What we audited
The objectives of this spending include improving research and innovation, enhancing education systems and promoting employment, ensuring a digital single market, promoting renewable energy and energy efficiency, modernising the transport sector and improving the business environment, especially for small and medium‑sized enterprises (SMEs).
Research and innovation accounts for about 60 % of spending. Expenditure is made through the seventh framework programme for research and development 2007-2013 (FP7) and Horizon 2020, the new framework programme covering the 2014-2020 period. Other major spending instruments support education, training, youth and sport (the Lifelong Learning Programme — LLP and Erasmus+); the development of transport infrastructure (the Trans‑European Networks Transport Programme — TEN‑T and Connecting Europe Facility — CEF); projects in the energy sector (the European Energy Programme for Recovery — EEPR); and the Galileo satellite navigation programme.
Almost 90 % of spending is in the form of grants to private and public beneficiaries, with the Commission reimbursing costs declared by the beneficiaries in project cost statements.
What we found
| Affected by material error? |
Estimated level of error1: |
| YES |
5.6% (2013:4.0%) |
1 Equivalent estimated levels of error for 2013 to reflect the new MFF headings.
In the area of research and innovation, we found the same type and range of errors that we have detected throughout the course of our audit of FP7: incorrectly calculated personnel costs; other ineligible direct costs such as unsubstantiated costs for travel or equipment; as well as ineligible indirect costs based on erroneous overhead rates or including costs categories not linked to the project.
Example: Significant errors in research and innovation costs declared for reimbursement under FP7 by an SME
We found that €764 000 of costs declared by an SME working with 16 partners on a renewable energy project financed through FP7 were almost entirely ineligible. The SME owner had charged an hourly rate well above that set in the Commission’s guidelines. Moreover, we identified sub‑contracting costs which were neither an eligible component of costs nor procured by means of a tendering procedure. The declared indirect costs also included ineligible items, which were based on estimates and could not be reconciled with the beneficiary’s accounting records.
Horizon 2020 has simpler funding rules than FP7 and the Commission has invested considerable effort in reducing administrative complexity. However, some elements in the new framework programme actually bring an increased risk of error. For example, with the aim of supporting better research and innovation and generating growth and jobs, Horizon 2020 is designed to increase the participation of SMEs and new entrants, but these types of participants are especially prone to error. Horizon 2020 also introduces specific eligibility criteria in certain cases (for example, where researchers receive additional remuneration or where participants make use of a large research infrastructure).
We also detected errors in reimbursed costs in the other major spending instruments. These include unsubstantiated and ineligible costs, as well as cases of non‑compliance with the rules on public procurement.
Examples: Errors in costs reimbursed in other programmes
TEN‑T
In one project, the beneficiary directly awarded a contract for IT consultancy services without following the required open international procedure. In another project, the beneficiary incorrectly declared as eligible expenditure a legal settlement with a subcontractor over a breach of contract.
EEPR
A beneficiary included ineligible non‑statutory costs (bonuses based on the company’s profit) in its calculation of personnel costs and also claimed for indirect costs not linked to the project.
We found weaknesses in the Commission’s systems and inconsistencies in the assessments of amounts at risk and error rates made by directorates‑general.
What we recommend
We recommend that the Commission:
- along with national authorities and independent auditors, use all the relevant information available to prevent, or detect and correct errors before reimbursement;
- develops an appropriate risk management and control strategy for Horizon 2020, based on its experience under FP7. This should include adequate checks of high‑risk beneficiaries and of costs declared under specific eligibility criteria; and
- ensures that its services adopt consistent approach for the calculation of weighted average error rates and the resulting assessment of amounts at risk.
Want to know more? Full information on our audit of EU expenditure on competitiveness for growth and jobs can be found in Chapter 5 of the 2014 annual report on the EU budget.