR 2012 identifying significant deficiencies concerning: - the second level audit controls of the audit authority. DG EMPL audit report identifying significant deficiencies and serious irregularities concerning: - the first level management verifications for 1 collaborating body. ACR 2012 identifying significant deficiencies and irregularities concerning: -the second level controls of the audit authority; - the rules on eligibility of expenditure; - the audit trail. DG EMPL audit report identifying significant deficiencies and serious irregularities related to part of the programme managed by the intermediate body FPSPP concerning: - the procedures for selection of operations; - the first level management verifications and their follow up; - the rules on audit trail; - the rules on eligibility of expenses. 116

38 IT UK MK TR Calabria 2007IT051PO002 22/07/ ,467, Y An audit visit carried out by the ECA in the framework of the DAS 2012 exercise identified serious deficiencies related to Calabria 2007IT051PO002 14/10/ ,424, Y first level management verifications on public procurement. Following the assessment of the ACR 2012 an elevated error Sardegna 2007IT052PO016 15/02/ ,737, Y rate of 5% was identified by the Commission audit services and, therefore, the submitted error rate 0,3% was assessed as being unreliable Sardegna 2007IT052PO016 13/12/ ,721, N DG EMPL audit report identifying significant deficiencies in the functioning of the management and control systems for the assistance in question concerning: - the second level audit controls of the audit authority; - the audit trail; - the organisation and functioning of the management and control bodies. ACR and opinion 2011 and DG EMPL audit report identifying significant deficiencies and serious irregularities concerning: - the procedures for selection of operations; Abruzzo 2007IT052PO001 15/02/2013 5,901, N - the first level management verifications; - the second level audit controls of the audit authority; - the rules on eligibility of expenses; - the rules on eligibility o operations; - the rules on audit trail. Basilicata 2007IT051PO004 22/02/2013 8,395, Y ACR and opinion 2011 and DG EMPL audit report identifying significant deficiencies and serious irregularities concerning: - the first level management verifications; - the second level audit controls of the audit authority; - the rules on eligibility of expenses; - the rules on audit trail. DG EMPL audit report identifying significant deficiencies Bolzano Bolzano 2007IT052PO IT052PO009 02/08/2013 2,608, /12/2013 2,565, N N Concerning: - the second-level audit controls of the audit authority and their follow-up; - the audit trail. Highlands & ACR and opinion 2012 identifying significant deficiencies and serious irregularities concerning: Islands 2007UK051PO001 15/02/2013 7,712, Y - first level management verifications; Scotland - the rules on eligibility of expenditure. Northern 2007UK052PO003 07/02/2013 5,682, Y ACR and opinion 2012 identifying deficiencies concerning: Ireland Northern Ireland England and Gibraltar 2007UK052PO003 07/02/2013 9,583, UK05UPO001 08/02/ ,327, IPA HRD 2007MK05IPO001 05/04/2013 2,952, IPA HRD 2007MK05IPO001 05/04/2013 1,892, Y IPA HRD 2007TR05IPO001 15/02/2013 8,485, Y IPA HRD 2007TR05IPO001 15/02/ ,429, Y 21 OP s ( 19 ESF+ 2 IPA) 389,588, payment claims interrupted (25 ESF 4 IPA) Y N Y -the first level management verifications. ACR and opinion 2012 identifying significant deficiencies concerning - first level management verifications. ACR and opinion 2012 identifying significant deficiencies and serious irregularities concerning: - first level management verifications; - the rules on eligibility of expenditure, the rules on audit trail. Following an EU delegation services on-the-spot check and report, further checks were necessary in order to ensure that the applications for payment did not include any significant deficiency. A DG EMPL audit report identifying significant deficiencies concerning the first-level management verifications of the operating structure including CFCU, the audit trail and a number of other compliance issues. 117

39 Payments resumed as of M S Region OP CCI N DATE Interrupted amount Main weaknesses identified C Z E S E S F R S K D E IT INTERRUPTIONS DECIDED IN Q A DG EMPL audit report identifying significant deficiencies and serious irregularities concerning : the procedures for selecting operations; the first-level management verifications; Prague the second-level audit controls; 2007CZ052PO001 31/01/2014 Adaptability the audit trail; the rules on eligibility of expenditure; - national rules on eligibility of expenditure; 12,873, N - eligibility rules in the grant agreement; the rules on public procurement. ACR and opinion 2013 identifying significant deficiencies and serious irregularities concerning: Andalucia 2007ES051PO005 29/01/2014 5,019, N - first level management verifications; - the rules on eligibility of expenditure; - the rules on audit trail; - the rules on public procurement; Andalucia 2007ES051PO005 29/01/ ,344, N - the conditions on grant agreements; -the national rules; -the rules on information and publicity. Adaptabilidad 2007ES05UPO ,561, ACR and opinion 2013 identifying significant 11/02/2014 y Empleo N deficiencies and serious irregularities concerning: Adaptabilidad 2007ES05UPO ,258, first level management verifications; 11/02/2014 y Empleo N - the rules on eligibility of expenditure; 2007ES05UPO001 - the rules on audit trail; Adaptabilidad - the rules on public procurement; 11/02/ ,631, N y Empleo - the conditions on grant agreements; -the rules on information and publicity. ACR and opinion 2013 identifying significant deficiencies and serious irregularities concerning: - first level management verifications; Aragon 2007ES052PO004 20/02/2014 5,162, N - the rules on eligibility of expenditure; - the rules on audit trail; - the rules on public procurement; - the conditions on grant agreements. ACR and opinion 2013 identifying significant Asistencia 2007ES05UPO003 24/02/ , N deficiencies concerning: Tecnica - first level management verifications. ACR and opinion 2013 identifying significant Baleares 2007ES052PO005 20/02/2014 1,423, N deficiencies and serious irregularities concerning: - first level management verifications. Lucha 2007ES05UPO002 17/02/2014 1,242, N ACR and opinion 2013 identifying significant Lucha 2007ES05UPO002 17/02/ , N Lucha 2007ES05UPO002 17/02/2014 1,627, N PO National (partial) 2007FR052PO001 14/02/2014 Education 2007SK05UPO001 21/02/2014 Mecklenburg Vorpormen 2007DE051PO002 20/02/ ,081, N 76,230, N 42,275, N Bolzano 2007IT052PO009 14/02/2014 5,411, N deficiencies concerning: - first level management verifications. ACR and opinion 2013 identifying significant deficiencies concerning: - first level management verifications; -follow-up of second level audit controls. ACR and opinion 2013 identifying significant deficiencies and serious irregularities concerning: - first level management verifications; - the rules on eligibility of expenditure; - the rules on public procurement; ACR and opinion 2013 identifying significant deficiencies concerning: - the second level audit controls ACR and opinion 2013 identifying significant deficiencies and serious irregularities concerning: -the procedures for selecting the operations; - first level management verifications and their follow-up;

40 MS Region OP CCI N DATE Interrupted amount Payments resumed as of Sardegna 2007IT052PO016 18/02/ , N Campania 2007IT051PO001 4/03/ ,846, N Campania Toscana 2007IT051PO001 4/03/ ,954, N 2007IT052PO012 27/03/ ,156, OPs 20 payment claims interrupted 846,272, N - the second level audit controls of the audit authority and their follow-up; - the audit trail; - the rules on eligibility of operations; - the rules on eligibility of expenditure; - the rules on audit trail; - the rules on state aid and public procurement. ACR and opinion 2013 identifying significant deficiencies and serious irregularities concerning: - the second level audit controls; -the audit trail; - the compliance with the principle of separation of functions between and within such bodies; - the correct designation of the intermediate bodies; - the reliable accounting, monitoring and financial IT reporting systems in computerised form. Additional verifications required concerning identified irregularities regarding: - the rules on eligibility of expenditure; - the rules on public procurement. ACR 2013 and DG EMPL audit report identifying significant deficiencies and serious irregularities concerning : the organisation of management and control bodies; - the procedures for selecting operations; the first-level management verifications; the second-level audit controls; the audit trail; the conditions in grant agreements; the rules on public procurement; - the rules on audit trail. SUSPENSIONS Main weaknesses identified SUSPENSIONS DECIDED IN 2013 BE BE CZ DE Bruxelles Capitale Etat fédéral Human Resources Nordrhein Westfallen 2007BE0 52PO BE0 52PO CZ0 5UPO DE0 52PO008 17/12/ /06/ /12/ /03/ 2013 N N ACR and opinion 2011 and DG EMPL audit report identifying significant deficiencies and serious irregularities concerning: - guidance to the beneficiaries; - first level management verifications; - audit trail; - the rules on eligibility of expenses; - the rules on audit trail. Y N See comments in the interruptions table above N N DG EMPL final audit report identifying significant deficiencies and serious irregularities concerning: the selection of operations; the first-level management verifications and their follow-up; the rules on eligibility of operations; the rules on eligibility of expenditure; the national rules; the conditions in the grant agreements; the rules on public procurement. Y Y See comments in the interruptions table above 119

