Financial management and management and control 1

Presentation Outcome of the negotiations on the Financial Regulation – main changes Effect of the changes in the Financial Regulation on the CPR: Designation of authorities; Submission of accounts and accompanying documents by the designated bodies; Examination and acceptance of the accounts by the Commission Financial flows 2

Outcome of the negotiations on the revision of the Financial Regulation 3

Purpose of the changes in revised FR affecting cohesion policy (1) Clarifying and reinforcing the respective responsibilities of the Commission and of the Member States under shared management (Art. 317 TFEU) Reinforcing the chain of accountability between Member States and the Commission by establishing a clearer link between the management and control systems of Member States and the annual assurance and discharge process at EU level 4

Purpose of the changes in revised FR affecting cohesion policy (2) Enabling the Commission to better assume its responsibilities for the implementation of the budget through a regular examination of the accounts, the corresponding management declarations and the accompanying documents Harmonisation of the management and control framework for all policy areas under shared management 5

Provisions of the revised FR 1/ Member State obligations (Art. 56(2)) Member States shall take all the necessary measures to protect the Union's financial interests: ensure that actions financed from the budget are implemented correctly and effectively and in accordance with sector specific rules for that purpose designate bodies responsible for the management and control of EU funds and supervise these bodies prevent, detect and correct irregularities and fraud. 6

Provisions of the revised FR 2/ Designation of bodies responsible for management and control and ending this designation (Art. 56(3)) MS shall at appropriate level designate bodies responsible for management and control in accordance with criteria and procedures laid down in sector specific rules (SSR) Member States may base their designation on whether the management and control systems are essentially the same as previously and have functioned effectively If existing audit and control results show that the bodies designated no longer comply with the criteria, MS shall take the measures necessary – including ending the designation in acc. with SSR The role of the Commission to be defined in SSR 7

Provisions of the revised FR 3/ The requirement for the designated bodies to submit to the Commission(Art. 56(5)): their accounts on expenditure made during a reference period defined in SSR a management declaration an annual summary of final audits and controls  accompanied by an opinion of an independent audit body on the accounts (true and fair), the legality and regularity of expenditure, the proper functioning of control systems and the reliability of the management declaration. Deadline for submission - 15 February of following financial year (exceptionally 1 March) + MS may provide a declaration signed at an appropriate level 8

Provisions of the revised FR 4/ The Commission shall (Art.56(6)) Apply procedures for the examination and acceptance of the accounts of the designated bodies, ensuring that the accounts are "complete, accurate and true” Exclude expenditure in breach of applicable law Interrupt payment deadlines and suspend payments where provided for in SSR. 9

Provisions of the revised FR 5/ Financial corrections (Art. 77): MS are in the first instance responsible for carrying out controls and audits and for recovering amounts unduly spent As far as MS detect and correct irregularities on their own account – no financial corrections by the Commission However, COM shall make financial corrections on Member States in order to exclude from Union financing expenditure which is in breach of applicable law Based on identified amounts - where not possible, flat rate and extrapolated corrections in acc. with SSR Taking into account the nature and the gravity of the breach and financial implications Criteria and procedures may, and methodology for extrapolated and flat rate shall, be set out in SSR 10

Provisions of the revised FR 6/ Special provisions for ETC (Art. 56 (6a): Sector-specific rules shall take account of the needs of European Territorial Cooperation programmes as regards, in particular, the content of the management declaration, the process set out in paragraph 3 [designation of bodies] and the audit function. 11

Designation of authorities: alignment of the CPR 12

Regional Policy Procedure for the designation Changes required to Commission proposal of Oct 2011: No need for Article 64 (mainly duplicates the FR; rest to SSR) No accreditation - relevant elements of Art 117 to be reformulated as the procedure for designation (=new Article 113 bis) Designation of the MA /CA: by formal act by Member State at an appropriate level (no 'accrediting body' required) based on a report & an opinion of an independent audit body (option of AA) which assesses compliance of MA/CA with criteria MS may take into account whether the MCS is the same as in the previous period and has functioned effectively. 13

Regional Policy Criteria for designation Adopted by the Commission by way of delegated acts (currently Article 117 (1) CPR) Criteria for designation of MA/CA (from Art. 64.2): (i) Control environment  Staffing, training, recruitment  Sensitive functions, conflict of interest  Ethics and integrity policies  Management and control system description (ii) Risk management (iii) Control activities  Programme management (computerised systems – accounting & monitoring)  Appropriate selection procedures  Financial management and control  Management verifications (iv) Info & communication (v) Monitoring 14

Regional Policy The role of the Commission The proportionate role of the Commission to be maintained as initially proposed: MS submits the formal act to the Commission within 6 months of the adoption of the OP If Union funds > €250m Commission may request, within 2 months, the formal act, the audit report & opinion and the MCS description and make observations within 2 months Commission will take into account whether MCS is similar, the functioning of the current MCS, and if the MA also has CA functions 15

Issues to clarify in the CPR (SSR) 16 Supervision by the Member State based on existing audit and control results Introduction of a period of probation to avoid a situation where non-compliance with criteria leads to an automatic ending of the designation Procedure for the designation of a replacement authority

Existing audit and control results The designated authority no longer complies with the criteria underpinning designation MS ends the designation of the authority and informs the COM MS designates another authority based on the applicable rules and informs the COM MS determines a period of probation for the authority to undertake remedial actions MS informs the COM of the period of probation Necessary remedial action is taken MS lifts the probation MS informs the COM Necessary remedial action is not taken MS ends the designation MS informs the COM MS designates another authority based on the applicable rules and informs the COM Supervision, the period of probation and ending a designation 17

