Special Report No 7/2003 on the implementation of assistance programming for the period 2000 to 2006 within the framework of the Structural Funds together with the Commission's reply
Date: 2003-05-08
Institutions: European Court of Auditors
Subjects: Structural Funds, economic and social cohesion, eligible region, financial control, financial management, operational programme, project evaluation, report

23.7.2003

EN

Official Journal of the European Union

C 174/1

I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 7/2003

on the implementation of assistance programming for the period 2000 to 2006 within the
framework of the Structural Funds together with the Commission’s reply

(pursuant to the second subparagraph of Article 248(4) of the EC Treaty)

(2003/C 174/01)

CONTENTS

Paragraph

Page

Abbreviations and definitions

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

The 2000 to 2006 reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Scope and objectives of the audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IDENTIFICATION OF ELIGIBLE REGIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Objective 1 regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Objective 2 regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Regions eligible under competition policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBSERVATIONS ON THE PROGRAMMING OF OBJECTIVE 1 ASSISTANCE . . . . . . . . . . . . . .

Lengthy and unwieldy programming procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Programming and ex ante evaluation approaches and techniques: the need for improved
consistency and a greater impact

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Methodological guidelines for programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Methods and techniques in practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The processes of negotiation and decision-taking . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Risk of inconsistency and ineffectiveness in the application of the performance reserve

OBSERVATIONS CONCERNING THE MANAGEMENT, PAYMENT, MONITORING AND
CONTROL SYSTEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weaknesses connected with the introduction of new systems and procedures . . . . . . . . .

The eligibility rules for the period 2000 to 2006: lack of precision . . . . . . . . . . . . . . . . . .

Eligibility principles not carried over to the period 2000 to 2006 . . . . . . . . . . . . . . .

New eligibility rules for 2000 to 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-X

1-5

1-2

3-5

6-16

7-10

11-14

15-16

17-53

18-24

25-49

26-27

28-45

46-49

50-53

54-85

54-67

68-81

70-72

73-80

3

4

5

5

7

8

8

9

9

9

10

10

11

12

17

18

18

18

20

20

20

C 174/2

EN

Official Journal of the European Union

23.7.2003

Paragraph

Page

Eligibility of private expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

81

Project selection criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

82-85

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

86-102

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

86-97

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98-102

ANNEX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s reply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21

21

22

22

23

24

25

27

23.7.2003

EN

Official Journal of the European Union

C 174/3

ABBREVIATIONS AND DEFINITIONS

CSF

Community support framework: document approved by the Commission, in agreement with the
Member State concerned, following appraisal of the plan submitted by the Member State; it details
the strategy and priorities for action of the Funds and the Member State, their specific objectives, the
contribution of the Funds and other financial resources

DOM-F

French overseas department (département d’outre-mer)

EAGGF Guidance

European Agricultural Guidance and Guarantee Fund — Guidance Section

EIB

ERDF

ESF

FIFG

GDP

MEANS

NUTS

Objective 1

Objective 2

Objective 3

OP

PC

Performance reserve

PSM

RDP

SF

SFC

SPD

VAT

European Investment Bank

European Regional Development Fund

European Social Fund

Financial Instrument for Fisheries Guidance

Gross domestic product

Means for evaluating actions of a structural nature

Nomenclature of territorial units for statistics

To promote the development and structural adjustment of regions whose development is lagging
behind. As a rule, all the Funds contribute to the programmes targeting these regions. In Objective 1
regions, measures designed for all rural areas in the Union are financed by appropriations either from
the Structural Funds (EAGGF Guidance) or from the Common Agricultural Policy (EAGGF Guaran-
tee). The Financial Instrument for Fisheries Guidance (FIFG) also contributes under Objective 1.

To support the economic and social conversion of areas facing structural difficulties. Only the ERDF
and the ESF contribute under this objective.

To support the adaptation and modernisation of policies and systems of education, training and
employment. The ESF is the only Fund active in this field.

Operational Programme: document approved by the Commission with the aim of establishing a
community support framework. It contains a coherent set of priorities consisting of multiannual
measures whose application may depend on one or more Funds, one or more existing financial
instruments and the EIB.

Programme Complement: document implementing the assistance strategy and priorities and contain-
ing detailed elements at measure level.