41 Cataluna 2007ES0 52PO007 13/06/ 2013 Y N See comments in the interruptions table above Comunidad Valenciana 2007ES0 52PO003 27/09/ 2013 Y N See comments in the interruptions table above ES Adaptabilid ad y Empleo 2007ES0 5UPO001 6/11/2 013 N N ACR and opinion 2012 and national audit reports identifying significant deficiencies and serious irregularities concerning: the organisation of the management and control bodies; the guidance to the beneficiaries; the selection of the operations; - the first-level management verifications by the managing authority and their follow-up; the certification of the statements of expenditure; the follow-up to the second-level audit controls; the audit trail; the rules on eligibility of expenditure. FR FPSPP 2007FR0 52PO001 20/02/ 2013 Y N See comments in the interruptions table above. IT Abruzzo 2007IT05 2PO001 26/02/ 2013 Y N See comments in the interruptions table above. SK UK Employme nt and social inclusion England and Gibraltar 2007SK0 5UPO UK0 5UPO001 13/08/ /10/2 013 N N DG EMPL final audit report identifying significant deficiencies and serious irregularities concerning: guidance to the beneficiaries; the selection of operations; the first-level management verifications and their follow-up; the audit trail; the rules on eligibility of expenditure; the rules on public procurement; the rules on audit trail. Y N See comments in the interruptions table above. MS Region OP CCI N DATE Interrupted amount Payments resumed Main weaknesses identified SUSPENSIONS DECIDED IN Q ES La Rioja 2007ES052PO011 30/01/2014 Y N See comments in the interruptions table above. Madrid 2007ES052PO008 13/02/2014 Y N See comments in the interruptions table above. 120

42 G. Financial corrections, withdrawals and recoveries Financial corrections accepted/decided in 2013 relating to all programming period Considering all programming periods EUR million have been reported representing Member State's commitment and/or deduction of irregular expenditure from the interim payment claims during the cycle of the programme in The table below shows, per Member State, the total cumulative accepted/decided amount of financial corrections for all programming periods at the end of This stands at EUR 3.057,4 million. in M Total end 2012 cumul end cumul end 2013 cumul end cumul end 2013 cumul end cumul end 2013 Total end 2013 AT 1,5 1,5 1,5 0,0 0,0 0,0 0,0 0,0 0,0 1,6 BE 21,1 12,3 12,3 5,3 2,7 8,0 3,6 0,1 3,6 23,9 BG 2,5 0,0 0,0 0,0 0,0 2,5 0,4 2,9 2,9 CY 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 CZ 35,9 0,0 0,0 0,0 0,0 35,9 5,3 41,1 41,1 DE 22,7 1,9 1,9 12,5 11,1 23,6 8,2 3,9 12,1 37,6 DK 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 EE 0,2 0,0 0,0 0,2 0,6 0,8 0,0 0,0 0,0 0,8 ES 611,5 27,2 153,0 180,2 474,3 260,1 734,4 110,0 45,5 155,5 1070,1 FI 0,1 0,1 0,1 0,0 0,0 0,0 0,0 0,0 0,1 FR 263,1 45,6 45,6 198,0 21,8 219,8 19,4 0,6 20,0 285,4 GR 177,3 0,0 0,0 18,7 0,1 18,8 158,6-109,8 48,8 67,6 HU 33,5 0,0 0,0 8,2 8,2 25,2 0,9 26,2 34,4 IE 34,2 28,3 28,3 3,4 3,4 2,5 18,9 21,4 53,2 IT 393,0 117,0 117,0 272,5 103,4 375,9 3,5 1,3 4,8 497,7 LT 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 LU 5,9 4,1 4,1 1,8 1,8 0,0 0,0 5,9 LV 12,4 0,0 0,0 3,2 3,2 9,3-4,8 4,5 7,6 MT 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 NL 159,7 159,7 159,7 0,0 43,8 43,8 0,0 0,0 203,4 PL 162,0 0,0 0,0 51,2 0,0 51,2 110,8 8,5 119,3 170,5 PT 0,2 0,0 0,0 0,0 6,3 6,3 0,1 0,1 0,2 6,5 RO 80,6 0,0 0,0 0,0 0,0 80,6 231,5 312,1 312,1 SE 12,0 0,0 0,0 11,5 11,5 0,4 0,4 12,0 SI 1,9 0,0 0,0 1,9 1,9 0,0 0,1 0,1 2,0 SK 11,7 0,0 0,0 1,1 0,8 1,9 10,7 0,3 11,0 12,9 UK 180,9 8,8 8,8 161,3 1,9 163,2 10,7 25,3 36,0 208,0 2223,8 406,7 153,0 559,7 1225,1 452,6 1677,7 592,1 227,9 820,1 3057,4 121

43 Financial corrections implemented in 2013 relating to all programming period Considering all programming periods, EUR 841,7 million of financial corrections have been implemented in The total amount of financial corrections not implemented yet stands at EUR 65,3 million The table below shows, per Member State, the total cumulative implemented financial corrections for all programing periods at the end of This stands at EUR 2.992,1 million. in M Total end 2012 cumul end cumul end 2013 cumul end cumul end 2013 cumul end cumul end 2013 Total end 2013 AT 1,5 1,5 1,5 0,0 0,0 0,0 0,0 0,0 0,0 1,6 BE 18,1 12,3 12,3 5,3 2,7 8,0 0,6 2,5 3,1 23,4 BG 2,2 0,0 0,0 0,0 0,0 2,2 0,4 2,6 2,6 CY 0,0 0,0 0,0 0,0 0,0 0,0 0,0 CZ 0,0 0,0 0,0 0,0 0,0 0,0 41,1 41,1 41,1 DE 14,6 1,9 1,9 10,0 13,6 23,6 2,6 9,4 12,1 37,6 DK 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 EE 0,2 0,0 0,0 0,2 0,6 0,8 0,0 0,0 0,0 0,8 ES 605,6 27,2 153,0 180,2 472,3 262,1 734,4 106,1 43,5 149,7 1064,3 FI 0,1 0,1 0,1 0,0 0,0 0,0 0,0 0,0 0,1 FR 248,3 45,6 45,6 184,0 35,6 219,6 18,6 0,6 19,3 284,5 GR 177,1 0,0 0,0 18,4 0,3 18,8 158,6-110,1 48,5 67,3 HU 33,5 0,0 0,0 8,2 8,2 25,2 0,9 26,2 34,4 IE 34,2 28,3 28,3 3,4 3,4 2,4 2,4 34,2 IT 391,7 117,0 117,0 272,1 103,8 375,9 2,5 2,2 4,8 497,7 LT 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 LU 6,0 4,1 4,1 1,8 1,8 0,0 0,0 6,0 LV 12,4 0,0 0,0 3,2 3,2 9,3-4,8 4,5 7,6 MT 0,0 0,0 0,0 0,0 0,0 0,0 0,0 NL 159,7 159,7 159,7 0,0 43,8 43,8 0,0 203,4 PL 158,5 0,0 0,0 51,2 0,0 51,2 107,3 10,6 118,0 169,2 PT 0,1 0,0 0,0 0,0 6,3 6,3 0,1 0,1 0,2 6,5 RO 80,6 0,0 0,0 0,0 0,0 80,6 218,5 299,1 299,1 SE 11,5 0,0 0,0 11,3 0,1 11,4 0,1 0,3 0,4 11,9 SI 1,9 0,0 0,0 1,9 1,9 0,0 0,1 0,1 2,0 SK 11,7 0,0 0,0 1,1 0,8 1,9 10,7 0,3 11,0 12,9 UK 180,9 8,8 8,8 161,3 1,9 163,2 10,7 1,3 12,0 184,0 2150,4 406,7 153,0 559,7 1205,8 471,6 1677,4 537,9 217,1 755,0 2992,1 It has to be noted that 2013 figures for financial corrections on Greece and Latvia include adjustments on amounts reported previous year. Financial corrections reported for Greece have been expressed in cumulative figures and total expenditure in After verification with the Member State the ESF contribution has been corrected and decreased from EUR 158,6 million of accepted/decided to EUR 48,8 million. Latvian authorities effected a financial correction as a precautionary measure replying to the draft audit report issued in 2012 by deducting EUR 9,3 million from the payment claim. After the final amount of the financial correction has been agreed with the Commission in 2013, an adjustment to EUR 4,5 million had to be effected. The table on the next page gives the detail on withdrawals, recoveries and pending recoveries reported by Member States. 122

44 DG EMPL Withdraw als EC Share Recoveries EC Share Total Withdraw als EC Share Recoveries EC Share Withdrawals and Recoveries Cumulative reporting at 31/12/2012* Reported for 2012 Cumulative reporting at 31/12/2013 Provisional reporting at 15/03/2014 for 2013 Recoveries EC Share Total Withdraw als EC Share Recoveries EC Share Balgarija , , , , , , , , , ,28 Belgique-België , , , ,79 15, , , , ,31 Ceska Republika 0, , , , , , , , , ,19 Danmark 0, , ,17 0, , ,78 0, , , ,95 Deutschland , , , , , , , , , ,70 Eesti , , , , , , , , , ,64 Ellada ,25 0, , , , ,30 0, ,30 España , , , , , ,68 France ,54 0, , , , ,86 0, ,86 Ireland ,98 0, , ,91 824, , ,89 824, , ,56 Italia , , , , , , , , , ,28 Kypros , , , , , ,02 Latvija , , ,25 0, , , , , , ,40 Lietuva 0, , , , , , , , , ,17 Luxembourg (Grand-Duche) ,82 0, , ,82 0, , ,86 M agyarország , , ,89 0, , , , , ,88 M alta 365,16 0,00 365, , , , , , , ,75 Nederland ,60 0, , , , ,65 0, ,65 Total Withdraw als EC Share Österreich , , , , , , , , , ,65 Polska , , , , , , , , , ,87 Portugal ,24 0, , ,03 0, , ,26 0, ,26 0,00 România 0, , , , , , , , , ,99 Slovenija , , ,72 0, , , , , , ,15 Slovenska Republica , , , , , , , , , ,81 Suomi/Finland , , ,22 540, , , , , , ,26 Sverige , , , , , , , , ,00 United Kingdom , , , , , , , , , , , , , , , , , , ,44 0,00 0,00 0, ,29 Total Pending recoveries reported in 2012 EC share 123

