# EUR-Lex - 52014DC0618 - EN

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# 52014DC0618

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL PROTECTION OF THE EU BUDGET TO END 2013 /* COM/2014/0618 final */**

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Table
of Contents

1........... EXECUTIVE
SUMMARY AND CONCLUSIONS.. 3

2........... OBJECTIVE
AND BACKGROUND.. 4

2.1....... Objective.. 4

2.2....... Background.. 4

2.3....... Process
for financial corrections and recoveries. 6

2.4....... Further
consequences of financial corrections and recoveries. 6

3........... Financial corrections and
recoveries in 2013.. 7

3.1....... Overview.. 7

3.2....... Financial
corrections. 8

3.3....... Recoveries. 11

4........... Cumulative financial
corrections and recoveries to end 2013   11

4.1....... Overview.. 11

4.2....... Financial
corrections. 12

4.3....... Recoveries. 22

5........... NET FINANCIAL CorrectionS AND
IMPROVEMENTS PLANNED FOR THE PROGRAMMING PERIOD 2014-2020.. 22

5.1....... Background.. 22

5.2....... 2013
net financial corrections: Impact on the EU budget. 23

5.3....... Impact
on national budgets. 24

5.4....... Agriculture.. 24

5.5....... Cohesion.. 26

6........... PREVENTIVE
MEASURES.. 30

6.1....... Agriculture.. 30

6.2....... Cohesion.. 32

7........... CORRECTIVE
ACTIONS MADE BY MEMBER STATES ON THEIR OWN INITITATIVE   34

7.1....... Agriculture.. 34

7.2....... Cohesion.. 34

8........... OTHER
RECOVERIES.. 36

8.1....... Recovery
of pre-financing amounts. 36

8.2....... Recoveries
relating to own resource revenues. 36

1. 
EXECUTIVE
SUMMARY AND CONCLUSIONS

This
Communication on the protection of the European Union (EU) budget seeks to
describe in detail the functioning of the preventive and corrective mechanisms used
to protect the EU budget from illegal or irregular expenditure, and to provide
a best estimate of the figures resulting from their use.

Preventive
actions and responsibilities depend on the method of implementation of the EU budget
– for example interruptions and/or suspension of payments are widely used under
Cohesion policy and have now been introduced to Agricultural spending.

Corrective
actions, i.e. financial corrections and recoveries, arise following the supervision
and checks made by both the Commission and, in the case of shared management
expenditure, Member States on the eligibility of expenditure funded by the EU budget.
Given the multi-annual character of the programmes, the control framework and
the complexity of the corrective mechanisms and procedures, the results (i.e.
corrections) are generally implemented several years after weaknesses or
irregularities have been identified. This Communication focuses primarily on
the results of the Commission's supervisory role, but figures on financial
corrections and recoveries resulting from Member State controls are also given
in section 7.

It is
stressed that the primary objective of financial corrections and recoveries is
to ensure that EU funds are used in accordance with the legal framework. Financial
corrections and recoveries related to the Common Agricultural Policy (CAP) and
to internal and external policies result in the return of previously paid
irregular amounts to the EU budget (net financial corrections). Irregular
amounts detected under Cohesion policy are, up to now, mostly corrected by
their replacement with new expenditure, which should be regular – in this case
monies do not return to the EU budget. Following the successful operation of
net financial corrections in the Agricultural area for many years, the
legislator has decided that a similar mechanism should be applied to Cohesion
policy for the programming period 2014-2020.

Regarding
the impact of corrective measures taken by the Commission, the key figures for
the financial year 2013 are as follows:

Financial
  corrections and recoveries confirmed (decided or accepted) in 2013
  totalled EUR 3.4 billion or 2.3% of budgetary payments that year; See
  table 3.1;
 Implemented
  amounts in 2013 were of a similar level, being EUR 3.3 billion or 2.2% of
  budgetary payments. See table 3.1.

Cumulative
figures, however, provide more useful information on the significance of
corrective mechanisms used by the Commission because they take into account the
multi-annual character of most EU spending and neutralise the impact of one-off
events:

During
  the period 2009-2013 the amounts of financial corrections and recoveries
  confirmed and decided show an increasing trend. The average amount
  confirmed was EUR 2.9 billion or 2.2% of the average amount of payments
  made from the EU budget, while the average amount implemented in this
  period was EUR 2.7 billion or 2.1% of payments; See graph 4.1;
 For
  EAGF, the average correction rate per financial year for the period
  1999-2013 was 1.5 % of expenditure; See section 4.2.2;

· 
For
ERDF and ESF 2000-2006 funds (where the closure is almost complete), at the
end of 2013 the combined rate of financial corrections, based on Commission
supervision work only, was 4.5 % of the
allocations made (the correction rate increases to 5.1% of allocations when
considering the additional financial corrections reported by Member States and
related to their own control activity). See section 4.2.4.

The
figures presented in this Communication demonstrate the positive results of the
multi-annual preventive and corrective activities undertaken by both the
Commission and Member States, the ultimate outcome being that the EU budget is
adequately protected from expenditure incurred in breach of applicable law –
see also the Commission's "Synthesis Report" for 2013, in particular
section 4.1[1].
Moreover, the significance of the amounts reported concerning financial
corrections and recoveries should be viewed as an affirmation of the commitment
of both parties to ensuring that European taxpayers' money is being used in
accordance with legal requirements.

2. 
OBJECTIVE
AND BACKGROUND
2.1. Objective

This
Communication on the protection of the EU budget is prepared annually following
a specific request by the European Parliament in the context of the 2011
discharge procedure and is therefore addressed to this institution, as well as
to the Council. It is also transmitted to the European Court of Auditors (ECA).
It should be read in conjunction with the figures disclosed in Note 6 of the
2013 EU annual accounts, the Commission’s Synthesis Report, and the relevant
parts of the Annual Activity Reports of the Directorates General concerned.

The
objective of this Communication is to provide:

(1) A high-level
overview of the mechanisms foreseen in the legislation which define the process
of identifying and then dealing with administrative errors, irregularities and
suspected fraud[2]
detected by EU bodies and by Member States; and

(2) a best estimate of
the total amounts[3]
of financial corrections and recoveries concerned for 2013, and cumulative, so
as to illustrate in real terms how:

a. the EU
budget is protected from expenditure incurred in breach of law, and

b. the Member
States are involved and impacted.

As well
as the above, information is also given on the additional corrections reported
as effected by Member States under Cohesion policy (programming period
2007-2013 only) and Agriculture following their own controls and audits. Information
is also provided on amounts recovered relating to advances (pre-financing) paid
out that have not been used by the beneficiary and on recoveries relating to
own resource revenues of the EU budget.

2.2. Background

The significant
work of both the Commission and the Member States to manage the risks relating
to the legality and regularity of operations financed by the EU budget and the
resulting impact is performed in accordance with the Treaty on the Functioning
of the European Union (TFEU[4]),
the Financial Regulation[5],
its rules of application[6]
and the various sector-specific legal texts. The Commission protects the EU
budget, i.e. EU spending, from undue or irregular expenditure via two main
methods:

(1) preventive
actions; and

(2) corrective
mechanisms (primarily financial corrections imposed on Member States and, to a
lesser extent, recoveries from recipients of EU payments).

It is highlighted that the result of
financial corrections is that they exclude from Union financing expenditure for
which disbursements have been made in breach of applicable law in order to ensure
that EU funds are used in line with the legal requirements.

It is
necessary to distinguish between different types of financial corrections:

-
financial corrections applied on Cohesion funds are in most cases amounts which
Member States accept to deduct from expenditure presented to the Commission and
which are replaced by regular expenditure. They are not returned to the EU
budget;

-
financial corrections applied on Agricultural funds are amounts which are
definitively recovered by the Commission and which Member States cannot replace
by other expenditure. These amounts are considered as “assigned revenue” in the
EU budget and are used to reduce national contributions to the Agriculture
budget. They are referred to as "net financial corrections".

It
is also important to underline that for a significant portion of EU
expenditure, e.g. Cohesion, Research and Rural Development policies, the
programmes concerned are of a multi-annual nature. In line with Article 32(2)(e)
of the Financial Regulation, this is taken into account when designing and implementing
preventive and corrective measures, as well as when assessing the results of
these actions. In fact, financial corrections and recoveries are made at all stages
of a programme's life-cycle, once expenditure has been incurred and/or a
payment has been made. In Cohesion policy, due to the legislation applicable to
the 2000-2006 programming period, the majority of corrections occur at the
closure of the project/programme, which can be years after the first expenditure
has been incurred and/or first payment was made. However for the 2007-2013
programming period, as a result of the preventive measures taken, the part of
financial corrections applied during the years of implementation of the
programmes has increased; consequently it can be expected that the part of
financial corrections applied at closure will be lower. For the 2014-2020
programming period, this trend will be confirmed by the introduction of certain
provisions in the sector-based regulations related to the annual accounts and
net financial corrections. Concerning Rural Development policy, net financial
corrections can be applied throughout the life-cycle of a programme.

The
importance of financial corrections and recoveries is particularly highlighted
when considering multi-annual residual error rates. This is because these rates
take into account both detected error rates and financial corrections and
recoveries over the entire life cycle of programmes and projects. Therefore,
they indicate the real impact of irregular expenditure and represent key
indicators for assessing how supervisory and control systems manage the risks
relating to the legality and regularity of operations financed by the EU budget
over the lifespan of programmes (see the Commission’s Synthesis Report for
2013, in particular section 4.1).

2.3. Process
for financial corrections and recoveries

Financial
corrections and recoveries follow a defined and logical process[7]:

An on-the-spot
  audit  (or control or inspection) is made, or a desk assessment is carried
  out by the Commission or another EU body (OLAF, ECA) of an EU or national
  audit report;
 The
  audit or desk assessment results in the identification of possible system
  weaknesses and/or an estimate of ineligible expenditure is communicated by
  the Commission to the Member State or final beneficiary concerned as part
  of a formal contradictory process (financial corrections and recoveries
  "in progress");
 Following
  these discussions and the possible receipt of additional audit evidence from
  Member States or final beneficiaries, a financial correction or recovery
  is confirmed, i.e. accepted by the Member State or decided (adopted by a
  Commission decision);
 The
  last step is for the observed situation of undue expenditure to be
  definitively corrected (financial corrections and recoveries "implemented"),
  by means of different mechanisms foreseen in the sector-based regulatory
  frameworks.

Financial
corrections and recoveries reported by the Commission are the result of its
supervisory role and audit activity described above. For policies under shared
management, in accordance with their obligation to “take all necessary
measures...to protect the Union’s financial interests”, Member States also
perform controls and make corrections on their own – see section 7. This
means that the EU funds under shared management are under the double protection
of two parties at all times.

One
important point to note on the figures presented in this Communication is that,
for shared management, they represent both corrections arising on individual
cases uncovered by the Commission, but also extrapolated or flat-rate
corrections. The latter are corrections imposed by the Commission at programme
level and are provided for in Article 80(4) of the Financial Regulation: "Where such amounts [unduly spent] cannot be identified precisely,
the Commission may apply extrapolated or flat-rate corrections in accordance
with the sector-specific rules." They
are made when deficiencies or weaknesses are uncovered in the national administration's
management and control systems covering a given measure or programme and take
the form of a fixed percentage applied to all claims received on the relevant expenditure
until Member States implement remedial actions and the identified deficiencies
are rectified. Therefore, these flat-rate corrections are not calculated on the
basis of identified individual irregularities at beneficiary level but are
proportionally linked to the gravity of the deficiencies observed.

2.4. Further
consequences of financial corrections and recoveries

The
legislation in place offers numerous tools and control mechanisms to the
Commission and Member States. In addition to the significant amounts reported
above, there are further amounts of financial corrections accepted by Member
States as a result of the supervisory role of the Commission. Remedial action
plans may have a preventive impact on expenditure already incurred by
beneficiaries and registered at national level in the certifying authority's
accounts but not yet declared to the Commission. For such expenditure, the
certifying authority (under Cohesion policy) applies the financial correction
requested by the Commission prior to declaring expenditure. Particularly in the
case of extrapolated or flat-rate corrections, where there are weaknesses in
management and control systems covering a large population of projects, the
amounts concerned can be significant.

