Special Report No 4/2002 on local actions for employment together with the Commission's replies
Date: 2002-07-18
Institutions: European Court of Auditors
Subjects: employment policy, exchange of information, regional policy

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SPECIAL REPORT No 4/2002

on local actions for employment together with the Commission’s replies

(pursuant to article 248, paragraph 4(2), of the EC Treaty)

(2002/C 263/02)

CONTENTS

Paragraph

Page

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-VIII

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBJECTIVES AND SCOPE OF THE AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-4

5-9

The need for a clearer community policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10-21

Regulatory requirements on local employment policy in the absence of a European legal
framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Need for Improved policy formulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BETTER INFORMATION AND IMPROVED POLICY IMPLEMENTATION . . . . . . . . . . . . . . . . .

Use of small grants provisions by Member States is limited . . . . . . . . . . . . . . . . . . . . . . . .

Insufficient information on local actions for employment under the ESF . . . . . . . . . . . . . .

Insufficient information on local employment actions in the context of the EES
guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Improved evaluation of local actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NEED FOR IMPROVEMENT IN THE COMMISSION’S PROJECT MANAGEMENT . . . . . . . . . . .

Financial controls on innovative projects require tightening . . . . . . . . . . . . . . . . . . . . . . . .

Better focusing of preparatory actions needed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBSTACLES TO THE DEVELOPMENT OF LOCAL ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . .

Lack of follow-up support for Territorial Employment Pacts . . . . . . . . . . . . . . . . . . . . . . .

Delays in the use of global grants by Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Obstacles to the participation of the voluntary sector in ESF programmes . . . . . . . . . . . .

Lack of commercial financing for local actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12-15

16-21

22-42

25-29

30-31

32-35

36-42

43-52

45-48

49-52

53-64

54-55

56-58

59-61

62-64

65-72

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23

24

25

26

27

27

28

29

29

30

30

31

32

32

32

33

33

34

34

35

35

37

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EES

ERDF

ESF

NAP

NGO

GLOSSARY

European Employment Strategy: it brings together Member States’ national employment policies
and provides for the creation of Employment Guidelines, adopted annually by the Council, on
proposals from the Commission

European Regional Development Fund

European Social Fund

National action plan: national action plans are prepared by each Member State in order to imple-
ment the employment guidelines that are adopted by the Council

Non-governmental organisation: organisations with delegated responsibility for managing and
implementing government and EU-funded programmes

Objectives

The Structural Funds are based on three objectives:

Objective 1

Objective 2

Objective 3

Development and structural adjustment of regions whose development is lagging behind

Converting the regions or parts of regions seriously affected by industrial decline

Combating long-term unemployment and facilitating occupational integration

Single Programming
Document

A document submitted by a Member State and approved by the Commission comprising of a set
of priorities and multiannual measures, implemented with national and EU co-financing

Structural Funds

Community funds for the support of programmes of socio-economic development in the 15
Member States

TEP

Territorial employment pact: partnerships consisting of local and regional actors, created with a
view to strengthening structural policies for employment and sharing experiences with other
regions.

Third system

Economic activity of cooperatives, mutual bodies and associations

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SUMMARY

I.
Local employment promotes the creation of locally sourced jobs and covers a wide range and typology
of actions and activities: some pertaining to the European Employment Strategy (EES), which brings together
Member States’ national employment policies, some financed under the European Social Fund (ESF), which is
administered by the Commission in partnership with the Member States, others directly managed by the Com-
mission. While each of these strands derives from a different legal basis and has its own specific objectives,
they each address the overall common objective of furthering a local employment strategy for job creation.
The areas also differ in regard to the allocation of responsibilities for their achievement, as in the case of the
ESF operational programmes, for which Member States have shared responsibility under the subsidiarity prin-
ciple, and innovative and preparatory actions, for which the Commission has overall responsibility. In the 1994
to 1999 period, the Commission estimated that local employment accounted for approximately 10 % or 5 000
million euro of the total ESF funding, out of an overall total of approximately 20 455 million euro of Com-
munity funding spent on local development.

While the Treaty makes provisions for a coordinated strategy, it provides no legally enforceable basis
II.
for a European employment policy as such. Thus, the setting of employment priorities and actions, including
the importance given to local employment actions in each Member State, remains the sole prerogative of
national governments.

III.
The Court’s audit examined the Commission’s (DG Employment) policy formulation and information
gathering functions in the area of local employment and also the Commission’s management of innovative
projects which it directly funded in the period 1994 to 2001. Local employment projects were also visited on
the spot in six Member States (Germany, Spain, France, Austria, Finland and United Kingdom).

IV.

(a)

The following was identified regarding the formulation of Community policy:

there is no definition of local employment in the policy statements nor are specific details given of the
scope and application of the policy in Member States;

(b) Community policy development in the area of support to local employment through innovative and pre-

paratory measures, has been piecemeal and lacking structure and coherence.

A lack of information for the monitoring and assessment of local employment was found in the fol-

V.
lowing instances:

(a)

(b)

in respect of ESF funding, there is a lack of information on the extent to which operational programmes
approved by the Commission for the period 2000 to 2006, addressed the horizontal theme of local
employment;

the Commission’s monitoring of the local employment activities within the European Employment Strat-
egy was curtailed by the lack of information in Member States’ annual National Action Plans. The Com-
mission should insist that Member States provide more information on local employment actions.

The Commission’s financial management procedures concerning their own innovative and prepara-

VI.
tory actions on local employment had shortcomings, notably:

(a)

the financial rules on payments to projects were not adhered to in some cases;

(b) some grant agreements were signed after the projects concerned had been completed;

(c)

there was a degree of overlap between the innovative Article 6 actions and preparatory measures for local
employment in the period 2000 to 2001, thus reducing the cost effectiveness of the limited funding.

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VII.
Member States:

The audit also identified obstacles to the effective implementation of local employment actions in

(a)

there were delays and administrative complexities in some Member States in introducing global grants’
mechanisms for the implementation of small grant provisions under the ESF, particularly with regard to
requirements of the new financial control regulations and Member States’ existing legal and administra-
tive arrangements;

(b)

In some Member States national administrative restrictions prohibited advance payments of ESF to final
recipients in the voluntary and community sectors;

(c) Some Commission-managed local employment actions were restricted to non-profit-making organisa-

tions, limiting the capacity-building of the private sector in this area.

VIII.

The Court recommends that:

(a) a comprehensive assessment of the likely added value of a local employment policy should be undertaken

on all policy implementation levels;

(b)

the Commission provides more precise guidance to Member States on local employment under the ESF
programmes;

(c)

the Commission should insist that under EES, Member States provide more information on local employ-
ment actions;

(d) Commission-managed actions in the area of innovative projects should be rationalised, along with a tight-
ening of financial management procedures to ensure the regularity and cost effectiveness of funding;

(e) while the primary responsibility for ensuring the effectiveness of the overall local employment strategy
rests with Member States, the Commission should ensure that it has adequate information at its disposal,
to fulfil its facilitative and coordinating function.

INTRODUCTION

1.
Community support for local actions for employment
dates back to the Commission’s 1993 White Paper on growth,
competitiveness and employment which recognised the need to
exploit new sources of jobs at local level. This new emphasis on
‘local’ foresaw development practices in this area being copied
throughout Europe, so as to contribute to the overall objective of
halving unemployment in and by the Member States up to the
year 2000.

2.
The European Council of Essen in 1994 further endorsed
this policy, following which the Commission carried out a num-
ber of studies (1) in this area. In 1997, the Luxembourg special

(1) SEC(1996) 2061 of November 1996: ‘First report on local develop-
ment and employment initiatives’; SEC(1998) 25 ‘Second report on
local initiatives for development and employment’, COM(1995) 273:
‘A European strategy for encouraging development and local employ-
ment initiatives’.

summit on employment approved the European Employment
Strategy (EES), which provided for the creation of Employment
Guidelines, adopted annually by the Council, on proposals from
the Commission. These guidelines, which are to be taken into
account by Member States in shaping their national employment
policies, have increasingly incorporated a local dimension.

Under Art 2(2) of the Council Regulation on the European
3.
Social Fund (2) (ESF), the Fund shall take account of support for
local initiatives concerning employment and in particular initia-
tives to support local employment and territorial employment
pacts. In the 1994 to 1999 period, the Commission estimated that
local employment accounted for approximately 10 % or 5 000
million euro of the total ESF funding, out of overall local develop-
ment Community funding amounting to approximately 20 455
million euro. Table 1 shows an estimate of total expenditure on
local development in the period 1989 to 1999 which includes all
three Structural funds.

(2) Article 2(2) of Parliament and Council Regulation (EC) No 1784/

1999 (OJ L 213, 13.8.1999).

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Total estimated expenditure on local development within Structural Funding 1989 to 1999

Table 1

Total amount
of Structural
Funds
1989 to 1993

(1)

Operational Programmes

57 700

Community Initiatives

Innovative Actions

Total

3 800

520

62 020

Source: SEC(1994) 2199 of the Commission.

Local development
1989-1993

Total amount
of Structural
Funds
1994 to 1999

(Mio EUR)

Local development
1994 to 1999

(2)

2 900

1 140

334

4 374

%
(3)=(2):(1)

(4)

%
(5)

(6)=(5):(4)

5

30

64

7

127 200

12 700

13 450

6 900

950

855

141 600

20 455

10

51

90

14

4.
The Employment policy guidelines (1) contain indications
of the content of regional and local action for employment by
specifying that ‘all actors at regional and local levels including the
social partners, must be mobilised to implement the European
Employment Strategy by identifying the potential of job creation
at local level and strengthening partnerships to this end’. In par-
ticular, ‘Member States will take into account, where appropriate,
in their overall employment policy, the regional dimension, encour-
age local and regional authorities to develop strategies for employ-
ment in order to exploit fully the possibilities offered by job cre-
ation at local level and promote partnerships to this end with all
the actors concerned including the representatives of civil society
(…) and, strengthen the role of public employment services at all
levels in identifying local employment opportunities and improv-
ing the functioning of local labour markets’. These actions are
either included in Structural Funds programmes or are actions
directly financed by the Commission, like innovative projects (2)
or employment creation activities under the ‘Third system’ (3).
This ‘Third system’ refers to the economic activity of co-operatives,
mutual companies and associations, estimated to account for
almost 7 % of all salaried employment across Member States (4).