45 H- Follow-up 2012 reservation detailed text per MS Belgium (2 OPs) The Federal programme was already in the reservation The Audit Authority gave a qualified opinion (level 2) in the 2012 Annual control Reports and put forward a number of remaining deficiencies in the management and control system of the Management Authority (KR4 - desk verifications and on the spot controls). Taking into account the limited assurance in conclusion to the follow-up audit of the ACR 2011 and the validated error rate of 6.47%, DG EMPL concluded on a qualified opinion with significant observations and the programme remained in the 2012 reservation. A suspension decision was adopted in June In September 2013, DG EMPL performed a follow-up audit on the effective implementation of the action plan which again concluded in a category 3 assessment. The Brussels programme was put under reservation due to systemic deficiencies at the levels of the MA (KR4 management verifications) and CA/IB (KR3 arrangements for the certification of expenditures to be reliable and soundly based), and due to continued high error rate in addition to the types of operations affected by the systemic errors initially identified (error rate of 8.57%). In October 2013, DG EMPL performed a follow-up audit on the effective implementation of the action plan concerning the management verifications by the MA which concluded in a category 3 assessment. A suspension decision was adopted in December Czech Republic (1 OP) The programme 2007CZ052PO001 was put under reservation on the basis of deficiencies in KR14 (adequate audit of operations) and KR15 (adequate annual control report and audit opinion). This is due to a no-statistical approach, eliminating 88.5% of the population from sampling, used by the AA to establish the error rate (11.51% of the certified expenses were audited). A Commission follow-up audit performed in March 2013 confirmed deficiencies which affect the proper functioning of the system in KR 2 (selection of operations), KR3 (information and guidance to beneficiaries) and KR4 (management verifications). As the CZ authorities did not reply satisfactorily, a suspension procedure is on-going. For the second OP (2007CZ05UPO001), a partial reservation was made on the basis that the level of assurance obtained from the effectiveness of the system for priority axis 4 (Public Administration managed exclusively by one IB) was classified as category 3 (significant impact on 3 key requirements selection procedures, guidance to beneficiaries and management verifications). The proposed measures and financial corrections in the CZ reply have been assessed as insufficient and a suspension decision has been adopted in December France (1 OP) For the national programme, only limited assurance could be obtained for the implementation of the MCS in the PACA region and by the intermediary body FPSPP and suspension decisions have been adopted. Following agreement of corrective measures to be adopted for these two parts of the programme, a follow-up audit should take place in Q to assess the implementation of these measures. Germany (2 OPs) Two reputational reservations were made for the programme 2007DE052PO008 Nordrhein- Westfalen and partially for two actions (representing less than 10%) of the programme 2007DE051PO006 - Thüringen due to deficiencies in KR 4 "management verifications". A fact finding mission in February 2013 in Nordrhein-Westfalen also confirmed that the error rate was unreliable and some inconsistencies in the assessment of system audits (related to KR4). For NRW, two audit missions were performed in 2013 (management verifications and reperformance of the work of the AA) and both assessed in category 2 allowing to lift the interruption procedure. For Thüringen, the implementation of the necessary actions and financial corrections were made. 124

46 Spain (4 OPs) Nine OPs were in reservation of which 4 have been lifted (Murcia, Castilla y Leon, Aragon and Pais Vasco) as for 3 of them final 2012 ACR was received and for Castilla y Leon, following the high error rate, an action plan was implemented by the MA and positively assessed. The 5 other OPs are maintained in reservation and suspension decisions have been adopted for 3 of them (Cataluña, Valenciana and Adaptabilidad partial). The current situation is described in the justification of the 2013 reservation. Ireland (1 OP) This programme suffers from repetitively high value error rates in the ACRs and was put under reservation. Corrective measures have been undertaken by the Irish Authorities and assessed positively by the national Audit Authority. All but one of 12 audit recommendations could be closed and the lifting of pre-suspension letter in order to allow to resume reimbursement of expenditure incurred by FAS/SOLAS is in preparation. The AA has reported a 0% error rate in the ACR2013. This is due to the fact that the Irish Certifying Authority decided to certify only costs incurred under Technical Assistance and Garda Youth Diversion. Activities which typically show low risk and have been free from errors. Italy (4 OPs) 4 out of the 24 Italian programmes are included in the 2012 reservation. The main problems encountered were significant observations in some of the key requirements (KR3 - MA and KR4 - AA), unreliability of the error rate and issues of independence raised by one specific Audit Authority. The reservation has been lifted for Basilicata following positive assessment of the actions put in place and a 5% financial correction and for Sardegna after approval of the revised 2012 ACR. For Bolzano and Abruzzo, the reservation is maintained and suspension procedures on-going. Poland (1 OP) This programme was subject to a partial, reputational reservation following a flash report assessing the region Mazowieckje in category 3 for Priorities 7, 8 and 9. Polish Authorities have withdrawn the expenditure and have presented an improvement plan for the future and corrective measures for the past. Audit evidence have been requested to the AA on the effective implementation of these actions before lifting the suspension procedure. Romania (1 OP Administrative Capacity) The reason for the reservation was a validated error rate of 8.77%. The majority (51%) of irregularities identified during the audit of operations were related to public procurement issues. In May and October 2013, system audits on public procurement took place to check the action plan implemented by the MA and to assess the management verifications on public procurement. The result was a category 2 assessment, which allowed the lifting of the reservation. Slovakia (1 OP) This programme 2007SK05UPO002 (Employment and social inclusion) was subject to a partial reservation as DG EMPL assessed the OP as qualified with significant impact due to significant shortcomings concerning the evaluation of the appropriateness of the budget before awarding grants, the eligibility of costs (sound financial management) and the respect of public procurement rules. A system audit in April 2013 concluded that management verifications need to be improved. A suspension procedure is on-going, waiting for the implementation of the corrective measures and financial corrections for the past agreed. 125

47 UK (3 OPs) The Scottish programme was in reservation due to the high error rates detected. After clarifications about the treatment of anomalous errors, the reservation was lifted. The reservation for the Northern Ireland programme was due to an audit opinion of category 3 combined to a 5% flat rate error rate. Following a system audit carried out in September 2013, the level of assurance was classified in category 2 and the pre-suspension procedure was lifted following the agreement of the MA on a financial correction. The England programme suffered from a category 4 assurance level for the Technical Assistance priority combined with a category 3 assurance level for KR4 of the MA, a high validated error rate (6.23%) and a cumulative residual error rate of 3.04%. A DG EMPL audit in December 2013 noted the evidence of effective improvements of management verifications and a financial correction was agreed allowing for the suspension to be lifted. 126

48 I reservation The table below indicates by Member State the overall assessment of all programmes. Management opinion 2013 by Member States Acceptable assurance with low risk Acceptable assurance with low risk with partial reserve of which reputational Limited assurance with medium risk of which partial of which reputational Limited assurance with high risk of which reputational reasonable AT BE BG CY CZ DE DK EE ES FI FR GR HU IE IT LT LU LV MT NL PL PT RO SE SI SK UK HR ,9% 63,6% 10,2% 18,6% 1,7% 100,0% Total 127

49 The underlying reasoning behind each OP in reservation is provided below: BELGIUM 5 OPs Estimated risk = EUR 21.4 million Wallonia 2007BE051PO001 & 2007BE052PO002 full reservation Reason for limited assurance: Error rate of 8.64% in 2013 ACR, mainly due to ineligible expenditure in operations from one final beneficiary (82% of all ineligible expenditures found) with regard to non-respect of public procurement, as well as an isolated error concerning the use of sectorial funds actions : - A warning letter informing the MA of the error rate detected and on the impossibility to certify expenditures from 2 beneficiaries until confirmation by the AA of correct implementation of the Action Plan (including the necessary financial corrections). - No payment claim containing expenses from these 2 operators should be executed before confirmation by the AA of correct implementation of the Action Plan (including the necessary financial corrections). Federal 2007BE052PO003 reputational reservation Reason for limited assurance: A suspension decision was adopted in June 2013 and follow-up audit on the effective implementation of the Action Plan in September 2013 confirmed that the quality and efficiency of the controls performed by the MA remain insufficient actions : - Further follow-up of the action plan with further financial corrections to address the deficiencies. - Review audit of the AA, with re-performance of sample controls. Brussels Capital 2007BE052PO004 reputational reservation Reason for limited assurance: A Follow-up audit from October 2013 on the implementation of the revised Action Plan confirmed subsisting insufficiencies mainly regarding administrative verifications and audit trail by MA. The cumulative residual error rate is 8,36%, the ACR 2013 error rate is 15,99% (calculated on a limited sample), the recalculated error rate 2013, based on the total sample, is set at 11% actions : - Since the suspension decision was notified to the MS on 18/12/2013, the MS has sent its observations to the Commission including the measures that will be taken to remedy the deficiencies, and the corrections that will be applied. Furthermore the MS requests the Commission to partially lift the suspension on priority 3; this is currently under examination by DG EMPL. - Further assessment of the effective implementation of the MA's action plan will be done on the basis of a follow-up audit carried out by the AA in the 1st semester of 2014 and a follow-up audit by the Commission in the 2 nd semester of 2014, and of a full system audit on the CA by the AA for which the dates are not confirmed yet. Flanders 2007BE052PO005 full reservation Reason for limited assurance: The fact finding mission of DG EMPL Auditors on led to the conclusion that the error rate reported in the ACR by the AA was unreliable. An estimated 10% flat error rate for 2013 has been used by DG EMPL due to the serious deficiencies identified in KR 4 (administrative verifications of the MA) actions : - Action Plan on KR4 adequate administrative verifications to be set up and implemented by the MA. - Action Plan on use of a statistical sampling method for sample audits on operations. - Revise 2013 ACR error rate CZECH REPUBLIC 2 OPs Estimated risk = EUR 0.0 million HRD 2007CZ05UPO001 partial reputational reservation Reason for limited assurance: On the basis of the ongoing suspension procedure (for priority axis 4) this programme is subject of a reservation actions : - Necessary financial corrections should be applied and relevant other measures to remedy the findings of the audit should be taken. 128

