Economic, social and territorial cohesion - €55.7 billion

• What we audited
• What we found
• What we recommend

What we audited

This spending area comprises two parts: regional and urban policy which accounts for 80 %; and employment and social affairs which covers the remaining 20 %:

• The EU’s regional and urban policy is mostly implemented through the European Regional Development Fund (ERDF) and the Cohesion Fund (CF). The ERDF finances infrastructure projects, the creation or preservation of jobs, regional economic development initiatives and activities supporting small and medium enterprises. The CF finances investments in infrastructure in the fields of environment and transport.
• Employment and social affairs policy is mainly financed by the European Social Fund (ESF). The expenditure in this area covers investments in human capital and support actions aimed at improving the adaptability of workers and enterprises to the changes in working patterns, increasing access to employment, reinforcing the social inclusion of disadvantaged persons and strengthening the capacity and efficiency of administrations and public services.

ERDF, CF and ESF are governed by common rules, subject to exceptions in the specific regulation of each fund. The management of expenditure is shared with Member States and involves the co‑financing of projects within approved spending programmes. Eligibility rules for the reimbursement of costs are set out at national or regional level and may vary from one Member State to another.

What we found

1 Equivalent estimated levels of error for 2013 to reflect the new MFF headings.
2 These figures for 2013 are calculated on the basis of the approach for the quantification of public procurement errors applicable at the time of the audit. They do not reflect the impact that the updated approach for the quantification of these errors had on the estimated level of error.

The main source of error for the spending on economic, social and territorial cohesion as a whole continues to be infringement of public procurement rules, accounting for nearly half of the estimated level of error. This is followed by the inclusion of ineligible expenditure in the beneficiaries’ cost declarations, infringement of state aid rules and the selection of ineligible projects. The impact of errors varies between these two spending areas.

Cases of serious failure to comply with public procurement rules that we identified in our audit work include, for example, unjustified direct award of contracts, additional works or services, unlawful exclusion of bidders, as well as cases of conflict of interest and discriminatory selection criteria.

We also verify whether EU state aid rules have been respected. Unlawful state aid represents an unfair advantage for the beneficiary entities and thereby distorts the internal market. Errors related to infringement of EU state aid rules accounted for around a fifth of the estimated level of error of spending under this MFF heading.

For a significant proportion of transactions affected by quantifiable errors, authorities in the Member States had sufficient information available to prevent, or detect and correct the errors before claiming reimbursement from the Commission. If all this information had been used to correct errors before declaring the expenditure to the Commission, the estimated level of error for expenditure under economic, social and territorial cohesion would have been 1.6 percentage points lower. In addition, we found that for a number of cases, the error that we detected was made by national authorities. These contributed 1.7 percentage points to the estimated level of error.

By the end of 2013, the average disbursement rate to final recipients of financial instruments was 47 %. These funds provide assistance to enterprises or urban projects by way of equity investments, loans or guarantees. In total, since 2007, Member States have set up 941 financial instruments with an endowment of around €14.3 billion. In April 2015, the Commission extended the eligibility period for these instruments through a Commission decision, instead of asking the Council and the Parliament to amend the deadline specified in the related Council regulation. In our view, this way of extending the eligibility period does not respect the hierarchy of the norms.

ESF projects whose costs are declared using simplified cost options (lump‑sum and flat rate payments and standard scales of unit cost) are less prone to error than those using actual costs.

Beneficiaries declare paid expenditure to the national authorities and should be reimbursed ‘as quickly as possible and in full’. However, we have found that in some cases Member States have built up treasury reserves and beneficiaries were only paid several months after the related statement of expenditure was settled by the Commission, or had not been reimbursed at all at the time of the audit.

In general, the Commission’s assessment of error rates reported by audit authorities is largely coherent with the evidence provided by these audit authorities. However, the Commission’s verification of annual control reports can only partly address the risks of under‑reporting of errors and over‑reporting of financial corrections by national authorities in Member States. In particular, checks on state aid done by audit authorities were inadequate for nearly a third of the examined operational programmes.

In addition to checking the regularity of transactions, we assessed whether and to what extent ERDF, CF and ESF projects that had already been completed by the end of 2014 had achieved their objectives as set out in the grant agreements, and whether these objectives were in line with the objectives specified at programme level. We found that three quarters of the projects we examined had fully or partially achieved their objectives. Only in three cases were none of the project objectives attained. We also identified some cases of projects that had objectives that were not in line with those specified for the operational programme and the priority axis under which the project was funded.

Finally, our review revealed that performance‑based funding arrangements are the exception rather than the rule. In most cases, failure to achieve project objectives agreed in grant agreements did not impact on the level of EU funding received.

What we recommend

We recommend that:

• the Commission carries out a focused analysis of the national eligibility rules for 2007-2013 and 2014-2020 programming periods and uses it to provide guidance to Member States on how to simplify and avoid unnecessary complex and/or burdensome rules;
• the Commission further strengthens the control system for audit authorities, ensuring adequate checks of compliance with state aid and public procurement rules and that they provide the specific information on audits of operations. The Commission should assess in all Member States the reliability of the financial corrections reported by the certifying authorities;
• the Commission submits a legislative proposal to amend the applicable regulation concerning the extension of the eligibility period for financial instruments under shared management;
• managing authorities and intermediate bodies in Member States intensify their efforts to address weaknesses in ‘first level checks’. In addition, the Commission should request audit authorities to include in their systems audits the re‑performance of some of these checks; and
• Member States extend the use of the simplified cost options for projects exceeding €50 000 as well as ensure that reimbursement to beneficiaries is done within 90 days after the submission of a correct payment claim by the beneficiary.

 

Want to know more? Full information on our audit of EU expenditure for economic, social and territorial cohesion can be found in Chapter 6 of the 2014 annual report on the EU budget.