The Commission having previously established an indicative distribution by Member State of the
commitment appropriations available for structural projects, 4 % of the appropriations earmarked
under each distribution will be allocated at mid-term, and not later than 31 March 2004, to those
operational programmes or single programming documents or their priorities which are considered
to be successful.

Mezzogiorno Regional Development Plan

Regional Development Plan: analysis of the situation, prepared by a Member State in the light of the
objectives and the priority needs for attaining those objectives, together with the strategy, the planned
action priorities, their specific goals and the related indicative financial resources.

Structural Funds

Structural Funds common database

Single Programming Document: document, submitted by a Member State and approved by the Com-
mission, defining a set of multiannual priorities and measures to be implemented with national and
Community co-financing.

Value added tax

C 174/4

EN

Official Journal of the European Union

23.7.2003

SUMMARY

I.
In common with previous reforms, the 2000 to 2006 reform of the Structural Funds (SF) aims to pro-
mote the harmonious development of the Community as a whole by conducting measures to strengthen social
and economic cohesion. Under the reform 195 000 million euro was earmarked for structural assistance. The
main features are renewed emphasis on the subsidiarity principle, efforts to improve the performance of struc-
tural programmes and greater rigour in financial management and control.

The Court’s audit addressed SF programming for the period 2000 to 2006, especially in the context of

II.
Objective 1 (1). The main themes for assessment were:

(a) whether the way in which the regions eligible for SF were determined ensured that measures were focused

on the least developed areas;

(b) whether programming procedures and processes ensured that the structural measures were consistent

and effective, in order to reduce regional and national disparities within the Community;

(c) whether the management, payment, monitoring and control systems in force were satisfactory.

Examination of the selection of eligible areas within the programming for the 2000 to 2006 SF led to

III.
the following conclusions:

(a)

(b)

the Objective 1 eligible areas were determined in accordance with the Regulation. However, it was not
possible for the statistics used to take into account all the most recent socioeconomic effects so as to
scrupulously respect the principle of focusing on the least-favoured regions;

the criteria taken as the basis for determining Objective 2 eligible areas were insufficiently objective and
the manner in which they were identified left too much room for manoeuvre during the bilateral negotia-
tions between the Member States and the Commission;

(c)

the areas eligible for State aid and those eligible for SF assistance do not always coincide. Regional policy
is not sufficiently consistent with competition policy.

IV.
In comparison to the previous programming period, significant progress was observed as regards the
quantification of objectives and the quality of the programming. However, there were found to have been
major delays and unwieldiness in the process of approving the structural programmes. The introduction of
the programme complement has served to complicate the sharing of responsibilities between the Member
States and the Commission.

V.
The Commission’s guidelines on methodology are still too imprecise, which may impede the search
for best practice regarding, on the one hand, the consistency and impact of structural assistance and, on the
other hand, the subsequent evaluation of them. These guidelines are particularly needed for determining the
optimum programming structure and the most appropriate allocation of finance. On the basis of the pro-
grammes examined, the Court judges that ex ante evaluation carried little weight and added very little to the
choice of strategies on the basis of anticipated results and impacts. With regard to the processes of negotiation
and decision-making, necessary information about national and regional policies was found not to be avail-
able.

It is left to the discretion of the Member States to devise criteria for distributing the performance

VI.
reserve. This may lead to inconsistencies and ineffectiveness.

(1) Certain aspects have already been addressed in the Court’s Annual Report for 2001. See in particular paragraphs 3.30

to 3.35, 3.65 to 3.78 and 3.82 (OJ C 285, 28.11.2002).

23.7.2003

EN

Official Journal of the European Union

C 174/5

Management, payment, monitoring and control systems in the Member States still contain weaknesses
VII.
as regards compliance with deadlines, separation of functions, certification of expenditure, electronic data
exchange and the preparation of annual implementation reports.