50 Praha 2007CZ052PO001 reputational reservation Reason for limited assurance: On the basis of both the ongoing suspension procedure and a high projected error rate of 6.45%, this programme is subject of a reputational reservation, taking into account that no payments have been made to this OP in actions : - Necessary financial corrections should be applied and relevant other measures to remedy the findings of the audit should be taken. GERMANY 2 OPs Estimated risk = EUR 5.9 million Mecklenburg-Vorpommern 2007DE051PO002 full reservation Reason for limited assurance: Final error rate (3.14%) is above the materiality level and the fact-finding mission at the Certifying Authority provided only limited assurance concerning the evaluation of the corrective capacity of the programme and the residual risk of error actions : - Interruption letter sent. - Suspension of the programme based on the results of fact-finding mission by DG EMPL auditors. - System audit of the Certifying Authority by DG EMPL auditors Berlin 2007DE052PO003 full reservation Reason for limited assurance: Despite all efforts to improve the quality of the verifications of the expenditure declarations the results in practice show according to the AA that the management and control systems have not worked efficiently enough in order to prevent, detect and rectify irregularities, nor to claim back wrongly paid amounts. The total error rate of 5.42% is a clear indicator that the system does not function sufficiently well actions : - Warning letter to the authorities of the Land Berlin - Draft pre-suspension letter - Action plan to improve management verifications. SPAIN 11 OPs Estimated risk = EUR 28.3 million Extremadura 2007ES051PO003 partial reservation Reason for limited assurance: The assessment of the ACR2013 and the national audit reports concludes that a part of the OP doesn t comply with the requirements and/or doesn t operate in such a way as to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission, resulting in a partial suspension procedure for the part of the assistance related to (i) Ayudas al empleo local (axis 2 priority theme 66) and (ii) expenditure managed via management entrustments "Entes públicos instrumentales" actions : In the absence of payment claims a warning letter has been sent. Andalucía 2007ES051PO005 full reservation Reason for limited assurance: The systems do not comply with the requirements and did not operate in such a way as to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission. High error rate of 16.06% actions : Pre-suspension letter; Action plan to be implemented. Close follow-up by the Commission services will be ensured Communidad Valenciana 2007ES052PO003 reputational reservation Reason for limited assurance: The systems do not comply with the requirements and did not operate in such a way as to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission, resulting in an error rate of 11.91% actions : Finalise the additional pre-suspension letter. Based on the analysis of the reply and of the further information sent by the Spanish authorities, a decision 129

51 should be taken on the continuation of the suspension decision, taking also due note of the new elements provided in the national audit reports and the forthcoming EMPL audit. The Commission services also insisted on the immediate implementation of simplified cost options. In this respect, proposals have been made for the Agencia Valenciana de Turismo Aragon 2007ES052PO004 full reservation Reason for limited assurance: The systems do not comply with the requirements and do not operate in such a way as to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission, resulting in an error rate of 16.18% actions : Based on the analysis of the reply to the pre-suspension letter, and of the further information sent by the Spanish authorities, a decision should be taken on the continuation of the suspension decision, taking also due note of the new elements provided in the national audit reports. Baleares 2007ES052PO005 full reservation Reason for limited assurance: High error rate, estimated to be 5.81%, that put into question the effectiveness of the measures adopted in the Action Plan and the level of assurance offered by the management and control systems actions : Launch an interruption of the payment deadline submitted on 26/12/2013 and, if necessary, a suspension procedure. Cataluña 2007ES052PO007 reputational reservation Reason for limited assurance: The results of national follow up audits confirm that management and control systems do not comply with requirements and did not operate in such a way as to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission. High error rate of 22.63%. The effective implementation of the action plan is still to be demonstrated. The final error rate for 2012 has not been established. As a result, financial corrections still need to be quantified and implemented for 2011 and 2012 expenditure actions : Follow up responses to suspension decision and the additional pre-suspension letter. Based on the analysis of future replies and information to be sent by the Spanish authorities, in particular with regard to the final error rate for 2012 and all outstanding corrections being applied, a decision should be taken on the continuation of the suspension decision, taking also due note of any new elements provided in national audit reports. Madrid 2007ES052PO008 partial reputational reservation Reason for limited assurance: The systems do not comply with the requirements and did not operate in such a way as to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission for the part of the OP managed by the CB DGESFPERE actions : Based on the analysis of future replies and information to be sent by the Spanish authorities, in particular with regard to all outstanding corrections being applied and the results of the re-performance of 10% of operations, a decision should be taken on the continuation of the suspension decision. La Rioja 2007ES052PO011 reputational reservation Reason for limited assurance: The systems do not comply with the requirements and do not operate in such a way as to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission. Moreover, ACR2013 has been rejected. The estimated error rate is 37.76% 2014 actions : Based on the analysis of future replies and information to be sent by the Spanish authorities, in particular with regard to all outstanding corrections being included in a payment claim to the Commission, a decision should be taken on the continuation of the suspension decision. Adaptabilidad y Empleo 2007ES05UPO001 partial reservation Reason for limited assurance: The total projected error rate for both populations (SPEE and non SPEE) is 4.795%. The limited assurance is based on deficiencies in the SPEE population (centrally managed non-wage labour cost reductions bonificaciones 130

52 based on Royal Decree Law 5/2006, collaborating body Servicio de Ocupación de Catalunya, collaborating body Servicio Andaluz de Empleo) and in the non-spee population (intermediate body Subdirección General de Fomento de la Sociedad de Información) actions : - Clarify the nature of the errors occurred under the operations bonificaciones in the SPEE population and the state of play concerning the IB Subdirección General de Fomento de la Sociedad de Información. - Send additional pre-suspension letter addressing the deficiencies not covered by the suspension decision already in force. Lucha contra la Discriminación 2007ES05UPO002 & Asistencia Técnica 2007ES05UPO003 - partial reservations Reason for limited assurance: The systems of the intermediate bodies Instituto de la Mujer and OATPFE do not comply with the requirements and did not operate in such a way as to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission 2014 actions : Prepare partial interruption letters in respect of the three payment claims, 22, 24 and 25 submitted on 19/12/2013 and 30/12/2013 and, if necessary, a partial suspension procedure for the parts of the OP managed by the intermediate bodies Instituto de la Mujer and OATPFE. FRANCE 1 OP Estimated risk = EUR 6.0 million PO national 2007FR052PO001 partial reservation Reason for limited assurance: FPSPP - shortcomings with key requirements 2, 3 and 5; PACA follow up missions (French authorities) performed but with no concrete conclusions; PLIE high error rates from complementary sample (audited by AA) taken on reintegrated IBs PLIE in 2012 and absence of information on follow up of these error rates actions : Flat correction to all expenditures (already certified and to be certified) affected by irregularities and stricter procedures for new operations. Implementation foreseen first trimester 2014; Audit mission in May in order to audit evidence for improving of management verifications for the PACA region; Partial interruption of the amount of PLIE declared in the latest payment request and corrections expected to mitigate the risks of the high error rates. IRELAND 1 OP Estimated risk = EUR 0.0 million Human Capital Investment 2007IE052PO001 partial reputational reservation Reason for limited assurance: FAS/SOLAS and DES are at category 2 and DES-Youthreach at Category 3. The Management and Control Systems underlying the expenditure the Youthreach activity implemented by the Department for Education and Science (DES) do not provide sufficient assurance and has suffered historically from high error rates. Considering that the latest audit evidence on the effectiveness of the systems is outdated, DG EMPL has taken a prudent approach and put this activity under reservation until audit evidence is available proving the reliability of the systems. The Audit Authority still has to carry out and report on its verification that the DES Youthreach expenditure, certified through the improved management and control system is without material error actions : - Follow up of Audit Authority's activities. ITALY 6 OPs Estimated risk = EUR 26.9 million Campania 2007IT051PO001 full reservation Reason for limited assurance: Risks identified concerning the so-called "amortizzatori sociali" projects, more specifically as regards the time-lag between certification of passive and accompanying active measures. The programme has been put in reservation until the above issues are solved actions : Interruption of 2 payment claims on 04/03/2014 amounting to EUR 40.8 million and EUR 57.9 million. 131

