Abstract

QUALITATIVE ANALYSIS OF THE RISKSIDENTIFIED IN THE MANAGEMENT OF
THE NON-REIMBURSABLE FUNDS IN
ROMANIA IN 2007-2013

ANALIZA CALITATIVĂ A
RISCURILORIDENTIFICATE ÎN
PROCESUL DEGESTIONARE A
FONDURILORNERAMBURSABILE ÎNROMÂNIA ÎN PERIOADA
2007-2013
Ciprian NICOLAE
PhD Student, Doctoral School of Finance, Bucharest
University of Economic Studies
E-mail: ciprian.nicolae@proiecteue.ro

Abstract

In line with the principle of efficiency andeffectiveness provided within the Strategy forstrengthening the public administration in Romania,
risk management is a key element in managing
non-reimbursable funds in 2014-2020. Although
was made compulsory by a regulation in force since2005, as internal management control standard,risk management undertaken in 2007-2013 by theauthorities and institutions involved in nonreimbursable funds management has proven to berelatively inefficient, Romania suffering great
financial corrections and suspensions in theimplementation of EU financing programs.
In an exhaustive analysis of the risks identified by
the responsible authorities, this research focuseson the qualitative side of risk management in an
attempt to identify viable solutions for an unitary
methodology for risk management, that will be usedby all responsible authorities / institutions and at thelevel of all financing programs.
Using such a methodology would have positiveeffects for local communities by increasing
efficiency and effectiveness of resources use,
namely by ensuring a stable and predictableadministrative process.
Risks, Risk Management,
Funds, Public Administration

RezumatÎn linie cu principiul eficienței și eficacității prevăzut de Strategia
pentru consolidarea administrației publice în România,managementul riscurilor reprezintă un element cheie în
gestionarea fondurilor nerambursabile în perioada 2014-2020.
Deși a fost prevăzut ca obligatoriu de legislația în vigoare încă dinanul 2005, ca standard de control managerial intern,managementul riscurilor derulat în perioada 2007-2013 deautoritățile și instituțiile implicate în gestionarea fondurilor
nerambursabile s-a dovedit a fi relativ ineficient, România suferind
numeroase corecții financiare și suspendări în implementarea
programelor cu finanțare europeană. În cadrul unei analize
exhaustive a riscurilor identificate de autoritățile responsabile,
prezenta cercetare se concentrează pe latura calitativă amanagementului riscurilor, în încercarea de a identifica soluții
viabile pentru o viitoare metodologie unitară de managementul
riscurilor, care va fi utilizată la nivelul tuturor autorităților /instituțiilor responsabile, respectiv la nivelul tuturor programelorde finanțare nerambursabilă. Utilizarea unei asemenea
metodologii ar avea efecte pozitive pentru comunitățile locale, princreșterea eficienței și eficacității utilizării resurselor, respectiv prinasigurarea unui proces administrativ stabil și predictibil.

Cuvinte cheie: Riscuri, Managementul riscurilor, Fonduri
nerambursabile, Administrație publică

Non-reimbursable

JEL CODES: G32, H83………………
Keyword…………………

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QUALITATIVE ANALYSIS OF THE RISKS IDENTIFIED IN THE MANAGEMENT OF THE NONREIMBURSABLE FUNDS IN ROMANIA IN 2007-2013

