2002/307/EC: Commission Decision of 18 December 2001 laying down detailed rules for the implementation of Council Decision 2000/596/EC as regards management and control systems and procedures for making financial corrections in the context of actions co-financed by the European Refugee Fund (notified under document number C(2001) 4372)
Date: 2001-12-18
Institutions: European Commission
Subjects: admission of aliens, aid to refugees, co-financing, fund (EU), management, refugee

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 18 December 2001

laying down detailed rules for the implementation of Council Decision 2000/596/EC as regards
management and control systems and procedures for making financial corrections in the context of
actions co-financed by the European Refugee Fund

(notified under document number C(2001) 4372)

(2002/307/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Fund under Article 17(2) of Decision 2000/596/EC, a
model declaration of expenditure should be produced.

Having regard to the Treaty establishing the European
Community,

Having regard to Council Decision 2000/596/EC of 28
September 2000 establishing a European Refugee Fund (1), and
in particular Article 24 thereof,

Having consulted the Committee set up under Article 21(1) of
Decision 2000/596/EC,

Whereas:

(1)

(2)

(3)

To ensure sound financial management of the assistance
granted from the European Refugee Fund (the Fund), the
Member States need to establish guidelines for the
organisation of the tasks of the authority responsible for
implementing co-financed actions.

To ensure that Community funds are utilised in accord-
ance with the principles of sound financial management,
the Member States need to introduce management and
control systems that provide a sufficient audit trail, and
to lend the Commission any assistance it requires to
carry out checks, especially sample checks.

To ensure that Community funds are used efficiently and
appropriately, uniform criteria should be established for
the checks carried out by the Member States under
Article 18 of Decision 2000/596/EC.

(4)

To ensure uniform treatment of
the declarations of
expenditure for which assistance is requested from the

(1) OJ L 252, 6.10.2000, p. 12.

(5)

(6)

(7)

To allow recovery, pursuant to Article 18(1) of Decision
2000/596/EC, of amounts unduly paid, Member States
need to inform the Commission of cases of irregularities
detected and the progress of administrative or legal
proceedings.

Article 19(1) of Decision 2000/596/EC lays down that
Member States must make the financial corrections
required in connection with the individual or systemic
irregularity by cancelling all or part of the Community
contribution. To ensure that this provision is applied
uniformly throughout the Community, it is necessary to
lay down rules for determining the corrections to be
made and to provide for
the Commission to be
informed.

If a Member State fails to comply with its obligations
under Article 19(1) of Decision 2000/596/EC or under
Article 18, the Commission may itself make the financial
corrections under Article 18(4) of the same Decision.
Whenever this is possible and feasible, the amount of
the correction must be assessed on the basis of indi-
vidual files and must be equal to the amount of expendi-
ture wrongly charged to the Fund in accordance with
the principle of proportionality. Where it is not possible
or feasible to quantify the financial impact of the irregu-
larity accurately, or where it would be disproportionate
to cancel all the expenditure concerned, the Commission
should determine its corrections by extrapolation or at a
flat rate based on the extent and financial impact of the
irregularity that the Member State has failed to prevent,
detect or correct.

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(8)

(9)

(10)

(11)

Certain detailed rules for making the financial correc-
tions laid down in Article 19(1) of Decision 2000/
596/EC should be specified, and the same rules should
be made applicable in cases that
fall under Article
18(4)(b) of the same Decision.

Interest rates must be set for interest on account of late
payment in respect of any sum received unduly and to
be recovered that must be repaid to the Commission
under Article 19(3) of Decision 2000/596/EC.

This Decision is to be applied without prejudice to the
provisions on recovery of State aid under Article 14 of
Council Regulation (EC) No 659/1999 of 22 March
1999 laying down detailed rules for the application of
Article 93 of the EC Treaty (1).

This Decision is to be applied without prejudice to the
provisions of Council Regulation (Euratom, EC) No
2185/96 of 11 November 1996 concerning on-the-spot
checks and inspections carried out by the Commission
in order to protect the European Communities' financial
interests against fraud and other irregularities (2),

HAS ADOPTED THIS DECISION:

CHAPTER I

SCOPE AND DEFINITIONS

Article 1

This Decision lays down the detailed rules for implementing
Council Decision 2000/596/EC as regards management and
control
funding granted from the European
Refugee Fund (the Fund) and managed by the Member States,
and the procedure for making the financial corrections applic-
able to such funding.

systems

for

Article 2

For the purposes of this Decision the following definition shall
be used:

(a) ‘responsible authority’: any authority appointed by a
Member State under Article 7 of Decision 2000/596/EC;

(b) ‘intermediary organisation’: any public administration or
non-governmental organisation to which the responsible
authority delegates responsibility for implementation under
Article 7 of Decision 2000/596/EC.

CHAPTER II

MANAGEMENT AND CONTROL SYSTEMS

Article 3

1.
In application of Article 18(1)(c) of Decision 2000/
596/EC, Member States shall address guidelines to the respon-
to which
sible authority and intermediary organisations
responsibility for implementation has been delegated.

Without prejudice to Article 18(1) of Decision 2000/596/EC,
the guidelines shall cover the organisation of the management
and control systems necessary to ensure the accuracy, regu-
larity and eligibility of requests for Community funding and
shall refer to the generally recognised standards of good
administrative practice set out in Annex I.