This
preventive effect of the Commission supervisory role is not always reflected in
the official reporting even though amounts can be significant and it leads to
an increased protection of the EU budget. Another example concerns warning
letters sent out by the Directorates-General when system deficiencies are
identified before a payment claim is submitted to the Commission. Warning
letters are sent by Directors-General at their own initiative in their capacity
as responsible authorising officers by delegation for the Commission, not
because of any explicit regulatory requirement. Such warning letters may have
the same preventive effect on the protection of the EU budget, but in this case
no financial correction is reported by the European Commission/ Member States
either.

Recoveries
from beneficiaries may also result from audits and financial corrections by the
Commission services in Agriculture and Rural Development policies. When the
Member State recovers irregular amounts from farmers before the financial
correction is decided by the Commission, these amounts are reimbursed to the EU
budget and are deducted from the financial correction. Amounts recovered from final
beneficiaries after the execution of the financial correction do not have to be
reimbursed to the EU budget. This system encourages Member States in their
efforts to actually recover irregular payments without unjustified delays. An
additional control employed by the Commission where it considers that the time
taken for a Member State to recover amounts from a final beneficiary is too
long, involves launching infringement procedures against the Member State
involved. This of course is in addition to the fact that the EU Budget may have
been already protected via the original financial correction.

In the
field of the CAP, a specific mechanism also exists under which 50% of undue
payments which the Member States have not yet recovered from the beneficiaries
within 4 years (or 8 years in case of judicial proceedings), are automatically
charged to their national budgets. This gives a strong incentive to the
national authorities to complete the recovery procedures in a timely manner.
Member States remain obliged to recover the outstanding 50% which has to be
returned to the EU budget. In addition, the Commission may also charge the
entire amount still to be recovered (and not only 50%) if it considers that the
Member States' authorities have been negligent in the management of the
recovery procedure for specific individual cases.

3. 
Financial corrections and recoveries
in 2013
3.1. Overview

Financial
corrections reported under this section (as well as in sections 4 and
5) are the result of the Commission’s supervision which identified the need
for additional corrections not previously decided by Member States (in breach
of their obligation to “bear in first instance the responsibility for (...)
making the financial correction required”).

The
amounts of financial corrections and recoveries are primarily dependent on the
level of irregularities detected in previous years, i.e. controls by the
Commission or Member States over a number of years may uncover a higher level
of weaknesses or irregularities, thus increasing the level of financial
corrections and recoveries to be made. Given the multi-annual character of the
control framework and the complexity of the corrective mechanisms and
procedures, the results (i.e. corrections) are generally implemented several
years after weaknesses or irregularities have been identified.

In
general, given the nature of financial corrections and the multi-annual nature
of the expenditure to which they relate to, it is more useful to look at cumulative
figures (see section 4). Nonetheless, looking exclusively at 2013 and in
order to give an idea of the level of the financial corrections and recoveries
confirmed and implemented in 2013, it is noted that the amounts, while mostly
relating to systems weaknesses or irregularities of past years, represent in
financial terms respectively 2.3% and 2.2% of all budget payments (for further
details see sections below).

Table
3.1: Financial
corrections and recoveries overview for 2013

EUR millions ||

Policy domain || Total EU budget payments in 2013 || Total financial corrections in progress at end 2013 || Total financial corrections confirmed in 2013 || Total recoveries confirmed in 2013 || Total confirmed in 2013 || % of payments of the EU budget || Total financial corrections  implemented in 2013 || Total  recoveries implemented in 2013 || Total  implemented in 2013 || % of payments of the EU budget ||

Agriculture || || || || || || || || || || ||

EAGF || 45 011 || 3 258 ||  843 ||  227 || 1 070 || 2.4% ||  481 ||  155 ||  636 || 1.4% ||

Rural Development || 12 960 ||  660 ||  247 ||  139 ||  386 || 3.0% ||  230 ||  129 ||  359 || 2.8% ||

Cohesion Policy** || || || || || || || || || || ||

ERDF || 31 133 || 1 459 ||  337 ||  1 ||  338 || 1.1% ||  622 || - ||  622 || 2.0% ||

Cohesion Fund || 11 906 || 148 ||  220 || - ||  220 || 1.8% ||  277 || - ||  277 || 2.3% ||

ESF || 13 776 ||  583 ||  834 ||  40 ||  874 || 6.3% ||  842 ||  40 ||  882 || 6.4% ||

FIFG/EFF ||  566 ||  18 ||  10 ||  24 ||  34 || 6.0% ||  4 ||  23 ||  27 || 4.8% ||

EAGGF Guidance ||  192 || - ||  1 ||  2 ||  3 || 1.6% ||  14 ||  2 ||  16 || 8.3% ||

Other ||  116 || - || - ||  16 ||  16 || 13.8% || - ||  16 ||  16 || 13.8% ||

Sub-total shared management || 115 660 || 6 126 || 2 492 ||  449 || 2 941 || 2.5% || 2 469 ||  365 || 2 834 || 2.5% ||

Internal policy areas || 16 986 || 1 || 3 || 393 || 396 || 2.3% || 3 || 398 || 401 || 2.4% ||

External policy areas || 7 055 || N/A || N/A ||  93 ||  93 || 1.3% || N/A ||  93 ||  93 || 1.3% ||

Administration || 8 693 || N/A || N/A ||  6 ||  6 || 0.1% || N/A ||  6 ||  6 || 0.1% ||

TOTAL || 148 394* || 6 127 || 2 495 ||  941 || 3 436 || 2.3% || 2 472 ||  862 || 3 334 || 2.2% ||

*Excludes
EUR 75 million paid to Croatia under the Compensations heading.

** Out of
the total amount of EUR 1 402 million of financial corrections confirmed, EUR
514 million related to the 2007-2013 programming period, EUR 714 million
related to the 2000-2006 programming period, and the remaining amount of EUR
174 million related to the 1994-1999 programming period; Out of the amount of
EUR 1 759 million of financial corrections implemented that concerned Cohesion
policy, EUR 693 million related to the 2007-2013 programming period, EUR 889
million related to the 2000-2006 programming period, and the remaining EUR 177
million related to the 1994-1999 programming period.

The
largest and most complex programmes related to the programming period 2000-2006
were closed in 2013, resulting in high amounts being reported. Amounts relating
to 2007-2013 are relatively lower as a result of the preventive actions
undertaken by the Commission (see section 6), bearing in mind that
corrections tend to still be more concentrated at closure stage.

The
total amount of financial corrections and recoveries confirmed in 2013
increased by 20% compared to 2012 (financial corrections increased by 15% and
recoveries increased by 35%).

Financial corrections and recoveries
implemented dropped from EUR 4.4 billion in 2012 to EUR 3.3 billion in 2013.
This decrease is due to a significant case related to the implementation in
2012 of a financial correction of EUR 1.8 billion concerning Cohesion
programmes for the period 2000-2006 in Spain. The resulting decrease by 34% of
financial corrections implemented in 2013 (from EUR 3.7 billion to EUR 2.5
billion) was partially compensated by an increase of 27% of recoveries
implemented in 2013 (from EUR 0.7 billion to EUR 0.9 billion).

3.2. Financial
corrections

3.2.1   Financial
corrections in progress at 31/12/2013

Under
Agriculture and Rural Development, the amount of net financial corrections in
progress is based on an estimate of the amount of expenditure which is likely
to be reimbursed to the EU budget by the Member State as a result of the
conformity clearance procedure.

Under
Cohesion Policy, the amount disclosed under financial corrections in progress
is based on audit findings of the Commission and those of ECA or OLAF, all of
which are followed up by the relevant Directorates General through on-going
contradictory procedures with the concerned Member States.

Graph
3.2.1.1: Shared management financial corrections in progress at 31/12/2013;
Breakdown by Fund

As
2007-2013 programmes are multi-funds, the ERDF amount includes CF amounts
related to that period.

Graph
3.2.1.2: Shared management financial corrections in progress at 31/12/2013;
Breakdown by Member State

Concerning
EAGF, cases amount to EUR 2 387 million, of which EUR 1 697 million
relates to France. It is highlighted that these amounts correspond to
provisional estimates by the Commission of the risk to the EU budget before the
end of the conformity clearance procedure and that, as provided for in the
legislation, the Commission shall duly take into account all contradictory
evidence provided by the Member State when making its final assessment. The
final amount of the net financial correction may therefore be lower, for
instance in cases where the first estimate made by the Commission resulted from
a flat-rate approach and the Member State later provided further evidence that
allowed a more precise estimate to be made. For this reason, amounts estimated
to be in progress can be higher than the final net financial correction decided
by the Commission. It is further underlined that the breakdown per Member State
is heavily influenced by the ongoing conformity clearance procedures, which
tend to be concentrated on only a few Member States at any one time, since
audits are decided after a risk-based analysis is conducted, thus targeting the
most risky Member States. For EAGF, table 4.2.2 illustrates the
long-term breakdown per Member State.

Concerning
ERDF, amounts are mainly related to the 2000-2006 programming period and
the closure of the outstanding issues for programmes in Italy (EUR 966
million), Ireland (EUR 142 million), Spain (EUR 119 million), and Greece (EUR 65
million).

Concerning
ESF, the majority of financial corrections in progress at end 2013 concern
the closure of 2000-2006 programmes reflecting financial corrections proposed
by the Commission in closure letters but not yet accepted by Member States. The
main amounts relate to Italy (EUR 388 million) and Spain (EUR 141 million).

3.2.2   Financial
corrections confirmed in 2013

Attention
is drawn to the fact that the data and maps presented below relate to one year
only, 2013. The level of both the global corrections amount and the split by
Member State can change significantly depending on the year. Therefore, a
meaningful assessment of the corrective capacity of supervisory and control
systems has to be based, in line with the nature of this expenditure, on a
multi-annual perspective (see section 4).

Map
and Table 3.2.2: Shared management financial corrections confirmed in 2013 as
compared to EU payments received; Breakdown by Member State

Member State || Payments received from the EU budget in 2013 (EUR million) || Financial corrections confirmed in 2013 (EUR million) || Financial corrections confirmed in 2013 % as compared to payments received from the EU budget in 2013

Belgium || 1 144 ||  18 || 1.6%

Bulgaria || 1 829 ||  5 || 0.3%

Czech Rep. || 4 771 ||  146 || 3.1%

Denmark || 1 066 ||  12 || 1.1%

Germany || 11 179 ||  37 || 0.3%

Estonia ||  914 ||  0 || 0.0%

Ireland || 1 607 ||  26 || 1.6%

Greece || 6 866 ||  138 || 2.0%

Spain || 12 408 ||  458 || 3.7%

France || 12 170 ||  222 || 1.8%

Croatia ||  2 ||  1 || 43.4%

Italy || 11 091 ||  370 || 3.3%

Cyprus ||  178 ||  0 || 0.0%

Latvia || 1 003 ||  23 || 2.3%

Lithuania || 1 718 ||  14 || 0.8%

Luxembourg ||  67 ||  0 || 0.4%

Hungary || 5 676 ||  158 || 2.8%

Malta ||  125 ||  0 || 0.1%

Netherlands || 1 321 ||  82 || 6.2%

Austria || 1 546 ||  4 || 0.2%

Poland || 15 782 ||  175 || 1.1%

Portugal || 5 948 ||  17 || 0.3%

Romania || 5 409 ||  278 || 5.2%

Slovenia ||  726 ||  23 || 3.2%

Slovakia || 1 943 ||  63 || 3.3%

Finland || 1 243 ||  7 || 0.5%

Sweden || 1 174 ||  1 || 0.2%

UK || 4 554 ||  214 || 4.7%

INTERREG || 2 199 ||  1 || 0.0%

TOTAL || 115 660 || 2 492 || 2.2%

The map above takes into account the relative weight of
the financial corrections confirmed for each Member State compared to the
payments received from the EU budget in the year 2013.

Light
grey shows Member States that are below the average percentage of 2.2%.

Red
highlights Member States that are above the average percentage of 2.2%.