Unlike private organizations, which are characterized by profit orientation and access to resources in acompetitive system, public sector organizations have more resources and more varied ways to achieve
their mission and objectives.
Such a resource that public sector organizations can use to meet the public interest is represented by the
non-reimbursable funds. In Romania, which became EU member state in 2007, the non-reimbursable
funds are mainly external, i.e. additional to state budget funding.
Thus, for 2007-2013 financial period, the main such non-reimbursable funds were represented bystructural and cohesion funds and rural development funds (over 90% of the total non-reimbursable funds
available). In conjunction with funds from the national level (i.e. state aid for SMEs), as well as other funds
from international donors (e.g. World Bank, United States Agency for Development, the Soros Foundationetc.) from 2007 to 2013 it represented an average of about 4 bln. Euro annually, nearly 3% of 2013 GDP(estimated to 631,130.1 million lei current prices). Compared to the state budget for the 2013 (98,182.5
million lei revenues) the non-reimbursable funds accounted for about 18%. For the 2014-2020 financial
period Romania may use an average annual allocation of about 5 bln. Euro (according to European
Commission press release “Summary of the Partnership Agreement with Romania, 2014-2020”, dated
august 2014, Romania will have a total allocation of Euro 30,725,192,684 from the EU budget, plus
national co-financing).
For the use of the non-reimbursable funds was put in place a huge mechanism consisting of more than
100 public authorities and institutions, respectively more than 5,000 employees (civil servants andcontractual employees). By the level of October 2015 these were accountable for managing 197,913
submitted projects and 100,162 financing contracts only on structural and cohesion funds (convergenceobjective) and rural development funds.
In this very complex field risk management represents a key element for the efficient and effective use of
the non-reimbursable funds. Making more efficient the risk management system should be a priority forthe state authorities and institutions.

2. THE LEVEL OF KNOWLEDGE IN THE FIELD AND RESEARCH METHODOLOGYThis study aims to analyze qualitatively the risks identified in the management of the non-reimbursable
funds in Romania in the 2007-2013 financial period. It starts from the economic theory of risks andconcentrates on the Risk management methodologies used by the Romanian state authorities and

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1. INTRODUCTION

NICOLAE CiprianQUALITATIVE ANALYSIS OF THE RISKS IDENTIFIED IN THE MANAGEMENT OF THE NONREIMBURSABLE FUNDS IN ROMANIA IN 2007-2013

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institutions involved within the non-reimbursable funds management as internal management control

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Bucharest

standard.
The current scientific literature in the field comprises a lot of papers treating risks from private companies’
perspective and a few recent papers on themes that have also applicability to public administration(Didraga, 2013; Iordache, 2012). The studies and analysis on risk management in non-reimbursable fundsin Romania are in the early stages and refers to specific issues, such as risks related to specificprocurement procedures (Badea and Nicolae, 2015a) and to insurance of risks specific to nonreimbursable funds management system in Romania (Badea and Nicolae, 2015b).
Thus, the research methodology put a focus on actual Risk management methodologies used at the levelof managing authorities and intermediary bodies involved in the European and national funds
management system. Using the provisions of Law no. 544/2011 on free access to public information we
obtained risk management procedures, risk registers and risk action plans from 35 authorities and public
institutions out of the 50 intended to be covered by the analysis.
Within the exhaustive analysis of the risks identified by the Romanian authorities and institutions involvedin the non-reimbursable funds management system, the current study focused on the qualitative aspectsof these risks. In this respect each risk was analyzed for consistency and appropriateness to the nonreimbursable funds management activity. Out of a more that 500 individual risks cumulated from theorganizations that submitted the requested information, 467 risks were considered to be specific in termsof not fully duplicating the meaning of other risks. This resulted by cumulating all the reported risks, outof which the identical risks were eliminated.
As many of the reported risks are not consistent to the accepted definition of risk, both of the economic
theory and of the risk management procedures used by the mentioned state authorities and institutions,a further selection was carried on. In this respect, the risks were redefined, resulting only 120 coherent
risks that cope to risk definition: potential loss, loss caused by the evolution of risk factors to the contraryof the expected results (Bârsan-Pipu and Popescu, 2003).
Both the 467 initial risks and the 120 coherent risks were distributed on key activities/areas and project
cycle management phases, in order to analyze the risk coverage degree of the whole non-reimbursable
management system.