2. Where all or some of the responsible authority's tasks are
delegated to intermediary organisations, the guidelines referred
lay down detailed rules concerning:
to in paragraph 1 shall

(a) the clear definition and allocation of tasks, especially as
regards management, payment, and checks on and verifica-
tion of compliance with:

(i) the conditions laid down in the Commission decisions
approving the requests for co-financing referred to in
Article 8 of Decision 2000/596/EC,

(ii) the rules on eligibility of expenditure set out in Annex
1 to Commission Decision 2001/275/EC (3), and

(iii) Community policies

and action,

especially those
relating to the competition rules, public procurement,
protecting and enhancing the environment, removing
inequalities and promoting equality between men and
women;

(b) the introduction of effective systems ensuring that

the
intermediary organisations exercise their powers satisfac-
torily; and

(c) supplying the responsible authority with information on
the effective performance of their tasks and a description of
the means deployed.

3.
Pursuant to Article 18(1)(b) of Decision 2000/596/EC,
Member States shall, no later than two months after this
Decision takes effect, send the Commission, in addition to the
information contained in the first request for co-financing, a
description of the management and control systems they have
set in place and of any improvements planned, taking partic-
ular account of the generally recognised standards of good
administrative practice set out in Annex I.

This description shall include the following information about
each responsible authority:

(a) the tasks assigned to it;

(b) the distribution of

these tasks within the responsible
authority or intermediary organisation in such a way as to
ensure that management, payment, and control tasks are
sufficiently separate as to ensure sound financial manage-
ment;

(1) OJ L 83, 27.3.1999, p. 1.
(2) OJ L 292, 15.11.1996, p. 2.

(3) OJ L 95, 5.4.2001, p. 27.

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(c) information on any intermediary organisations;

(d) the procedures

receiving, verifying and endorsing
requests for payment and for authorising and paying
expenses and entering them in the accounts;

for

project concerned. This period shall be interrupted in the case
of legal proceedings or at the duly motivated request of the
Commission.

(e) the provisions governing internal audits or equivalent.

Article 5

4.
The Commission shall examine the management and
control systems in cooperation with the Member States and
point out any shortcomings as regards the transparency of
checks on the operation of the Fund and the performance of
the Commission's duties under Article 274 of the EC Treaty.

Article 4

1. Member States' management and control systems shall
provide an adequate audit trail.

An audit

2.
permits:

trail shall be considered sufficient where it

(a) reconciliation of the summary accounts certified to the
Commission with the individual expenditure records and
supporting documents kept at the various administrative
levels and by the final beneficiaries, including the organ-
isations or firms responsible for implementing projects; and

1. Member States shall organise checks on projects on an
appropriate sampling basis, designed in particular to:

(a) verify the proper operation of the management and control

systems in place;

(b) verify selectively, on the basis of risk analysis, expenditure

declarations made at the various levels concerned.

2.
The checks shall cover at least 20 % of the total eligible
expenditure for each national implementation programme and
a representative sample of
taking
account of the requirements of paragraph 3. Member States
shall ensure an appropriate separation between checks and
implementation or payment procedures concerning projects.

the projects approved,

3.
The projects selected shall be identified, the sampling
method described and a report produced of the results of all
inspections and the action taken with regard to the anomalies
or irregularities discovered.

(b) verification of the allocation and transfers of the available

4.

The sample of projects to be checked shall:

Community and national funds.

An indicative description of the information requirements
for a sufficient audit trail

is given in Annex II.

3.
The responsible authority shall introduce procedures to
ensure that a record is kept of the location of all documents
relating to particular payments made under the national imple-
mentation programme in question and that the documents can
be produced for inspection if requested by:

(a) the staff of the authority responsible for handling requests

for payment,

(b) the national audit authorities who will carry out the checks

required under Article 5(1) of this Decision,

(c) the department or body of

the responsible authority
entrusted with certifying requests for interim and final
payment provided for in Article 17 of Decision 2000/
596/EC, and

(d) the officials and authorised representatives of the Commis-

sion and the European Court of Auditors.

The officials and agents responsible for controls or those
empowered for that purpose may request copies of documents
referred to in this paragraph.

For a period of five years following the payment by the
4.
Commission of the final balance in respect of any project, the
responsible authorities shall keep available for the Commission
all the supporting documents,
i.e. the originals or versions
certified to be in conformity with the originals on commonly
accepted data carriers, regarding expenditure and checks on the

(a) include an appropriate mix of types and sizes of projects;

(b) take account of any risk factors which have been identified

by national or Community controls;

(c) reflect the concentration of projects under certain recipients
of grants, so that the main recipients are subject to at least
one check before the closure of each form of national
implementation programme.

