Recording of EU grants in government accounts GFS course ch. 13.5.12 Recording of EU grants in government accounts Chapter 11.17

Flows from the EU budget to Member States GFS course ch. 13.5.12 Flows from the EU budget to Member States EU budget in 2013: 150.9bn EUR Cohesion for growth and employment:54.5bn EUR (36%) Market related expenditure and direct aid: 44.1bn EUR (34%)

Flows from the EU budget to Memebr States GFS course ch. 13.5.12 Flows from the EU budget to Memebr States Main flows: Agriculture and Fishery related payments Subsidies – recorded as D.3 Current/capital transfers – recorded as D.7/D.9 Regional and cohesion related payments ERDF, Cohesion fund, ESF – transactions recorded as D.7/D.9 Reasearch and development Growth area, recipients usually non-government beneficiaries EU Flows: Chapter 11.17

Aim: NEUTRAL impact on government‘s balance GFS course ch. 13.5.12 Final ben. - Farmers National reimbursement forms and receipts Direct aid Receipts National body (classification: S.11 or S.13) EU Final recipient Money Projects Development plans Community Support Framework Operative programs Programming Aim: NEUTRAL impact on government‘s balance EU Flows: Chapter 11.17

Flows from the EU Pre-payments advance payments at the beginning of the programming period Reimbursements during the programming period until 95% ceiling 5% balance paid on closure EU Flows: Chapter 11.17

Guidance February 2005: News Release and Decision on „The treatment of transfers from the EU budget to the Member States“ „ the decision specifies.. EU transfers should have no impact on goverment deficit/surplus regardless of the timing differences between.. government pre-financing and .. effective reimbursement by the EU.„ EU Flows: Chapter 11.17

Recording in government accounts - Pre-payments Pre-payments (para 42-44) To record at the beginning of the programming period, as F.2A and F.8L Unchanged until the end of programming period- until reimbursements have reached 95%-pre-payment (2007-2013:95-5% or 95-7%) To decrease at the end: -F.2 and D.7/D.9 revenue 2. Final part (para 45) Pre-financed by the final beneficiary (F.8) EU Flows: Chapter 11.17

Recording in government accounts 2 - Reimbursement Differentiate between non-government and government final beneficiary: Non-government: In this case the government acts only as an „agent“, thus records only financial transactions (para 19-27) Government: In general, the time of recording of government revenue from the EU is the same time as the national government expenditure… for practical reasons to ensure neutral impact on government deficit/surplus ..(para 35-41) EU Flows: Chapter 11.17

Recording in NA – Non-government beneficiary GFS course ch. 13.5.12 Recording in NA – Non-government beneficiary General government Rest of the World Non-financial account ΔA/U D.9 -1000 B.9 -1000 Financial account ΔA F.2 -1000 F.8 +1000 B.9 0 Year t . Example: Non-government producer is entitled to receive 1000 from the EC as investment aid in year t. It receives this amount from government in year t but EC makes a reimbursement payment of 1000 only in year t+1. NB. ESA95 F.7 = ESA10 F.8 ΔL/R ΔL/R ΔL ΔL Closing balance sheet A AF8 1000 AF.8 1000 L L EU Flows: Chapter 11.17

Recording in NA – Non-government beneficiary GFS course ch. 13.5.12 Recording in NA – Non-government beneficiary Year t+1 General government Rest of the World Opening balance sheet A AF.8 1000 Financial account ΔA F.2 +1000 F.2 -1000 F.8 -1000 F.8 -1000 B.9 0 Closing balance sheet L L ΔL ΔL L L EU Flows: Chapter 11.17

Recording in NA – Government is the final beneficiary GFS course ch. 13.5.12 Recording in NA – Government is the final beneficiary Both non-financial and financial accounts are affected but: Neutral impact on government B.9 Appropriate time of recording is in line with the accruals principle Example: Government unit has spent 2000 (e.g. in GFCF) in a project with 50% co-financing (year t). Documents are sent to the EC and reimbursement of 1000 is sent the following year (t+1). EU Flows: Chapter 11.17

Recording in NA – Government is the final beneficiary GFS course ch. 13.5.12 Recording in NA – Government is the final beneficiary Year t General government Rest of the World Capital account ∆A ∆L P.51 2000 D.9 +1000 D.9 - 1000 B.9 Financial account ∆ A F.2 2000 F.8 +1000 F.8 +1000 f Closi ng balance sheet A L AF.8 AF.8 1000 EU Flows: Chapter 11.17

Recording in NA – Government is the final beneficiary GFS course ch. 13.5.12 Recording in NA – Government is the final beneficiary Year t+1 General government Rest of the World Opening balance sheet A L AF.8 1000 Financial account ∆A ∆L F.2 +1000 – 1000 F.8 - B.9 f Closing balance sheet EU Flows: Chapter 11.17