(1) Latest edition: Guidelines for the employment policies for the year

2002 (OJ L 60, 1.3.2002, p. 66).

(2) Pursuant to Article 22(1) of Council Regulation (EC) No 1260/1999
(OJ L 161, 26.6.1999) and Article 6 of Regulation (EC) No 1784/
1999 (OJ L 213, 13.8.1999), the European Social Fund (2000 to 2006)
may finance innovative measures such as studies.

(3) Budget line B5-5 0 1 in 2000.
(4) Communication from the Commission ‘Acting locally for employ-

OBJECTIVES AND SCOPE OF THE AUDIT

The Court carried out an audit in 2001 in the area of local
5.
employment, which examined the legal and policy framework for
local employment, the Commission’s information systems for
monitoring this policy area, the Commission’s financial manage-
ment of directly funded innovative actions, and the execution of
a sample of local employment projects in a selection of Member
States.

Having regard to the wide nature of the subject and the
6.
diverse set of economic and political circumstances on the one
hand, and its own limited resources on the other, the Court did
not attempt an EU-wide value-for-money assessment in this area,
but instead examined issues regarding the adequacy of the regula-
tory framework and the efficiency and effectiveness of the Com-
mission’s role in this area.

The audit set out to answer the following principal ques-

7.
tions:

(a) was there a coherent and clear Community policy for the

promotion of local employment?

(b) was there appropriate information for the formulation and

implementation of local employment policy?

(c) were local employment projects adequately managed?

(d) what were the principal obstacles to the development of local

ment’ (COM(2000) 196 final of 7 April 2000).

employment in Member States?

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The audit included an analysis of the Commission’s pub-
8.
lished policy statements in this area and an analysis of Member
States’ employment strategies for 2000 and 2001. In accordance
with the audit’s main aim of examining the Commission’s strate-
gic and operational management, the audit of projects focused on
the specific area of innovative projects, funded directly by the
Commission (DG Employment) in the period 1994 to 2001, for
which a financial audit at the Commission of 50 projects was car-
ried out. Furthermore, an additional 12 projects from both Struc-
tural Fund programmes and direct Commission-financed projects
were also visited in six Member States (Germany, Spain, France,
Austria, Finland and United Kingdom), to ascertain the obstacles
existing to the development of local employment.

9.
The Court’s audit consisted of the examination of three
distinct components in respect of ‘local employment actions’ and
the interaction and synergy between them.

(a)

the policy requirements of the European Employment Strategy
(EES) and national action plans for employment (NAPs);

(b)

the legal requirements of the ESF Regulation, and

(c)

operational

the
concerning
Commission-managed, innovative and preparatory actions.

requirements

rules

and

While each strand derives from a different legal basis and has its
own specific objectives, they each address the overall common
objective of furthering a local employment strategy for job cre-
ation. The areas also differ in regard to the allocation of respon-
sibilities for their achievement, as in the case of the ESF opera-
for which Member States have shared
tional programmes,
responsibility under the subsidiarity principle, and innovative and
preparatory actions, for which the Commission has overall respon-
sibility.

THE NEED FOR A CLEARER COMMUNITY POLICY

10.
In accordance with the principles of proportionality and
subsidiarity under the Amsterdam protocol, the choice of the
level at which action is taken by the Community (from EU to
local) and the selection of the instruments used, must be in pro-
portion to the objectives pursued. This obliges the Commission
to verify, before launching an initiative, if it is really necessary,
whether the European level is the most appropriate one, and
whether the measures chosen are proportionate to the objectives.
In addition, as the Commission has itself recently recognised (1),
good management practice requires that policies must be timely,

(1) Commission’s ‘White Paper on European governance’ (COM(2001)

428 final of 25 July 2001).

and deliver what is needed on the basis of clear objectives and an
evaluation of future impact and where available, past experience.

11.
The Court’s audit sought to determine whether there was
a coherent and clear policy on the promotion of local employ-
ment and whether the Commission had developed clear objec-
tives for its role in supporting the development of local employ-
ment, within the respective contexts described in paragraph 9.

Regulatory requirements on local employment policy in the
absence of a European legal framework

12.
The EC Treaty, Title VIII, lays down the principles and
procedures for a coordinated European Employment Strategy (2)
(EES). The corresponding employment guidelines (3) stipulate that:

(a)

(b)

‘all actors at regional and local levels, including the social
partners, must be mobilised to implement the European
Employment Strategy by identifying the potential of job cre-
ation at local level and strengthen partnerships to this end’;

‘Member States will … take into account, where appropriate,
in their overall employment policy, the regional development
dimension … (and) encourage local and regional authorities
to develop strategies for employment…’.

13.
Each Member State produces a ‘policy frame of reference’
for employment and human resource development, which pro-
vides a framework for ESF programming, notably under Objec-
tive 3 programmes (4). Community Support Frameworks and/or
Single Programming Documents set out strategy and priorities for
the horizontal Objective 3 programmes and specific programmes
for Objectives 1 and 2 areas.

(2) The EES is based on four pillars and 19 European employment policy

guidelines:
Pillar 1: Improving employability,
Pillar 2: Developing entrepreneurship and job creation,
Pillar 3: Encouraging adaptability of business and their employees,
Pillar 4: Strengthening equal opportunities.

(3) Council Decision 2001/63/EC of 19 January 2001 on Guidelines for
Member States’ employment policies for the year 2001. This was fur-
ther reiterated in a proposal for Council Decision on Guidelines for
Member States’ employment policies for the year 2002 (COM(2001)
511 final of 12 September 2001).

(4) The National Action Plans are prepared by each Member State in
order to implement the guidelines that are adopted by the Council.

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However, while the Treaty makes provision for this coor-
14.
dinated strategy, it provides no legally enforceable basis for a
European employment policy as such. Thus, the setting of employ-
ment priorities and actions, including the importance given to
local employment actions in each Member State, remains the sole
prerogative of national governments.

15.
Article 146 of the Treaty Title XI provides the basis for
Regulation (EC) No 1784/1999 of the European Parliament and of
the Council (1) which required in respect of the 2000 to 2006
programming period for Structural Funds programmes, that the
initiatives concerning
ESF take account of support for local
employment, in particular initiatives to support local employ-
ment and territorial impact plans. Similarly, Article 161 of the
Treaty, made provision for Council Regulation (EC) No 1260/
1999 which, in Article 8 widened the partnership process under
which Community actions are designed. Finally, Article 127 of the
EC Treaty requests the Community ‘to contribute to a high level
of employment by encouraging cooperation between Member
States and by supporting and, if necessary, complementing their
action. In doing so, the competences of the Member States shall
be respected.’

Need for Improved policy formulation

Depending on the context, the Commission has different

16.
objectives in regard to local employment:

(a)

in the context of the EES, to provide the basis on which par-
ticipants can agree a common framework strategy;

(b) within the ESF, to ensure that Member States take into account

the support of local employment initiatives;

(c)

in relation to self-initiated and directly managed experimental
actions, to encourage best practices and their dissemination.

nication entitled ‘Acting locally for employment’ (2) in April 2000,
which formed the basis of a consultation campaign throughout
Member States. In February 2001, the Commission services sub-
mitted to the European Employment Committee a discussion
document for a second Communication (3) containing details of
its planned follow-up campaign. In line with the Commission’s
commitment to a more decentralised approach to regional
policy (4), this envisaged the preparation of local action plans by
local actors and a timetable for the implementation of the strategy
outlined in the document. Its primary focus was to help the actors
at the various levels gain better access to the decision-making pro-
cess.

18.
In spite of the efforts described in the preceding para-
graphs, the Court found that a framework for a coherent Com-
munity policy on local employment has not been established. In
particular, objectives for the promotion of local employment were
not clearly defined and relevant and measurable criteria by which
to evaluate their achievement were lacking. Firstly, insufficient
empirical evidence was found to determine the appropriateness of
promoting local employment actions on a European-wide scale.
While a general comparative study of employment in the services
sector in the USA and Europe undertaken by the Commission in
1998 indicated the potential for job creation at local level in the
services sector in the EU, no follow-up study at regional or local
level was undertaken to determine the actual potential for local
job creation.

19.
Secondly, the Commission did not define what consti-
tuted a ‘local employment action’ on the basis that such an
approach would be incompatible with Community competence
and the principle of subsidiarity.

20.
Thirdly, the Commission Communications did not pro-
vide a common framework for supporting local employment
actions from the EU budget, nor a plan of action, containing tar-
geted outputs, in quantitative or qualitative terms. For example,
an action plan with a timetable for the preparation of local action
plans, while initially proposed by the Commission, was not
included in the Commission’s Communication of November 2001.

17.
In the context of creating a common strategy for local
actors to implement, the Commission produced a first Commu

21.
Finally, there was a lack of precision in the policy defini-
tion in the Communications. No clear distinction was made

(1) Article 2(2)(a), states that, ‘within the policy fields the Fund (ESF) shall
take account of support for local initiatives concerning employment,
in particular initiatives to support local employment and territorial
employment pacts’.
Article 3(1)(d), refers to the development of new sources of employ-
ment, including the social sector (Third System).
Article 4(2) provides for a reasonable amount of appropriation being
available (within Objective 1 and 3 areas) in the form of small grants,
with special arrangements for access by non-governmental organisa-
tions and local partnerships.