3.2.3   Financial
corrections implemented in 2013

Map
and Table 3.2.3: Shared management financial corrections implemented in 2013 as
compared to EU payments received; Breakdown by Member State

Member State || Payments received from the EU budget in 2013 (EUR million) || Financial corrections implemented in 2013 (EUR million) || Financial corrections implemented in 2013 % as compared to payments received from the EU budget in 2013

Belgium || 1 144 ||  24 || 2.1%

Bulgaria || 1 829 ||  19 || 1.0%

Czech Rep. || 4 771 ||  76 || 1.6%

Denmark || 1 066 ||  12 || 1.1%

Germany || 11 179 ||  39 || 0.3%

Estonia ||  914 ||  10 || 1.1%

Ireland || 1 607 ||  9 || 0.6%

Greece * || 6 866 || - 18 || -0.3%

Spain || 12 408 ||  717 || 5.8%

France || 12 170 ||  96 || 0.8%

Croatia ||  2 ||  1 || 43.4%

Italy || 11 091 ||  381 || 3.4%

Cyprus ||  178 ||  0 || 0.0%

Latvia || 1 003 ||  24 || 2.3%

Lithuania || 1 718 ||  8 || 0.5%

Luxembourg ||  67 ||  0 || 0.1%

Hungary || 5 676 ||  160 || 2.8%

Malta ||  125 ||  0 || 0.1%

Netherlands || 1 321 ||  47 || 3.5%

Austria || 1 546 ||  1 || 0.1%

Poland || 15 782 ||  195 || 1.2%

Portugal || 5 948 ||  31 || 0.5%

Romania || 5 409 ||  284 || 5.3%

Slovenia ||  726 ||  23 || 3.2%

Slovakia || 1 943 ||  73 || 3.8%

Finland || 1 243 ||  6 || 0.4%

Sweden || 1 174 ||  22 || 1.9%

UK || 4 554 ||  228 || 5.0%

INTERREG || 2 199 ||  1 || 0.0%

TOTAL || 115 660 || 2 469 || 2.1%

The map above takes into account the relative weight of
the financial corrections implemented for each Member State compared to the
payments received from the EU budget in the year 2013.

Light
grey shows Member States that are below the average percentage of 2.1%.

Red
highlights Member States that are above the average percentage of 2.1%.

*
The negative percentage for Greece results from a correction applied in 2013 on
previously reported amounts. Without this correction, the percentage would be 2.1%
for Greece, and the overall percentage would be 2.3%.

3.3. Recoveries

The
figures for recoveries confirmed and implemented in 2013 are presented in table
3.1 above, with EUR 941 million being confirmed and EUR 862 million being
implemented in 2013. As can be seen in tables 4.3.1 and 4.3.2
below, these amounts show a significant increase from 2012, mainly driven by
increased recoveries in internal policy areas.

4. 
Cumulative financial
corrections and recoveries to end 2013
4.1. 
Overview

Cumulative figures
provide useful information on the significance of the corrective mechanisms used
by the Commission, in particular because they take into account the
multi-annual character of programmes and projects and neutralise the impact of
one-off events. The graphs below show the evolution of financial corrections
and recoveries confirmed and implemented during the last 5 years:

Graphs
4.1: Financial
corrections and recoveries 2009-2013

Financial corrections and
recoveries confirmed 2009-2013        Financial corrections and recoveries
implemented 2009-2013

The
average amount of financial corrections and recoveries confirmed per year by
the Commission during the period 2009 to 2013 was EUR 2.9 billion
or 2.2% of the average amount of payments from the EU budget of EUR 131
billion (shared management: EUR 2.6 billion or 2.5 % of the average amount of
payments of EUR 101 billion); all other types of management: EUR 353 million or
1.2% of the average amount of payments of EUR 30 billion. The trend for confirmed
amounts is slightly increasing, which demonstrates that the multi-annual
control framework is successfully protecting the EU budget over time.

The average amount of financial corrections
and recoveries implemented for 2009-2013 was EUR 2.7 billion, which
represents 2.1% of the average amount of payments from the EU budget in
that period. The increasing trend shown above can be explained by the closure
of the programming period 2000-2006, as a significant number of financial
corrections and recoveries are only implemented at that stage (see below).

4.2. Financial
corrections

4.2.1   Overview

Table 4.2.1: Cumulative financial
corrections confirmed & implementation percentage to end 2013

EUR millions ||

Expenditure || Programming Period || Cumulated EAGF decisions || Total financial corrections confirmed at end 2013 || Financial corrections not yet implemented at end 2013 || Implemented/ confirmed at end 2013 || Financial corrections confirmed at end 2012 ||

1994-1999 Period || 2000-2006 Period || 2007-2013 Period ||

Agriculture ||  0 ||  112 ||  374 || 9 148 || 9 634 || 1 001 || 89.6% || 8 525 ||

EAGF || - || - || - || 9 148 || 9 148 ||  920 || 90.0% || 8 286 ||

Rural Development ||  0 ||  112 ||  374 || N/A ||  486 ||  82 || 83.2% ||  239 ||

Cohesion Policy || 2 719 || 7 729 || 1 741 || N/A || 12 189 ||  756 || 93.8% || 10 786 ||

ERDF || 1 788 || 5 188 ||  667 || N/A || 7 643 ||  477 || 93.8% || 7 305 ||

Cohesion Fund ||  271 ||  688 ||  245 || N/A || 1 204 ||  113 || 90.7% ||  984 ||

ESF ||  560 || 1 678 ||  820 || N/A || 3 057 ||  65 || 97.9% || 2 224 ||

FIFG/EFF ||  100 ||  102 ||  9 || N/A ||  211 ||  102 || 51.8% ||  201 ||

EAGGF Guidance ||  0 ||  73 ||  0 || N/A ||  73 ||  0 || 100.0% ||  72 ||

Other || - || - || - || N/A ||  4 ||  0 || 100.0% ||  2 ||

Total || 2 719 || 7 840 || 2 116 || 9 148 || 21 827 || 1 757 || 91.9% || 19 313 ||

The different
programming periods in Cohesion policy clearly show the multi-annual nature of
the EU budget cycle. Since the 2000-2006 period is approaching the end of the closure
process, the amount of financial corrections is considerably high, especially
when compared to the 2007-2013 period. Financial corrections for this more
recent period are expected to continue to increase in the coming years as its
programmes start to close (some are reaching the 95% payment threshold) but should
be of a lower importance compared to the previous programming period due to the
success of preventive measures. In particular, the use of the interruptions and
suspensions mechanisms has proved to be a strong incentive for Member States to
improve their management and control systems in cooperation with the Commission
services.

4.2.2   Agriculture:
financial corrections under EAGF clearance of accounts

Concerning EAGF, the amount of
financial corrections imposed by the Commission since 1999 totals EUR 9 148
million (from 43 decisions adopted). The average correction rate per
financial year for the period 1999-2013 has been 1.5 % of expenditure. Once
decided by the Commission, the amounts are generally automatically implemented unless
a Member State has been granted the possibility of paying in instalments.

Table 4.2.2: Cumulative financial
corrections decided under EAGF clearance of accounts from 1999 to end 2013;
Breakdown by Member State

|| EUR millions

Member State || EAGF payments received from EU budget || % of payments received as compared to total payments || Cumulated EAGF financial corrections at end 2013 || % as compared to payments received from EU budget || % as compared to total amount of financial corrections

Belgium || 11 638 || 1.9% ||  42 || 0.4% || 0.5%

Bulgaria || 1 980 || 0.3% ||  37 || 1.9% || 0.4%

Czech Republic || 4 742 || 0.8% ||  6 || 0.1% || 0.1%

Denmark || 16 345 || 2.7% ||  183 || 1.1% || 2.0%

Germany || 82 340 || 13.5% ||  186 || 0.2% || 2.0%

Estonia ||  523 || 0.1% ||  0 || 0.0% || 0.0%

Ireland || 19 474 || 3.2% ||  48 || 0.2% || 0.5%

Greece || 38 139 || 6.3% || 2 328 || 6.1% || 25.4%

Spain || 85 336 || 14.0% || 1 457 || 1.7% || 15.9%

France || 133 217 || 21.9% || 1 272 || 1.0% || 13.9%

Croatia ||  0 || 0.0% || - || N/A || N/A

Italy || 68 953 || 11.3% || 1 757 || 2.5% || 19.2%

Cyprus ||  338 || 0.1% ||  10 || 2.9% || 0.1%

Latvia ||  749 || 0.1% ||  0 || 0.0% || 0.0%

Lithuania || 2 089 || 0.3% ||  8 || 0.4% || 0.1%

Luxembourg ||  435 || 0.1% ||  5 || 1.2% || 0.1%

Hungary || 7 279 || 1.2% ||  45 || 0.6% || 0.5%

Malta ||  27 || 0.0% ||  0 || 1.1% || 0.0%

Netherlands || 16 371 || 2.7% ||  212 || 1.3% || 2.3%

Austria || 10 459 || 1.7% ||  11 || 0.1% || 0.1%

Poland || 16 755 || 2.8% ||  92 || 0.6% || 1.0%

Portugal || 10 278 || 1.7% ||  193 || 1.9% || 2.1%

Romania || 4 782 || 0.8% ||  97 || 2.0% || 1.1%

Slovenia ||  629 || 0.1% ||  10 || 1.5% || 0.1%

Slovakia || 2 077 || 0.3% ||  2 || 0.1% || 0.0%

Finland || 7 916 || 1.3% ||  26 || 0.3% || 0.3%

Sweden || 10 542 || 1.7% ||  116 || 1.1% || 1.3%

United Kingdom || 55 077 || 9.1% || 1 007 || 1.8% || 11.0%

Total || 608 491 || 100.0% || 9 148 || 1.5% || 100.0%

The table above
gives a breakdown of the financial corrections that are reimbursed to the EU
budget by the Member States concerned to the EU budget. Year on year, the total
amounts of financial corrections remain relatively stable with a positive trend
over the period, in absolute amounts and also in terms of percentage of
expenditure.

The following graph
illustrates the total financial corrections per Member State, together with the
percentage of these financial corrections as compared to the payments received
from the EU budget.

It is
noted that nine Member States present a rate of correction above the average of
1.5 % and contribute to 75 % of the total amount of corrections, but at the
same time it should be understood that these nine Member States received 44% of
payments from the EU budget.

Graph
4.2.2: Member States’ cumulative financial corrections under EAGF clearance of
accounts from 1999 to end 2013 as compared to payments received from the EU
Budget

4.2.3   Agriculture:
Deficiencies in Member States’ Control systems

Material deficiencies noted in Member States’
management and control systems, as identified by them, DG AGRI, the ECA, and/or
OLAF (fraud investigations) are closely followed up by DG AGRI up until it has
obtained reliable evidence that the weaknesses have been remedied through the
implementation of appropriate actions by the Member State, the irregular
expenditure declared in the past has been corrected, and the new system has
proved its reliability in practice.

For example, concerning aid schemes in
Poland, serious structural deficiencies were identified by DG AGRI in 2013 for
the pre-recognition of producer groups for fruits and vegetables. For amounts
previously paid out, the financial risk to the fund is covered via the
conformity clearance procedure which will claw back amounts of unduly spent EU money.
For the future, Poland has been requested to take the necessary remedial
actions. These actions will be monitored by DG AGRI. Regarding the deficiencies
in the wine sector, two sets of guidelines on the application of the national
support programme have been issued in February and April 2013.

Under direct payments, persistent
deficiencies concerning the incorrect definition of certain types of pasture
land as being eligible have been identified in 15 Spanish Paying Agencies and
in Greece. In Spain, the remedial actions were audited mid-2013 and found not
to address the situation in full. As a consequence there will be increased
monitoring and follow-up of the Spanish implementation plan and financial
corrections will continue. In Greece, the Land Parcel Identification System (LPIS)
established in 2008 included areas which due to their inherent situation should
not be eligible for CAP support. As a condition of the decision to defer
financial corrections, Greece was required to address this situation via an
action plan. For the claims concerning years 2009-2012 and subsequent years,
the clearance procedures triggering net financial corrections are on-going.
Furthermore, failure to implement the remedial actions as scheduled triggered a
revocation of the deferral of net financial corrections for the pasture
deficiency and a pre-suspension letter addressed to the Greek authorities on 24
June 2014 with a clear deadline to meet the remaining milestones.

