1. The new legislative proposals for Cohesion Policy 2014-2020 Audit and Control
F. Merchán Cantos Audit Director
DG Employment, Social Affairs and Inclusion

2. Outline Key objectives Legislative framework
Conditionality and performance focus
Financial management, control and audit
Financial instruments

3. Key objectives STRATEGIC FINANCIAL Link Cohesion Policy to Europe 2020
Enhance results/performance orientation
Strengthen coordination of EU intervention
FINANCIAL
Greater accountability
Improve assurance
Simplify and reduce administrative burden on beneficiaries
Reduce error rate
Proportional cost of control

4. Legislative framework
Common provisions for all Funds (ERDF, ESF, CF, EAFRD and EMFF)
Common principles
Strategic approach
Common programming procedures
Financial instruments
Monitoring and evaluation
Common eligibility rules
General provisions – ERDF, ESF and CF
Geographical coverage and Financial Framework
Financial management and control
Sectoral provisions

5. Conditionality and performance focus
Ex-ante conditionality: preconditions for effective investment:
Fulfilled 2 years after PC or by
Suspension if not met
Performance framework: PC targets and milestones:
Performance review (2017, 2019)
5% performance reserve to be attributed
Suspension/financial corrections if targets not met
Macroeconomic conditionality: suspension of part or the totality of outstanding commitments of CSF Funds if Council decides excessive deficit exists

6. Financial objectives Principles Tools Accountability Assurance
Simplification/reduced burden on beneficiaries
Reduced error rate
Proportional cost of control
Tools
Accreditation
Annual Management declaration
Simplified costs
Proportional control arrangements
Eligibility rules
Clearance of accounts
Single Audit

7. Accountability and Assurance
Stable governance structure: MA/CA/AA
New elements:
Possibility to merge MA/CA
National accreditation process
Accrediting authority, at ministerial level
Criteria set by Commission
6 months after adoption of OP
Commission’s intervention (Fund’s support > €250m)
Probation/withdrawal
Annual management declaration of assurance
Audit opinion on annual accounts

8. Simplification: cost options
4 possibilities:
Real costs, i.e. actual incurred expenditure
Or, alternatively, simplified costs options:
Flat-rates (up to 20%)
Standard scale of unit costs
Lump sums (< € public contribution)

9. Simplification: Joint Action Plan
Group of projects (other than infrastructure) serving major EU and MS priorities
Focus on outputs/results
Minimum €10m or 20% of public support of OP
Beneficiary: public law body
Legal certainty: approved by the Commission. Once agreed, results are basis for payment and for audit

10. Reduced error rate Eligibility rules: Audit trail:
Harmonisation of eligibility rules with other EU financial support instruments
Use of simplified costs
Clear rules for project selection
Option for flat rate approach for revenue generating projects
Audit trail:
improved through mandatory electronic data management and data exchange between national administration and beneficiaries

11. Clearance of accounts – annual cycle
Initial Prefinancing : 2% + 1% + 1%, cleared at closure
Annual Prefinancing:
2016: 2%
: 2.5%
Interim payments:
MS shall pay contribution to beneficiary before expenditure is certified to Commission
Reimbursement capped at 90% (« safety net »)
Cumulative prefinancing and interim payments </= 95% of support up to programme closure
Clearance of accounts: Annual Prefinancing and Interim payments cleared annually

12. Clearance of accounts – annual cycle
Accounting year
Clearance of accounts
July
N-1
Dec
N-1
Jun N
Dec N
1 Feb N+1
30 Apr N+1
30 Jun N+1
Preparation of the annual accounts, summary report, management declaration, audit opinion

13. Clearance of accounts Accounting year: 1 July N -1 until 30 June N
Submission by 1st Feb n+1 annually:
Certified annual accounts
Management declaration
Annual audit opinion
Content of certified annual accounts:
Total eligible expenditure entered in CA accounts – paid by beneficiaries
Corresponding public support paid
Amounts withdrawn or recovered
ERDF/CF operations completed / ESF expenditure included in accounts
Possible provision of maximum 5% for open audit issues

14. Commission clearance decision
By 30 April N+1
Calculation of amounts chargeable to the Fund for the accounting year
Provision by priority axis of 5%, max, for open audit issues
Balance to be deducted/paid in next interim payment
No prejudice to subsequent financial correction decisions
Rolling closure:
Annually, together with clearance of accounts
ERDF/CF for closed operations – ESF for expenditure
Availability of documents: 3 years as from 31 Dec N+1
Net corrections if errors subsequently detected by Commission and/or ECA