(3)

(2) Communication from the Commission ‘Acting locally for employ-
ment’ — A local dimension for the european employment strategy’
(COM(2000) 196 of 7 April 2000).
Internal service document EMCO/07/01 which was the basis for
Communication from the Commission ‘Strengthening the local dimen-
sion of the European Employment Strategy’ (COM(2001) 629 final of
6 November 2001).

(4) Second Report on Economic and Social Cohesion (COM(2001) 24

final of 31 January 2001).

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between direct and process benefits (1) being sought and no clear
objective was set, based on targets and specific financial alloca-
tions. Furthermore, the lack of distinction between the terms
‘regional’, ‘local’ and ‘territorial’ and the lack of statistical defini-
tion of the term local, all created difficulties in defining the scope
and application of the policy, for implementation in and/or by
Member States.

BETTER INFORMATION AND IMPROVED POLICY
IMPLEMENTATION

22.
Reliable information is required to ensure that decisions
taken are consistent with the objectives of the policy area and are
based on quantifiable and accurate data, so as to allow for com-
parison of actual results with plans. In the context of local employ-
ment, this means firstly, that proper and clear guidance should be
communicated to the implementing authorities; secondly, that
the contents of individual action programmes should be appraised;
thirdly, that actions should be properly monitored at an appropri-
ate level resulting in feedback and corrective action, and finally
that an evaluation should be carried out to determine how actions
address the strategic objectives.

23.
In the context of the EES and of the ESF implementation,
the Commission has, among its principal roles, the complement-
ing of national actions and the encouragement of cooperation
between Member States. While Member States are mainly respon-
sible for involving the regional and local actors in the implemen-
tation of local employment actions, it is the Commission which
must ensure that regional and local conditions are taken into
account when developing Community financial support policy,
while fully respecting national constitutional and administrative
arrangements. This is not an easy task given the varying degrees
of local government and decentralised administrations through-
out Member States.

The Court’s audit sought to establish whether sufficient
24.
guidance had been provided to Member States in respect of local
employment for ESF programmes in the 2000 to 2006 program-
ming period; whether there was sufficient information and moni-
toring activity to determine fulfilment by Member States of report-
ing requirements under the EES guidelines and whether appropriate
evaluation had been carried out by the Commission in respect of
the impact of Community funding on local employment.

(1) Direct benefits are quantifiable and consist, for example of jobs cre-
ated or persons trained. Process benefits are qualitative and include
the creation of partnerships and intermediaries, which bring together
different community actors. Both are often included as the stated
objectives of Structural Funding in Operational Programmes.

Use of small grants provisions by Member States is limited

25.
Pursuant to Article 10(3) of Council Regulation (EC)
No 1260/1999, the Commission issued brief policy guidelines (2)
to Member States on the priorities for Structural Fund pro-
grammes for Objectives 1, 2 and 3 in the 2000 to 2006 program-
ming period, which contained guidance on the local development
dimension (3). However, this guidance was too general and insuf-
ficiently coherent as it was treated in the context of various chap-
ters of the guidelines. A second guidance note which was a staff
working document of questions and answers (4) and intended as
guidance to Commission staff, contained additional detail regard-
ing information requirements (5). This document was issued to
Member States, although only through the ESF Committee web-
site.

Regulation (EC) No 1784/1999 of 12 July 1999 (6) requires
26.
Member States to provide a reasonable amount of ESF financing
under Objective 1 and 3 programmes, as a small grants provision
under a global grants (7) mechanism for intermediate bodies, to
assist local development initiatives. These intermediaries are
responsible for allocating the Community funding to final recipi-
ents in the form of individual grants. This administrative structure
thus allows bodies familiar with the local situation to make funds
available more swiftly and in accordance with individual projects’
financing needs.

27.
In the Court’s Annual Report concerning the financial
year 1994, (see paragraphs 4.39 to 4.60), which reviewed the use
of global grants as an instrument of local development for the
European Regional Development Fund, the Court reported
instances where rules for the establishment of intermediary bod-
ies had not been adhered to and situations where a lack of specific
provision relating to intermediaries had resulted in poor monitor-
ing and the occurrence of ineligible expenditure.

(2) Commission Communication concerning the Structural Funds and
their coordination with the Cohesion Fund — ‘Guidelines for pro-
grammes in the period 2000 to 2006 — Social economy: new
employment-creating services’ (COM(1999) 344) (OJ C 267, 22.9.1999,
p. 13).

(3) Part 1, Section II ‘Competitive enterprises for employment creation’;
Part II ‘The European employment strategy’, in particular, the enhance-
ment of ESF support to territorial pacts in Objective 3 areas and the
local or regional assessment of needs arising from a bottom-up pro-
gramming arrangements and the integration of ESF with activities
supported by other funds.
‘ESF 2000: Questions and Answers’.

(4)
(5) While the regulation and official guidelines only required programmes
to include the summary content of the intended measures, this addi-
tional guidance document required much further detail to be pro-
vided in the programmes.

(6) Article 4.
(7) Articles 9(i) and 27 of Council Regulation (EC) No 1260/1999

(OJ L 161, 26.6.1999).

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The Court’s current audit found similar difficulties in the
28.
establishment of these global grants mechanisms for the 2000 to
2006 programming period. Two Member States (1) who experi-
enced difficulties in the interpretation and implementation of the
Global Grant mechanisms either declined or postponed a deci-
sion to select an intermediary body, due mainly to the uncertainty
about the division of liabilities between the parties in the case of
financial corrections and in regard to the practical application of
the Commission Regulation (EC) No 438/2001 on financial con-
trol of the Structural Funds (2).

Differences were also found in the setting of limits on
29.
administration costs of these intermediary bodies. In comparison
with the Commission’s own directly financed contracts, which
limit administration costs to 7 % of the total grant budget
amount (3), in the case of two intermediary bodies (4) funded by
Structural Funds in the United Kingdom and France, the funding
programmes provided for an upper limit of 20 % of budget. In the
case of the United Kingdom intermediary, the regional govern-
ment office subsequently set a lower limit of 12 %. In the case of
one German intermediary body (5), administration costs of 30 %
of the grant funding were awarded.

Insufficient information on local actions for employment
under the ESF

30.
The Commission assessed through ex ante evaluation how
Member States had taken into account the horizontal priority of
local employment actions in the programmes for the period 2000
to 2006, as set out in Article 2(2) of Regulation (EC) No 1784/
1999. Member States were not required to include indicators for
measuring performance on this priority although they were
expected to define, in the text of the programmes, how they would
achieve the requirements.

Insufficient information on local employment actions in the
context of the EES guidelines

The Treaty (6) provides for the preparation of annual
32.
guidelines drawn up by Council on the basis of which, Member
States must prepare and submit annual reports (National Action
Plans for Employment — NAPs) detailing progress in implement-
ing the employment strategy. These reports are examined by the
Commission and result in recommendations by Council to Mem-
ber States, and the production of a Joint Employment Report (7).
While the NAPs form the main tools used by the Commission in
monitoring Member States policies on local employment, they do
not however, unlike Community operational programmes, have
a legally enforceable basis.

33.
The Court’s examination of the NAPs for 2000 and 2001
showed that, in respect of local employment, key information
necessary for effective monitoring of the policy was not present.
In over one-third of the key criteria (8) identified by the Court, the
information provided by Member States in the NAPs, was either
incomplete or of poor quality.

34.
The Court also noted little improvement in the inclusion
of quantified targets and indicators in the NAPs, with which to
assess local employment impact. While some NAPs were found to
contain general budgetary data, these were mainly confined to
ESF operations. This point was previously made by the Court (9)
and also highlighted by the Commission (10), which also subse-
quently noted (11) that the descriptions of ESF operations in the
NAPs were detached from the Employment Strategy, making it
difficult to specify the genuine innovative contribution of the ESF.

The Court found that the Commission did not have spe-
31.
cific information on the extent to which operational programmes
approved by it addressed the horizontal theme of local employ-
ment.

(a)

in the vast majority of cases (12) there was little indication of
involvement of local actors in the preparation process of
NAPs (13). In cases where regional plans did exist, this did not

In relation to information about progress achieved in

35.
local employment, the Court observed that:

(1) Germany and Austria.
(2) Commission Regulation (EC) No 438/2001 of 2 March 2001 laying
down detailed rules for the implementation of Council Regulation(EC)
No 1260/1999 as regards the management and control systems for
assistance granted under the Structural Funds (OJ L 63 of 3.3.2001,
p. 21). This regulation requires a clear separation of functions between
managing and paying authorities and an independent audit of at least
5 % of eligible expenditure based on a representative sample of opera-
tions approved.
‘Vade-mecum of Commission grants’, financial provisions, para-
graph 11.3 DG-Budget, 15 July 1999.

(4) Objective 3 SPD Yorkshire and Humber, United Kingdom and Objec-

(3)

tive 3 in France.

(5) The intermediary appointed in respect of the Germany Objective 3

(6) Article 128 of the Treaty.
(7) The Joint Employment Report is prepared by the Council and the

Commission for submission to the European Council.

(8) Local knowledge of NAP; local participation in NAP preparation; new
sources of jobs; social economy; local partnerships; Public Employ-
ment Services and participation of social partners.

(9) Annual Report for the financial year 1999, paragraph 3.134.
(10) Commission Communication to Cardiff European Council 1998.
(11) SEC(2001) 1398 of 16 November 2001, Commission working paper
on assessment of the implementation of the 2001 employment guide-
lines (supporting document
to the Joint Employment Report
(COM(2001) 438 final of 12 September 2001).

(12) Except for two Member States (France and Netherlands in 2000).
(13) As confirmed in the Joint Employment Reports for 2000 (para-

SPD (federal level).

graph 4.4) and 2001 (paragraph 3.3).