Article 6

When carrying out checks, the Member States shall verify the
following:

(a) the effective application of the management and control

systems;

(b) for an adequate number of accounting records, the corre-
spondence of those records with the supporting documents
kept by the intermediary organisations
to which the
responsible authority has delegated certain responsibilities
for implementation, the recipients of grants and, where
appropriate, the other organisations or firms involved in
project implementation;

(c) the presence of a sufficient audit trail;

(d) that the nature and date of the expenditure items corre-
sponds to Community requirements, to the requirements
specified during the national selection procedure, to the
terms of the contract or instrument granting the subsidy
and to the works actually executed;

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(e) that the use or intended use of the project is consistent
with the objectives set out in the national implementation
programme referred to in Article 8 of Decision 2000/
596/EC;

(f) that the Community financial contributions are within the
limits provided for in Article 13 of Decision 2000/596/EC
or in any other applicable Community provisions and are
paid to recipients without any reductions or delays;

(g) that the appropriate national co-financing has in fact been

made available, and

(h) that the co-financed projects have been implemented in
accordance with the requirements of Article 4 and Article
9(1) of Decision 2000/596/EC.

Article 7

The checks shall establish whether any problems encountered
are of a systemic character, carrying a risk for other projects
carried out by the same grant recipient or administered by the
same management authority. They shall also identify the causes
of such situations, any further examination which may be
required and the necessary corrective and preventive action.

Article 8

Member States shall inform the Commission each year in the
report referred to in Article 20(2) of Decision 2000/596/EC of
how they have applied Articles 5, 6 and 7 of this Decision
during the preceding year, completing or updating if necessary
the description referred to in Article 4(2).

management. This assurance shall certify that the request for
co-financing covers only expenditure:

(a) that was actually incurred by the grant recipients, as
defined in Article 2(d) of Decision 2001/275/EC, during
the period of eligibility of the programme, as defined in the
decisions approving the requests for co-financing, and

(b) that relates to projects which were selected for co-financing
implementation programme in question
by the national
according to the established selection criteria and proced-
ures
rules
and which complied with Community
throughout
the period in which the expenditure was
incurred.

3.
At the end of the programme, the final declaration laid
down in Annex IV shall be presented by the Member State
within six months. Failing this, the Commission shall automati-
cally close the programme and decommit the relevant appro-
priations.

to the Commission,

Before submitting a request

4.
the
responsible authority shall verify the adequacy of the checks
carried out. The work performed shall be described in detail in
the final report referred to in Article 20(3) of Decision 2000/
596/EC. Checks shall cover the physical aspects and effective-
ness of projects, as well as their financial and accounting
aspects.

CHAPTER IV

FINANCIAL CORRECTIONS BY MEMBER STATES

Article 9

Article 11

In the case of forms of assistance in which more than one
Member State participates or where there are beneficiaries in
more than one Member State, the Member States concerned
and the Commission shall agree on the administrative assis-
tance necessary for ensuring proper control.

CHAPTER III

DECLARATIONS OF EXPENDITURE

Article 10

In the case of systemic irregularities, investigations under
the

1.
Article 19(1) of Decision 2000/596/EC shall cover all
projects liable to be affected.

2. When cancelling all or part of the Community contribu-
tion, Member States shall take into account the nature and
gravity of the irregularities and the financial loss to the Fund.

3. Member States shall
in a list
annexed to the report referred to in Article 20(2) of Decision
2000/596/EC, of any proceedings to cancel assistance initiated
in the course of the preceding year.

inform the Commission,

1.
Declarations of expenditure shall be certified following
the model provided in Annex IV by an individual or depart-
ment within the payment authority operating independently of
all authorising departments.

2.
For all expenditure it declares to the Commission, the
responsible authority shall provide assurance that the national
implementation programmes are managed in accordance with
all the applicable Community regulations and that the funds
are used in accordance with the principles of sound financial

Article 12

1. Where amounts need to be recovered following the
the Community contribution under Article
cancellation of
18(1)(g) of Decision 2000/596/EC, the department or organ-
isation responsible shall
initiate the recovery procedure and
inform the responsible authority. Information on recovery shall
be passed on to the Commission and the accounts shall be kept
in accordance with Article 13 of this Decision.

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2. Member States shall inform the Commission in the report
referred to in Article 20(2) of Decision 2000/596/EC how they
have decided or propose to re-use the funds cancelled.

Article 13

recovery,

The responsible authority shall keep an account of amounts
recoverable from payments of Community assistance that have
already been made and shall ensure that the amounts are
recovered without delay. After
the responsible
authority shall reduce its next declaration of expenditure to the
Commission by an amount equal to the sums recovered, or, if
this amount is insufficient, it shall reimburse the Community.
The amounts to be recovered shall accrue interest from their
due date at the rate laid down in Article 94 of Commission
Regulation (Euratom, ECSC, EC) No 3418/93 of 9 December
1993 laying down detailed rules for the implementation of
certain provisions of
the Financial Regulation (1) of 21
December 1977, as last amended by Regulation (EC) No 1687/
2001 (2), for the first working day of the month in which the
debt is due.

When submitting the report referred to in Article 20(2) of
Decision 2000/596/EC, Member States shall send the Commis-
sion a list of irregularities detected,
indicating the amounts
if appropriate, any
recovered or awaiting recovery and,
administrative or judicial proceedings launched with a view to
recovering amounts unduly paid.

3. Where the Commission bases its position on facts estab-
lished by auditors from outside its own departments, it shall
draw its own conclusions on the financial implications after
examining the measures taken by the Member State concerned
under Article 18(1) of Decision 2000/596/EC.