In addition, a comprehensive action plan to
remedy serious deficiencies in the quality of LPIS-GIS was completed by
Portugal in 2013, whilst for France a wide-ranging action plan to update and
complete the LPIS was launched and is expected to be fully completed for claim
year 2016. As regards Portugal, the conformity clearance procedure ensured the
claw back of over EUR 100 million in net financial corrections for financial
years 2007 to 2009, while for subsequent years the conformity procedures are
still ongoing. For France, a number of significant financial corrections are in
progress in respect of financial years 2008-2010 for which the clearance of
accounts procedure is well advanced. A mission carried out in February 2014
showed that while in general the action plan is on track, some intermediate
commitments have not been met. Consequently, France has been requested to
tackle these issues and at the same time a more detailed reporting has been
requested so as to enable a more hands-on follow-up by DG AGRI. It should be
noted that in France, the action plan covering the management of payment
entitlements and the cross-compliance system was successfully implemented. The
monitoring of the quality of the Integrated Administration and Control System (IACS)
and LPIS, including the necessary guidance and support, fall now under the
responsibility of a new unit within DG AGRI that became effective in 2014.

Action plans as a result of adjustments in
the error rates above 5% were triggered following assessments by the ECA of certain
control systems as being 'not effective' or 'partially effective' (e.g.
Romania, Bulgaria, Portugal), or by DG AGRI audits and from the lack of
assurance concerning the reported control statistics (e.g. Greece, the
Netherlands). For example, significant systemic weaknesses were identified by
both DG AGRI's conformity audits and ECA audits in Romania concerning the
measure 312 'Support for the creation and development of microenterprises'.
Following DG AGRI's request, the Romanian authorities implemented an action
plan in order to improve the situation. Additionally, the reimbursements from
the Commission to Romania relating to this measure were interrupted during
2013. Following constant work by DG AGRI with the Romanian authorities, it was
considered in May 2014 that while efforts for implementing the special action
plan for measure 312 have to continue, resuming payments could be possible, on
the condition that the Romanian authorities accept a close monitoring by DG
AGRI, thus mitigating the risk. Nevertheless, a confirmation that the systemic
weaknesses relating to measure 312’s implementation have been successfully
addressed can only be definitely obtained after a future audit. The EU budget will
be protected through conformity audit procedures leading to net financial
corrections and recovery from the Member State; in the same time, a very close
follow up of the Romanian Rural Development programmes is ongoing.

In Bulgaria, DG
AGRI audits for Rural Development revealed serious shortcomings in the
administrative checks and also deficiencies in the on-the-spot checks. Main
weaknesses concerned the checks of the public procurement procedure, the
existence of ineligible and/or unreasonable costs, the scope of the on-the-spot
checks, and the early and high payment of advances. With regard to the high
level of advances, they have to be seen in the light of the n+2 de-commitment
rule. The Bulgarian authorities have been invited to explain why such early and
high advance payments were necessary. These explanations will be duly taken
into consideration when concluding on the existence of a possible circumvention
of the n+2 rule and when deciding on the need for a financial correction.
Following a first letter sent out by DG AGRI to all Member States at the
beginning of 2013, a process for the establishment and monitoring of national
action plans for the reduction of error rates was put in place. Member States
submitted their action plans, in close cooperation with DG AGRI services, and three
seminars were organised to present the state of play and provide guidance, both
during 2013 and 2014.

4.2.4   Cohesion
Policy: ERDF & ESF 2000-2006

As the closure of the 2000-2006 period is
in the completion stage, a useful comparison of the overall results of the
corrective actions with the total monies spent can be made and thus a more
complete view of the impact of corrective mechanisms is possible. For the ERDF
and ESF funds at
the end of 2013 the combined amount of financial corrections, based on
Commission supervision work only, was EUR 8.8 billion. This
corresponds to about 4.5% of the allocations (EUR 196.9 billion) at end
2013. The correction rate increases to 5.1% of allocations when considering the
additional financial corrections reported by Member States and related to their
own control activity.

Financial corrections imposed at the
closure stage by the Commission represent roughly one third of the total
financial corrections imposed by the Commission for that programming period. This
includes amounts of corrections in progress at end 2013 corresponding
to 0.8% of the allocations (EUR 1 502 million), which are
covered by closure letters formally communicated to Member States authorities
but not yet accepted by Member States. This data updates
the figures provided by the concerned Directorates General to the European
Parliament in their report[8]
dated 12/04/2013 on "Financial corrections carried out for ERDF and ESF on
2000-2006 programmes".

Table 4.2.4: Programming period 2000-2006 - ERDF &
ESF Financial corrections confirmed and in progress at 31/12/2013; Breakdown by
Member State

|| EUR millions

Member State || ERDF+ESF contribution amount || % of contribution amount to total contributions || Financial corrections confirmed || Financial corrections in progress (closure letters sent) || Total financial corrections imposed for 2000-2006 || Percentage of financial corrections in relation to the ERDF+ESF contributions || Share of financial corrections imposed compared to total financial corrections

Belgium ||   1 945 || 1.0% ||  15 ||  0 ||  16 || 0.8% || 0.2%

Czech Republic ||   1 456 || 0.7% ||  5 ||  6 ||  11 || 0.8% || 0.1%

Denmark || 570 || 0.3% ||  1 || - ||  1 || 0.1% || 0.0%

Germany ||   26 960 || 13.7% ||  50 ||  0 ||  50 || 0.2% || 0.6%

Estonia || 305 || 0.2% ||  2 || - ||  2 || 0.5% || 0.0%

Ireland ||   3 067 || 1.6% ||  21 ||  142 ||  163 || 5.3% || 1.9%

Greece ||   20 211 || 10.3% || 1 154 ||  66 || 1 221 || 6.0% || 13.9%

Spain ||   40 686 || 20.7% || 3 246 ||  260 || 3 506 || 8.6% || 40.0%

France ||   14 825 || 7.5% ||  332 ||  23 ||  355 || 2.4% || 4.1%

Italy ||   27 501 || 14.0% || 1 229 ||  1 354 || 2 582 || 9.4% || 29.5%

Cyprus || 53 || 0.0% || - || - || - || 0.0% || 0.0%

Latvia || 518 || 0.3% ||  4 || - ||  4 || 0.8% || 0.1%

Lithuania || 773 || 0.4% ||  3 || - ||  3 || 0.3% || 0.0%

Luxembourg || 71 || 0.0% ||  2 || - ||  2 || 2.6% || 0.0%

Hungary ||   1 695 || 0.9% ||  12 || - ||  12 || 0.7% || 0.1%

Malta || 57 || 0.0% || - || - || - || 0.0% || 0.0%

Netherlands ||   2 702 || 1.4% ||  44 || - ||  44 || 1.6% || 0.5%

Austria ||   1 647 || 0.8% ||  0 ||  0 ||  0 || 0.0% || 0.0%

Poland ||   7 032 || 3.6% ||  180 || - ||  180 || 2.6% || 2.1%

Portugal ||   18 178 || 9.2% ||  190 || - ||  190 || 1.0% || 2.2%

Slovenia || 215 || 0.1% ||  2 || - ||  2 || 0.9% || 0.0%

Slovakia ||   1 245 || 0.6% ||  44 ||  1 ||  45 || 3.6% || 0.5%

Finland ||   1 789 || 0.9% ||  0 || - ||  0 || 0.0% || 0.0%

Sweden ||   1 634 || 0.8% ||  12 || - ||  12 || 0.7% || 0.1%

United Kingdom ||   16 129 || 8.2% ||  293 ||  1 ||  294 || 1.8% || 3.4%

Interreg ||   5 645 || 2.9% ||  26 ||  41 ||  67 || 1.2% || 0.8%

Total ||   196 911 || 100.0% || 6 866 || 1 895 || 8 761 || 4.5% || 100.0%

Four Member States
present a rate of correction above the average of 4.5% and represent 85 % of the
total amount of corrections and 47% of the total contributions received. It is
worth underling that a large majority of the problems leading to the financial
corrections reported by the Commission for these Member States at the time are
now solved. This is in particular the case, for example, for EUR 2.6 billion of
ERDF corrections reported for Spain (for deficiencies found by the Commission
in the 2000-2006 Spanish management and control systems which have been
addressed and are not present anymore in the 2007-2013 operational programmes)
and EUR 1.1 billion of ERDF corrections for Greece (a result of the measures
taken to resolve the deficiencies in tendering for public works and contract
implementation before 2005). For Italy and Ireland, the majority of the
corrections reported are corrections “in progress”, proposed by the Commission
at the closure stage and contested by the Member State with the presentation of
additional information for consideration. A significant part of these
corrections for Italy relate to unfinished projects.

With
regard to ESF, the aim of DG EMPL for the future is to move further from
the need to correct errors to a situation where errors are avoided. This is
particularly important for Member States where financial corrections have been
the highest in recent years, such as Spain, Italy and Romania (see Table 4.2.4
above and table 4.2.5 below).

Considering
the important and recurring number of reservations related to the Spanish
programmes, DG EMPL in 2011 decided to launch a dedicated action plan towards
the Spanish ESF implementing authorities, in particular to stimulate the full
use of all simplification opportunities offered by the EU regulation and to
remove unnecessarily more stringent national eligibility rules (e.g. for
employment aid schemes). A working group composed of audit staff and
geographical desk officers was created to monitor the effective implementation
of the agreed actions. Similar activities have been undertaken in Italy. Other
examples of close cooperation with Member States in order to address the root
causes of the recurring problems identified include Romania, where the
Commission worked together with national authorities in order to strengthen
their management and control systems for the previous  and new programming
periods.

From a
broader perspective, the enhanced regulatory framework for 2014-2020, including
in particular, the annual assurance package and the possibility to use net
financial corrections in case of serious deficiencies, coupled with the
continuation of the existing strict policy on interruptions and suspensions and
the strong encouragement of the utilisation of all simplification opportunities,
should result in a further improvement of the implementation of the European Structural
and Investment Funds (ESIF) in the new programming period. DG EMPL will also
build on the efforts initiated in recent years to help these Member States
improve their systems by using best practice available.

Graph
4.2.4: Member States' cumulative financial corrections confirmed and in
progress at 31/12/2013 for ERDF & ESF programming period 2000-2006 as
compared to contributions received

4.2.5   Cohesion
Policy: ERDF/CF & ESF 2007-2013

As
the 2007-2013 programming period has not reached the closure stage, it is
normal that the cumulative amounts corrected to date are much lower than for
the 2000-2006 period. This reflects the fact that the most significant financial
corrections are made at closure. The coming years should see the amounts below
increase. Reference is also made to the corrections made by Member States in
this period – see section 7.