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always constitute a true ‘local needs-based approach’ to plan-
ning, as the regional plans did not feed into the preparation
of the NAPs, but existed apart;

(b) only one-third of Member States (1) reported initiatives tar-

geted at new sources of local jobs;

(c) wide variations of understanding existed about the meaning

of ‘social economy’ among Member States (2);

(d)

there continued to be a considerable lack of coordination and
synergy between the ESF and ERDF in strategy-planning
documents in this area, as previously mentioned by the
Court (3) in 2001. Coordination and synergy are important
given that the Funds support different types of activity; infra-
structure and partnership building in the case of ERDF and
support for training in the case of ESF;

(e) a lack of coordination and monitoring of developments
between the Commission services in respect of territorial
employment pacts was noted. While DG REGIO assumed the
lead role, only one coordination meeting was held between
the services in 2001, with little monitoring information on
TEPs available in DG Employment.

Improved evaluation of local actions

36.
The Commission carried out a large number of studies in
the area of local employment, in the period 1996 to 2001. The
results of these studies and evaluations, principally in the area of
Article 6 innovative projects indicate that there have been posi-
tive impacts both in qualitative and quantitative terms, depend-
ing on the type of actions and the size of the territory.

The most noticeable advances in the area of local employ-
37.
ment creation have been predominantly ERDF supported actions,
because the ESF’s principal function has been generally to sup-
port national measures in the balancing of supply and demand
for work and professional re-training rather than addressing the-
matic objectives.

While certain Member States (e.g. the Netherlands and
38.
Finland) have a long tradition of local employment actions, in
others (e.g. France and Spain), this approach is relatively new and

(1) Belgium, Spain, France, Netherlands and Portugal in the NAPs for

2000.
Joint Employment Report 2001, paragraph 3.3.

(2)
(3) The Court’s Special Report No 12/2001, paragraph 17 concerning
certain structural measures to improve the employment situation, the
impact of ERDF aid on employment and ESF measures to combat
long-term unemployment, referred to the fact that the EES employ-
ment guidelines, the NAPs and the Joint Employment Reports, made
no explicit mention of the European Regional Development Fund
(ERDF), although its impact on employment was considerable (JO
C 334, 28.11.2001).

only recently incorporated into the NAPs. Thus some projects of
a local character found in the operational programmes can be
regarded as local employment actions by chance and not design,
as they do not derive from a visible systematic structure based on
a ‘local needs-based approach’ and an institutionalised local part-
nership.

39.
Nevertheless, there is an increased interest by most Mem-
ber States in the regional dimension of their employment policies
and strategies, with some national programmes being designed in
a more flexible way to allow for regional specificities, and some
regions developing their own programmes to complement parts
of national programmes. In the United Kingdom under Objective
3, each region had a Regional Action Plan, which was based on
the priority in the NAP deemed most relevant for the region.

40.
One difficulty of impact assessment however, as indi-
cated in the evaluations of pilot projects and employment pacts,
is in the apportioning of accountability for jobs created. This
must be divided between the partnerships which implemented
the actions, the national programme for job creation, the regional
programme which financed the project, and the local public
employment service, which supported the creation of the com-
pany or association. Furthermore, little empirical evidence exists
as to the displacement effect of local job creation actions and
whether this results in real added economic value, particularly in
the public sector area.

41.
The Court notes however, that under the Commission’s
guidelines for innovative measures in 2001 (4), research is being
supported to promote methods to benchmark the application of
local employment strategies and to develop methodological tools
to assess local development performance. However, development
work on the preparation of employment impact indicators for the
social economy is difficult due to the lack of relevant statistics in
the majority of Member States.

42.
While evaluations have been carried out on specific indi-
vidual areas of local employment, a clear overview or inventory
of the current state of affairs in Member States, so as to put into
context the objectives set and the progress of their implementa-
tion, does not exist. Nor does information exist on the level of
Community expenditure on local employment in the Member
States.

(4) Communication from the Commission on the implementation of
innovative Measures under Article 6 of the European Social Fund
Regulation for the programming period 2000 to 2006 (COM(2000)
894 of 12 January 2001).

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NEED FOR IMPROVEMENT IN THE COMMISSION’S PROJECT
MANAGEMENT

47.

The following was observed:

43.
The Commission directly manages a range of local employ-
ment actions, principally through innovative projects under
Article 6 of Regulation (EC) No 1784/1999 (1) and ‘Preparatory
actions for a local commitment for employment’.

44.
The Court’s audit sought to establish the extent to which
the Commission had ensured that funding was only allocated to
projects which met the legal, financial and regulatory require-
ments of the grant schemes and which provided good value for
money.

Financial controls on innovative projects require tightening

45.
In the period 1994 to 1998, the Commission funded 201
innovative projects under Article 6(1)(a) of Regulation (EC)
No 1784/1999, amounting to an annual average amount of 20,7
million euro, with an average subsidy by project of 55,5 % of the
total costs (Table 2). The Court noted that the subsidy rate increased
substantially (from 50 % to 83 %) between 1997 and 1998.

Table 2

Article 6 Projects Funded 1994 to1998

Year

Number of
projects

Total cost

(Mio EUR)

ESF
participa-
tion

Average funding rate
(%)

1994

1995

1996

1997

1998

32

54

50

34

31

32,1

54,3

43,9

23,6

32,8

18,0

23,0

23,5

11,8

27,1

1994-1998

201

186,6

103,5

Source: Court of Auditors.

56,1

42,4

53,5

50,0

82,6

55,5

46.
The Court selected and examined 13 projects approved in
1996 and 1997 and completed in 1999 and 2000, in order to
establish how they had been managed and what contribution they
had made to the development of new and innovative approaches.

(a)

(b)

(c)

there were significant delays in the monitoring and follow-up
by the Commission in 6 of the 13 projects. In one case (2),
which was awarded 288 200 euro, a recovery procedure was
only instigated nearly two years after the project failed to sub-
mit a final report;

the project ex ante evaluations did not always explain the rea-
son for the grant rate awarded, as in the case of one project (3)
for improving coordination and exchange of experience,
which received a one million euro grant representing 100 %
of total project costs;

in six of the 13 cases examined, the project promoters were
given a period of six months after the contract expiry date,
to finalise expenditure and a full year to submit to the Com-
mission their final report and claim. This additional delay
period made more difficult the Commission’s evaluation and
utilisation of results within a reasonable period after the
actual completion of projects.

48.
Furthermore, only 34 of the 201 Article 6 projects
approved were audited by the Commission in the period 1994 to
2001, thus reducing the probability of detecting ineligible or
irregular expenditure in this high risk area of direct contracts. The
analysis by the Court of a sample of audit reports showed that the
Commission auditors had found in the great majority of cases,
serious weaknesses and important errors, requiring many recov-
ery actions of funds unduly paid. In the light of these results, a
more active control strategy would have been justified in this area.

Better focusing of preparatory actions needed

49.
The Court also examined the total of 37 projects amount-
ing to 5,6 million euro from the Commission’s ‘Preparatory actions
for a local commitment for employment’ (4) measure in the year
2000. This pilot measure, which commenced on 1 January 2000,
had as its objective the support of local actors in creating local
employment plans based on the Employment Guidelines. An
examination of the financial execution of the budget for 2000
and 2001 (5) (Table 3), showed that there was a slow rate of take-up
of funding, in regard to commitments in 2000 (46,6 %). For pay-
ments, only 1,6 % of available credits for 2000 were paid, the
remaining amount being cancelled. While 99,8 % of funds were

(1) Pilot and demonstration projects and exchanges of experience, sub-

ject to a ceiling of 0,4 % of the ESF annual funding.

(2) Project No 970751 ATO.
(3) Project No 960019B 0.
(4) Budget line B5-5 0 3 — 12 million euro in 2000.
(5) Data as of 31 December 2001.

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committed in 2001, 96,3 % of this funding was committed in
November and December 2001. In fact, despite the introduction
of this new measure, overall funding for innovative actions actu-
ally decreased in the period 1998 to 2001 (1).

Table 3

Budget line B5-5 0 3: Preparatory actions for a local commitment
for employment

2000

Commitments budgeted

2000

Commitments executed

Credits cancelled

Payments budgeted (1)
Payments executed

Credits cancelled

2001

Commitments budgeted

Commitments executed

2001

Payments budgeted (2)
Payments executed (2)

(Mio EUR)

100,0 %

46,7 %

53,3 %

100,0 %

1,8 %

98,2 %

100,0 %

100,0 %

100,0 %

86,8 %

12,0

5,6

6,4

11,4

0,2

11,2

11,9

11,9

3,8

3,3

(1) 12 million euro voted — credit virement of 0,64 million euro.
(2) 6 million euro voted — credit virement of 2,3 million euro.
Source: Court of Auditors.

(b) 17 grant agreements for the projects (amounting to 2,6 mil-
lion euro or 46 % of total commitments) were only approved
by the Commission on 30 December 2000, for actions start-
ing on the same date and ending on 30 September 2001. As
these agreements were only signed by the beneficiaries in
January 2001, the expenditure should have been charged to
the 2001 budget. Furthermore, agreements were approved by
the Commission for the co-financing of conferences after the
conferences had been held (3).

52.
Despite the above weaknesses and the fact that this is an
innovative area, which inherently attracts higher than normal
risk, no preparatory projects were audited by the Commission in
either 2000 or 2001.

OBSTACLES TO THE DEVELOPMENT OF LOCAL ACTIONS

53.
The Court examined the implementation of various local
employment actions in Member States including territorial employ-
ment pacts, organisations receiving global grants and the role of
the voluntary and private sectors in promoting local employment
in order to assess the obstacles to achieving efficient and effective
results in this area.

50.
The low budgetary execution in 2000 was partly due to
the fact that all funds had to be committed and spent before the
end of 2001. Hence, the maximum duration of projects was lim-
ited to nine months, with a deadline for presentation of applica-
tions of only seven weeks. This restriction discouraged many
potential applicants particularly in the social economy area. Fur-
thermore, few of the proposals in 2000 requested the maximum
amount of co-financing available.