The period of

4.
time within which the Member State
concerned may respond to a request under Article 18(3) of
Decision 2000/596/EC shall be two months. In duly justified
cases, a longer period may be agreed by the Commission.

5. Where the Commission proposes financial corrections
determined by extrapolation or at a flat rate, the Member State
shall be given the opportunity to demonstrate, on the basis of
an examination of the files concerned, that the actual extent of
irregularity was less than the Commission's assessment.
In
agreement with the Commission, the Member State may limit
the scope of this examination to an appropriate proportion or
sample of the files concerned. Except in duly justified cases, the
time allowed for this examination shall not exceed a further
period of two months after the two-month period referred to
in paragraph 4. The Commission shall take account of any
evidence supplied by the Member State within the time limits.

6. Where the Commission suspends payments under Article
19(2) of Decision 2000/596/EC, or where, after expiry of the
period referred to in paragraph 4, the reasons for the suspen-
sion remain or the Member State concerned has not notified
the Commission of the measures taken to correct the irregulari-
ties, Article 18(4) of Decision 2000/596/EC shall apply.

CHAPTER V

FINANCIAL CORRECTIONS BY THE COMMISSION

7.
Guidelines on the principles, criteria and indicative scales
to be applied by Commission departments in determining the
flat-rate corrections are set out in Annex III to this Decision.

Article 14

Article 15

The amount of

1.
financial corrections made by the
Commission under Article 18(4)(b) of Decision 2000/596/EC
for individual or systemic irregularities shall be assessed wher-
ever possible and practicable on the basis of individual files and
be equal to the amount of expenditure wrongly charged to the
Fund, having regard to the principle of proportionality.

1.
Any repayment to the Commission under Article 19(3) of
Decision 2000/596/EC shall be made by the deadline set in the
recovery order drawn up in accordance with Article 28 of the
Financial Regulation of 21 December 1977 (3). This due date
shall be the last day of the second month following the issuing
of the order.

is not possible or practicable to quantify
2. Where it
irregular expenditure or where it
precisely the amount of
would be disproportionate to cancel all
the expenditure
concerned, the Commission shall base its financial corrections
on:

(a) extrapolation, using a representative sample of transactions

that are homogeneous in nature; or

(b) a flat rate, in which case it shall assess the seriousness of
the infringement of the rules and the extent and financial
implications of the irregularity established.

2.
Any delay in effecting repayment shall give rise to interest
on account of late payment, starting on the due date referred to
in paragraph 1 and ending on the date of actual repayment.
The applicable rate of interest shall be that referred to in Article
13 of this Decision.

3.
A financial correction under Article 19(2) of Decision
2000/596/EC shall not prejudice the Member State's obligation
to pursue recoveries under Article 18(1)(g) of Decision 2000/
596/EC and Article 12(1) of this Decision and to recover State
aid under Article 14 of Regulation (EC) No 659/1999.

(1) OJ L 315, 16.12.1993, p. 1.
(2) OJ L 228, 24.8.2001, p. 8.

(3) OJ L 356, 31.12.1977, p. 1.

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CHAPTER VI

FINAL PROVISIONS

Article 16

Nothing in this Decision shall prevent Member States from applying national rules on control that are more
rigorous than those prescribed here.

This Decision is addressed to the Member States.

Article 17

Done at Brussels, 18 December 2001.

For the Commission

António VITORINO

Member of the Commission

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ANNEX I

STANDARDS OF GOOD ADMINISTRATIVE PRACTICE TO ENSURE SOUND FINANCIAL MANAGEMENT OF
ASSISTANCE GRANTED UNDER THE EUROPEAN REFUGEE FUND (ARTICLE 3)

1. Compliance with national and Community rules and accuracy of requests for payment

The responsible authorities or intermediary organisations to which certain tasks have been delegated should verify
compliance with national and Community legislation, and especially with the conditions laid down in the national
implementation programme approved by the Commission, the rules on the eligibility of expenditure under the Fund,
and where appropriate, on competition, public procurement, protecting and enhancing the environment, removing
inequalities and promoting equality between men and women, and should confirm that requests for payment are
justified and accurate, by checking tendering procedures, awards of contracts, progress in project implementation,
payments and the acceptance of works.

These checks shall be carried out by means of a control system. One of the principal tasks of the responsible
authority is to monitor the proper functioning of this control system.

2.

Payments and recovery

2.1. The administrative unit responsible for making payments to recipients of grants must be in possession of documents
attesting that the grant has been awarded to the individual project and that the required administrative and physical
checks have been carried out. Accounting procedures should ensure that declarations are complete, accurate and
made in time, and that any error or omission is detected and corrected, in particular by way of verifications and
crosschecks made at regular intervals not exceeding three months.

The procedures set in place should ensure that the payment is made only to the claimant, to his bank account or to
his assignee. Payment should be executed by the authority's banker or, as appropriate, by a government payments
office, or a cheque should be sent where possible within five working days of the amount being charged to the
accounts. Procedures should be adopted to ensure that all payments for which transfers are not executed or cheques
not cashed in are credited to the Fund. The approval of the authorising official and/or his supervisor may be made by
electronic means, provided an appropriate level of security over these means is ensured, and the identity of the
signatory is entered in the electronic records.