Table 4.2.5: Programming
period 2007-2013 – ERDF/CF & ESF Financial corrections confirmed and in
progress at 31/12/2013; Breakdown by Member State

|| EUR millions

Member State || ERDF/CF+ESF contribution amount for 2007-2013 || % of contribution amount to total contributions || Financial corrections confirmed || Financial corrections in progress (closure letters sent) || Total financial corrections imposed for 2007-2013 || Percentage of financial corrections in relation to the ERDF/CF+ESF contributions || Share of financial corrections imposed compared to total financial corrections

Belgium || 2 063 || 0.6% ||  10 ||  0 ||  10 || 0.5% || 0.5%

Bulgaria || 6 674 || 1.9% ||  8 ||  8 ||  16 || 0.2% || 0.8%

Czech Republic || 26 540 || 7.6% ||  285 ||  2 ||  287 || 1.1% || 15.0%

Denmark ||  510 || 0.1% ||  0 || - ||  0 || 0.0% || 0.0%

Germany || 25 488 || 7.3% ||  19 ||  0 ||  19 || 0.1% || 1.0%

Estonia || 3 403 || 1.0% ||  10 || - ||  10 || 0.3% || 0.5%

Ireland ||  751 || 0.2% ||  21 ||  0 ||  21 || 2.8% || 1.1%

Greece || 20 210 || 5.8% ||  144 || - ||  144 || 0.7% || 7.5%

Spain || 34 649 || 10.0% ||  276 ||  39 ||  316 || 0.9% || 16.5%

France || 13 449 || 3.9% ||  26 ||  0 ||  27 || 0.2% || 1.4%

Croatia ||  858 || 0.2% || - || - || - || 0.0% || 0.0%

Italy || 27 923 || 8.0% ||  72 ||  0 ||  72 || 0.3% || 3.7%

Cyprus ||  612 || 0.2% || - || - || - || 0.0% || 0.0%

Latvia || 4 530 || 1.3% ||  23 || - ||  23 || 0.5% || 1.2%

Lithuania || 6 775 || 2.0% ||  0 || - ||  0 || 0.0% || 0.0%

Luxembourg ||  50 || 0.0% ||  0 || - ||  0 || 0.0% || 0.0%

Hungary || 24 908 || 7.2% ||  174 || - ||  174 || 0.7% || 9.1%

Malta ||  840 || 0.2% || - || - || - || 0.0% || 0.0%

Netherlands || 1 660 || 0.5% || - || - || - || 0.0% || 0.0%

Austria || 1 204 || 0.3% ||  2 ||  7 ||  9 || 0.7% || 0.5%

Poland || 67 186 || 19.3% ||  205 ||  3 ||  208 || 0.3% || 10.9%

Portugal || 21 412 || 6.2% ||  1 ||  26 ||  28 || 0.1% || 1.4%

Romania || 19 058 || 5.5% ||  358 ||  5 ||  362 || 1.9% || 18.9%

Slovenia || 4 101 || 1.2% ||  14 ||  1 ||  15 || 0.4% || 0.8%

Slovakia || 11 496 || 3.3% ||  102 ||  30 ||  132 || 1.1% || 6.9%

Finland || 1 596 || 0.5% ||  0 || - ||  0 || 0.0% || 0.0%

Sweden || 1 626 || 0.5% ||  1 || - ||  1 || 0.1% || 0.1%

United Kingdom || 9 891 || 2.8% ||  36 ||  7 ||  43 || 0.4% || 2.2%

Cross-border || 7 987 || 2.3% ||  0 || - ||  0 || 0.0% || 0.0%

Total || 347 450 || 100.0% || 1 790 ||  128 || 1 918 || 0.6% || 100.0%

As
2007-2013 programmes are multi-funds, no split is given between ERDF and CF in
the above table.

Eight
Member States present a rate of correction above the average of 0.6% and
represent 75% of the total amount of financial corrections, and 40% of the
contributions received.

Graph 4.2.5: Member States' cumulative
financial corrections confirmed and in progress at 31/12/2013 for ERDF/CF &
ESF programming period 2007-2013 as compared to contributions received

Concerning
ERDF/CF and the Cohesion Fund, in 2013, the Commission continued
to exercise rigorously its supervisory role by ensuring that Member States
address the identified weaknesses in their management and control systems. The
objective was to identify and address any major outstanding material risk so as
to ensure an appropriate protection of the EU budget, and to arrive at an acceptable
residual risk by the closure of programmes. This resulted in an overall
improvement for the 2007-2013 programming period compared to 2000-2006, and in
a positive trend as regards the incidence of errors in Cohesion expenditure
over the years thanks to a series of actions taken by the Commission in
cooperation with Member States.

Firstly, the capacity of national
management and control systems to prevent, detect and correct errors before
expenditure is declared to the Commission has been strengthened. On the one
hand, the Commission services invested significant management and audit efforts
in improving the functioning of Member States’ first level verifications. On
the other hand, the 2007-2013 regulations introduced the obligation for audit
authorities to use statistical samples for audits of operations. This,
associated with exhaustive audit supervision and guidance from the Commission
leading to considerable capacity building efforts, very much helped to improve
the reliability of error rates reported on a yearly basis to the Commission in
the Member States' Annual Control Reports and used as indicators on the
effectiveness of management and control systems in the Commission assurance
process. The Commission audit work could thus shift towards obtaining assurance
on the work of audit authorities, concentrating on the weakest ones or on those
ensuring the highest coverage of EU Funds. In addition, the Commission is
continuously following-up identified weaknesses and monitoring that the work
quality of the audit authority remains satisfactory when the single audit
status has been granted to a programme. The close cooperation with audit
authorities ensures a timely detection and solution of problems already at national
level. It also contributes to the improvement of the assurance process at
Commission level.

The Commission also carries out its own
on-the-spot risk-based audits, including audits at the level of beneficiaries,
if it considers that certain deficiencies (concerning in particular complex
issues such as public procurement or State aid issues for ERDF/CF) could remain
either undetected or not detected in a timely manner. This includes verifying implementation
of remedial actions plans in case of interruptions and financial corrections.
These audits contribute to improvements in the management and control systems
for programmes put under reservation ensuring that past and future expenditure
declared to the Commission is legal and regular. It also provides an
additional, more direct source of assurance to the Commission.

Secondly, the improved capacity to detect
problems has been pro-actively used to improve the functioning of Member
States' management systems, while implementing the necessary financial corrections.
The systematic and consistent use by the Commission of the legal possibility to
interrupt and/or suspend payments to programmes with significant management
weaknesses since 2008, or the decision of the Directors General to issue
warning letters when no payments are pending, has avoided EU reimbursements of
expenditure with a high risk of error, while also providing strong incentives
to Member States to rapidly improve their management and control systems.
Indeed, interruptions and suspensions are only terminated after reasonable
assurance is obtained on the progress made in the implementation of the
necessary measures including implementation of financial corrections (see section
6). At the same time, the joint work of the EU and Member States' control
authorities has allowed for better agreement on, and implementation of, the
necessary financial corrections so as to duly protect the EU budget against irregular
expenditure, including through flat-rate corrections. Member States were, in
turn, able to re-use the EU resources affected by these corrections for other
projects. However, such corrections still have a major financial and political
impact in the Member States concerned since irregular expenditure has to be
funded by national resources unless it is recovered from beneficiaries.

In order to mitigate the remaining risks
and weaknesses identified in Member States and programmes at the level of
managing authorities, DG REGIO has also taken initiatives to implement
additional capacity building actions for the 2007-2013 programmes. A new
Competence Centre on administrative capacity building was established at the
beginning of 2013 in order to support public administrations managing ERDF and
the Cohesion Fund. For public procurement, the Competence Centre has
established a Public Procurement Action Plan in coordination with DG Internal Market
and the other ESI Funds. Actions are also taken to improve the good
implementation of State aid rules, while an exchange platform between
administrations managing the funds is being developed in order to capitalise on
existing good practices on the ground.

Concerning the ESF, the 2013
developments confirm a long term trend of decreasing exposure of DG EMPL
expenditure to error, while the volume of payments has significantly increased.
In addition to the common factors mentioned above for ERDF and the Cohesion
Fund, the probability of occurrence of errors has been significantly reduced
since the introduction of the possibility to declare ESF-related expenditure on
the basis of simplified cost options. The uptake of this method has increased
in recent years, thanks to the significant efforts made by the Commission in
order to persuade Member States to fully leverage the simplification
opportunities offered by the 2007-2013 Structural Funds regulations, which have
been further strengthened for the 2014-2020 programming period. At the same
time, the Commission has actively worked in close cooperation with a number of
Member States to remove unnecessarily complex national eligibility rules and
introduce the necessary changes in the national legislation. This has notably
been the case in Spain and Italy.

Recognising that there
is scope to further strengthen the management and control systems and align
between policy areas, a reinforced regulatory framework was adopted for the
2014-2020 programming period. The increased possibility of net financial
corrections by the Commission in Cohesion policy, as well as the increased
accountability at Member States level, will act as major drivers for further change
– see section 5.

4.3. Recoveries

The
tables below provide the amounts of recoveries confirmed and implemented for
the period 2009-2013. Both categories show an increasing trend.

Table 4.3.1: Recoveries confirmed 2009-2013

EUR millions

|| Years || Total 2009-2013 || Total 2008-2012

Recoveries

|| 2009 || 2010 || 2011 || 2012 || 2013

Agriculture || || || || || || ||

EAGF ||  163 ||  178 ||  174 ||  162 ||  227 ||  905 || 1 038

Rural Development ||  25 ||  114 ||  161 ||  145 ||  139 ||  585 ||  446

Cohesion ||  102 ||  24 ||  50 ||  22 ||  83 ||  280 ||  228

Internal policy areas ||  100 ||  188 ||  270 ||  252 ||  393 || 1 202 ||  849

External policy areas ||  81 ||  137 ||  107 ||  107 ||  93 ||  524 ||  463

Administration ||  9 ||  5 ||  8 ||  7 ||  6 ||  35 ||  30

Total ||  480 ||  646 ||  770 ||  695 ||  941 || 3 530 || 3 053

Table 4.3.2: Recoveries implemented
2009-2013

EUR millions

|| Years || Total 2009-2013 || Total 2008-2012

Recoveries

|| 2009 || 2010 || 2011 || 2012 || 2013

Agriculture || || || || || || ||

EAGF ||  148 ||  172 || 178 || 161 || 155 ||  814 || 1 015

Rural Development ||  25 ||  114 ||  161 || 166 || 129 || 595 ||  466

Cohesion ||  102 || 25 || 48 || 14 || 81 || 270 ||  219

Internal policy areas ||  100 || 162 || 268 || 229 || 398 || 1 157 ||  799

External policy areas ||  81 || 136 || 77 || 99 ||  93 || 486 ||  425

Administration ||  9 ||  5 || 2 || 9 ||  6 || 31 ||  25

Total ||  464 || 614 || 734 || 678 || 862 || 3  353 || 2 949

5. NET FINANCIAL CorrectionS AND IMPROVEMENTS PLANNED
FOR THE PROGRAMMING PERIOD 2014-2020
5.1. Background

The
budget
implementation type and the policy area influence how the EU budget is impacted
by the different correction mechanisms. But in all cases, the correction
mechanisms have the same result – that the EU budget is protected from expenditure
incurred in breach of law. A net financial correction is a correction
whereby the Member State concerned cannot re-use the corrected and recovered
amounts and therefore loses the funds. As a consequence, the EU funding for the
expenditure in question is decreased.

Notably
under the CAP, the corrective action leads to the return of previously paid
amounts in the form of assigned revenue to the EU budget. For
Cohesion, the 2007-2013 legislation foresees that the corrected amounts can be
re-used, under certain conditions, to fund other eligible projects, thus
allowing the goals of the programme to be achieved. Net financial
corrections leading to the return of previously paid amounts to the EU budget
were generally the exception.

Following
the successful operation of net financial corrections in the Agricultural area
for many years, the legislator has decided that net financial corrections
should be more widely applied to Cohesion Policy for the new programming period
2014-2020. It is to be noted that the Commission will not report net financial
corrections (for funds other than Agriculture) before 2016 at the earliest, due
to the rhythm of implementation of programmes (first programme accounts are to
be submitted by 15 February 2016).

5.2. 2013
net financial corrections: Impact on the EU budget

Table 5.2: Impact of financial corrections
& recoveries on the EU Budget

Policy domain || Total amount implemented in 2013 (in EUR millions) || Exclusion of expenditure incurred in breach of law (Yes/No) || Reimbursement to EU budget (Yes/No) || Impact on EU budget || Main expenditure budget chapters concerned

Agriculture: || 995 || || || ||

EAGF financial corrections || 481 || Y || Y || Assigned revenue || 05 02 05 03

EAGF recoveries || 155 || Y || Y || Assigned revenue || 05 02 05 03

Rural development financial corrections || 230 || Y || Y || Assigned revenue || 05 04

Rural development recoveries || 129 || Y || Y* || - || -

Cohesion Policy: || 1 839 || || || ||

Financial corrections implemented by withdrawals || 775 || Y || N || - || -

Financial corrections implemented by recoveries || 489 || Y || Y || Assigned revenue || 13 03 13 04 04 02 11 06

Financial corrections implemented by de-commitment/ deduction at closure || 494 || Y || Y** || - || -

Recoveries || 81 || Y || Y || Assigned revenue || 13 03 13 04 04 02 11 06

Other policy areas: || 500 || || || ||

Financial corrections implemented by de-commitment/ deduction at closure || 1 || Y || N** || - || -

Financial corrections implemented by recoveries || 2 || Y || Y || Assigned revenue || 18 03

Recoveries || 497 || Y || Y || Assigned revenue || Various

TOTAL || 3 334 || || || ||

- Under the current legal framework of EAFRD,
recoveries are compensated with payments, releasing amounts that can be spent
again for the Member State concerned; at closure (after 2015) no re-use will be
possible and a recovery order will have to be issued. For SAPARD and TRDI,
recoveries are made via the issue of recovery orders since the funds are now in
a closure stage.