Lack of follow-up support for territorial employment pacts

54.
The Court visited three territorial employment pacts (4),
whose goal was to coordinate local employment activities and
spread good practice through the ‘local needs-based’ approach to
employment development. In the case of the United Kingdom
pact it was found that:

The following weaknesses were found in the operational

51.
management of the measure:

(a)

there was no common overall strategy document to which all
pact partners were signatories;

(a) many projects overlapped thematically with the existing
Article 6 innovative actions and the pilot projects funded in
the framework of the ‘Third System’ and the ‘Employment
Market’ (2).

(b)

the pact board of senior partner representatives never con-
vened, but was replaced by a management team consisting of
only local authority representatives and the pact coordina-
tor, which reduced the local representativity of the project;

(1) Commitments from 53 million euro in 1998 to 47 million euro in
2001, payments from 39 million euro in 1998 to 23 million euro in
2001.

(2) Budget line B5-5 0 2.

(3) For example, in the case of Glasgow City Council, the grant agree-

ment was signed two months after the conference.

(4) Three-Cities TEP, United Kingdom; Tampere, Finland and Catalunya

Objective 2.

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(c)

the TEP failed to establish a link with operational programmes
and accordingly was unable to obtain project-funding from
such programmes, after having used its initial funding to carry
out preliminary studies. As a result the optimum benefit was
not obtained from these studies. Furthermore, the target of
creating 30 000 jobs, which was approved by the Commis-
sion, proved unrealistic, which was unsurprising considering
the nature of the pact and the limited funds provided (200 000
euro).

55.
In line with the Commission’s intention (1) to move local
development initiatives away from individual initiatives towards
a more strategic form of support, it encouraged Member States to
maintain funding of existing territorial employment pacts (TEPs)
and to support new pacts within operational programmes (see
paragraph 54(c)). Nevertheless, in some Member States (2) there
was a lack of support for the continued funding of TEPs by
national administrations.

Delays in the use of global grants by Member States

the use of global grants was postponed, and in Finland, national
legislation prohibited the State bodies from delegating their finan-
cial management functions to non-governmental organisations.

Obstacles to the participation of the voluntary sector in ESF
programmes

59.
The ‘Third System’, which refers to the economic activity
of cooperatives, mutual bodies and associations, is an approach
to local economic development which brings together diverse
strands of development in local communities. The potential added
value of these actions derives from their ability to combine eco-
nomic and social purpose, through matching local needs with
local resources.

56.
The introduction of global grants’ mechanisms to man-
age small grants (see paragraph 26), in the 2000 to 2006 ESF pro-
gramming period, resulted in significant delays in the execution
of local employment actions. This was due to the necessity to
obtain approval and conclude legal agreements with managing
authorities at many different levels and due to difficulties in
appointing experienced intermediate organisations.
In two
instances (3) delays of 15 to 18 months were recorded, which was
considerably longer than in the case of other measures of the
programmes.

60.
There were a number of obstacles to the participation of
voluntary organisations in this sector. Firstly, unpaid volunteer
time by individuals in such organisations makes an important
contribution to ESF projects (4). However, in cases where the pro-
gramme measure foresees only public and ESF funding, it would
reduce the public contribution to the programme, reducing thereby
the rate of matching funding. This is so, even though volunteer
organisations are often non-profit-making bodies funded from
public and charity sources. This situation thus limits the attrac-
tiveness, to small voluntary groups of participating in such actions.

57.
Similarly, in the case of the Objective 3 programme for
France, the requirement that the establishment of global grant
intermediaries await formal adoption of operational programmes
by the Commission, meant that the selection process for interme-
diaries was not started until November 2000.

58.
Furthermore, the possibility of using global grants was
also found to be statutorily restricted in some cases. In Austria,

(1) Communication from the Commission on the implementation of
Innovative Measures under Article 6 of the European social Fund
Regulation for the programming period 2000 to 2006, para-
graph 27 (COM(2000) 894 of 12 January 2001).

(2) United Kingdom (East Midlands Objective 2 SPD 2000 to 2006 made
no allocations to TEPs) and Finland (OECD report stated that several
partnerships, which were heavily dependent on national funding
would cease to exist in their current form as a result of the discontinu-
ance of support).

(3) Spain (Objective 3 OP) and also the territorial employment pact for

Catalunya Objective 2.

Secondly, while the voluntary and community sector (5)
61.
need advance payments to be able to fulfil their functions, this
was not always possible (6), because national rules prohibit the
payment of advances to final recipients. This restriction, along
with these organisations’ own lack of resources, meant that in the
case of Spain no activity took place in 2000 and part of 2001.

(4) Yorkshire and the Humber Objective 1, 2 and 3 SPDs, United King-

dom and Spain Objective 3 OP.

(5) For example, with the Objective 2, 2000 to 2006 draft plan, York-
shire and the Humber, United Kingdom, the Commission advised that
such a financial mechanism was needed to enable the sectors to fulfil
their functions. The Commission Interpretation of Article 32(1) sub-
paragraph 3 of Council Regulation (EC) No 1260/1999 (OJ L 161 of
26.6.1999), also support this position.

(6) For example, in the United Kingdom there was a central government
ruling to regional offices prohibiting the payment of advances and in
the German Objective 3 (Bavaria) SPD and Spain objective 3 SPD, the
payment of advances to final grant recipients was also prohibited.

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Lack of commercial financing for local actions

62.
A further obstacle to the development of effective local
employment was the lack of commercial financing for such
actions. Many non-governmental organisations (NGOs) and inter-
mediaries do not have a mandate to seek commercial funding.
This sometimes adds to the exclusion of both the voluntary sec-
tor and private companies in the development of local employ-
ment. In the case of one large project funded by the Commission
entitled the ‘Local Social Capital’ project (1), the Court noted that
the participating intermediary structures were restricted to non-
profit-making organisations and consortia.

While the European Employment Strategy and the 2000
66.
to 2006 programming regulations have given recognition to and
provided a legal framework for such developments by Member
States, Community policy development in the area of local actions
for employment has been piecemeal and lacking structure and
coherence. The adoption of the existing broad-scope approach
has, due to an already complex intervention ‘playing field’, the
potential to both confuse and dilute the efforts and the impact of
actions undertaken (see paragraphs 16 to 21).

67.
Information for monitoring and assessing progress in the
field of local employment through the EES and ESF funding, is
insufficient (see paragraphs 22 to 42).

63.
Furthermore, given the almost exclusive public character
of partnerships and the fact that other innovative funding also
predominantly targets the local government and NGO sector,
there is a risk that the participative capacity of the private sector
is not being equally developed in this area, thus limiting the
capacity building of local players. In addition, the resulting per-
ceived competitive advantage which the public sector has, as
regards ESF funding, is a further limiting factor to the local devel-
opment of employment actions.

64.
As one of the principal aims of Community policy in this
area is to increase local access to the decision-making process, a
fundamental change cannot solely be legislated for, but must be
obtained through a defined agreed strategy, which includes guid-
ance on methodologies, the networking of organisations and most
importantly, a common political agreement for change on the
part of Member State authorities.

CONCLUSION AND RECOMMENDATIONS

65.
Although the EC Treaty has laid down European employ-
ment policy, there exists no clear and comprehensive Community-
wide policy on local employment creation. While advances have
been made by the Commission in the area of policy development
and dissemination of best practice, given the dearth of empirical
evidence available on job creation in this area, any future policy
must be based on an analysis which focuses on making labour
market interventions more effective in job creation (see para-
graphs 10 to 15).

(1) Local Social Capital is defined by the Commission in the document
‘Evaluation of Local Social Capital Pilot Project’ (contract VC/2000/
0220) as backup provided by an intermediary organisation, operat-
ing at regional or local level, for people who pool their resources with
a view to carrying out micro-level projects which promote employ-
ment and social cohesion. The guiding principle is to mobilise indig-
enous potential to find local responses to local need.

Weaknesses also exist in the Commission’s management
68.
of direct funding of innovative actions concerning local employ-
ment (see paragraphs 43 to 52).

69.
While progress has been made in the area of local employ-
ment in many Member States, obstacles still exist to the full par-
ticipation of both volunteer and private sectors in local employ-
ment actions (see paragraphs 53 to 64).

70.
Difficulties also exist regarding the implementation of
devolved management structures in some Member States. These
derive from a conflict between the detailed requirements of the
new financial regulations and Member States’ existing legal and
administrative arrangements (see paragraphs 25 to 29 and 56 to
58).

71.
In political and legal terms, the European Employment
Strategy consists of coordinated national strategies, the realisation
and effectiveness of which is primarily the Member States’ respon-
sibility. It is the Commission’s difficult but vital role to facilitate
and support the coordination element. To fulfil this function of
guiding the national employment policies, it is essential that
Member States provide and that the Commission collects, pro-
cesses and disseminates, adequate information. This applies par-
ticularly in the area of local employment actions, for which there
exists a specific legal basis under the ESF Regulations.

72.

The Court recommends that:

(a) a comprehensive assessment of the likely added value of local
employment policy should be undertaken on all policy imple-
mentation levels (2);

(2) Commission’s 1993 White Paper on growth, competitiveness and

employment, chapter 8, paragraph 8.2.

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(b)

the Commission provides more precise guidance to Member
States on local employment under the ESF programmes;

financial management procedures to ensure the regularity
and cost effectiveness of funding;

(c)

the Commission should insist that under the EES, Member
States provide more information on local employment actions;

(d) Commission-managed actions in the area of innovative
projects should be rationalised, along with a tightening of

(e) while the primary responsibility for ensuring the effective-
local employment strategy rests with
ness of the overall
Member States, the Commission should ensure that it has
accurate management information at its disposal, to fulfil its
facilitative and coordinating function.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 17 and 18 July 2002.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

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THE COMMISSION REPLIES

SUMMARY

I and II.
The Commission endeavours to provide a more favourable framework for local employment
within the different components of this policy area, on the assumption that the effectiveness of policy develop-
ment and implementation can be improved by broadening the basis of the persons and institutions involved.
The Commission must take into account the principles of proportionality and subsidiarity, as well as the open
method of coordination established in Lisbon, which are particularly relevant in the field of local develop-
ment, notably by fully respecting the national administrative and constitutional arrangements of the Member
States.