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3. RISK MANAGEMENT METHODOLOGIES USED WITHIN DE ROMANIAN NON-

The main conclusions of the overall analysis regarding the risk management system used within the
Romanian non-reimbursable funds management system, partially published (Badea and Nicolae, 2015)
or in course of publication to date, are:

risk management procedures used by the public authorities and agencies involved in managing
the non-reimbursable funds are reproductions of the Methodology for implementing internal
control standard "Risk Management", issued by the Ministry of Public Finance in 2007 in orderto support the implementation of Order no. 946/2005;

the current procedures define risk as the problem (situation, event, etc.) that has not occurred,
but that might occur in the future, in which case the achievement of the intended results isthreatened or potentiated. In the first case, the risk represents a threat, while in the second risk
is seen as opportunity. Risk represents uncertainty in achieving intended results and should betreated as a combination of probability and impact;although the use of non-reimbursable funds is essentially the same for all authorities andinstitutions involved, of course with a set of specific elements, the existing procedures are notuniform, treating different the notion of risk itself and also the ways to take action for controllingrisks;

the current procedures in force accept the fact that risk can be internal and may depend onorganization’s actions / omissions, so depending on the organization's own will / diligence;the current procedures do not include ways of financially quantify the risks;

not all public authorities and institutions have developed and used risk registers;

within the existing risk registers the majority of risks are operational risks (ex: risk of delay, riskof failure / error detection, risk of quality of financing);

some of the risks have direct financial effects (ex: certification of ineligible expenditure, repeatedpayment of the same invoice included in several payment claims);

there are three global risks (including with financial effects) concerning both each funding
program and the funds management system in its entirety:120

the risk of automatic decommitment (translated in low absorption rate of funds);

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REIMBURSABLE FUNDS IN ROMANIA IN 2007-2013

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

the risk of establishing financial corrections by donors;

the risk of low quality of financing (outputs, outcomes and impact of projects).

some risks aren’t included in the risk registers (ex: there are no risks related to impact
assessment or quantification of projects effects), although it results from the obligations that
Romania has from applying European regulations on non-reimbursable funds management;in most cases, the risks are identified and organized at department level (directorate, service,office), not at the operational program level;the human resources involved are few in number and largely without specific training in risk
management:

4.833 employees (reported by 42 authorities and institutions), of which:

only 407 employees have risk management responsibilities;

only 322 employees have attended a course on risk management.

all the risks included in the risk registers have negative connotations (there is no risk asopportunity).

4. FINDINGS OF THE QUALITATIVE ANALYSIS OF THE RISKSAs mentioned above, the study focused on the qualitative aspects of the risks included in the risk registers
submitted by the 35 state authorities and institutions and covering the structural and cohesions funds(convergence objective) and the national state aid funds dedicated to SMEs.
The first finding of the analysis is that the risk registers does not refer to objectives, results or activities,
the risks are just divided into categories / departments. In this respect, some risks can be clearly related
to a compartment activity (ex: inadequate and continuously changing national legislation, with direct
implications for the work carried out within the Economic and Financial Department).
The second finding of the analysis is that the classification of the risk does not follow a certain formula.
Thus, some risks appear to be related to departments (e.g. procurement department), some to activities(e.g. checking and control) and others to procedural elements (e.g. irregularities).
The third finding of the analysis is that the definition of risk is poor, with no specificity or quantification.
Only a few of them had the impact annexed, while more that 74% had to be lost in the redefining process.

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For example, some of the risk in the risk registers were so general that could never be quantified: “failure

The fourth finding of the analysis is that the most identified risks are related to: Financial & Accountancy(99 risks), Financing management (44), Human resources (43), Funds absorption (35), Reimbursement
activities (32), Implementation capacity (20), Irregularities (22), Single Management Information System- SMIS (20).
At the end of risks redefining process, the distribution was the following: Funds absorption (6),Implementation capacity (7), Financial & Accountancy (5), Financing management (8), Irregularities (9),Human resources (7), Reimbursement activities (17), Single Management Information System - SMIS (6).
As seen in the below figure, the redefining of risks comprised a serious number reduction for Financial &Accountancy related risks (from 99 to 5), Financing management related risks (from 44 to 8), Human
resources related risks (from 43 to 7) and Funds absorption related risks (from 35 to 6). We can conclude
that in these areas, possible in the specific departments of the authorities/institutions there is a poorer
understanding of risks than in the other areas / departments.
120
99
100
80
60
40