** Under the current legal framework of Cohesion policy
in particular, but also for other policy areas, financial corrections can lead
to reduction in expenses/envelope (but not a real cash-flow back to the EU
budget) only:

- If Member States are unable to present sufficient
eligible expenditure;

- After the closure of programmes where replacement of
expenditure is no longer possible;

- In case of disagreement with the Commission.

Net financial
corrections lead to "revenue arising from the repayment,..., of amounts
wrongly paid" and are treated as assigned revenue[9]. Apart
from two exceptions, the Financial Regulation[10] does
not include specific provisions on how the assigned revenue generated by a net
financial correction can be used. However, Article 7 of the Rules of
Application of the Financial Regulation (RAP) determines that the budget
commentary shall show which budget lines may receive the appropriations
corresponding to the assigned revenue. In summary,
assigned revenue goes back to the budget line or Fund from which the
expenditure was originally paid and may be spent again, see table below, but
they are
not earmarked for specific Member States.

5.3. Impact
on national
budgets

Under shared management, all financial corrections
and recoveries have an impact on national budgets regardless of their method of
implementation. It has to be underlined that even if no reimbursement to the EU
budget is made, the impact of financial corrections is always negative at
Member State’s level. This is because in order not to lose EU funding, the
Member State must replace ineligible expenditure by eligible operations. This
means that the Member State bears, with its own resources (from the national
budget), the financial consequences of the loss of EU co-financing of
expenditure considered ineligible under the EU programme rules (in the form of
opportunity cost) unless it recovers the amounts from individual beneficiaries.
This is not always possible, for example in the case of flat-rate corrections
at programme level (due to deficiencies in the national administration managing
the programme) which are not directly linked to individual irregularities at
project level.

5.4. Agriculture

5.4.1   Situation
up to 2013

According
to the CAP legal framework, financial corrections imposed by the
Commission on Member States upon completion of a conformity clearance procedure
have always been and will continue to be net corrections since
the first clearance of accounts decision for both EAGF and EAFRD.

For
EAGF, every year the Commission adopts between two and four conformity
clearance decisions on a package of individual financial corrections. In 2013
the Commission adopted four such decisions, covering 147
individual net financial corrections for a total amount of EUR 1.1 billion (2.4% of
the CAP
expenditure
budgeted for 2013) – see table 3.1, confirmed amounts. 70% of
the financial corrections adopted are concentrated in four Member States:
Greece, France, UK and Poland. However this can change from year to year
depending on the evolution of the quality of the national and regional control
systems. A total amount of EUR 636 million was implemented in 2013.

For
EAGF, financial corrections are executed by deducting the amounts concerned
from the monthly payments made by the Commission to the Member State concerned in
the second month following the Commission decision on a financial correction.
For EAFRD, the financial corrections are reimbursed by Member States to the EU
budget.
In 2013 assigned revenues from EAFRD financial corrections amounted to EUR 212
million, with a further EUR 18 million for the Temporary Rural Development
Instrument (TRDI).

To
ease the strain on Member States’ budgets, an option was introduced whereby
corrections of a certain volume can be executed in three annual instalments on
request of the Member State concerned. Execution in instalments has been so far
accepted for Bulgaria, Greece, Portugal, Romania, Spain and Lithuania.

Additionally,
where undue payments are or can be identified as a result of conformity
clearance procedures, Member States are required to follow them up by recovery
actions against the final beneficiaries. In 2013, the irregular amounts
recovered from beneficiaries amounted to EUR 94 million for EAGF and EUR 103 million
for Rural Development – see also section 7.1.

5.4.2   Improvements
planned for period 2014-2020

Focus on more risky
expenditure

As
a result of the higher error rate reported by the Court in its DAS 2011 and DAS
2012, the number of EAFRD audits were increased significantly in 2013 (35) and again
in 2014 (to 45), thus double the 2012 amount (23). Another consequence is that
some Member States are audited every year, until all serious deficiencies are
remedied.

The
audit strategy for the period 2014-2020 is based on a reinforced risk analysis and
a rolling three-year programme which will ensure a better coverage of the
overall expenditure, notably to achieve a better audit coverage,
and targeting mainly the serious and/or systemic deficiencies in the Member States’
management and control systems. More intensive audit activities will
continue in the most risky areas with a system-based approach.

No
discretion and fewer flat-rate corrections

Any
identified risk to the EU budget will systematically trigger a net financial
correction since the Commission is legally bound to exclude any identified
illegal expenditure from EU financing. Both EAGF and EAFRD net financial
corrections are governed by the new CAP Horizontal Regulation which tightens
the procedure even more, to the extent that the method and the criteria for
fixing the amount of financial corrections is now set out in the delegated act.

Both
the Financial Regulation and the new CAP Horizontal Regulation provide for a
ranking of types of net financial corrections where flat-rate corrections may
only be used if calculated or extrapolated corrections cannot be established
with proportionate efforts.

Shorter
conformity procedure

The
Commission will continue with actions aimed at streamlining the whole procedure.
Firstly, the new CAP Horizontal Regulation describes precisely the nature,
scope and sequence of the successive steps, as well as the different types of
financial corrections. Secondly, provisions in the delegated act (method and
criteria for calculating the financial correction) and implementing acts
(details of the conformity procedure, with mandatory deadlines) are intended to
further streamline the legal framework and limit the risk of unnecessary
delays. Thirdly, on that stronger basis, DG AGRI will intensify its monitoring
of the progress of the conformity procedures to ensure a strict respect of the
deadlines.

Reinforcement of
the Commission's supervisory role

The CAP
regulatory tools have been reinforced for the financial period 2014-2020, including:
having a single system of monitoring and evaluation for both pillars,
streamlining/speeding up of the conformity clearance procedure, better
definition of the criteria and methodology for applying net financial
corrections, introducing a new model for assurance by the Certifying Body (CB)
on the legality and regularity of declared expenditure based on representative
samples.

Simplified payment
schemes

DG AGRI will continue
its efforts to identify the root causes of errors (an ad-hoc task force was
set-up), and to propose and encourage the widest possible use of the simplified
payment schemes that are less prone to errors.

5.4.3   Interruptions
and suspension for CAP will be aligned with Cohesion Policy Funds

Under
the new CAP Horizontal Regulation, a new legal framework for interruptions and
suspensions of CAP funds entered into force in 2014 which will strengthen the
Commission’s powers to suspend EU financing in cases where risks of irregular
payments have been identified. Accordingly the Commission may reduce or suspend
monthly (EAGF) or interim (EAFRD) payments where "one or more of the
key components of the national control system in question do not exist or are
not effective due the gravity or persistence of the deficiencies found"
(or there are similar serious deficiencies in the system for the recovery of
irregular payments) and:

- either
the deficiencies are of a continuous nature and have already been the reasons
for at least two financial correction decisions,

or

- the
Commission concludes that the Member State concerned is not in a position to
implement the necessary remedial measures in the immediate future, in
accordance with an action plan with clear progress indicators to be established
in consultation with the Commission.

For
EAGF, as according to the new rules, monthly payments to Member States may
continue until the conditions for a suspension decision are met, the rhythm of
the monthly payments would not allow for using an interruption procedure.
However, for EAFRD, the new Common Provisions Regulation (CPR) also provides
for the interruption of interim payments by the Authorising Officer by
Delegation (i.e. the Director-General) as an additional,
quick and reactive tool in case of concerns on the legality and regularity of
payments.

The combination of both preventive actions
(interruption for EAFRD, suspension for both Funds) and net financial
corrections will allow the Commission to act promptly and effectively and
protect the EU budget: no new payments will be made or they will be reduced up
to the level of the estimated risk during the suspension; irregular payments
already made will be fully covered via the net financial corrections.

5.5. Cohesion

5.5.1   Situation
up to 2013

Due to the legal
framework, for Cohesion Policy, net financial corrections leading to the return
of previously paid amounts to the EU budget were generally the exception. However,
as can be seen in table 5.2, in 2013 EUR 570 million of financial
corrections and recoveries from Member States were made that were treated as
assigned revenue under Cohesion Policy. This is a large increase from 2012 (EUR
63 million) and is due to a number of factors.

For ESF in 2013, the amount of
financial corrections implemented via recovery order totalled EUR 282 million.
More recoveries took place in 2013 mainly due to the closure of the 1994-1999
programmes (EUR 153 million) and the most complex 2000-2006 programmes (EUR 82
million) related to Spain.

For
ERDF 1994-1999 amounts reimbursed by Member States increased from around
EUR 0.5 million in 2012 to EUR 22 million in 2013 due mainly to the closure of
some old outstanding programs for Italy (EUR 14.6 million) and Belgium (EUR 7.5
million). For ERDF 2000-2006, amounts reported increased by from EUR 34 million
in 2012 to EUR 170  million in 2013 due mainly to the closure of ERDF
programmes for Italy (EUR 82 million) and Spain (EUR 80 million).

The
remaining amounts relate to EAGGF Guidance and FIFG/EFF.

5.5.2   Improvements
planned for period 2014-2020

A significant
change is introduced for the 2014-2020 programming period: under certain
conditions laid down in Article 145(6) of the CPR, the Commission must adopt
a decision applying a net financial correction. In such cases the current
possibility for the Member State to accept the correction and to re-use the EU
funds in question is removed, while net financial corrections were only applied
in exceptional cases before the 2014-2020 period under Cohesion policy.

Firstly, the obligation to impose
net financial corrections in the 2014-2020 period will therefore introduce an
additional incentive on the side of the Member States to further improve their
management and control since these corrections will reduce the funds earmarked
for a particular Member State when serious deficiencies not previously
detected, reported nor corrected at Member State level are discovered by EU
audits.

Secondly, with the
new 2014-2020 financial control procedures, Member States will have strong
incentives to carry out timely, effective and robust controls, including management
verifications and audits, before certification of the annual programme
accounts. When drawing up the accounts, the management declaration and the
audit opinion, the programme authorities should obtain reasonable assurance
through such control procedures that all material irregularities have been
corrected and that possible serious deficiencies, at any level of the
management and control system, have been addressed, or are being addressed.
Audit authorities will play a reinforced role in presenting audit opinions
every year for each programme: their audit opinions will be based on annual
residual risks of error in expenditure included in the accounts following
corrections applied to the expenditure certified in the accounts by the
certifying authorities, as a result of all audits and controls before closing the
accounts. Residual error rates reported by Member States will be assessed and
validated by the Commission’s DGs when preparing their Annual Activity Reports.

Within the new
financial management cycle, 15 February following each accounting year[11] is the
cut-off date for the application of the new provision on net financial
corrections in relation to expenditure of the preceding accounting year. By
that date, Member States must submit to the Commission the programme’s
accounts, management declaration, audit opinion and corresponding reports. This
means that all national control and verification work has to be finalised so
that the Member States can certify the legality and regularity of expenditure
included in their annual accounts.

Financial corrections for irregularities/deficiencies
identified before 15 February each year

The rules of the
2014-2020 programming period concerning financial corrections for
irregularities identified before 15 February each year are similar to
those of the 2007-2013 programming period. The objective is to maintain the incentive
for Member States to detect and correct irregularities themselves, and so to
exclude irregular amounts from expenditure declared to the Commission, and thus
avoid a loss of EU funds. Irregular expenditure detected through national
verifications or audits has to be deducted from the accounts to be submitted to
the Commission by 15 February each year. Having done so, the Member State will
be able to re-use the amounts thus corrected for new eligible operations under
the programme, just as in the 2007-2013 programming period.