The Commission, while naturally recognising the need to improve Community policy formulation,

IV.
wishes to underline the following points:

(a) due to the great variety of activities, and above all of situations, among Member States (size, competence,
resources at the infra-regional level), a single Community-wide definition of a local employment policy or
action would not be feasible or desirable, and would not be within the remit of the ESF Regulation or the
European Employment Strategy (EES);

(b)

the Commission provides policy guidance and promotes exchange of experiences through innovative and
preparatory measures, including for local actors themselves, as shown in its November 2001 communica-
tion (1).

Information for policy monitoring and assessment is, in general, useful. However, there are different

V.
requirements and responsibilities within the components of local employment policy. In this respect:

the fact that the Member States do not provide specific information on local employment actions as such
in their Operational Programmes is normal, given the nature and objectives of these programmes under
the ESF Regulation;

the Commission considers that the information on local employment provided by Member States in their
national action plans (NAPs) allows an assessment of basic trends concerning the development of the ter-
ritorial dimension of the European Employment Strategy. However, the Commission will naturally con-
tinue to advocate the development of the local dimension of the EES.

(a)

(b)

VI.

(a) and (b) As regards directly managed projects, the Commission would point out that the official requests
for EU financing had reached the Commission long before the beginning of the projects, and that
accounting commitments had been validated before the launch of the actions and grant agree-
ments sent to the promoters on time.

(c) The Commission agrees with the analysis of the Court on the overlap between Article 6 actions and pre-
paratory measures since the creation in 2000 by the budget authority, in spite of the Commission’s res-
ervations, of budget line B5-5 0 3. It has, however, undertaken to implement these budget lines in the best
possible way with the human resources available and has tried to limit the possible overlap, notably by
means of joint selection of projects gathering all the services concerned.

(1)

‘Strengthening the local dimension of the European Employment Strategy’ – COM(2001) 629 final, 6 November 2001.

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VII.

(a) and (b) As regards small grants, the complexities and restrictions mentioned by the Court should be dealt
with individually by the Member States and/or managing authorities concerned. The Commis-
sion has pleaded for more simplification in this domain, but has no authority over national
mechanisms or administrative arrangements.

(c) Considering the fact that some local employment actions were restricted to non-profit-making organisa-
tions, the Commission points out that local employment actions cannot possibly address all the stakehold-
ers all the time. Non-profit-making organisations are a legitimate priority and target group for local
employment development.

VIII.

As regard the Court’s recommendations, the Commission wishes to make the following points:

(a) a thematic evaluation of local development was announced by the Commission in its November 2001
communication, and is currently being launched. However, while the Commission acknowledges the need
to evaluate the value added and effectiveness of labour market measures, an in-depth analysis of labour
market interventions would be a rather narrow method of assessing the results of local employment
policy;

(b)

(c)

the Commission considers that the reporting requirements imposed on the Member States by the ESF and
Structural Fund Regulations are generally adequate, as these must be in line with the principles of enhanced
partnership and simplification enshrined in the Regulations, and must avoid overburdening Member States
with additional obligations;

the Commission considers that the information on local employment provided by Member States in their
national action plans (NAPs) allows an assessment of basic trends concerning the development of the ter-
ritorial dimension of the European Employment Strategy. The Commission will continue to advocate the
development of the local dimension of the EES;

(d)

the Commission agrees with the Court’s general recommendation to rationalise budgetary support and
improve financial management procedures;

(e)

the Commission will continue to play its facilitating and coordinating function, while respecting the prin-
ciples of proportionality and subsidiarity, which are particularly relevant in the field of local employment
actions.

INTRODUCTION

1.
Local actions for employment have developed over decades
in the Member States. Since the 1993 White Paper, the Commis-
sion endeavours to provide a more favourable framework for local
action, on the assumption that the effectiveness of policy develop-
ment and implementation can be improved by broadening the
basis of the persons and institutions involved. However, progress
in this policy area relies mainly on decisions taken within the
Member States.

2.
Within the European Employment Strategy (EES), guide-
line 11 now states that Member States, as opposed to the Com-
mission or local actors themselves, will ‘take into account, where
appropriate, in their overall employment policy the regional devel-
opment dimension’ and will ‘encourage local and regional authori-
ties to develop strategies for employment’. However, the guide-
lines do not include any local employment action for the
Commission to take or manage.

3.
The European Social Fund (ESF) Regulation states that,
within its five policy fields, the Fund shall ‘take into account’,
among others, ‘support for local initiatives concerning employ-
ment’ (Article 2(2)).

4.
Local employment policies and actions cover a very wide
range and type of actions, mostly included in ESF programmes
and managed by the Member States. For example, a high propor-
tion of funding within the five ESF policy fields, such as lifelong
learning or equal opportunities, has a direct or indirect impact on
locally-based employment creation. Thus, activities within this
large domain would be impossible to quantify or to include in a
coherent, clear Community framework at all policy levels.

OBJECTIVES AND SCOPE OF THE AUDIT

Local employment actions and the set of economic, politi-
6.
cal and administrative circumstances within the Member States

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are of a very wide and diverse nature indeed. This does not allow
a value-for-money assessment, or a strict definition, of all local
employment-related activities, particularly as regards ESF pro-
grammes. Limited human resources are also a factor for the Com-
mission.

9.
Local employment actions include three components that,
while all aiming at local employment, have distinct legal bases and
specific objectives and therefore involve different requirements
and responsibilities: the policy process of the European Employ-
ment Strategy (EES), the legal requirements of the ESF Regulation,
and the operational rules concerning innovative and preparatory
actions. Community policies and actions must necessarily adapt
to each of these three components.

THE NEED FOR A CLEARER COMMUNITY POLICY

10.
The principles of proportionality and subsidiarity under
the Amsterdam Protocol, as well as the open method of coordina-
tion established in Lisbon, are particularly relevant in the field of
local development. As stated in its November 2001 communica-
tion, the Commission, when establishing its policy, guidelines and
measures, takes these principles into account, notably by fully
respecting the national administrative and constitutional arrange-
ments of the Member States; the Commission must also naturally
avoid a prescriptive approach vis-à-vis national, regional and local
actors.

14.
The Commission’s ability to ensure that regional and local
conditions are taken into account when developing policy pro-
posals and operations is limited by the absence of an enforceable
legal basis and by the ESF Regulation itself (see point 3); essen-
tially to non-prescriptive advocacy, guidance, and experimental
actions in the framework of innovative actions and preparatory
measures.

15.
Structural Funds are financial instruments aiming at rein-
forcing social and economic cohesion. The related regulations
define the scope of their intervention but not the regulatory
framework of the national and/or Community policies they
co-finance. Article 2 of the ESF Regulation defines the scope of
the activities of Member States, addressing the development of
labour market and human resources, which the ESF supports and
complements. The rules applicable to these policies and opera-
tions and their implementation are the sole responsibility of the
Member States. Article 8 of Council Regulation (EC) No 1260/
1999 reinforces this approach, namely in paragraph 1 where it
states that action will be taken in partnership ‘with the authori-
ties and bodies designated by the Member State within the frame-
work of its national rules and current practices, …’. The partnership
principle referred to in Article 8 aims at reinforcing the role of
regional and local partners in the definition, management,
follow-up and evaluation of Structural Fund co-financed activi-
ties at Member State level; it is complemented by the subsidiarity
principle referred in point 2, which strongly reduces the role of
the Commission in the implementation of actions.

However, the horizontal priority of local employment was taken
into account in the negotiations with Member States, and will be

the subject of particular attention by the Commission in the mid-
term evaluation.

17.
Discussions in the Employment Committee on the Com-
mission document showed that Member States are staunchly
opposed to a Commission action plan and timetable for the
preparation of local action plans. The Commission therefore, in
order to respect Member States’ competencies, reviewed its pre-
liminary position and produced the November 2001 communica-
tion on local employment.

Several other factors limit the desirability and ability of
18.
the Community to formulate a comprehensive, Europe-wide policy
for promoting local employment actions with measurable objec-
tives, criteria and target outputs. Firstly, employment policies are
national, and the degree of local government and decentralised
administration in the Member States varies greatly. Secondly, it is
mainly for Member States to decide how specifically to take
account of regional and local conditions in accordance with the
ESF Regulation and with their constitutional and administrative
arrangements. More generally, the Member States are best able to
adapt to their own local realities and needs.

However, the Commission does provide policy guidance and pro-
motes research within its area of competence, including for local
actors themselves, as shown in the November 2001 communica-
tion and noted by the Court (point 41). It draws on experimental
actions, and on many relevant contributions other than the stud-
ies mentioned by the Court in point 18, for example, the OECD’s
Local Employment and Economic Development Programme, of
which the Commission has been a founding and active member
since its inception in 1982.

19.
Due to the great variety of activities, and above all of situ-
ations, among Member States (size, competence, resources at the
level), a Community-wide definition of a ‘local
infra-regional
employment action’ or territory would not be feasible or desir-
able and would not be within the remit of the ESF Regulation or
the EES. The term ‘local employment action’ encompasses radi-
cally different activities such as innovative measures and ESF
operational programmes.

20 and 21.
The main objective of the Commission commu-
nication of November 2001 was to contribute to the strengthen-
ing of the local dimension of the EES by analysing the recent
trends in the NAPs of the Member States, as well as the results of

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the consultation of local actors, and by building on experience
and making better use of existing instruments. The communica-
tion also proposed a series of non-prescriptive guidelines for local
employment strategies, - in line with the subsidiarity principle,
rather than an action plan. It has been welcomed by the European
Parliament, the Committee of the Regions and the Economic and
Social Committee (1). A more interventionist approach by the
Commission was staunchly opposed by Member States.