VIII.
unjustifiable differences in the treatment of beneficiary Member States.

The eligibility rules for the period 2000 to 2006 remain incomplete and imprecise and could lead to

The project selection criteria submitted in the programme complements are often too broad and could

IX.
be more detailed.

X.
The Court recommends that the Commission pursue its efforts to make the current task of simplifica-
tion more effective while guaranteeing the high quality of the structural measures in terms of legality, regular-
ity and sound financial management. In this connection:

(a)

it should establish clearer rules for identifying Objective 2 eligible areas, thereby avoiding inconsistencies
and lack of uniformity when they are applied to Member States;

(b)

it should provide a better definition of the division of responsibilities between those concerned;

(c)

it should ensure that there are strategic priorities for SF programming and should reinforce the existing
decentralised management procedures (programme complement, indicators, information systems, eligi-
bility, selection criteria, mid-term evaluation and review);

(d)

emphasis should be placed on the effectiveness of the Structural Funds rather than the optimum take-up
of funding.

INTRODUCTION

The 2000 to 2006 reform

1.
The Berlin European Council decided in March 1999 to
earmark 195 000 million euro for Structural Funds (SF) assistance

for the period 2000 to 2006. Tables 1 and 2 respectively show the
breakdown between the Member States of the appropriations and
assistance approved for the three priority objectives (1). It is appar-
ent from Table 1 that six Member States received 84 % of the
appropriations provided. Annex 1 contains a diagram of the pro-
gramming process and, underlined, the various stages of partner-
ship implementation.

(1) Objectives 1, 2 and 3.

C 174/6

EN

Official Journal of the European Union

23.7.2003

Structural Funds commitment appropriations for the period 2000 to 2006, in million euro (1999 prices) (1)

Table 1

Member State

B

DK

D

EL

E

F
IRL (2)
I

L

NL

A

P

FIN
S (3)
UK (2)

EUR15

1

0

0

19 229

20 961

37 744

3 254

1 315

21 935

0

0

261

16 124

913

722

5 085

127 543

Objective 1
transitional sup-
port

625

0

729

0

352

551

1 773

187

0

123

0

2 905

0

0

1 166

8 411

Objectives

2

368

156

2 984

0

2 553

5 437

0

2 145

34

676

578

0

459

354

3 989

19 733

Objective 2
transitional sup-
port

65

27

526

0

98

613

0

377

6

119

102

0

30

52

706

2 721

3

737

365

4 581

0

2 140

4 714

0

3 744

38

1 686

528

0

403

720

4 568

24 224

FIFG (not includ-
ing Objective 1)

Total

34

197

107

0

200

225

0

96

0

31

4

0

31

60

121

1 106

1 829

745

28 156

20 961

43 087

14 794

3 088

28 484

78

2 635

1 473

19 029

1 836

1 908

15 635

183 738

(1) Not including Community initiatives and innovative actions.
(2) Including PEACE appropriations (2000 to 2004).
(3) Including appropriations for the special programme for Swedish coastal areas.
Source: Commission (12th Annual Report on the Structural Funds (2000) — COM(2001) 539 final of 3 October 2001)

Table 2

Assistance adopted in 2000 and 2001 for the period 2000 to 2006

Assistance measure

CSF/SPD
(Objective 1)

OP
(Objective 1)

SPD
(Objective 2)

Objective 3

1 SPD

—

1 CSF

1 CSF

1 CSF

8 SPD

1 CSF

1 CSF

—

1 SPD

1 SPD

1 CSF

2 SPD

2 SPD

5 SPD
1 CSF

7 CSF
20 SPD

—

—

8

24

18

—

5

14

—

—

—

19

—

—

1

89

7

1

11

—

7

23

—

14

1

4

8

—

3

4

14

97

5 SPD

1 SPD

1 SPD

1 CSF

1 CSF
7 OP

1 SPD

—

1 CSF
15 OP

1 SPD

1 SPD

1 SPD

—

2 SPD

1 SPD

1 CSF
3 OP

3 CSF
14 SPD
25 OP

Country

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

Sweden

United Kingdom

Total

Source: Commission.