2.2. The above paragraph shall apply by analogy to amounts (forfeited guarantees, reimbursed payments, etc.) that the
responsible authority is required to recover on behalf of the Fund. In particular, the authority should set up a system
for the recognition of all the amounts due to the Fund. This system should be inspected at regular intervals with the
aim of taking action to collect debts that are overdue.

The responsible authority may delegate to another body the task of collecting certain categories of recoverable
amount, provided that the conditions laid down in Article 2(b), duly adapted, are met and that the other body
reports to the authority at regular and timely intervals, not less than monthly, on all revenues recognised and monies
collected.

The responsible authority should introduce procedures to ensure that all claims are processed quickly.

3. Definition and standardisation of procedures and duties

3.1. The responsible authority should lay down in writing detailed procedures for monitoring project implementation
and for receiving, registering and processing claims, including a description of all documents that should be used.

3.2. The responsibilities of each official, authorised representative or person empowered for the purpose should be laid

down in writing, as should the limit of his powers in relation to finance.

3.3. Each official, authorised representative or person empowered for the purpose, who is responsible for authorisation
should be in possession of an exhaustive checklist detailing the verifications he is required to carry out, and should
insert in all documents supporting any claim his attestation that the checks have been carried out. There shall be
evidence of review of the work by a more senior official.

3.4. Where claims are processed using a computer system, access to the computer system shall be protected and

controlled in such a way that:
— all data entered in the system are properly validated to ensure that input errors are detected and corrected,
— no data may be entered, modified or validated by anyone other than the authorised officials, representatives or

persons empowered to whom individual passwords are attributed,

— the identity of each official, authorised representative or person empowered entering, or modifying, data or

programmes is recorded in an operations log.

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ANNEX II

INDICATIVE LIST OF THE INFORMATION REQUIRED FOR THE AUDIT TRAIL (ARTICLE 4)

An audit trail is deemed to be adequate within the meaning of Article 4(2) where, for a given national implementation
programme, the following requirements are met:

1. The accounting records kept at the appropriate management levels shall give detailed information on the expenditure
incurred for each co-financed project by recipients of grants. They shall give the date on which documents were drawn
up, the amount of each expenditure item, the nature of the accompanying document and the date and method of
payment. Necessary documentary evidence (invoices, etc.) shall be attached.

2. In cases where expenditure items relate only partly to a co-financed project, the accuracy of the allocation of the
amount between the co-financed project and other projects shall be demonstrated. The same applies to types of
expenditure deemed eligible within limits or in proportion to other costs.

3. The specifications and the project's financial plan, reports on project progress, documents relating to the grant of aid,
tendering procedures and awards of contracts, etc., shall also be kept at the appropriate management level.

4. For the purpose of notifying expenditure actually incurred to an intermediary body between the recipient(s) of grants
that implement the projects and the responsible authority designated under Article 7 of Decision 2000/596/EC, the
information required under paragraph 1 shall be combined in a detailed statement of expenditure setting out, for each
project, all the expenditure items with a view to calculating the total certified amount. The detailed statements of
expenditure constitute supporting documents for the accounting records of the intermediate body.

5. The intermediary organisations shall keep accounting records for each project and for the total amounts of expenditure
certified by the recipients of grants that implement the projects. Intermediate organisations reporting to the responsible
authority shall submit to that authority a list of approved projects for each national implementation programme,
indicating for each project its full name and that of the recipients of the grant implementing it, the date on which the
assistance was granted, the amounts committed and paid, the expenditure period concerned and the total amount of
expenditure per measure. This information shall constitute the accompanying file in the accounting records of the
responsible authority and the basis for drawing up declarations of expenditure to be submitted to the Commission.

6. Where the grant recipients implementing the projects report directly to the responsible authority, the detailed
statements of expenditure referred to in paragraph 4 shall constitute the accompanying files of the accounting records
kept by the responsible authority, which shall draw up the list of co-financed projects referred to in paragraph 5.

7. Where more than one intermediary body intervenes between the grant recipient(s) implementing the projects and the
responsible authority designated under Article 7 of Decision 2000/596/EC, each intermediary body shall require, for its
area of responsibility, detailed statements of expenditure drawn up at the lower level to be used as supporting
documentation in its own accounts and in respect of which it must report upwards, giving at least the total amount of
expenditure for each project.

8. In cases of computerised data transfer, all the authorities concerned must obtain sufficient information from lower
levels to justify their own accounting records and the sums reported upwards, so ensuring a satisfactory audit trail
from the total amounts notified to the Commission to the various expenditure items and the supporting documents at
the grant recipient/project implementation level.

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ANNEX III

GUIDELINES ON THE PRINCIPLES, CRITERIA AND INDICATIVE SCALES TO BE APPLIED BY COMMISSION
DEPARTMENTS IN DETERMINING FINANCIAL CORRECTIONS UNDER ARTICLES 18 AND 19 OF DECISION
2000/596/EC

1.

PRINCIPLES

The purpose of financial corrections is to restore a situation where 100 % of the expenditure declared for
co-financing from the Fund is in line with the applicable national and Community rules and regulations. This
allows the establishment of a number of key principles for the Commission departments to apply in determining
financial corrections:

(a) Irregularity is defined in Article 1(2) of Regulation (EC) No 2988/95 (1). Irregularities can be one-off or

systemic.