Due to the very nature of local employment actions, to the fact
that local employment is not one of the policy fields of the ESF
Regulation, and to the lack of statistical data highlighted by the
Court, the quantifiable direct benefits referred to in footnote 15
(jobs created, persons trained) cannot be objectively determined,
especially as regards Structural Fund operational programmes,
which represent the bulk of Community funding for the benefit
of local employment.

BETTER INFORMATION AND IMPROVED POLICY
IMPLEMENTATION

22.
The Commission shares the general concern for good
management referred to by the Court. Apart from such general
principles which indeed apply to the implementation, monitor-
ing and assessment of any policy, it is pointed out that, where
local measures are concerned, the content, procedures and respon-
sibility for actually implementing the principles vary depending
on which component of the local measures listed by the Court in
point 9 of this Report is concerned.

25.
The Commission’s negotiation mandates with all Mem-
ber States made clear and coherent guidance provisions for this
new horizontal priority, and this was followed through by the
Commission while respecting the principle of subsidiarity and the
terms of the Structural Fund Regulation.

The ESF ex ante evaluation guidelines (30 April 1999) also pro-
vided extensive policy guidance, underlining in particular the need
to assess, for each policy field, how and in which type of activities
the horizontal priorities had been integrated. The guidelines also
cover the integration of local employment creation initiatives and
territorial employment pacts in national/regional strategies.

concerned the Structural Funds as a whole. The second note was
a more detailed working document to assist Commission staff in
bilateral negotiations, and concerned only the ESF; it was duly cir-
culated to Member States in the interests of transparency.

27.
As stated in the replies to the 1994 annual report and
confirmed by its practice in recent years, the Commission has
endeavoured, with the approval of the Member States, to improve
the rules for the implementation of global grants and to increase
the mechanisms needed for appropriate monitoring and control
of these forms of aid.

28.
Certain Member States have encountered difficulties in
the application of the small grants provisions. The ESF Regula-
tion (Article 4(2)) states that small organisations should have ‘spe-
cial arrangements for access’ to ESF funds to reduce the difficul-
ties encountered by these organisations in obtaining ESF funding.
Greater participation by small organisations depends on the Mem-
ber States concerned setting up these simplified access conditions.
Furthermore, the ESF Regulation provides for an exception to the
general co-financing rules that allows small grants schemes to be
financed by the ESF at the rate of up to 100 %. Finally, the Com-
mission launched pilot projects under ESF Article 6, (Local Social
Capital), and has regularly informed Member States through the
ESF Committee of the progress made and the evaluation of results.

29.
The provisions for contracts managed directly by the
Commission contained in the ‘Vade-mecum of Commission grants’
referred to by the Court (footnote 24) are distinct from the Struc-
tural Funds’ provisions on small grants: as explained in para-
graph 1.2, the Vade-mecum applies to non-regulated grants i.e.
those that fall either under a Regulation containing no provisions
on the award/management procedures or under no specific regu-
lation at all: ‘The Vade-mecum is not concerned with financial aid
granted via States or via bodies designated by them, as for instance under
the CAP and the Structural Funds’. The Structural Funds’ own provi-
sions on small grants concern funds managed by intermediate
bodies in the Member States in accordance with national proce-
dures.

As regards the policy guidelines issued to Member States on
Structural Fund priorities, the guidance provided by the Commis-
sion on local development was sufficient and does not need to be
overly specific. The first guidance note referred to by the Court
was a necessarily brief policy guideline for Member States, and

(1) Employment and Social Affairs Committee, A5-0214/2002 final,
31/5/2002. ECOSOC: CES/518/2002 final, 24 April 2002. Commit-
tee of the Regions: CdR/453/2002 final, 14 March 2002.

As to substance, a comparison of the two ceiling levels does not
seem entirely adequate as the costs of the intermediate bodies are
closely and directly linked to the measure itself. The bodies are in
fact also directly responsible for implementing and managing the
measure (information, operation, assistance with setting-up, pro-
cessing, selection, financial management, monitoring of progress,
controls, assessment, etc.). The ceiling of 20 % of implementation
costs referred to stems from the testing relating to Article 6 of the
ESF Regulation in the period 1994 to 1999, which reveals the
extent of the administrative costs incurred by the intermediary
bodies.

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In the case of the German intermediary body referred to by the
Court, the possibility to go up to 30 % in justified cases was
accepted, at the request of the BMA (Federal Ministry of Employ-
ment), on the ground that coordination of the complex measure
‘Local Social Capital’ for the whole of Germany could be regarded
as justified.

30.
While the ESF ex ante evaluation guidelines provided
extensive policy guidance for the establishment of programmes,
the Commission will assess how Member States have taken account
of the horizontal priority of local employment actions as part of
the 2003 mid-term evaluation, in accordance with the Structural
Fund Regulation.

31.
The operational programmes of the Member States are
not meant to include specific or statistical information on indi-
vidual actions. The Regulation requires the ESF to ‘take into
account’ local employment, but since this is not one of the ESF
policy fields it does not require the collection of specific informa-
tion on local employment as such. However, during the annual
meetings with the management authorities, the Commission sys-
tematically underlines the importance of including in operational
programmes relevant information on how horizontal priorities,
including local employment, have been taken into account by the
Member States.

33.
On the whole, both the Commission and Member States
have considered that the information provided in the NAPs is suf-
ficient for an assessment of basic trends concerning the develop-
ment of a territorial dimension of the EES. The territorial dimen-
sion in the guidelines has been developed over time, and Member
States and the Commission are consequently searching for the
most appropriate reporting practice in this area. In this respect,
the impact evaluation of the EES launched by the Commission
should provide useful information and guidance for the future.
The Commission endeavours to improve the territorial dimension
of the EES and the knowledge of regional and local employment
policies through the NAPs process; the evolution of the local
employment guideline since 1997 shows the progress made in
this area. However, the analysis of NAPs should not cover detailed
management information: they are policy documents, of a maxi-
mum of 25 pages altogether; furthermore, the Barcelona Euro-
pean Council recently underlined the need to simplify the EES
process and NAPs.

34.
It has not yet been possible to agree on quantified targets
for the impact of local action for employment, as is also the case
for other aspects of the EES. However, the Commission has
recently launched a study to identify the scope and limits of indi-
cators in the area of local action for employment in shorter and
more focused analytical documents.

35.

(a) and (b) The Commission has acknowledged that Member
States do not indicate in the NAPs to what extent
there is a coordinated approach in terms of ERDF-

ESF interventions. However, the potential for syner-
gies between the two Funds is limited by the nature
of their respective interventions.

(d) and (e) Coordination between the ESF and the ERDF takes
place at various levels during the programming and
monitoring procedures. Most Objective 1 and 2 pro-
grammes and SPDs, and their assessment, involve at
least the two Funds and the departments that man-
age them. The lead department systematically con-
sults the associated departments when preparing the
decisions approving programmes and participation
in Monitoring Committees and annual meetings with
the managing authorities. The policy documents,
information memos and other documents for Mem-
ber States or beneficiaries are always drafted with the
departments concerned. In addition, each territorial
employment pact had a Monitoring Committee on
which the four Funds (sometimes three) were repre-
sented.

36.
An overall strategic evaluation of local development
actions was announced in the 2001 Commission communication
on local development; it is being launched and will be imple-
mented this year. The Commission actively supports the develop-
ment of methodological
instruments. Several evaluations are
under way: local social capital projects, evaluation of preparatory
measures for 2000, evaluation of territorial employment pacts.
The Commission provided general guidance to interested promot-
ers and other stakeholders through awareness-raising activities
and other tools.

38.
The preliminary findings of a Commission study on the
local and regional dimension of the NAPs in the period 1998 to
2001 highlight the fact that the EES and the Structural Funds
appear to have strengthened the role of regional and local actors
in promoting employment. However, the need for a more strate-
gic approach in developing employment at local level seems
widely accepted, and this is increasingly reflected in the NAPs.

39.
The Commission has analysed the increased interest in
the regional dimension of employment in the Member States in
its ongoing NAPs evaluation and in its November 2001 commu-
nication.

40 and 41.
The Commission is indeed developing method-
ological tools with a view to improving understanding and mea-
surement of the impact of local employment strategies: several
projects under Article 6 (Local Social Capital) are seeking to
develop indicators, and evaluation results are expected by the end
of 2002. Several projects funded under the B5-5 0 3 call for pro-
posals for the year 2000 have provided interesting results in this
respect; the evaluation results are expected in 2002. Further data

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are expected from the 2001 projects on monitoring, benchmark-
ing and evaluation. The OECD’s Leed Programme, in which the
Commission actively participates, will also further contribute to
progress in this field. The Commission fosters discussions and
exchanges of experiences on how to evaluate the ESF local devel-
opment horizontal priority. Last but not least, in the spring of
2002 the Commission launched a study for the development of
local employment performance indicators; results should be avail-
able in 2003. However, the difficulties mentioned by the Court in
point 41 concerning the lack of relevant statistics should be taken
into account.

The way in which policy priorities, including local devel-
42.
opment, have been implemented by the Member States will be
appraised in the Structural Fund mid-term evaluation.

The fact that the Commission decided to grant full financing
for project 960019B0 is due to the nature of the project,
which involved creating a transnational network of NGOs
with resources that were strictly earmarked for national activi-
ties and were accordingly unable to release any financing at
European level. The Commission, at the time referred to by
the Court, had adopted the decisions governing the contribu-
tions on the basis of the standard model used in 1994 and
1995;

(c) with regard to the 1998 call, the period between the end of
the measures, last payments and submission of the final
report was reduced to two periods of three months, which
means the Commission receives the final report no later than
six months after the end of the project.