23.7.2003

EN

Official Journal of the European Union

C 174/7

Without calling into question the basic principles of the
2.
previous reforms,
the revised framework of SF regulations
approved by the Council of the European Union in 1999 (1) has
as its principal aims simplification of the Structural Funds and
their effectiveness by:

(a)

further concentrating and simplifying SF activity by reduc-
ing the number of priority objectives from seven to three.
The number of Community initiatives as such has been lim-
ited to four (2). The proportion of the Community popula-
tion covered by the regional objectives will be 41,4 % at the
end of the period 2000 — 2006, compared with 50,6 % in
the previous period. The percentage of resources earmarked
for Objective 1 is 69,7 % (including transitional support for
areas previously eligible but not selected for 2000 to 2006),
slightly higher than for the previous period. The Objective 1
aid is primarily focused on five Member States;

(b)

distributing responsibilities more clearly and reinforcing
application of the subsidiarity principle, chiefly with the aim
of speeding up and simplifying programming procedures.
Within this framework, the Commission is responsible for
the strategic priorities, and therefore adopts the Community
guidelines and priorities for the three objectives. On the
other hand, management of operational programmes (OPs)

(1) — Council Regulation (EC) No 1260/1999 of 21 June 1999 laying
down general provisions on the Structural Funds (OJ L 161,
26.6.1999).

— Regulation (EC) No 1783/1999 of the European Parliament and
of the Council of 12 July 1999 on the European Regional Devel-
opment Fund (OJ L 213, 13.8.1999).

— Regulation (EC) No 1784/1999 of the European Parliament and
of the Council of 12 July 1999 on the European Social Fund
(OJ L 213, 13.8.1999).

— Council Regulation (EC) No 1263/1999 of 21 June 1999 on the
for Fisheries Guidance (OJ L 161,

Instrument

Financial
26.6.1999).

— Council Regulation (EC) No 1257/1999 of 17 May 1999 on
support for rural development from the European Agricultural
Guidance and Guarantee Fund (EAGGF) and amending and
repealing certain Regulations (OJ L 160, 26.6.1999).

This legislative framework was extended in 2000 and 2001 by the
addition of:
— Commission Regulation (EC) No 1685/2000 of 28 July 2000
laying down detailed rules for the implementation of Council
Regulation (EC) No 1260/1999 as regards eligibility of expendi-
ture of operations co-financed by the Structural Funds (OJ L 193,
29.7.2000),

— 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, 3.3.2001),

— Commission Regulation (EC) No 448/2001 of 2 March 2001
laying down detailed rules for the implementation of Council
Regulation (EC) No 1260/1999 as regards the procedure for
making financial corrections to assistance granted under the
Structural Funds (OJ L 64, 6.3.2001).

Interreg III and URBAN II in the field of the ERDF, EQUAL in that of
the ESF and LEADER in the field of EAGGF Guidance.

(2)

and Single Programming Documents (SPDs) is more decen-
tralised. Thus it is that OPs and SPDs no longer contain
details of programmed measures, and a new document, the
programme complement (PC), determines the beneficiaries
and the financial allocations for the various measures envis-
aged. Greater prominence is also given to the role of the
monitoring committees (the Commission representative now
has consultative status only), which approve PCs, annual
implementation reports and any related amendments;

(c)

improving performance and effectiveness through more
detailed evaluation. In order to do this the revised regula-
tions specify that the evaluations will take place at three
stages (ex ante, mid-term and ex post) and define the respon-
sibilities of the Member States and the Commission in this
area. More importantly, ex ante evaluation is the responsibil-
ity of the national authorities responsible for preparing plans,
assistance measures and the programme complement. In the
interest of effectiveness, the reform also provides for more
comprehensive monitoring based, firstly, on indicators which
reflect the progress of assistance in terms of physical achieve-
ments, results and impact and, secondly, on an annual imple-
mentation report for each programme and the creation of a
reserve of commitment appropriations (a 4 % performance
reserve) so that additional appropriations can be allocated at
mid-term on a performance-related basis;

(d)

improving the separation of management, payment, moni-
toring and control functions, and reinforcing them, by defin-
ing the responsibilities of the new organs (managing authori-
ties, paying authorities and intermediary bodies acting for
one of these authorities), the monitoring committees and the
authorities responsible for controls in the Member States;

(e) managing finances in such a way that programmes are
implemented more effectively by means of a system which
is theoretically simpler, but is also more demanding: all pay-
ments made after the initial advance (7 % drawn down at the
programme’s adoption) are based on actual expenditure, and
the part of the commitment which has not been disbursed
by the end of the second year following the year of commit-
ment will be automatically decommitted by the Commission
(the ‘n + 2’ rule).