(b) A systemic irregularity is a recurrent error due to serious failings in management and control systems designed

to ensure correct accounting and compliance with the rules and regulations in force.

— If the applicable rules and regulations are respected, and all reasonable measures are taken to prevent,

detect and correct fraud and irregularity, no financial corrections will be required.

— If the applicable rules and regulations are respected, but the management and control systems need to be
improved, pertinent recommendations should be made to the Member State, but no financial corrections
need be envisaged.

— Where only errors relating to sums of less than EUR 4 000 are found, the Member State should be urged
to correct the errors without opening financial correction proceedings under Article 18(4) of Decision
2000/596/EC.

— If there are serious failings in the management or control systems which could lead to systemic irregulari-
ties, in particular failures to respect the applicable rules and regulations, financial corrections should always
be made.

(c) The amount of the financial correction will be assessed wherever possible on the basis of individual files and be
equal to the amount of expenditure wrongly charged to the Fund in the cases concerned. Specifically quantified
corrections for each individual project concerned are not always possible or practicable, however, or it may be
disproportionate to cancel the entire expenditure in question. In such cases, the Commission has to determine
corrections on the basis of extrapolation or at flat rates.

(d) Where there is evidence that individual quantifiable irregularities of the same type have occurred in a great
number of other projects, or throughout a measure or programme, but it is not cost-effective to determine the
irregular expenditure for each project individually, the financial correction may be based on extrapolation.

— Extrapolation can be used only where a homogeneous population or subset of projects can be identified
and shown to have been affected by the deficiency. In this case, the results of a thorough examination of a
representative sample of the individual files concerned selected at random are extrapolated to all the files
making up the population identified,

in accordance with generally accepted auditing standards.

(e) In the case of individual breaches or systemic irregularities whose financial impact is not precisely quantifiable
because it is subject to too many variables or is diffuse in its effects, such as those resulting from a failure to
undertake checks effectively in order to prevent or detect the irregularity or to comply with a condition of the
assistance or a Community rule, but where it would be disproportionate to refuse all the assistance concerned,
flat rates should be applied.

— Flat rate corrections are determined in accordance with the seriousness of the deficiency in the management
and control system or the individual breach and the financial implications of the irregularity. A list of what
the Commission considers to be key and ancillary elements of systems for the purpose of assessing the
seriousness of deficiencies is given in section 2.2 and an indicative scale of flat rates for corrections in
section 2.3. Flat rate corrections are applied to all expenditure under the measure or measures concerned
unless the deficiencies were limited to certain areas of expenditure (individual projects or types of project),
in which case they are applied to those areas of expenditure only. The same expenditure will not normally
be subject to more than one correction.

(f) In areas where there is a margin for discretion in evaluating the gravity of the infringement, as in cases of
disregard of environmental conditions, corrections shall be subject to the following conditions: a significant
failure to respect the rules and a clearly identifiable link with the action receiving Community funding.

(1) OJ L 312, 23.12.1995, p. 1.

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(g) Irrespective of the kind of corrections proposed by the Commission, the Member State is always given the
opportunity to demonstrate that the real loss or risk to the Fund and the extent or gravity of the irregularity
was less than that assessed by the Commission services. The procedure and time limits are set out in Article
14(4) and (5) of this Decision.

(h) Unlike corrections made by Member States under Article 19(1) of Decision 2000/596/EC, financial corrections
decided by the Commission under Article 19(2) of the same Decision always involve a net reduction to the
Community funding committed to the programme concerned.

(i) Where the Member State's audit system — Court of Auditors, internal or external audits — has detected the
irregularities and the Member State takes appropriate corrective action under Article 19(1) of Decision
2000/596/EC within a reasonable period of time, no financial corrections can be imposed by the Commission
under Article 19(2) of Decision 2000/596/EC and the Member State is free to re-use the funds. In other cases
the Commission may make corrections on the basis of the findings of national audit bodies, as where an EU
audit body establishes the irregularity. When the Commission bases its position on the facts established and
fully documented by other EU audit bodies,
form its own conclusions regarding their financial
consequences, after examining any replies from the Member State.

it will

2.

CRITERIA AND SCALES FOR FLAT-RATE CORRECTIONS

2.1.

Criteria

As noted in paragraph 1(c) above, flat-rate corrections may be envisaged when the information resulting from the
enquiry does not permit the financial impact of an individual case or several cases of irregularities to be evaluated
precisely by statistical means, or by reference to other verifiable data, but does lead to the conclusion that the
Member State has failed to carry out adequate verification of the eligibility of claims accepted.

Flat-rate corrections should be considered when the Commission finds a failure to adequately effect any control
which is explicitly required by a regulation, or implicitly required in order to respect an explicit rule (the limiting of
aid to a certain type of project, for example), and whose absence could lead to systemic irregularity. They should
also be considered where the Commission finds serious deficiencies in management and control systems resulting
in large-scale breaches of applicable rules and regulations, or where it detects individual breaches. Flat-rate
corrections can also be appropriate when the Member States' own control departments discover such irregularities
but the Member State fails to take appropriate corrective action within a reasonable period of time.