53 PON Istruzione 2007IT051PO007 full reservation Reason for limited assurance: The audits carried out by the external auditors do not guarantee the fulfilment of the criteria set by the international auditing standards; - The quality review assessment of the AA on the work of the external auditors has a limited scope due to the insufficient information received by the external auditors; - The documentation archiving procedures adopted by the AA impede an easy tracking of the audit trail. - Overall, the audit process and the work carried out do not provide sufficient assurance that the management and control system functions effectively actions : The AA will be requested to improve its working methodology in carrying out the audit of operations in order to provide a sufficient level of assurance of the expenditures regularity; The AA will be requested to select and audit a sample of operations from the expenditures declared to the commission up to the 31/12/2012; Abruzzo 2007IT052PO001 partial reputational reservation Reason for limited assurance: the management and control system complied with the applicable regulations except for the Multi Asse projects 2014 actions : Propose financial corrective measures for the projects "Multi Asse". Bolzano 2007IT052PO009 full reservation Reason for limited assurance: Fact finding mission (March 2013) and audit mission (December 2013) which highlighted significant deficiencies and important weaknesses at AA and MA levels. Estimated error rate is 7.11% actions : The draft audit report with a pre-suspension letter will be sent to the Member State, followed by the adoption of a suspension decision. A follow up audit to be carried out during the year. Toscana 2007IT052PO012 full reservation Reason for limited assurance: Several deficiencies such as lacking of clarity on definition, allocation and separation of functions; inadequacy of system audits, of audit operations and of the annual control report and audit opinion actions : A meeting between EMPL's auditors and the Tuscany AA in order to know which measures have been already put in place by the OP. A suspensions procedure is on-going. Sardegna 2007IT052PO016 full reservation Reason for limited assurance: Several deficiencies making the AA audit process not completely reliable. The EC audit showed insufficient coverage in systems audits; the sampling of operations was done with an inappropriate confidence level and the re-performance of the audits of operations demonstrated that many errors were not found by the national auditors, thus leading to an important understatement of the level of risk in the programme actions : The draft audit report with a pre-suspension letter will be sent to the Member State, followed by the adoption of a suspension decision. A follow up audit to be carried out during the year. POLAND 1 OP Estimated risk = EUR 9.7 million Human Capital 2007PL051PO001 partial reservation Reason for limited assurance: Partial reputational reservation was issued for Mazowieckie region (IB2) in 2012 and subsequently lifted. A partial reservation is issued for Ministry of Labour (for the part of projects implemented by PARP) and Ministry of Education where significant weaknesses have been identified in selection process of systemic projects (noncompetitive procedure) actions : A pre-suspension letter was sent in December Necessary financial corrections and take relevant other 132

54 measures to remedy the audit findings will be applied. ROMANIA 1 OP Estimated risk = EUR 0 million Human Resource Development 2007RO051PO001 full reservation Reason for limited assurance: An audit conducted in February 2014 identified the following deficiencies related to compliance regarding audit trail (KR5 of the Managing Authority) and the functioning of IT system (KR6), as well as adequate audit trail and computerised system (KR2 of the Certifying Authority). Critical mass of expenditure related to projects selected and verified under improved procedures will be available for audit at the earliest end May The estimated error rate is 6.81%. As 25% flat rate has been applied to all 2013 payments, the financial risk is already covered actions : No payment to be made until the results of the audit to be conducted in May/June The Audit on management systems will be pursued when the reconciliation has been completed (May/June 2014). SLOVAKIA 2 OPs Estimated risk = EUR 0.9 million Education 2007SK05UPO001 partial reservation Reason for limited assurance: The deficiencies affecting the proper functioning of the system are linked to key requirement 4: the first-level management verifications of two intermediate bodies. The error rate for this OP originally reported by the AA in its ACR of 1.59% has been revised by DG EMPL to 3%. This is due to a different interpretation of the treatment of suspected fraud cases in the calculation of the error rate. However, despite this revision, the overall cumulative error rate for this OP remains below 2 % and therefore a full reservation is not required actions : to apply necessary financial corrections and take relevant other measures to remedy the audit findings Employment and Social Inclusion 2007SK05UPO002 partial reputational reservation Reason for limited assurance: On the basis of the suspension decision in force, this programme is subject to a partial reservation. The Commission does not have reasonable assurance that the re-verification of the demand driven projects carried out by the Managing Authority was compliant with the requirements of the EU legislation. The error rate for this OP originally reported by the AA in its ACR of 1.65% has been revised by DG EMPL to 4.66%. This is due to a different interpretation of the treatment of suspected fraud cases in the calculation of the error rate. However, despite this revision, the overall cumulative error rate for this OP remains below 2 % and therefore a full reservation is not required actions : - To apply necessary financial corrections and take relevant other measures to remedy the audit findings. UNITED KINGDOM 4 OPs Estimated risk = EUR 24.0 million West Wales and the Valleys 2007UK051PO002 & East Wales 2007UK052PO001 full reservations Reason for limited assurance: No reliance on the error rate reported by the Audit Authority actions : - To apply necessary financial corrections Lowlands and Uplands of Scotland 2007UK052PO002 full reservation Reason for limited assurance: Opinion of the Audit Authority is not consistent with estimation of projected error rates (10.59%), which substantially exceed the materiality threshold actions : The AA should provide an analysis of the scale of the problems with audit trail referred to in the ACR and their financial impact. The AA should also confirm on the basis of verifications that measures implemented to address weaknesses in management verifications and treatment of irregularities were adequate. 133

55 Northern Ireland 2007UK052PO003 partial reservation Reason for limited assurance: Following the Commission request, an update ACR was provided by the AA on 14/03. The projected error rate for Priority 1 remains high (5,32%) and is combined with an occurrence of 20/37 projects affected by public procurement issues. The AA considers this to be a recurring systemic issue. A partial reservation on Priority 1 is therefore formulated due to the recurrent nature and the occurrence rate involved in this finding, combined with the high error rate actions : The revised ACR submitted on 14/03 will be thoroughly analysed by DG EMPL. TOTAL 36 OPs Estimated risk = EUR million 2.3. Assessment audit results DAS 2012 Typology of errors and recommendations Actions taken by the Commission Typology of errors Number of findings Requested financial corrections Requested corrective measures (Total cost - EUR) Ineligibility 1 (FR) 5 (ES) Member State should implement financial corrections. Improvement of management verification needed. Ineligible costs 2 (BE) 4 (RO) (EC) Commission to implement financial corrections. Member State should implement financial corrections. Improvement of Accuracy errors 1 (PT) 109 management verification needed. 1 (PL) Personnel costs 1(DE) overstated 2 (EC) Error in allocation keys 1 (BE) N.A. 1 (SK) Ineligible participants 1 (ES) (IT) Selection of experts not fulfilling eligibility 1 (IT) criteria Incorrect allocation of overheads State aid 1 (FR) (ES) Member State should implement financial corrections. Improvement of management verification needed. Commission to implement financial corrections. Member State should improve check list and controls on allocation keys per project for coordinators and operators. Member State should implement financial corrections. Improvement of management verification where needed. Member State should implement financial corrections. Member State should implement financial corrections. Improvement of management verification needed. Possibility to simplify declaration of costs by using SCOs should be examined. 1 (PT) 850 Improvement of management verification on the maximum eligible under State aid rules. Improvement of management verification on State aid rules needed. Public procurement issues Infringement of EU/national rules on contract award publicity Incorrect or lack of public procurement procedure 1(UK) N.A. Member State should improve the documentation of the publication of the contract award notice and of the date of the publication. 1 (FR) The decision making process was not documented in a transparent 1 (EE) way; therefore guidance should be improved by the MA. 3 (IT) (DE) 1 (RO) 134

56 Conflict of interest 1 (LT) Financial corrections already implemented by Member States. Non compliance with Public procurement requirements 1(RO) Member State should implement financial corrections. Management and control systems 1 (PT) N.A. State aid 1 (DE) N.A. Improvement of management verification on state aid rules needed. Procedure for de-minimis notification and registration not followed; Improvement of management verification on state aid rules needed. 4(RO) N.A. Member State already took corrective actions to improve project Weaknesses in project 12 (GR) N.A. selection procedures. The Member State already took corrective actions regarding the lack of selection procedure notification of contract award to the Commission. It will be invited to adopt corrective actions on the compliance of public procurement procedures with applicable rules. Delayed payment to beneficiary Claiming wage earlier than it is paid to the subsidised person 2 (IT) N.A. 2(NL) N.A. 1 (LT) N.A. The Member State should make sure that the beneficiaries receive the funds as soon as possible, as foreseen by art.80 of Council Reg. 1083/2006. The Court considers 3 months as a reasonable maximum delay. Member State committed itself to enhance its control on the delay of payment to beneficiaries Member State has already taken the corrective measures. The employers should provide documents proving that wage payments have been made. Audit trail issues Lack of separate accounting system Conservation of documents Lack of supporting document Insufficient control on ESF funded course 1(PT) N.A. Beneficiary should keep a separate accounting system or indicate a 3(FR) N.A. reference to the project for each transaction in the accounting records. 2(ES) N.A. Improvement of management verification needed. 1(IT) N.A. 1 (ES) N.A. Programme closed. No follow up is possible for non-financial errors. 1(DE) N.A. Correct allocation of costs not adequately documented. 1(RO) N.A. Member States should adopt corrective measures 1(UK) N.A. Beneficiary should adopt corrective measures to improve the 1(NL) N.A. documentation of costs. Member State to implement new procedure for the declaration of costs for technical assistance. 1(NL) N.A. Member State already started updating its procedures and check lists in order to improve the control on the maximum worked hours. Other Sound financial management Publicity requirements 4 (RO) N.A. Member State should ensure that personnel costs are reasonable, in line with the principle of sound financial management. 1 (IT) N.A. The beneficiary should adopt corrective measures to respect publicity rules established in the ESF implementing regulation. Improvement of management verification needed. 135