Scope and objectives of the audit

3.
The audit examined the programming of assistance (essen-
tially in the context of Objective 1) and the introduction of man-
agement tools. Thus it aimed to establish:

(a) whether the exercise of identifying Objective 1 and 2 regions
ensured that measures were focused on the least developed
areas (paragraphs 6 to 16);

C 174/8

EN

Official Journal of the European Union

23.7.2003

(b) whether, in the case of Objective 1, the programming pro-
cedures and processes introduced by the Commission and
the Member States ensured consistency between the various
programming documents and between them and the spe-
cific needs of the regions and Member States in question so
as to reduce the gap between them and the EU average (see
paragraphs 17 to 53);

product (GDP) below 75 % of the Community average has been
rigorously applied, as the rules for 2000 to 2006 no longer allow
for the inclusion of exceptions to this criterion. The definitive list
of the regions concerned was quickly laid down by the Commis-
sion in its Decision of 1 July 1999 (6) on the basis of the Nomen-
clature of territorial units for statistics (NUTS) (7).

(d) whether the new rules on management, payment, monitor-
ing and control had resulted in the introduction of satisfac-
tory systems in these areas (see paragraphs 54 to 85).

The problems relating to the implementation of commit-
4.
ment and payment appropriations, the revision of the majority of
financial plans for assistance and the introduction of systems for
budget estimates were addressed in the annual report concerning
the financial year 2001. Consequently, they will not be com-
mented on here (1).

5.
The audit was carried out in Commission departments and
in 11 Member States receiving Objective 1 assistance (2). It focused
on 15 selected regions (3), four of which (4) are in receipt of tran-
sitional support (phasing-out regions).

IDENTIFICATION OF ELIGIBLE REGIONS

6.
The principal task was to assess whether the regions eli-
gible under Objectives 1 and 2 had been identified on the basis of
recent data that allowed appropriate comparisons to be made on
the basis of clear rules so that assistance could be concentrated on
the least developed areas.

Objective 1 regions

7.
In the context of SF programming the task of identifying
eligible areas takes on special importance in that it determines for
a seven-year period which regions, as Objective 1 regions, will
receive the lion’s share of financing. In contrast to the previous
programming period, when the regulations made provision for
derogations, the general criterion (5) of per capita gross domestic

(1) See paragraphs 3.7 to 3.24 of the Court’s Annual Report for 2001

and the corresponding replies.

(2) The audit was carried out between 2000 and 2001 in the following
countries: Belgium, Germany, Greece, Spain, France, Ireland, Italy, the
Netherlands, Austria, Portugal, the United Kingdom.

(3) Hainaut (B), Berlin (D), Brandenburg (D), Attiki (GR), Andalucia (E),
Galicia (E), Corsica (F), Réunion (F), Southern and Eastern Region
(IRL), Calabria (I), Flevoland (NL), Burgenland (A), Algarve (P), Corn-
wall (UK) and Merseyside (UK).

(4) Hainaut (B), Corsica (F), Southern and Eastern Region (IRL) and

Flevoland (NL).

(5) — The criteria for identifying regions eligible for the period 2000
to 2006 under Objective 1 are set out in Article 3 of Council
Regulation (EC) No 1260/1999.

8.
Since GDP was to be calculated on the basis of Commu-
nity figures for the last three years available on 26 March 1999
(the date set by the Regulations), the data corresponded to years
1994, 1995 and 1996. In the case of four Objective 1 regions
(DOM-F), only data for 1994 were available. Furthermore, these
data were not yet based on the new European system of national
and regional accounts (8), which standardises methods of record-
ing economic and statistical information.

The Commission has applied the regulation correctly. Nev-
9.
ertheless, it was not possible for the data used (1994,1995,1996)
to take account of all the structural effects of the previous period’s
assistance on the development of the regions in question. Given
that there is no mechanism for making adjustments on the basis
of more recent data, as in the case of Objective 2 (9), regions that
have partially made up the development gap may continue to
receive Community finance from the SF (10). In principle, this
rules out the possibility of increasing the funds available for
regions whose situation is more critical.