In determining whether a flat-rate financial correction should result and,
the general
consideration shall be the assessment of the degree of risk of loss to which the Fund was exposed as a consequence
of the control deficiency. Thus the correction should be in compliance with the principle of proportionality. The
specific elements to be taken into account should include the following:

if so, at what rate,

1. whether the irregularity is related to an individual case, multiple cases or all cases;

2. whether the deficiency relates to the effectiveness of the management and control system generally, or to the
effectiveness of a particular element of the system, i.e. the operation of particular functions necessary to ensure
the legality, regularity and eligibility of expenditure declared for co-financing from the Fund under the
applicable national and Community rules (see section 2.2 below);

3. the importance of the deficiency within the totality of the administrative, physical and other controls foreseen;

4. the vulnerability to fraud of the measures, having regard particularly to the economic incentive.

2.2.

Classification of elements of management and control systems for the purpose of applying flat rates of financial
corrections for system deficiencies or individual breaches

Management and control systems for the Fund consist of various elements or functions of greater or lesser
importance for ensuring the legality, regularity and eligibility of expenditure declared for co-financing. For the
purpose of assessing flat rate corrections for deficiencies in such systems or individual cases of irregularity, it is
useful to classify the functions of management and control systems into key and ancillary elements.

Key elements are those designed and essential to ensure the legality and regularity and indeed the substance of
projects supported by the Fund, ancillary elements those that contribute to the quality of a management and
control system and help ensure that the system keeps performing well

in relation to its key functions.

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The list below contains the majority of elements of good management and control systems and good audit
practice. The seriousness of deficiencies and individual breaches varies considerably, and cases will therefore be
assessed by the Commission, having regard,

in particular, to section 2.4.

2.2.1. Key elements for ensuring eligibility for co-financing

1. Provision and application of procedures for grant applications, appraisal of applications, selection of projects
for funding and selection of contractors/suppliers, appropriate publication of calls for grant applications
according to the procedures for the programme concerned:

(a) compliance, where applicable, with rules on publicity, equality of opportunity and public procurement, and
with Treaty rules and principles of equality of treatment and non-discrimination where EC public procure-
ment directives are not applicable;

(b) appraisal of grant applications in accordance with programme criteria and procedures, including compliance

with rules on environmental

impact assessment, equality of opportunity legislation and policies;

(c) selection of projects for funding:

— projects selected correspond to objectives and published criteria of programme;

— reasons for acceptance or rejection of applications are clearly set out;

— observance of State aid rules;

— observance of eligibility rules;

— inclusion of terms and conditions of funding in approval decision.

2. Adequate verification of delivery of co-financed products and services and of eligibility of expenditure charged
to programme by the responsible authority designated under Article 7 of Decision 2000/596/EC and the
intermediary organisations between the grant recipient and the responsible authority:

(a) verification of the reality of ‘deliverables’ (services, works, supplies, etc.) against plans, invoices, acceptance

documents, experts' reports, etc., and, where appropriate, on the spot;

(b) verification of observance of conditions of grant approval;

(c) verification of the eligibility of expenditure for which a claim is made;

(d) adequate follow-up of all outstanding questions before acceptance of claim;

(e) maintenance of an adequate and reliable accounting system;

(f) maintenance of the audit trail at all

levels from grant recipient up through the system;

(g) taking reasonable measures to obtain assurance that the declarations of expenditure the responsible

authority certifies to the Commission are correct insofar as:

— expenditure was effected within the eligible period in projects selected for co-financing in accordance

with normal procedures and all applicable terms and conditions,

— the co-financed projects have actually been carried out.

3. Sufficient quantity and quality of sample checks on projects and adequate follow-up:

(a) carrying out sample checks on at least 20 % of total eligible expenditure in accordance with Article 5 of this

Decision, supported by a report on the work done by the auditor;

(b) the sample is representative and the risk analysis adequate;

(c) adequate separation of duties to ensure independence;

(d) follow-up to checks, ensuring:

— appropriate assessment of results and financial corrections where appropriate,

— action at a general

level to correct systemic irregularities.

2.2.2. Ancillary elements:

(a) satisfactory administrative controls in the form of standard checklists or equivalent means and proper

documentation of results, to ensure for instance:

— that claims have not been paid before and transactions (contracts, receipts,

invoices, payments) are

separately identifiable;

— reconciliation within the accounting system of declarations and expenditure recorded;

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(b) proper supervision of claims processing and authorisation procedures;

(c) satisfactory procedures to ensure proper dissemination of information about Community rules;

(d) ensuring timely payment of Community funding to beneficiaries.

2.3.

Indicative scales of flat-rate corrections

100 % correction

The rate of correction may be fixed at 100 % when the deficiencies in the Member State's management and control
system are, or an individual breach is, so serious as to constitute a complete failure to comply with Community
rules, so rendering all the payments irregular.

25 % correction

When a Member State's application of its management and control system is gravely deficient, and there is
evidence of widespread irregularity, and negligence in countering irregular or fraudulent practices, a correction of
25 % is justified, as it can then reasonably be assumed that the freedom to submit irregular claims with impunity
will occasion exceptionally high losses to the Fund. A correction at this rate is also appropriate for irregularities in
an individual case which are serious but do not invalidate the whole project.