Implementation in practice Over time practice sometimes contradicts the „theory“:so In decision: „ In this context, after having made the expenditure, government would send the relevant documents to allow reimbursement by the EU.“ And therefore: „..the time of recording of the transfer (i.e. impact on government revenue) shall be .. when the final beneficiary (in government) makes the expenditure.. in practice when government sends the documents to the EU..“ EU Flows: Chapter 11.17

What does Neutrality mean? GFS course ch. 13.5.12 What does Neutrality mean? Final beneficiary: non-government unit Transactions are recorded in financial accounts of government – no impact on government balance Final beneficiary: government unit Transactions are recorded when the government unit makes the final expenditure – accrual principle Two practical problems (special cases): The intention to submit the claim for reimbursement is not known at the time of expenditure The precise amount of the expected reimbursement is not known at the time of expenditure EU Flows: Chapter 11.17

Special case 1: when the intention to submit the claim is not known GFS course ch. 13.5.12 Special case 1: when the intention to submit the claim is not known The guidance assumed that: time of expenditure = time of submission of claim But the timing gap between the two might be considerable Confirmed by DG REGIO: e.g. claims introduced two years after the end of the programming period and a claim from 2007 can be introduced until 2015 So A decision tree was drawn up to determine the correct time of recording. EU Flows: Chapter 11.17

Special case 1: Correction for the time of recording Is reliable information on the date of expenditure by government available? YES NO EU Flows: Chapter 11.17

Special case 2: when the precise amount of the expected reimbursement is not known at the time of expenditure If the expectation arose at the time of expenditure on the project but the precise % of the expected reimbursement was not known, a prudent estimate must be made for the expected revenue, which should be recorded in the same period as the related expenditure. EU Flows: Chapter 11.17

Financial corrections – the new MGDD In the new MGDD an additional part has been devoted to recording of financial corrections These normally related to past expenditures and a serious deficiency in management within the Member State Generally preceeded by a suspension of payment In 2013 several MS received such a correction EU Flows: Chapter 11.17

Financial corrections Time of recording: at the time of the Commission Decision (even if the correction relates to payments in earlier years) – because this new information has just become available TO the MS ESA category: D.9 to RoW EU Flows: Chapter 11.17

The EDP related questionnaire table GFS course ch. 13.5.12 The EDP related questionnaire table presents the flows related to the EU grants in a sensible format, and allows MS to show figures according to their different national adjustment items EU Flows: Chapter 11.17

EU Flows: Chapter 11.17 GFS course ch. 13.5.12 Country: XX Date of response: xx/xx/2010 relation 2006 2007 2008 2009 comments EDP Table 2 1,2 Amounts included in the working balance of EDP table 2A 1=2+5 0.0 Inflows, of which: 2=3+4 Advance payments 3 payables - increase Reimbursement of expenditure 4 receivables - decrease Outflows (negative sign) , of which: 5=6+7 Expenditure made on behalf of the EU 6 receivables - increase Expenditure financed from advance payments 7 payables - decrease Adjustments in EDP table 2A 8=9+12+13 Adjustments among other accounts receivable/payable 9=10+11 Amounts in the line "Other accounts receivable" 10 sign convention of EDP T2 Amounts in the line "Other accounts payable" 11 Amounts among net lending/net borrowing of other government bodies 12 Adjustments among "other adjustments", please specify line title 13 Check 14=1+8 Adjustments for contributions made to the EU 15=16+17+18 16 17 Amounts in other, please specify 18 Other adjustments relating to penalties, etc. 19 Please specify: Amounts included in other EDP tables 2 B/C/D 20=21+22 Amounts included in the working balance 21 Total adjustments, of which: 22=23+…+26 23 24 Amounts in the line "B.9 of other government bodies" 25 Amounts in the line "Other adjustments" 26 EDP Table 3 4,5 Transactions in Currency and deposits (F.2) relating to the EU 27 Adjustments in other accounts receivable/payable , of which: 28=29+30 Amounts in the line "Other financial assets" (F.8) 29 sign convention of EDP T3 Amounts in the line "Net incurrence of other financial liabilities", of which: 30 Advance payments from the EU 31 32=27+28 STOCKS Stocks of receivables of general government against the EU 33 of which: receivables relating to contributions to EU budget 34 Stocks of payables of general government against the EU 35 of which: payables relating to contributions to EU budget 36 1) Data are to be consistent with data reported in EDP tables 2 2) The sign convention applied in EDP tables is to be used here (that is for payables, the reverse sign of financial accounts) 3) In principle this line should be empty 4) Data are to be consistent with data reported in EDP T3A 5) The sign convention applied in EDP tables is to be used here (that is, for payables, the reverse sign of financial accounts) Green cells: automatic compilation 6. Recording of EU flows in EDP tables Table 6. Adjustments for transactions of general government with the EU in EDP tables in million units of national currency I. EDP Table 2A - EU grants VI. AF.7 stocks Comments: II. EDP Table 2A - contributions III. EDP T 2 other adjustm. IV. EDP T2B/C/D V. EDP T3A EU Flows: Chapter 11.17