57 Follow up of main DAS cases Romania OP Human Resources Development Romania accounts for 40% of the global error rate for Chapter 6 for the DAS The ECA identified 15 errors (including three "known errors") in five out of the eight audited projects in Romania: Ineligible beneficiary and ineligible purchase of a building (100% error); Ineligible expenditure in different projects (89,80%, 1,73% and 0,57% errors and one "known error"); Non-compliance with public procurement requirements (17,80%); Error on sound financial management due to exaggerated salaries (4 non-quantifiable errors); Weaknesses in the selection of projects (two non-quantifiable errors and two "known errors"; Lack of supporting documentation (non-quantifiable errors). DG EMPL conducted a cross-checking exercise between the Court's findings and the results of its own audit work, done before the Court's audit. The findings corresponded. The Commission therefore considered that those findings fulfilled the two conditions set by the Court to be treated as "known errors : The errors were detected and the financial correction initiated before the announcement of the Court's visit. The financial correction had been implemented in the DAS budgetary year (2012). The financial correction had been deducted from a payment claim presented to the Commission within the DAS year audited and paid by the Commission in 2012, so that the detected error no longer affected the 2012 EU accounts. IT OP Calabria: Weaknesses concerning public procurement procedure in schools and first level checks were identified in the OP Calabria. Some of the projects were part of a claim reimbursed after the Commission resumed payments to the OP following an interruption imposed by DG EMPL. In 6.25 the Court indicates this as an example of resuming payments to problematic OPs that have been subject to interruptions/suspensions with the risk that the claims still include projects with ineligible expenditure. The Italian case is a clear example of gold-plating since some of the requirements of the public tender that were not respected apply only to ESF projects and go beyond European requirements and those applied to non-esf projects. As a precautionary measure the Commission interrupted again the payments to this OP and requested the national authorities to apply appropriate corrective measures. Payments were resumed in November An action plan aiming at the improvement of first level checks was adopted and implemented. Corrections were carried out on all operations potentially affected by errors concerning public procurement in schools. ES OP Valencia : Errors detected after closure of the OP. Non respect of eligibility condition for employment aids granted to Spanish companies. An eligibility condition for participants was that the employers had to maintain the newly employed staff for a minimum period of three or, in some cases, up to five years. This condition was not respected for 12 persons. The Commission had already recommended limiting this period to maximum two years, especially in this crisis period. The Spanish case is another clear example of gold-plating since the requirements imposed to the Spanish companies were going beyond the ESF regulation. At 6.27 the ECA uses this example to conclude that unreliable closure documentation may lead to irregular expenditure being finally reimbursed. The Commission acknowledges this risk, but emphasizes that the closure process is still undergoing. The Commission has adopted a particularly prudent approach towards closure and has put in place all necessary measures to avoid this risk, including significant financial corrections and closure audits. Furthermore, the Commission can implement financial corrections even after closure, if new facts, as those identified by the Court, arise. 136

58 Table on the follow-up of previous DAS cases MS and OP concerned N of open rec FC to be implemented DAS 2007 DAS 2008 DAS 2009 DAS 2010 DAS 2011 CLOSED CLOSED Poland 2007PL051PO001 1 (95% closed) CLOSED Italy 2007IT052PO Poland 2007PL051PO France 2007FR052PO (87 % closed) Performance audits by the court in 2013 Special report "Has the European Globalisation Adjustment Fund (EGF) delivered EU added value in reintegrating redundant workers?" The report was published on 10 June The Court raises awareness of the need for showing EU solidarity towards workers affected by redundancies resulting from changes in world trade patterns. However, it expresses the doubt that all the features of the current EGF mechanism are the most appropriate to deliver specific support with EU added value to redundant workers. ECA recommendations "In order to improve the quality of the information on the achievements of the different cases and on the effectiveness of measures supporting redundant workers, the Member States and the Commission should take the necessary steps to ensure the availability of upto-date and reliable data in order to monitor the achievement of objectives, as well as to compare the outcome of the various measures." "The European Parliament, the Council and the Commission should consider limiting EU funding to measures likely to provide EU added value, rather than funding already existing national workers income support schemes." "The European Parliament, the Council and the Commission should consider, as an alternative to the EGF scheme, the possibility of adapting the ESF framework in order to support more rapidly workers affected by mass redundancies." Commission's replies to the recommendations The Commission shares the objectives covered by recommendations 1 and 2; indeed, it has already taken action to proceed in these directions. The Commission has, over the past 6 years, only approved EGF cases likely to provide added value. Furthermore, the provisions of the new EGF Regulation also introduce a capping of 50 % of the total eligible costs of personalised services as a ceiling for allowances. This provision should further improve the efficiency and European added value of EGF measures and ensure a level playing field between Member States. The Court's recommendation 3 however is not acceptable to the Commission. There has been a 137

59 clear decision to keep the EGF also in the future outside the ESF context and outside the Multiannual Financial Framework. This decision is well justified, mainly by the unpredictable nature of expenditure under the EGF that requires financial flexibility. Furthermore, the decision whether to apply for ESF or EGF funding is in anyway made at Member State level (on the condition that the ESF operational programme agreed with the Commission is compatible with such contemplated ESF support). ECA special report "Taking stock of Single Audit and the Commission's reliance on the work of national audit authorities in Cohesion" This special report relates to the assurance building process of the Commission. The report was published on 18 December The Court analysed the extent to which the Commission can rely on the work of national Audit Authorities in Cohesion and the way it implements the "single audit" model (as provided under Article 73 of Council Regulation n 1083/2006). While acknowledging that a better system for auditing Cohesion spending for programming period has been put in place, the Court identified a number of weaknesses, such as the risk of incomplete or incorrect information reported by the Member States which may affect the overall reliability of the Commission assurance building process. Moreover, the Court points out the cost of control (between 110 and 130 million euros for the Audit Authorities only) and recalls that appropriate balance should be found between the cost of control and the benefits of the checks (in limiting the risk of loss and irregularity to an acceptable level). At the same time, the Court notes that the granting of the "Single audit" Article 73 status (implying a reduction of the Commission audits in the Member State concerned) is very limited in use due to the extremely cautious Commission policy. The number of OPs concerned represents 16% of the total budget in Cohesion only (5% of ESF budget). However, the Court still considered in its report that 15 OPs (among which 3 ESF OPs accounting for only 1% of ESF global allocations) should not have been granted article 73 for various technical reasons and hence that the Commission should be even stricter in its approach. Main ECA recommendations and Commission replies The Court concluded that the Commission should ensure that its calculation of the "residual error rate" is not under-stated. It should strengthen its verifications of the accuracy and reliability of the error rates reported by Audit Authorities and of the Member States' information on financial corrections before using it for its own assurance process. In its reply the Commission underlined that it considered the recommendation implemented. It has a thorough verification in place, including on-the-spot fact-finding missions, in order to ensure the accuracy and the reliability of the error rates reported by national audit authorities. When it cannot validate or recalculate error rates, the Commission estimates the level of risk by using flat rate amounts ( %) instead of the unreliable reported error rates for its assurance process. The use of additional tools, such as the cumulative residual risk, has allowed the Commission to consider additional reservations in the annual activity reports. The Court concluded that the Commission should introduce for programming period a system of net financial corrections for those OPs whose Audit Authorities repeatedly under-report problems. With the adoption of the new set of regulation, this recommendation is indeed already implemented. Moreover, a communication on net financial corrections has been adopted by the Commission on 13/12/2013. The Court concluded that the Commission should apply in all cases robust, consistent and transparent criteria when granting "single audit" status to OPs. This recommendation is indeed already implemented. More generally, in its reply the Commission considered that by the end of 2013 all requirements were fulfilled for the 61 programmes audited by the Court. The Court concluded that the Commission should take appropriate measures so that Audit Authorities can draw on a stable and binding methodological framework. Further improvements are necessary regarding the disclosure of information in the Annual 138

60 control report, the scope and level of detail of the checks carried out for audits of operations and the follow-up of audit findings. In its reply the Commission agreed with this recommendation. Secondary legislation is currently being adopted by the Commission as well as guidance provided to Member States which will ensure a stable methodological framework for the work of the audit authorities, building on the accumulated experience of the programming period. The Court concluded that the Commission should propose cost-sharing arrangements between Member States and the Commission in relation to the "costs of control" incurred in Cohesion based on an updated evaluation of the actual costs incurred by Member States. In its reply the Commission underlined that it considered the recommendation already implemented in the 2011 Impact Assessment for the Commission's legislative proposals for the programming period. It further notes that under shared management and in respect of the principle of subsidiarity, the decision to allocate technical assistance to the different cost categories is taken by the Member States. Special Report "2012 report on the follow-up of the European Court of Auditors' special reports" In November 2013, the Commission received from the Court of Auditors a positive draft report on the "follow-up of the ECA follow-up reports". It recognises that the Commission adequately follows up the audit recommendations made by the Court in its special reports. The review of a sample of recommendations thus showed that the Commission has implemented 81 % of the Court s recommendations, either fully or in most respects, which has contributed towards improving the financial management in a number of areas of the EU budget The report also concludes that the Commission has proper guidelines and procedures in place concerning its follow-up activities. DG EMPL was chef de file for Annex VI of the Report concerning vocational training actions for women and provided its comments. It also reviewed Annex III on the Special Report on Food Aid for deprived persons for which DG AGRI was chef de file. DG EMPL's follow-up on Special Report concerning vocational training actions for women In Annex VI of the Report, the Court analysed whether vocational training actions for women co-financed by the European Social Fund during the programme period were appropriately selected and adequately monitored. The Commission implemented one recommendation from Special Report 17/2009 concerned vocational training actions for women co-financed by the ESF. ECA concluded that its recommendation 2 (on the project selection procedure) was implemented in most respects and that its recommendations 1 (on the analysis of labour market conditions) and 3 (on the appropriate and feasible indicators) were implemented in some respects. In its replies to the Court, the Commission states that recommendations 1 and 3 are implemented in some respects because the provisions for the future programming period are still under adoption at the time of this report. Nevertheless, through its proposals for , the Commission has taken concrete action to fully deliver on these recommendations. The recommendations will be implemented under the new legislative framework. The Special Report was published on 4 March Special Report "Are tools in place to monitor the effectiveness of European Social Fund spending on older workers?" The report was published in the end of In the course of 2013 the report was presented to the EP and the Council. The Council adopted conclusions on this Special report and the CONT committee of the EP adopted a working document prepared by MEP Derek Vaughan. In both cases they endorsed most of ECA's recommendations, but also recognised that most 139