Since the administrative division into regions (on the
10.
basis of NUTS) may possibly not reflect geographical or histori-
cal boundaries, it is not a neutral method of determining SF eli-
gibility (11). By way of example, the new regional division in Ire-
land did not exist before and has enabled one of the newly created

— Article 3(1), first subparagraph, of Council Regulation (EC)
No 1260/1999 and Commission Decision of 1 July 1999 draw-
ing up the list of regions covered by Objective 1 of the Structural
Funds for the period 2000 to 2006, C(1999) 1770.
(6) Commission Decision 1999/502/EC of 1 July 1999 drawing up the
list of regions covered by Objective 1 of the Structural Funds for the
period 2000 to 2006 (OJ L 194, 27.7.1999, p. 53).

(7) NUTS is a hierarchical nomenclature that divides each Member State
into a whole number of regions (NUTS level I). These are then sub-
divided into NUTS level II regions, which are again subdivided into
NUTS level III. NUTS level II is used when calculating 75 % of the
average Community GDP.

(8) Council Regulation (EC) No 2223/96 of 25 June 1996 on the Euro-
pean system of national and regional accounts in the Community
(SEC 95) (OJ L 310, 30.11.1996, p. 1).
(9) Regulation (EC) 1260/1999, Article 4(11).
(10) Had more recent statistics (1996, 1997 and 1998) been used, 10
regions would not have been eligible, since their GDP was more than
75 % of the Community average (Sterea Ellada, Notio Aigaio, Comu-
nidad Valenciana, Canarias, Leipzig, Sardegna, South Yorkshire and
Border, Midland and Western, Attiki and Castilla-León).

(11) See also the Annual Report concerning the financial year 1995, para-

graphs 5.18 to 5.23 (OJ C 340, 12.11.1996).

23.7.2003

EN

Official Journal of the European Union

C 174/9

regions to remain under Objective 1 (1). The changes of region
were possible because NUTS updates were negotiated bilaterally
between the Commission and the Member State concerned. It was
only in February 2001 that the Commission proposed a regula-
tion to establish a legal basis for the relevant rules (2).

nity areas adopted under Objective 2. For example, one of the cri-
teria (4) was the main criterion used to identify Objective 2 areas
in eight (5) of the twelve Member States concerned.

Objective 2 regions

11.
With regard to the identification of Objective 2 areas, the
SF Regulations for 2000 — 2006 specify, firstly, a population
ceiling for the areas concerned of 18 % of the total population of
the Community. This is used by the Commission as the basis for
establishing a population ceiling for each Member State. Within
the limits of these ceilings, some Member States submitted partial
areas in order to maximise the territorial coverage. As a result,
there can be no guarantees that the areas selected were those most
seriously affected by structural problems.

12.
Moreover, there are two categories of criteria for identify-
ing areas — ‘Community’ and ‘national’. The Community criteria,
targeting industrial and rural areas, rely on statistics which are
harmonised at NUTS III level (3), while the national criteria are
based on statistics and other relevant information forwarded by
the Member States concerning the situation in the areas in ques-
tion.

13.
The objective Community criteria laid down in the SF
Regulations have steadily become less important than the national
criteria. For example, 77 % of the population of the Objective 2
areas met the Community criteria in 1989 to 1993, 55 % in 1994
to 1999, but only 47 % for the period 2000 to 2006. Moreover,
the provisional list of areas eligible under Objective 2 was drawn
up on the basis of proposals and information submitted by the
Member States, the content of which was difficult to verify and
sometimes to compare. The definitive list was the outcome of
bilateral negotiations between the Commission and the Member
States.

Regions eligible under competition policy

15.
The Court’s audits showed that the areas eligible for State
aid did not always coincide with those eligible for SF assistance.
This inconsistency has already been pointed out in respect of pre-
vious periods, by the Court (in its 1995 Annual Report (6)), the
European Parliament (7) and the Commission itself (8).

16.
Although the Commission undertook to improve con-
sistency between regional policy and competition policy so as to
ensure that this situation would not recur in the period 2000 to
2006 (9), it has to be acknowledged that matters have improved
very little. The percentage of the population covered by SF quali-
fying regions but not covered by national regional aid is still high:
5,8 % for the period 2000 to 2006 compared with 6,6 % for
1994 to 1999. The inconsistencies mainly concern Objective 2,
where the figure in question reaches 12,9 %. In the case of one
Member State (10) it is 41 %.