Preparation and submission of accounts and accompanying documents: alignment of the CPR 18

Tasks and deadlines CA responsible for: (Article 115 (b)(c)): Accounts for the preceding accounting year MA responsible for: (Article 114 (4) (e)): The management declaration accompanying the accounts An accompanying report including the annual summary AA responsible for: (Article 116 (5) (i),(ii)): The audit opinion accompanying the documents set out above An annual control report supporting the audit opinion Designated body (CA/MA) will submit these documents annually by the deadline set out in FR Article 56 (5) – 15 February (exceptionally 1 March). 19

Timeline for the submission, examination and acceptance of accounts Dec N-1 30 Jun N Dec N 15 Feb (1 Mar) N+1 31 May N+1 Accounting year Preparation of the accounts covering the accounting year, management declaration + accompanying report incl. annual summary, audit opinion+ annual control report 30 Jun N+1 Examination and acceptance of accounts Compulsory interim payment application 1 Jul N -1 20

Content of the accounts By priority axis (and, where relevant, broken down by category of region): The total amount of eligible expenditure entered into the accounts of the CA as having been paid by beneficiaries, the corresponding eligible public support which has been paid, and the total amount of public support incurred; Amounts recovered and withdrawn, amounts to be recovered and the irrecoverable amounts; Amounts of pre-financing related to Financial Instruments (Art a) FR); List of operations completed (ERDF/CF); Reconciliation of expenditure stated in accounts with amounts declared in interim payment applications + explanation of differences; Where applicable, identification of any expenditure covered by the 5% provision. 21

Examination and acceptance of accounts: alignment of the CPR 22

Examination and acceptance of the accounts (1) The Commission: examines the accounts and the accompanying documents submitted by the MS by 15 February (exceptionally 1 March); requests further information for clarification purposes from the MS, if necessary; informs the MS, by 31 May, whether it accepts that the accounts are complete, accurate and true, without prejudice to any issues relating to legality and regularity of the underlying transactions. 23

Examination and acceptance of the accounts (2) The examination and acceptance of accounts by the Commission concerns the completeness, accuracy and the veracity of accounts (Art a) FR) The audit authority provides separate opinion on: 1.the accounts - complete, accurate and true 2.the legality and regularity of expenditure and on the proper functioning of management and control systems 24

MS submits the accounts and accompanying documents Unqualified audit opinion on the accounts COM: accepts the accounts calculates the annual balance clears the annual pre-financing treats any legality and regularity issues COM examines the reasons for the qualified audit opinion to determine how these affect the accounts and the action to be taken Qualified audit opinion on the accounts COM has no information contradicting the audit opinion COM notifies the MS of the actions that must be undertaken or of additional enquiries Adequate additional action is taken Examination and acceptance of accounts (3) Adequate additional action is not taken Possible launch of a financial correction procedure 25

Consequences of acceptance of accounts The annual balance =  the difference between the amount the COM has paid in the accounting year (annual pre-financing and interim payments) and the amount due on the basis of the expenditure included in the certified accounts; Any balance in favour of MS is paid with the next interim payment (without prejudice to the treatment of legality and regularity issues) Any balance in favour of the COM is recovered (not a financial correction) 26

Consequences of non-acceptance of accounts Where the COM is not in a position to accept the accounts by the deadline: The annual balance is not paid/recovered; The COM shall notify the MS of the actions to be undertaken to remedy the situation; If it is determined that accounts submitted are not complete, accurate and true:  MS makes the necessary corrections (i.e. adjustments in the accounts)  MS does not make the necessary corrections - launch of a financial correction procedure under Articles 136 and 137 of CPR 27

Financial corrections 28 Net financial corrections arise in cases:  where irregularities are detected by the COM or ECA audits after the submission of the accounts;  where a Member State detects irregularities but fails to make the necessary corrections, and a financial correction is applied by the Commission. Financial corrections by the Commission are applied following the procedure set out in Article 137 of CPR

Other adjustments "Rolling closure” may be re-examined, but… Important to keep the mechanism for limiting the retention period of supporting documents for beneficiaries by the link to the list of completed operations included in the accepted accounts for the ERDF and CF/the expenditure included in the accepted accounts for the ESF. 29

Regional Policy Main changes for alignment Main changes required to Commission proposal of Oct 2011: Art. 75 not needed (mainly duplicates the FR; rest to SSR) Art. 76 – paragraph 1 to be adapted; paragraph 2 not needed Art e) to be adapted Art i) to be adapted Art. 128 to be completed Art. 129 to be adapted and completed Art. 130 to be adapted and completed 30

Financial flows 31

32 European Union Regional Policy – Employment, Social Affairs and Inclusion Financial flows: Pre-financing Initial pre-financing 4% paid in 3 instalments, cleared at the end of the programming period Annual pre-financing paid before 1 July (to ensure suffient liquidity in the context of the 10% retention): – 2% in 2016 – 2,5% in Annual pre-financing cleared as a result of the examination and acceptance of accounts

33 European Union Regional Policy – Employment, Social Affairs and Inclusion Financial flows: Interim payments Regular submission of interim payment applications with an obligatory application at the end of the accounting period (by 31 July, with the cut-off date of 30 June) Payment by Commission limited to 90% of amount due to a MS for each interim payment Remaining balance to be paid/recovered after the acceptance of accounts

Objective Take account that the cycle of controls by MA/CA/AA is not complete when interim payment applications are submitted Remove misalignment between timing of ECA conclusions for annual discharge and timing of COM assurance on expenditure reimbursed Ensure that Member States have sufficient liquidity to make payments to beneficiaries 34

THANK YOU! 35