61 of them, especially on monitoring and measuring performance of the ESF spending, were addressed by the new regulation on Structural Funds The CONT working document will be integrated in the report of the EP on the Special Reports of the Court attached to the discharge resolution on budget execution The EP is also currently adopting an own initiative report on this subject that will reiterate the SR's recommendations. Special Report in preparation: "Have EU microfinance initiatives been effective and efficient?" In December 2013, ECA adopted an Audit Planning Memorandum on Microfinance. The goal of microfinance is to give financially and socially excluded people the opportunity to become micro-entrepreneurs, namely through micro-credit, credit guarantees and grants. The audit scope includes ESF grants and financial engineering instruments that are made available to assist potential micro-entrepreneurs, the European PROGRESS Microfinance Facility (EPMF) that gives additional financial capital for microfinance institutions (MFIs) to enlarge their operational field and JASMINE, an instrument managed by DG REGIO that allows selected MFIs to receive technical assistance. The Court's auditors have carried out visits on the spot in five Member States and also at the Commission and the European Investment Fund (missions scheduled from December 2013 until April 2014). Additionally, a survey covering the non-audited Member States is addressed to 18 Managing Authorities regarding a selection of operational programmes containing actions for the support of self-employment and business start-ups. Special Report in preparation on Youth Unemployment The Court is currently preparing a preliminary study on youth employment. The audit has been confirmed during a meeting between the Court's reporting member Ms Ivanova and Commissioner Andor in January However the audit scope is still not fully defined. The audit will be launched in spring Several EMPL initiatives will be covered in particular the Youth Action Teams established back in 2012 and the recent Youth Guarantee/Youth Employment initiative. Special Report in preparation on Public Procurement In the course of 2013 the ECA carried out a Preliminary Study on Public Procurement in Structural Funds. The launch of the Special Report has been approved by the Court's chamber. The audit planning memorandum defining the audit scope is expected soon, together with the official notification on the kick-off of the audit. 140

62 ANNEX 8: Extracts from the outline for a single audit strategy for the ESI funds Extracts from the outline for a single audit strategy for the European Regional Development Fund (ERDF), European Social Fund (ESF), Cohesion Fund (CF) and European Maritime Fisheries Fund (EMFF) Programming period and joint audit plan mid INTRODUCTION A Single Audit Strategy has been prepared jointly by the three Directorates-General responsible for the Funds (hereafter "the DGs"), namely the Directorate Generals for Regional and Urban Policy (DG REGIO), Employment, Social Affairs and Inclusion (DG EMPL), and Maritime Affairs and Fisheries (DG MARE). The strategy defines the main audit objectives, the risks identified and the audit actions to be undertaken to address these risks, setting out a single audit framework to be applied by the three DGs (desk and on-the-spot audit work) over the overall programming period. A concrete audit plan for on-the-spot audits is set out on a rolling basis for 18 months (2104-mid 2015 for the first time). The audit plan is reviewed every year based on an updated risk assessment. Revision of the audit strategy is in principle foreseen every three years or earlier if new strategic orientations are needed or identified. As indicated in the Commission's Communication on the application of net financial corrections in the programming period , the Funds audit strategy for this period needs to reflect the changes required to the Commission's audit work and approach, namely in view of the introduction of the new provision on annual reporting by the Member State and on net financial corrections. The same Communication also refers to other new features of the regulatory framework, which will impact the audit approach of the Commission: introduction of the accounting year and request for annual accounts for each programme where legality and regularity of underlying expenditure is confirmed; retention of 10% from EU interim payments during the year and until programme accounts are accepted, to cover the risk that not all expenditure declared during the accounting year is fully legal and regular until all controls have been carried out by the programme authorities; submission by the programme authorities by 15 February each year, starting in 2016, of five documents that underpin the Member State s assurance that all expenditure included in the programme accounts is legal and regular. This assurance package includes 1) the certified accounts; 2) the management declaration and 3) annual summary of final results from audits and verifications carried out in the year; 4) the audit opinion on the accounts, on the functioning of systems and on the legality and regularity of expenditure and 5) the annual control report. Based on their assessment of the assurance to be drawn from these documents, the DGs Audit Directorates will assess the risks to the effective functioning of systems and legality and regularity and, as a result, will establish their audit plan determining the programmes selected for risk-based, targeted audits. The possibility of having management and control systems that remain the same as in programming period is a factor to be considered when selecting the programmes to be audited in the period Similarly the same audit authority as in the programming period may be designated and therefore can build on its current experience and expertise to audit the new programmes. The Commission s assessment of the reliability it places today on the concerned audit authority is another factor to take into account. 9 COM(2013)934 final 141

63 2. AUDIT OBJECTIVES AND RISK ASSESSMENT 2.1. Audit objectives The overall objectives of the activity of the audit units in the DGs are to seek reasonable assurance that the management and control systems established and implemented by Member States (and beneficiary countries in the case of ETC programmes) i) comply with requirements of the relevant EU Regulations and ii) are functioning effectively so as to prevent and detect errors and irregularities and fraud and assure the legality and regularity of the expenditure declared to the Commission. The assurance is based on a cascade assurance system, which is inherent in the shared management mode. The overall assurance process for the European Structural and Investment (ESI) Funds under shared management with the Member States is built on a control structure following the single audit concept (Article 148 ( 3 and 4) of the CPR), whereby the European level of control (the Commission) may rely on the work of previous controls performed by other bodies (programme audit authorities). As in the past, the Commission's assurance will be built-up each year on, based on the basis of the assurance package provided each year by 15 February by the Member State for the annual accounts and for each programme, after an initial assessment of the designation process (for the ERDF/CF and/or ESF programmes above 250 million euro / EMFF programmes above 100 million euro considered more risky). The Audit Directorates contribute to the assurance by means of audit opinions on the national programmes and systems, which are disclosed each year in the Directorates Generals' Annual Activity Reports. In order to mitigate the main risks to the legality and regularity of the expenditure claimed by the Member States, the riskiest programmes and Member States will be targeted in under this Single Audit Strategy through the audit enquiries outlined in sections 3.1, 3.2 and 3.3 below of this strategy. However it is also noted that, the regulatory timeframe for submission of the assurance package submitted by the Member States from 2016 onwards implies a culture change in relation to the Commission audit cycle compared to previous programming periods. Strict deadlines for drafting audit reports, and where necessary interruption letters and for concluding the contradictory processes on net financial corrections, are required, as mentioned in section Identified Risks The management of ESI Funds carries an inherent risk since they are delivered by a multiplicity of organisations, systems and beneficiaries, and involve very large numbers of diverse operations. The main risk in relation to financial management is that the Commission would reimburse irregular expenditure declared by the Member State or beneficiary country not appropriately detected and timely corrected by management and control systems before submitting the programme annual accounts. The risk is therefore that the Commission would not ensure proper execution of the EU budget through an effective supervision over the functioning of the systems set-up by the Member States. The integrated, multifund approach for programmes and combined with the possibility of co-funding on operations with other EU programmes imply additional risks from an audit perspective (e.g. risk of double financing for a single operation). The Single strategy therefore identifies various risks, as for example: - complexity and a risk of misinterpretation of eligibility rules for expenditure exists, in particular where the possibility to use simplified cost options offered under the CPR is not implemented; - lack of compliance with EU and national public procurement rules, with State aid rules, with specific and somehow complex rules linked to the management and control of financial engineering instruments, or with eligibility conditions specified in the EU Regulations or the Operational Programmes; - the move to e-cohesion and the dematerialisation of supporting documents will in the medium term enhance the audit trail and facilitate the audit and verification work for all actors; but the required change in the control approach may, in the first year, mean an increased risk of nondetection of errors; - exposure to the risk of fraud and corruption, without both Commission and national audit services being able to identify it it in order to report to the competent investigation authorities; 142

64 - risk of competing priorities in implementing the operational programmes between legality and regularity, through timely verifications and withdrawals of expenditure found to be irregular in view of the annual accounts, against absorption and the achievements of targets and objectives set for the programme under the strategic framework and partnership agreements; - in that regard, the shift of the focus of programme implementation under the programming period towards performance implies a risk that reported outputs and results are incorrect or inflated due to deficiencies in the quality and reliability of the monitoring system or of any of the data relating to indicators, thus leading to suspension of payments. Main mitigating actions: In general, systemic risk is minimized and mitigated by preventive actions, including by the implementation of a sound audit strategy, which takes account of and provides a basis for the management of the serious deficiencies and risks identified, for the application of corrective measures and systemic improvements that should lead in its turn to a reduction of errors. The Commission and Member States can also capitalise on the audit work, expertise and assurance obtained during implementation of the programming period, particularly in cases where the same systems or the same authorities remain in functioning or the same authorities remain in place. At this early stage of the programming period, the Commission risk assessment is focused on the designation process and it will be reviewed annually from 2016 onwards, taking into account the audit work done by the audit authorities and the outcome of the systems audits performed by the DGs. Commission mitigating actions will also include preventive measures such as administrative capacity-building actions with all programme authorities (guidance and training), in particular to ensure the implementation of a stable and harmonised audit framework respecting high quality standards for audit authorities. 3. AUDIT ACTIVITY PLANNED IN The resource allocation for the audit activities of the DGs has been established according to the priorities defined through the risk assessment undertaken in the audit enquiries, taking into account the need to share resources between different audit objectives, desk and on-the-spot activities and programming periods. The audit resources available need to be allocated to the audit strategy of both programming periods. For programmes, focus will be in the first years of implementation on the designation process and will need to be adjusted to the situation of adopted programmes during Designation process: Commission's desk review and on-the-spot audits For the programming period, all programme authorities and intermediate bodies should be designated at national level under national arrangements and procedures. This designation procedure, for its form and content, is let to each Member State. However the Member States should notify the Commission of the date and form of the designations for the managing authorities and, where applicable, certifying authorities. For these authorities only, designation will be based on a system description and audit report and opinion, the form and content of which is foreseen in the secondary legislation. The Commission will be able to request, within one month after the notification of the designation and based on its risk assessment, a review of the designation packages process for programmes with an ERDF/CF/ESF contribution of over EUR 250 million (for EMFF, this threshold is EUR 100 million). For such programmes above the regulatory thresholds, the Commission can in addition be asked by Member States to review the designation process if significant changes were introduced in management and control systems compared to the previous programming period. The DGs have developed a single risk assessment model and audit approach that are applicable for the purpose of multi-fund as well as mono-fund programmes. This risk-assessment is based on, inter alia, the following main criteria: level of support from the Funds; reliability of the Independent Audit Body (IAB); the IAB is an audit authority for which Article 73 of Regulation (EC) NO 1083/2006 related to the single audit principle foreseen in the regulatory 143