44

35
20

43
32

22

6

20
0

6

7

5

Initial risks

8

9

7

17

20

Redefined risks

FIGURE 1 - ORGANIZATION OF RISKS ON MAIN ACTIVITIES/AREAS
Source: The Author

A big question mark we can put on the procurement related risks. Only 11 risks identified by all
authorities/institutions might seem very little if we take into consideration the fact that the most financial

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Bucharestto achieve financial engineering activity due to limited access to the levers of allocating funds”.

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corrections and program suspensions Romania suffered in the 2007-2013 financial period are due to

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procurement related problems.
The fifth finding of the analysis is that the coverage of the Project Cycle Management phases (European
Commission, 2004) is unbalanced, more that 80% of the risks (412) in the risk registers referring to phase4 – Implementation.
Although there is logic that the risks related to implementation of programs and projects be in majority,
the distribution of the risks identified by the responsible authorities/institutions shows that the accent is on
doing, rather than on planning, organizing or controlling.
450
412

400
350
300
250
200
150

101

100

32

50

5

4

0

1
Programming

2
Identification

14
14
Formulation

Initial risks

Implementation

2
Evaluation &audit

Redefined risks

FIGURE 2 - ORGANIZATION OF RISKS ON PCM PHASES
Source: The Author

Even in the implementation phase some risks are not included in the risk registers. For example, there isno mentioning of the risks related to equal opportunities and sustainable development, although these
are transversal principles provided by the European regulations on structural and cohesion funds
accession.

5. THE RELATION BETWEEN RISK MANAGEMENT OF THE NON-REIMBURSABLE FUNDSAND THE STRATEGIC MANAGEMENT FOR LOCAL COMMUNITIES
Some authors (Didraga, 2013) consider risk management as being the most important instrument a
manager can use for increasing the success of a project.

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With respect to non-reimbursable funds management in Romania, we treat risk management as key toperiod, we can find that:

there are serious delays in funds accession (at the level of October 2015 the absorption rate
published by the Ministry of European Funds was 56,99% out of the 19 billion Euro, allocations
Structural and Cohesion Funds);

there is an increased consumption of resources (ex: the Romanian government announcedloans of 6.045 billion RON in 2014, respectively 2.820 billion RON in 2015, in order to pay thebeneficiaries of structural and cohesion funds, considering that Romania failed repeatedly toreceive the expected reimbursements from the European Commission);

there is a foresight that the financial corrections imposed by the European Commission related
to Romania's available budget will be about 1 billion Euro (Romanian National News Agency
AGERPRES, 2015) only for the Structural and Cohesion Funds 2007-2013; this represents
approximately 5.26% of the total allocated amount - 19 billion Euro.

All the available funds not used, plus the financial corrections and resources used for sustaining thefinancial flows of structural funds use (up to 9 – 9,5 billion Euro) represents mist development resources.
Consistent with the principle of efficiency and effectiveness stated by the Strategy for strengthening the
public administration in Romania 2014-2020 (aim to achieve objectives through optimal use of available
resources and obtain results to be in line with targets) the use of non-reimbursable funds represents a
key element for the public sector development and the risk management have to play an important rolein the strategic management for local communities in Romania.

CONCLUSIONS
There is an obvious need for improving the risk management methodologies used by the authorities andinstitutions involved in the non-reimbursable funds management. A direction in this respect is to create asingle unitary risks register, applicable to all non-reimbursable funds (European, national of from othersources), with coherent and consistent risks covering all the activities/areas and all the project cycle
management phases.

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development resources. If we analyze only the use of structural and cohesion funds during 2007-2013

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ACKNOWLEDGEMENT
This work was cofinanced from the European Social Fund through Sectoral Operational Programme
Human Resources Development 2007-2013, project number POSDRU/187/1.5/S/155656 „Help for
doctoral researchers in economic sciences in Romania”.
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