In the new programming period, the final report must be
submitted three months after the end of the contract period.

Member States do not provide details, and are not obliged to, of
actual expenditure on local actions, or performance indicators;
the Commission is accordingly unable to establish the inventory
suggested by the Court. More importantly, an inventory of all
expenditure listed as ‘local action for employment’ within the pro-
grammes and measures of Member States would not necessarily
be a determining factor for improving Community policy, or give
a clear overview of the ‘current state of affairs’. For example, many
ESF interventions and expenditure that have a great impact on
local employment are listed under other priority programmes and
measures (i.e. equal opportunities, inclusion, etc.). See also reply
to point 31.

NEED FOR IMPROVEMENT IN THE COMMISSION’S PROJECT
MANAGEMENT

45.
The increase in Community co-financing to which the
Court refers is justified by the special nature of the 1998 call for
proposals and the projects financed as a result. Since the aim was
to test the approach to small grants, it was difficult to ask the
intermediary bodies for large amounts of co-financing, with the
result that the ESF co-financing rate was high.

47.

The Commission would make the following points:

(a)

the delay in following up the projects was due to technical
problems and does not reflect a systematic deficiency;

The Commission does not underestimate the importance
48.
of appropriate monitoring and the need for on-the-spot checks.
In the case of the projects resulting from the 1998 call for propos-
als, most of the promoters were contacted in person by the Com-
mission representatives during the contract period.

The Commission, on the basis of its own risk analysis and in view
of the limited human resources at its disposal, considered that the
audit of ESF mainstream actions needed to be given priority over
the Article 6 innovative measures, notably in the light of the
amount of funds involved.

In the case in question, the auditing of 17 % of all projects seemed
to be largely in line with good management practice.

However, the findings of the Commission’s auditors in the 34
cases referred to in point 48 have been properly followed up and
amounts paid unduly are being recovered when necessary.

49 and 50.
The Commission agrees with the Court’s findings
on preparatory measures for 2000. Late commitments were due
to the regulatory and administrative provisions on calls for pro-
posals and to the short time for presenting applications.

(b) under the ESF Regulation, innovative measures can be wholly
financed if the Commission so decides. In general, for opera-
tional reasons, it is desirable for the promoter and the local,
regional or national actors to be involved financially. How-
ever, in certain cases, the nature of the measures calls for full
financing.

It should be noted, however, that, as of 2001, the management
situation improved dramatically. Of the available funds, 99,8 %
were committed in 2001; all the selected projects are under way
and the first instalment of funds for all the projects was disbursed
by July 2002. The deadline for submission was extended by the
Commission to 15 weeks in 2002, and 130 applications were
received.

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51.

(a) The Commission agrees with the remark of the Court on
overlapping. This is why it had repeatedly expressed to the
budgetary authority its disagreement with the establishment
of budget line B5-5 0 3 0. However, once the line was cre-
ated, the Commission had a duty to implement it as diligently
as possible; 99,8 % of the funds available were committed in
2001.

(b)

It should be noted that committing funds at the end of the
year is allowed by the principle of annuality; it means that
agreements are signed by the beneficiary in 2001 for obvi-
ous technical reasons. Although this practice is not advisable,
it is used exceptionally and corresponds to the efforts to
implement what was decided by the budgetary authority in
December 1999 where there is very little time to apply the
procedures (call for proposals, analysis of proposals, commit-
ment process).

The Commission accepts the remark of the Court on the late sig-
nature of some agreements concerning conferences, but also
draws its attention to the fact that these events were organised
with the Council Presidency or with the Member States’ adminis-
trations.

52.
The Commission can devote only a limited amount of
human resources to audits of this type of project that are extremely
small in comparison with ESF programmes. Nevertheless, a sample
of four projects approved in 2000 (out of 37) has been established
for on-the-spot controls in 2002. Moreover, the Commission is
currently planning several audit missions concerning 2001
projects.

OBSTACLES TO THE DEVELOPMENT OF LOCAL ACTIONS

54.
The administration of the pacts at local level necessarily
had to allow the pact partners a wide margin of discretion. A
by-product of this local empowerment process was that the pre-
vailing conditions in a given pact area were not always conducive
to the attainment of some of the objectives established by the
Commission at the outset. Many lessons have been learnt both by
the Commission and indeed by local actors from the operation of
what were essentially ‘test beds’ for an all-embracing strategic
approach to employment creation.

55.
From an economic point of view it is not always desir-
able automatically to continue funding the old structures. Local
projects (including TEPs) with prospects for further added value
have nevertheless received funding from new programmes in Fin-
land.

The introduction in France of the new ‘small grants’ sys-
58.
tem provided for in Article 4(2) of the ESF Regulation was delayed

by the need on the part of the management authority for a period
of preparation and reflection essential for the drawing-up of the
specifications and the model agreement for the ‘small projects
facility’ under the Objective 3 SPD.

This preparatory phase, inherent in an innovative and derogatory
financial mechanism, did not affect approval of the SPD. The cir-
cular of the French Employment Ministry, agreed by all the min-
isterial departments concerned, was thus signed and forwarded to
the regional Prefects last March.

59.
It is true that national legislation in Finland prevents the
State bodies from delegating their financial management func-
tions to NGOs, but this does not necessarily prevent the chosen
intermediary bodies from making an active and useful contribu-
tion to project selection.

In Austria, the establishment of a mechanism of small grants to
support the Local Social Capital has been postponed (see pro-
gramming complement for Objective 3, chapter 8) as the Austri-
ans wanted to wait for the evaluations of Article 6 projects and a
special Austrian programme called ‘Newstart’.

62.
The Commission is aware of the difficulties experienced
by some NGOs. This is why some projects restrict participation
to non-profit-making organisations, as noted by the Court. The
Local Social Capital call for proposals required the intermediary
bodies to seek the involvement of all relevant actors in the terri-
tory concerned, including the private sector. One of the main out-
comes of this call for proposals was that the private sector, nota-
bly banks, has decided to start micro-enterprise financing.

One aspect to be taken into consideration when advocating the
granting of funds directly to the private sector is that this addi-
tional income might be regarded as breaching the competition
rules.

The participating capacity of the private sector would

63.
depend mostly on the commercial attractiveness of projects.

CONCLUSION AND RECOMMENDATIONS

65 to 71.
In order to assess Community policy on ‘local
actions for employment’, a distinction must necessarily be made
between three different elements which, while sharing the same
broad policy objectives, belong to completely separate processes
and therefore involve different requirements, activities and

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monitoring: (1) the process of the European Employment Strategy
(EES); (2) the legal requirements of the ESF Regulation, and (3) the
administrative rules concerning innovative and preparatory mea-
sures. In particular, the EES and the Structural Funds Regulations
do not provide a legal framework for local actions for employ-
ment.

(1) The EES and the NAPs are not a management instrument such
as innovative or preparatory measures. Thus the local dimension
of the employment strategy does not have a management aspect
for the Commission to coordinate: the Commission’s role is to
advocate certain policies and partnerships, and to monitor the
policies adopted by the Member States. To this effect, the guide-
lines on local employment have been gradually adjusted and
geared to a more strategic form of support, while respecting the
subsidiarity principle. Member States are solely responsible for
the realisation and effectiveness of their national strategies: they
are required to report on the implementation of broad policy pri-
orities, not on actions on the ground.

(2) As for the ESF, the present reporting requirements are consid-
ered by the Commission and the Member States as being gener-
ally adequate, as they must be in line with the enhanced partner-
ship and simplification enshrined in the current Structural Fund
Regulation, and must avoid overburdening Member States. Indeed,
one of the main criticisms by the Member States of the current
programming period is the excessive number of reporting require-
ments in the implementation of the Funds. The ESF Regulation
does not require Member States to provide in their programmes
any specific information on local employment actions, and there-
fore Commission guidance on the national employment policies
implemented through the ESF does not require detailed informa-
tion on local employment actions. Finally, national rules or admin-
istrative arrangements for which Member States have sole com-
petence may constitute an obstacle to the participation of voluntary
or other organisations in ESF projects.

(3) As for innovative actions and preparatory measures, Commu-
nity objectives essentially consist of research, promotion and dis-
semination of best practice rather than global monitoring and
management of local employment. In this respect, the Commis-
sion welcomes the Court’s recognition of the advances made as

regards both policy development and dissemination of best prac-
tice. In the calls for proposals launched in 2000 and 2001, the
Commission emphasised cross-sector integration, partnership,
strategic approaches, and closer linking-up with other decision-
making levels. The new financial circuits adopted in the context
of the reform, combined with targeted action plans on specific
pending files, will certainly contribute to further improvement of
project management. (See points 15 to 21).

72.

(a) An overall thematic evaluation of local development was
announced by the Commission in its November 2001 com-
munication, and is currently being launched. However, while
the Commission acknowledges the importance of evaluating
the added value and effectiveness of labour market measures,
an in-depth analysis of such measures would be a rather nar-
row method for assessing the results of local employment
policy.

(b) The Commission believes that the reporting requirements
imposed on the Member States by the ESF and Structural
Fund Regulations are generally adequate, as they must be in
line with the principles of enhanced partnership and simpli-
fication enshrined in the Regulations, and must avoid over-
burdening Member States with additional obligations.

(c) The Commission considers that the information on local
employment provided by Member States in their national
action plans (NAPs) is sufficient for an assessment of basic
trends concerning the development of the territorial dimen-
sion of the European Employment Strategy. The Commission
will continue to advocate the development of the local dimen-
sion of the EES.

(d) The Commission agrees with the Court’s general recommen-
dation to rationalise budgetary support and improve finan-
cial management procedures.

(e) The Commission will continue to play its facilitating and
coordinating function, while respecting the principles of pro-
portionality and subsidiarity, which are particularly relevant
in the field of local employment actions.