In the cases of EU
audits carried out on expenditure before the certified accounts are submitted
to the Commission and which detect irregularities requiring financial
corrections, two scenarios are possible, as in the current period:

(1) If the Member
State agrees on the financial correction to be made and takes action, it will
be able to re-use the corrected amounts for new eligible operations (Article
145(4) CPR);

(2) If the Member State does not agree, the Commission
will adopt a financial correction decision, following the contradictory
procedure provided for in Article 145 of the CPR. This financial correction
will always be net and the programme and Member State allocation will be
reduced proportionally. The Member State will not be able to re-use this
amount.

Commission assessment of legality and regularity on the
basis of the accounts, audit opinion and accompanying documents submitted by 15
February each year

The introduction of
the new provision on annual reporting by Member States and on net financial
corrections implies changes in the way the Commission will carry out its
responsibilities. The Commission will assess and review the audit opinions
(elements relating to the functioning of systems and legality and regularity)
and annual control reports, including the reported error rates, as well as the
management declarations and annual summaries, within three months of reception
of the documents provided by 15 February. The Commission will, on this basis,
make its risk-assessment and establish its audit plan determining the required
risk-based audits targeted to the selected high-risk programmes.

The Commission will
carry out its risk-based audits by the end of the calendar year in which the
Member State submitted the audit opinions, management declarations and related
documents. It will examine, through desk and on-the-spot audit work and
re-performance of samples of national audits including at the level of
operations, whether reported information is reliable and therefore constitutes
an adequate basis for assurance on legality and regularity. Priority will be
given to auditing programmes that have a material impact on the Commission's
payments for the corresponding fund in the accounting year. The past
performance of Member States authorities will also be taken into account in the
risk-based criteria for the definition of audit priorities.

Identification by EU audits of irregularities
indicating a serious deficiency after 15 February each year

If EU (Commission including
OLAF or ECA) audits carried out after 15 February each year detect
irregularities demonstrating a serious deficiency affecting the corresponding
accounting year, the Commission has the obligation to take a formal decision
applying a financial correction, if the conditions defined in the regulation
are fulfilled. The Commission has no discretionary power in the matter. The
resulting financial correction will always be net. This means that the
allocation to the programme and the total allocation of the Member State in
question will be automatically reduced by the amount of the correction, even if
during the contradictory procedure the Member State accepts the audit results
and agrees to the financial correction. As a consequence there is no
possibility for the concerned Member State to re-use the amount subject to such
a net financial correction in another programme.

The
conditions set-out in the regulation obliging the Commission to apply net
financial corrections are the following:

- 
The
irregularities detected by EU audits demonstrate a serious deficiency affecting
an accounting period for which the Member State submitted a management
declaration and an audit opinion which did not identify the problem.

- 
After
15 February and prior to detection by the EU audits, the Member State has not
identified the problem in other audit reports submitted to the Commission (with
the appropriate measures) or has not taken appropriate remedial measures.

When the conditions
for a net financial correction are met, the Member State will have the right to
present its observations within two months[12], and
any additional audit evidence in a hearing, before the financial correction
decision is adopted by the Commission. Finally, independently from whether the
Member State eventually accepts or not the Commission position as regards the
required financial correction, the Commission has to adopt a formal decision
within maximum six months of the hearing with the Member State.

Under the CPR, the
Commission is empowered to lay down in a delegated act detailed rules
concerning the criteria for the assessment of the functioning of management and
control systems, including the main types of serious deficiencies, the criteria
for establishing the level of financial correction to be applied and the
criteria for applying flat-rates or extrapolated financial corrections. The
delegated act adopted on 3 March 2014 (Commission Delegated Regulation (EU)
480/2014) is based on the framework for the assessment of the key requirements
of management and control systems and for setting the level of flat-rate
corrections. The Commission therefore has a stronger legal basis compared to
the current programming period which included
similar elements under a non-legally binding guidance note. Moreover, the
criteria for the assessment and the levels of flat-rate corrections will be
well-known in advance to all programme stakeholders.

The approach
foreseen by the delegated act is that the Commission will conclude on the
existence of a serious deficiency based on its assessment of the system key
requirements when at least one of the main system key requirements or two of
the other system key requirements are considered as working partially or not
functioning. In such cases, it will apply a flat-rate financial correction,
unless the Member State can provide, within four months, a more precise
estimate of the risk through the audit of an appropriate and representative
sample of the concerned expenditure as a basis for an extrapolated correction.

Flat-rate
correction percentages already applied during previous programming periods are
maintained, i.e. 5%, 10%, 25% and 100%. This approach has been confirmed by the
case law of the Court of Justice. Nonetheless the decision to apply any level
of financial correction must take account of proportionality and of the
residual risk to the EU budget, as required in the CPR. Therefore, where the
application of a flat-rate fixed in accordance with the delegated act would be
disproportionate, the Commission shall apply a reduced level of flat-rate
correction.

Increased level of correction for repeated deficiencies

When the same
deficiencies have been detected by EU audits despite a previous financial
correction, the Commission has included a provision in the delegated act
allowing for a higher rate of correction than in the case of the first
correction. This is a clear message to Member States that they need to ensure a
rapid and permanent adjustment of their management and control systems once a
serious deficiency has been detected.

Other measures already in force will continue to be
applied

The two new
possibilities offered in the enhanced regulatory framework for 2014-2020 as
described above, i.e. the possibility to impose net financial corrections, and
the introduction of the annual assurance package, will be coupled with the
continuation of the existing strict policy on interruptions and suspensions,
and the strong encouragement of the utilisation of all simplification
opportunities. This should result in a further improvement of the
implementation of the Cohesion policy in the new programming period.

6. 
PREVENTIVE
MEASURES
6.1. Agriculture

For
Agriculture, as well as the Commission's corrective action via net financial
corrections, Member States have put in place structures and procedures to
protect the EU budget. As explained under section 5.4.3 above, under the
new CAP Horizontal Regulation, a new legal framework for interruptions and suspension
of CAP funds will enter into force in 2014.

Additionally,
a compulsory administrative structure has been set up at the level of Member
States:

· 
The
management and control of the expenditure is entrusted to dedicated paying
agencies, which must be accredited by the Member State prior to their operations
on the basis of a comprehensive set of accreditation criteria laid down in EU
law. The paying agencies' compliance with these criteria is subject to a
detailed review by an external audit body, as well as to a constant supervision
by the competent national authority, and clear procedures exist as to how to
address and remedy any problem.

· 
Moreover,
the heads of the paying agencies are required to provide an annual statement of
assurance which covers the completeness, accuracy and veracity of the paying
agency’s accounts, as well as a declaration of assurance on the legality and
regularity of the underlying transactions. These statements of assurance are
verified by independent certification bodies, which are required to provide an
opinion thereon. For those Member States with only one paying agency, this
statement of assurance received from the director of the paying agency,
together with the certificate and opinion of the certification body, constitute
by definition the “annual summary” referred to in Article 53(b) of the
Financial Regulation.

Member
States are required to put in place systems for ex-ante controls and dissuasive
sanctions:

· 
For
each aid support scheme financed by EAGF or EAFRD, ex-ante administrative and
on-the-spot checks are performed and dissuasive sanctions are applied in case
of non-compliance by the beneficiary. These control systems are to be applied
by the paying agencies and encompass common features and special rules tailored
to the specificities of each aid regime. They are designed to provide for
exhaustive ex-ante administrative controls of 100% of aid applications,
cross-checks with other databases where appropriate, as well as on-the-spot
checks of pre-payments on a sample of transactions ranging between 1% and 100%
of the population, depending on the risk associated with the regime concerned.
If on-the-spot checks reveal a high number of irregularities, additional
controls must be carried out.

· 
In
this context, the most important system is the IACS, which covered 92 % of EAGF
expenditure in financial year 2013 (91.4 % in 2012). To the extent possible,
the IACS is also used to manage and control Rural Development measures relating
to parcels or livestock, which accounted for 44.7 % of payments under the EAFRD
in 2013. For both Funds, the IACS covered 81.4 % of total expenditure in 2013.

· 
A
detailed reporting from Member States to the Commission on the checks carried
out by them and on the sanctions applied is foreseen in the legislation. The
reporting system enables a calculation, for the main aid schemes, of the level
of error found by Member States at the level of the final beneficiaries. The
accuracy of the statistical information reported and the quality of the
underlying on-the-spot checks is also verified and validated by the
certification bodies for direct aids and Rural Development measures.

The
latter reports from the Member States disclose the preventive effect of the
ex-ante administrative and on-the-spot controls carried out:

Table 6.1: Member States’ own corrections
applied before payments to beneficiaries are executed

EUR millions

Member State || EAGF Market Measures || EAGF Direct Payments || EAFRD || Total 2013

Belgium || 0.33 || 1.00 || 0.81 || 2.14

Bulgaria || 2.14 || 9.31 || 5.60 || 17.05

Czech Republic || 0.70 || 0.23 || 1.34 || 2.27

Denmark || 0.12 || 1.35 || 0.78 || 2.25

Germany || 4.26 || 5.52 || 7.57 || 17.35

Estonia || 0.03 || 0.40 || 1.94 || 2.37

Ireland || 0.00 || 1.73 || 0.79 || 2.52

Greece || 0.24 || 6.03 || 3.53 || 9.80

Spain || 23.75 || 4.03 || 19.37 || 47.15

France || 19.13 || 2.90 || 3.79 || 25.82

Croatia || 0.00 || 0.00 || 0.00 || 0.00

Italy || 1.93 || 18.38 || 7.58 || 27.89

Cyprus || 0.00 || 0.64 || 0.22 || 0.86

Latvia || 0.00 || 1.78 || 1.92 || 3.70

Lithuania || 0.07 || 0.78 || 3.00 || 3.85

Luxembourg || 0.00 || 0.04 || 0.09 || 0.13

Hungary || 4.02 || 6.43 || 5.08 || 15.52

Malta || 0.02 || 0.01 || 0.08 || 0.11

Netherlands || 21.76 || 0.56 || 2.26 || 24.57

Austria || 0.78 || 0.80 || 3.49 || 5.07

Poland || 10.23 || 8.40 || 12.67 || 31.30

Portugal || 0.44 || 0.92 || 5.46 || 6.82

Romania || 2.67 || 6.70 || 9.81 || 19.17

Slovenia || 0.66 || 0.15 || 1.12 || 1.93

Slovakia || 0.18 || 1.94 || 1.15 || 3.27

Finland || 0.01 || 0.44 || 0.86 || 1.31

Sweden || 0.68 || 1.28 || 1.80 || 3.77

United Kingdom || 0.00 || 2.52 || 3.39 || 5.90

Total || 94.14 || 84.28 || 105.48 || 283.90

6.2. Cohesion

In
addition to the corrective mechanisms mentioned above, the Commission uses a
number of preventive mechanisms to protect the EU budget before it makes
payments to Member States when it is aware of potential deficiencies. These are
especially valuable for improving control systems in the Member States and thus
reducing the need for future financial corrections by the Commission.

In
accordance with Articles 91 and 92 respectively of Regulation 1083/2006 for
programming period 2007-2013, under Cohesion Policy, and in addition to making
financial corrections and recoveries, the Commission may:

- interrupt the payment deadline for
a maximum period of 6 months for 2007-13 programmes if:

(a) There is evidence to suggest a
significant deficiency in the functioning of the management and control systems
of the Member State concerned; or

(b)
The Commission services have to carry out additional verifications following
information that expenditure in a certified statement of expenditure is linked
to a serious irregularity which has not been corrected.

- suspend all or part of an interim
payment to a Member State for 2007-13 programmes in the following three cases:

(a) There is evidence of serious deficiency
in the management and control system of the programme and the Member State has
not taken the necessary corrective measures; or

(b) Expenditure in a certified statement of
expenditure is linked to a serious irregularity which has not been corrected;
or

(c) Serious breach by a Member State of its
management and control obligations.

Where
the required measures are not taken by the Member State, the Commission may
impose a financial correction.