15. Clearance of accounts – AA perspective
Objective:
Need to ensure timing/quality requirements of audit work
Consultation: HG 2010, plenary FR March 2011, Working Group March 2011
Deliverables:
7 months from cut off date to Annual Audit Opinion, covering:
MCS
Legality and regularity of underlying transactions (certified expenditure)
Annual accounts
Annual control report summarising findings and corrective measures
Audit strategy 6 months after adoption of OP (methodology, sampling, 3 year plan)
Annual update as from 2016 until 2022
Aspects to consider:
Working arrangements with MA: regular payment claims
Options: interim audit work during accounting year (but avoiding duplication of larger beneficiaries) vs. single sample
Planning of audit fieldwork and contradictory process, ensure audit opinion ready by 1.2.N + 1
Leverage 5% provision for unresolved audit issues

16. Proportional cost of controls
Accreditation: Commission intervention possible for accreditation of programmes over €250m
Single Audit:
Operations eligible exp < €100k, only 1 audit by AA or COM
Operations eligible exp > €100k, 1 audit per accounting year by AA and COM
Possibility to rely on AA’s work
Commission audits based on risk assessment or re-performance of AA but limited to 3 years after clearance of expenditure
Interruptions/suspension/correction tools maintained: interruption period – 9 months

17. Interruption of the payment deadline
The payment deadline may be interrupted for a maximum on 9 months where:
following information provided by a national or Union audit body, there is evidence to suggest a significant deficiency in the functioning of the management and control system;
the authorising officer by delegation has to carry out additional verifications following information coming to his attention alerting him that expenditure in a request for payment is linked to an irregularity having serious financial consequences;
there is a failure to submit one of the documents required for annual clearance of accounts.
Interruption may be limited to a part of expenditure covered by the payment application

18. Suspension of payments
All or part of the interim payments at the level of priority axes or operational programmes may be suspended by the Commission where:
there is a serious deficiency in the management and control system of the operational programme for which corrective measures have not been taken;
expenditure in a statement of expenditure is linked to an irregularity having serious financial consequences which has not been corrected;
the Member State has failed to take the necessary action to remedy the situation giving rise to an interruption;
there is a serious deficiency in the quality and reliability of the monitoring system or of the data on common and specific indicators;
the Member State has failed to undertake actions set out in the operational programme relating to fulfilment of an ex ante conditionalities;
there is evidence resulting from a performance review that a priority axis has failed to achieve the milestones set out in the performance framework;
+ possibility of suspension envisaged in connection to the macro-economic conditionality.

19. Financial corrections by the Member State
Member State is responsible for investigating irregularities and for making the financial corrections required and pursuing recoveries
The Member State shall make the financial corrections required in connection with individual or systemic irregularities detected in operations or operational programmes
The contribution recovered by the Member State may be reused by the Member State within the operational programme concerned, but not for operations that have been the subject of the correction or for any operation affected by a systemic irregularity

20. Financial corrections by the Commission (1)
Commission shall make financial corrections where:
there is a serious deficiency in the management and control system of the operational programme which has put at risk the Union contribution already paid to the operational programme;
the Member State has not carried out the necessary financial corrections on its own;
expenditure contained in a payment application is irregular and has not been corrected by the Member State;
+ corrections envisaged in connection with the performance framework and review.
A breach of applicable Union or national law shall lead to a financial correction only where one of the following conditions is met:
the breach has or could have affected the selection of an operation by the responsible body for support by the CSF Funds;
there is a risk that the breach has or could have affected the amount of expenditure declared for reimbursement by the Union budget.

21. Financial corrections by the Commission (2)
Financial corrections by the Commission can be based on precise amounts, but they can also be extrapolated or based on flat rates if the irregular amount cannot be quantified precisely
Financial corrections shall be proportionate taking into account the nature and the gravity of the irregularity
Where irregularities affecting annual accounts sent to the Commission are detected by the Commission or by the European Court of Auditors, the resulting financial correction shall reduce support from the Funds to the operational programme.

22. FI: Key provisions 2014-2020 2007- 2013 - lessons learned:
Irregular set up or provisions
Delayed implementation
Potential use as a tool to circumvent/avoid n+2
Lack of Audit Strategy addressing FI specificities and timing

23. FI: Key provisions 2014-2020 Main aspects:
Expansion to all thematic objectives and priorities
Strengthened combination with other forms of support, in particular, grants
Ex-ante assessment: rationale, private sector involvement, target final recipients, products
Possibility to support financial instruments set up at Union level and managed by Commission
In case of support to Union level FI: 100% contribution
Possibility to use either existing/new FI or standardized FI (« off the shelf ») for which the terms and conditions will be laid down by COM ready-to-use
Payment applications cover expected investment for a period of Max. 2 years
Adjustment against actual investment and management costs/fees in subsequent payment applications and closure
6-monthly reporting on FI implementation

24. Thank you for your attention!
F. Merchán Cantos
Audit Director
DG Employment, Social Affairs and Inclusion