10 % correction

When one or more key elements of the system do not function or function so poorly or so infrequently that they
are completely ineffective in determining the eligibility of the claim or preventing irregularity, a correction of 10 %
is justified, as it can reasonably be concluded that there was a high risk of widespread loss to the Fund. This rate of
correction is also appropriate for individual irregularities of moderate seriousness in relation to key elements of the
system.

5 % correction

When all the key elements of the system function, but not with the consistency, frequency, or depth required by
the regulations, then a correction of 5 % is justified, as it can reasonably be concluded that they do not provide a
sufficient level of assurance of the regularity of claims, and that the risk to the Fund was significant. A 5 %
correction can also be appropriate for less serious irregularities in individual projects in relation to key elements.

The fact that the way in which a system operates is perfectible is not in itself sufficient grounds for a financial
correction. There must be a serious deficiency of compliance with explicit Community rules or standards of good
practice and the deficiency must expose the Fund to a real risk of loss or irregularity.

2 % correction

When performance is adequate in relation to the key elements of the system, but there is a complete failure to
operate one or more ancillary elements, a correction of 2 % is justified in view of the lower risk of loss to the Fund,
and the lesser seriousness of the infringement.

A 2 % correction will be increased to 5 % if the same deficiency is established in relation to expenditure after the
date of the first correction imposed and the Member State has failed to take adequate corrective measures for the
part of the system at fault after the first correction.

A correction of 2 % is also justified where the Commission has informed the Member State, without imposing any
correction, of the need to make improvements to ancillary elements of the system that are in place but do not
operate satisfactorily, but the Member State has not taken the necessary action.

Corrections are only imposed for deficiencies in ancillary elements of management and control systems where no
deficiencies have been identified in key elements. If there are deficiencies in relation to ancillary elements as well as
in key elements, corrections are only made at the rate applicable to the key elements.

2.4.

Borderline cases

Where the correction resulting from a strict application of these guidelines would be disproportionate, a lower rate
of correction may be proposed.

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For example, where the deficiencies arose from difficulties in the interpretation of Community rules or require-
ments (except in cases where it should reasonably be expected that the Member State raise such difficulties with the
Commission), and the national authorities took effective steps to remedy the deficiencies as soon as they were
brought to light, this mitigating factor may be taken into account and a lower rate or no correction may be
proposed. Similarly, due regard should be paid to claims of legal certainty when the deficiencies were not reported
following earlier audits by the Commission's services.

In general, the fact that deficient management or control systems were improved immediately after the deficiencies
were reported to the Member State is not considered as a mitigating factor when assessing the financial impact of
the systemic irregularities before the improvement was made.

2.5.

Basis of assessment

Whenever the situation in other Member States is known, the Commission shall make a comparison between them
to ensure equal treatment in the assessment of the rates of correction.

The rate of correction should be applied to that part of the expenditure placed at risk. When the deficiency results
from a failure by the Member State to adopt an appropriate control system, then the correction should be applied
to the entire expenditure for which that control system was required. When there is reason to suppose that the
deficiency is limited to that of a particular authority's or region's application of the control system adopted by the
Member State, the correction should be limited to the expenditure controlled by that authority or region. When the
deficiency relates for example to verification of the criteria for eligibility for a higher rate of aid, then the correction
should be based on the difference between the higher and lower rate of aid.

The correction should normally concern the expenditure of the measure over the period being examined, for
example one financial year. However, when the irregularity results from systemic deficiencies, which are evidently
long-standing and affecting several years' expenditure, then the correction should concern all the expenditure
declared by the Member State while the system deficiency obtained until the month in which it was remedied.

When several deficiencies are found in the same system, the flat rates of correction are not cumulated, the most
serious deficiency being taken as an indication of the risks presented by the control system as a whole (1). They are
applied to the expenditure remaining after deduction of the amounts refused for individual files. In the case of the
Member State's non-application of penalties prescribed by Community law, the financial correction should be the
amount of the penalties not applied, together with 2 % of the remaining claims, as the non-application of penalties
increases the risk that irregular claims will be submitted.

3.

APPLICATION AND EFFECT OF NET FINANCIAL CORRECTIONS

Where the Member State agrees to make the financial correction proposed in the procedure under Article 19(1) of
Decision 2000/596/EC, the Commission need not impose a net reduction in the funding, but may allow the
Member State to reallocate the sums released. However, financial corrections imposed by the Commission under
Article 19(2) of Decision 2000/596/EC after completion of the procedure laid down by Article 18(3) and (4) of the
same Decision will in all cases involve a net reduction in the indicative allocation of assistance from the Fund.

A net correction is automatically made if the Commission considers that the Member State has not taken
satisfactory account of conclusions on irregularities detected by Community or national bodies and/or if the
irregularity is related to a serious deficiency in the management or control system of the Member State or of the
management or payment authorities.

Any sum due to the Commission as a result of net corrections is to be paid together with interest under Article
19(3) of Decision 2000/596/EC and in accordance with Article 15(2) of this Decision.

(1) See also section 2.3 (2 % correction).

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ANNEX IV

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Appendix

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