Table 6.2: Interruptions

EUR millions

Fund || Cohesion policy: 2007-2013 programming period

Total open cases at 31.12.2012 || New cases 2013 || Closed cases during 2013 || Total open cases at 31.12.2013

Number of cases || Amount || Number of cases || Amount || Number of cases || Amount || Number of cases || Amount

ERDF & Cohesion Fund ||  38 || 1 638 ||  220 || 4 242 ||  157 || 4 272 ||  101 || 1 608

ESF ||  15 ||  181 ||  25 ||  349 ||  20 ||  258 ||  20 ||  272

EFF ||  30 ||  108 ||  20 ||  339 ||  40 ||  350 ||  10 ||  97

Total ||  83 || 1 927 ||  265 || 4 930 ||  217 || 4 880 ||  131 || 1 977

The table above
presents for the ERDF, the Cohesion Fund, the ESF and the EFF, a view on the
evolution of the interruption cases both in number and in amount. The opening
balance includes all the cases still open at end 2012, irrespective of the year
when the interruption was notified to the Member State. The new cases only
refer to the interruptions notified in the year 2013. The closed cases
represent the cases for which the payment of cost claims resumed in 2013,
irrespective of the year when the interruption started. The cases still open at
end 2013 represent the interruptions that remain active at 31 December 2013,
i.e. the payment deadline of cost claims is still interrupted pending
corrective measures to be taken by the Member State concerned.

Suspensions

Concerning
ERDF and the Cohesion Fund and the 2 suspension decisions still
in force at end 2012, the decision was taken in 2013 to lift the suspension for
Germany. The suspension decision related to Italy however remains in force at
end 2013. 4 new suspension decisions were adopted in 2013: 3 related to Spain
were still in force at year-end; one related to Estonia was lifted before the
year-end. It should be noted that 2 new suspension decisions were adopted in January
2014, both on programmes implemented in Spain. Concerning ESF, 2
suspension decisions adopted in 2012 were still effective at end 2012. The
suspension was lifted in 2013 for the Czech Republic, but it remained in force
in 2013 for Slovakia. 11 suspension decisions
were adopted in 2013. All but one (Germany) were still on-going at year-end
(Belgium, the Czech Republic, Spain, France, Italy, Slovakia and the United
Kingdom). One suspension decision adopted in 2011 was still on-going at year
end (France). There were no suspension decisions taken in 2013 for EFF.

Fraud-prevention
measures

Fraud, when it occurs, raises significant
attention and damages the reputation of the EU. In this respect, an important
initiative taken by the Cohesion DGs in 2013/2014 was to hold in December 2013
a conference on anti-fraud measures for all Member States. This was followed by
a series of conference in Greece, Romania, Bulgaria, Czech Republic, Slovakia,
Italy and Croatia, and others are planned (Slovenia, Spain, Poland, Lithuania,
Latvia and Estonia). Furthermore the Commission produced specific guidance to
support Member States’ fraud risk assessment and developed tailor-made IT tools
in order to help them target their anti-fraud efforts on high risk projects.
These actions are in line with the increased responsibilities at Member State
level arising from the new Cohesion Policy regulation (Article 125(4)(c)) which
requires them to “put in place effective and proportionate anti-fraud measures
taking into account the risks identified”.

7. 
CORRECTIVE
ACTIONS MADE BY MEMBER STATES ON THEIR OWN INITITATIVE
7.1. Agriculture

Regulation
(EC) No 1290/2005 on the financing of the CAP (replaced by Regulation
1306/2013) requires Member States to recover sums lost as a result of detected
irregular payments and to reimburse these to the EU budget. The recovery
procedures, in accordance with the principle of subsidiarity, are wholly the
responsibility of the Member States concerned and are thus subject to their national
judicial procedures.

Table 7.1: Amounts
recovered from final beneficiaries and reimbursed to the EU budget in 2013
following Member States own controls and checks

EUR millions

Member State || EAGF || EAFRD || Total 2013

Belgium || 1.57 || 1.30 || 2.88

Bulgaria || 0.01 || 1.61 || 1.62

Czech Republic || 0.06 || 2.02 || 2.08

Denmark || 0.77 || 0.59 || 1.36

Germany || 6.52 || 7.97 || 14.49

Estonia || 0.05 || 1.67 || 1.71

Ireland || 2.71 || 1.54 || 4.25

Greece || 1.98 || 0.67 || 2.65

Spain || 11.74 || 2.75 || 14.49

France || 13.72 || 2.08 || 15.80

Croatia || - || - || -

Italy || 9.16 || 3.55 || 12.71

Cyprus || 0.41 || 0.59 || 1.00

Latvia || 0.27 || 0.56 || 0.83

Lithuania || 0.45 || 0.62 || 1.07

Luxembourg || 0.04 || 0.03 || 0.07

Hungary || 2.14 || 9.25 || 11.39

Malta || 0.00 || 0.11 || 0.11

Netherlands || 5.89 || 0.85 || 6.74

Austria || 3.76 || 11.95 || 15.70

Poland || 10.26 || 11.30 || 21.56

Portugal || 5.07 || 4.90 || 9.96

Romania || 3.79 || 28.69 || 32.48

Slovenia || 0.61 || 0.51 || 1.12

Slovakia || 0.09 || 0.83 || 0.92

Finland || 2.64 || 1.07 || 3.71

Sweden || 5.15 || 1.13 || 6.28

United Kingdom || 5.42 || 4.60 || 10.02

Total || 94.31 || 102.71 || 197.02

7.2. Cohesion

Under
shared management, Member States have the primary obligation to prevent and
detect irregularities, and thus they make major efforts and commit resources to
making financial corrections and recovering undue amounts from beneficiaries. Moreover,
they perform management verifications, controls and audits in the first
instance, these being in addition to those of the Commission detailed above.
Under the regulations for the current programming period, Member States have to
report annually to the Commission the corrections stemming from all controls
performed. Such a requirement was only introduced for 2007-2013 and the
Commission is performing risk-based audits to test the reliability of these
figures as part of its assurance process.

The
cumulative corrections implemented to end 2013, following the controls made by
the Member States for Cohesion Policy programming period 2007-2013, are given
below. These amounts are in addition to, and after deduction of, the
corrections reported cumulatively by the Commission above.

Table 7.2: Cumulative corrections at end
2013 reported by Member States for Cohesion Policy period 2007-2013

EUR millions ||

Member State || ERDF/CF || ESF || EFF || Total 2013 ||

Belgium || 3 || 9 || 0 || 12 ||

Bulgaria || 13 || 3 || 0 || 16 ||

Czech Republic || 201 || 0 || 0 || 201 ||

Denmark || 1 || 0 || 1 || 1 ||

Germany || 458 || 100 || 0 || 558 ||

Estonia || - || 0 || 0 || 1 ||

Ireland || 0 || 5 || 0 || 5 ||

Greece || 115 || 14 || 0 || 130 ||

Spain || 256 || 91 || 20 || 367 ||

France || 84 || 57 || 1 || 142 ||

Croatia || 0 || - || - || 0 ||

Italy || 208 || 36 || 3 || 247 ||

Cyprus || 1 || 1 || 0 || 1 ||

Latvia || 33 || 2 || 1 || 37 ||

Lithuania || 11 || 0 || 0 || 11 ||

Luxembourg || - || 1 || || 1 ||

Hungary || 55 || 0 || 0 || 55 ||

Malta || 1 || 0 || 0 || 1 ||

Netherlands || 6 || 3 || 0 || 9 ||

Austria || 6 || 2 || 0 || 8 ||

Poland || 392 || 0 || 1 || 392 ||

Portugal || 85 || 38 || 1 || 124 ||

Romania || 111 || 0 || 4 || 115 ||

Slovenia || 2 || 6 || 0 || 7 ||

Slovakia || 54 || 4 || 0 || 59 ||

Finland || 1 || 0 || 1 || 2 ||

Sweden || 3 || 1 || 1 || 5 ||

United Kingdom || 76 || 21 || 2 || 99 ||

Cross-border || 16 || || || 16 ||

TOTAL IMPLEMENTED || 2 191 ||  396 ||  35 || 2 622 ||

It is
highlighted that the Commission has taken a prudent approach, due to certain
weaknesses in the Member State figures, so as to ensure that the above amounts
are not overstated – as a result some of them may in reality be higher. This,
however, has no impact on the reliability of the Commission's own figures. The
amounts in question are very significant and when added to the results of the
Commission's work, give a very clear indication of the success of the controls
put in place by both parties.

8. OTHER
RECOVERIES
8.1. Recovery
of pre-financing amounts

Another
important control of the Commission, which is not covered by any of the above
mechanisms, is the recovery of unused (i.e. unspent) pre-financing amounts.
When a beneficiary has not used (spent) the advances received from the EU on
eligible expenditure, the Commission issues a recovery order to return the
monies to the EU budget. This procedure represents an important step in the
control system of the EU to ensure that no excess money is kept by the
beneficiary without proper expense justification, thus contributing to the
protection of the EU budget. The amounts are the result of the issuance of a
recovery order by the Commission, and are recorded in the accounting system as
such. The below recovery of unused pre-financing amounts should not be confused
with irregular expenditure recovered. Where Commission services identify and
recover such expenditure in relation to pre-financing amounts paid out, these
are included in the normal financial correction or recovery processes described
above.

Table 8.1: Recovery of pre-financing amounts

EUR millions

|| || 2013

Agriculture: || || ||

EAGF || || || 0

Rural Development || || || 0

Cohesion Policy: || || ||

ERDF || || || 68

Cohesion Fund || || || 4

ESF || || || 53

FIFG/EFF || || || 7

EAGGF Guidance || || || 3

Internal policy areas || || || 208

External policy areas || || || 91

Administration || || 1

Total recovered pre-Financing || || || 435

8.2. Recoveries
relating to own resource revenues

So as to provide a complete picture of all
the tools used by the Commission to protect the EU budget, it is also necessary
to consider the recoveries made in the area of own resource revenue. Own
resource revenue is the primary element of the EU’s operating revenue and
therefore the bulk of expenditure is financed by it. The Commission makes
on-the-spot inspections so as to verify that the correct amounts are being
supplied to the EU budget. Amounts can also be audited as part of the ECA’s
annual audit process. In 2013, the amounts recovered were as follows:

Table 8.2: Recoveries relating to own resource revenues ||

|| EUR millions

|| || || 2013

Amounts recovered: - Principal - Interest || || ||

22

21

Total recovered || || || 43

[1]
Communication from the Commission to the European Parliament, the
Council and the European Court of Auditors: Synthesis of the
Commission's management achievements in 2013 (COM(2014)342 final
of 11 June 2014).

[2] See
also the 2013 Annual Report on the Protection of the European Union's financial
interests — Fight against fraud adopted on 17 July 2014 (COM(2014)474
final) (based on 2013 provisional annual accounts figures).

[3] Due to
the rounding of figures into millions of Euros, amounts in some tables may
appear not to add up.

[4] See
Official Journal C 115 of 9 May 2008.

[5]
Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the
Council of 25 October 2012 (Official Journal L 298, 26 October 2012).

[6]
Commission Delegated Regulation (EU) No 1268/2012 of 29 October 2012 (Official
Journal L 362, 31 December 2012).

[7] Details
on the legislation concerning the protection of the EU budget and the methods
of implementing and controlling the EU budget are provided in the
“Communication on the Protection of the Union budget to end 2012” (COM(2013)682 final/2, pages
4 to 8).

[8] Ares(2013)
689652

[9] Art.
21(3)(c) of the Financial Regulation.

[10] For
European Agricultural Guarantee Fund (EAGF) the appropriations are
assigned to the ''origin of the revenue'' (Art. 174(1) FR) and for financial
instruments to the ''same financial instrument'' (Art.140(6) FR).

[11] This date can be extended to 1st March in exceptional
cases at the request of the Member State, cf. Article 59(5) of the Financial
Regulation.

[12]  With
an additional two months allowed in case of proposed extrapolated or flat-rate
correction for the Member State to demonstrate that the actual extend of the
irregularity is less than that assessed by the Commission.