65 framework has been granted; extent of changes made to the system/structure in relation to period; extent of delegation of functions to Intermediate Bodies (IBs) by the managing (MA) or certifying (CA) authorities; existence of bodies (MA/CA or IBs) implementing the programme subject to interruptions/suspensions in the period. The Commission assessment has to be concluded within two months in case of voluntary review of the designation process, or three months in case of request by the Member State. The Commission has already provided draft models for the system description, audit report and audit opinion on the designation to Member States and discussed them in several meetings with Member States experts between July and December The implementing regulation will contain formal templates to be used by Member States. A comprehensive guidance note on the designation process and work expected from the independent audit body (IAB), including a detailed check list to be used by IABs and the Commission, has been discussed with audit authorities in January and March This guidance will be formally submitted to the new committees for the Funds for approval, once the implementing regulation is available. The Commission s audit work for the designation process will entail a desk review of the designation package (system description, audit report, independent audit opinion) for programmes selected using the Commission s risk assessment. This will include a conformity check and assessment of the content based on the joint checklist. For some programmes, this desk-review may require additional information or clarifications to be obtained through targeted on the spot designation audits to complement the information gathered and analysed by the Commission and to help drawing conclusions on the designation process. Based on information available in March 2014, the DGs have carried out a first risk-assessment based on the joint model to identify possible Member States / programmes that will possibly be subject to the review of the designation process. Joint EMPL/REGIO missions are already scheduled for some Member States. The Single Strategy contains the results of the risk assessment and audit plan for 2014-mid Depending on the path of programmes adoption in the course of 2014 and 2015, the DGs will review and update their risk assessment and priorities. This process will be reviewed regularly during Early preventive system audits Since the regulatory framework foresees that the Commission has to process payment claims as soon as programme authorities are designated, the Commission will carry out on-the-spot preventive system audits focusing on the early functioning of the management and control systems, in order to verify if risks identified in the designation review process materialize into serious deficiencies. These audits will be carried out during the 2nd semester of 2014 and 1st semester of 2015 by single audit teams covering all Funds concerned under the audited programme. These early system audits will therefore have a preventive role in the detection and correction of system deficiencies as they will allow the Commission to implement legal tools such as payment interruptions and suspensions if needed. The "preventive system audits" will be primarily based on tests of controls on a selection of key requirements considered more risky at the level of programme authorities (plus where relevant the most risky IBs). These tests of controls will be complemented by an audit of a sample of 8 to 10 transactions (e.g. payment claims submitted by the Managing Authority to the Certifying Authority). The DGs will also assess the audit strategies prepared by the audit authorities for the programmes selected for desk review and/or on the spot audits. The early review of such documents is clearly relevant to the Commission assurance process. By doing this early review and monitoring of audit strategies in cooperation with the audit authorities throughout the programming period, the coordination of audit activity is considerably improved in the framework of the single audit concept Commission assessment of the annual assurance package to be received from the programme authorities each year as from 2016 As from 15 February 2016 (or 1st March in exceptional cases and on request) the Commission will receive for each programme the "assurance package" (i.e. the management declaration and the annual summary drafted and signed by the managing authority, the accounts prepared and certified by the certifying authority, the annual control report and the audit opinion drafted and signed by the audit authority). The assurance package therefore contributes to the Commission s 144

66 process for its acceptance of the programme accounts by 31 May of the same year, and its assurance on legality and regularity of the expenditure certified in the accounts for the purpose of the annual activity report. There is no regulatory deadline for this process, but the requirement for the availability of documents and audit evidence is a maximum of three years from 31 December following the submission of the accounts in which the operation is included (if total expenditure is less than EUR 1 million) or two years for expenditure related to completed operations (for operations above EUR 1 million). This constitutes the time limit for audit activities in relation to expenditure included in the accounts. The DGs' audit assessment will be based on desk review of the documents submitted by the Member State, focusing on the conformity check of the audit opinion and the control report and verification/validation of all available information that could question the reliability of the audit opinion expressed by the audit authority. This will constitue the basis of the acceptance of the accounts by the Commission and for the assessment of the residual risk to legality and regularity in view of the assurance process. Such desk review work will be complemented by on-the-spot audits of different various nature, such as: - limited reviews of the accounts (with particular emphasis on the part relating to withdrawals and recoveries), - review of the audit authorities work (i.e. re-performance of systems audits; audits of operations at the level of beneficiaries; limited reviews such as fact-finding audits), - risk-based audits for the programmes/risk areas not sufficiently covered by the AA audit authorities or for which insufficient assurance has been obtained through the desk work (applying the "bridging the assurance gap" concept, used already in the period ). The programmes to be covered by these audits will be selected based on a risk assessment to be concluded by the DGs by end April each year, considering, among other factors, the results of the desk review above-mentioned and the assessment of the remaining risks in the expenditure of the accounting year under analysis. The main objective of these audits will be to confirm the legality and regularity of expenditure certified in the accounts for the reference year as much as possible before the submission of the assurance package for the subsequent accounting year. For 2016, the risk assessment will be mostly based on the results drawn from the DGs' designation audits. Priorities will be set for legality and regularity audits to be carried out on-the-spot, in particular for programmes with high risk scoring and a potential material impact on the Commission payments in the year (above 2%). Legality and regularity audits will be carried out as from May each year in order to rapidly launch any financial correction procedure if necessary, while ensuring high quality standards and ensuring proper adversarial process with the concerned Member State. All required audits on the basis of the risk assessment and taking into account the audit capacity of the DGs will in principle be completed within the calendar year. The scope of on-the-spot audits will cover the management and control system, authorities and intermediate bodies concerned by the identified risk as well as re-performance of audits of operations carried out by the audit authority under its representative sample, for a number of operations at beneficiary level (including through re-performance of audits performed by the audit authority). This will allow the Commission to substantiate its audit conclusions and confirm or not the reliability to be placed in the audit results. The scope of such audits can also be expanded to expenditure included in previous accounts with regard to the risks identified, if necessary, within the regulatory limits of the period for keeping documents available, after the acceptance of the accounts by the Commission. When the Commission concludes that, after its desk review and/or on-the-spot audits, there are serious deficiencies in the management and control system which were neither identified nor reported by the Member State, and for which no appropriate remedial measures were taken, the Commission will apply net financial corrections to the concerned programmes or part of programmes. The DGs will aim at submitting an interruption letter and draft audit report in time to ensure that the deficiencies are solved or mitigated to an acceptable level before the submission of the next assurance package, and all the quantifiable errors have been corrected in a timely fashion and reflected in the next accounts, following a swift contradictory procedure with the Member State. This will require important changes to the DGs' audit cycle compared to 145

67 the previous programming periods Thematic audits and Capacity-building activities The Single Audit strategy also foresees possible thematic audits to be carried out during the programming period, covering in particular areas identified as risky: financial instruments, IT systems, recoveries and withdrawals, implementation of public procurement procedures or State aid. As from the designation process, emphasis will be given to ensure that systems are in place to report reliable performance data (output indicators) as from the first reporting year (2016). For that purpose audit authorities are required under the secondary legislation to carry out early system audits on reported performance indicators and on the IT systems in place. The Commission will complete such audits on performance data in to ensure reliance of the data reported in the first annual implementation reports due by June Capacity-building activities aim at reinforcing and increasing the capacity of the programmes authorities to carry out their respective tasks foreseen under the regulations. Foreseen actions are described in the single strategy and include, for example: the organisation of annual bilateral control coordination meetings, annual multi-lateral technical meetings and the annual "Homologues group" meeting where specific audit issues are debated; training actions on the new requirements; Commission guidance notes for audit authorities ensuring a shared and harmonised framework for carrying out the audit functions throughout Europe and programmes (including an ambitious plan to deliver the most important guidance to audit authorities already in 2014 on the following issues: designation process, audit strategy, methodology for system assessment (discussed in January and March 2014); management verifications (discussed in march 2014); annual control reports, audit of accounts and financial corrections (to be discussed in September 2014); and finally management declaration and annual summary (scheduled for the end of 2014). 4. CONCLUSION AND REVISION OF THE SINGLE AUDIT STRATEGY This strategic outline for a single audit strategy for the DGs in charge of the ERDF, Cohesion Fund, ESF and EMFF for the upcoming programming period is based on the new regulatory framework in place and will need to be updated and further detailed taking into account the critical feedback from its first years of implementation, from the designation process ( ) and from the first, preventive system audits based on early risk-assessments of the declared expenditure. In particular, 2016 will be a crucial year to implement the new legality and regularity audits and to have obtained assurance on the reliability of reporting on the new performance indicators for programmes. The overall approach is risk-oriented and takes account of the available audit resources which means that not all programmes will be necessarily audited over the period. The new instrument for net financial corrections also provides an incentive for an even more targeted, cost-efficient and differentiated approach, where low risk programmes should not be the target of Commission audits. 146