OBSERVATIONS ON THE PROGRAMMING OF OBJECTIVE 1
ASSISTANCE

The Commission has played an active and positive role,
17.
especially through its indicative strategy guidelines, its efforts to
make an effective analytical tool of ex ante evaluation, and the
negotiations aimed at improving the quality and consistency of
CSFs and assistance. Despite considerable progress, especially as
regards quantification and indicators, the programming of Objec-
tive 1 assistance for the period 2000 to 2006 is marked by a
number of weaknesses.

14.
In practice, it is usually the national criteria that are con-
clusive for the selection of Objective 2 areas. However, applica-
tion of the national criteria allows the Member States a good deal
of flexibility as regards justifying the eligibility of most Commu-

(4) Article 4(9)(c) of Regulation 1260/1999: ‘areas facing or threatened
by serious structural problems on account of relevant, verifiable char-
acteristics, or a high level of unemployment arising from an ongoing
or planned restructuring of one or more activities in the agricultural,
industrial or service sector’.

(5) Belgium, Denmark, Germany, France, Italy, the Netherlands, Austria

(1) Border, Midland and Western.
(2) The Commission aimed in particular to ‘assure comparability and
impartiality when regional statistics are compiled and used for vari-
ous policy purposes’, in particular for the Structural Funds, and to
‘define clear rules for future amendments of the NUTS breakdown, so
as to forestall conflicts of the kind that have occurred in the past’.
Proposal for a Regulation of the European Parliament and of the
Council on the establishment of a common classification of territo-
rial units for statistics (NUTS), COM(2001) 83 final of 14 February
2001.

(3) Unemployment and industrial employment for industrial areas; agri-
cultural employment, unemployment and population density or
decline for rural areas.

and the United Kingdom.

(6) Paragraph 5.37 (OJ C 340, 12.11.1996).
(7) Resolution of 9 February 1999 on the communication from the
Commission to the Member States on the links between regional
policy and competition policy (Report PE 226.204).

(8) Communication from the Commission to the Member States on the
links between regional and competition policy: Reinforcing concen-
tration and mutual consistency (OJ C 90, 26.3.1998, p. 3).

(9) — Section 4 (Conclusions) of the above Communication, in par-

ticular paragraph (c).

— Agenda 2000; Volume I: For a stronger and wider Union; Part
One: The policies of the Union; Chapter II: Economic and social
cohesion; Section 2: Greater concentration.

— Recital 16 of Regulation (EC) No 1260/1999.

(10) The United Kingdom.

C 174/10

EN

Official Journal of the European Union

23.7.2003

Lengthy and unwieldy programming procedures

The audit examined whether the Commission’s instruc-
18.
tions and the procedures set in place (1) allowed assistance mea-
sures to be adopted in good time, given the administrative and
institutional constraints on the Member States and the Commu-
nity.

19.
As the Commission itself pointed out in its Communica-
tion (2), it was not possible for it to adopt the vast majority of
programming documents in less than a year, and in some cases
even longer. Of the 123 Objective 1 programming documents
received, only three (3) were adopted within five months of receipt
of the plans or draft SPDs, as laid down in the regulations. The
deadlines stipulated by the regulations have thus proved to be
unrealistic.

20.
These delays in programming can be explained, amongst
other things, by the variable quality of the documents submitted
by the Member States (see paragraph 31), which forced the Com-
mission to take steps to improve the effectiveness and consistency
of the Member States’ proposed CSFs and assistance measures.
Other causes of delay were the cumbersome nature of the adop-
tion process (see paragraph 21) and insufficient clarification of
Community and national responsibilities with regard to the adop-
tion of programme complements (see paragraphs 22 and 23). At
the time when the programming documents were being adopted,
in 2000, the internal reform of the Commission was in full swing.
The internal restructuring and changes in consultation procedures
which ensued from the reform contributed to delays in process-
ing and lengthened the time taken by Commission departments
to reply.

21.
Different approaches to the drafting and finalisation of
programming documents existed alongside each other. Since
1998, the Member States have made a considerable effort to draft
all programming documents (plans, CSFs, OPs, SPDs and PCs) as
holistically as possible and at the same time. The Commission
separates the various phases of programming sequentially into a
succession of stages each of which must be duly completed before
the next one can begin. As a result, the programming documents
prepared by the Member States were submitted to the Commis-
sion only in separate phases. This gave rise to substantial delays,
even though the questions raised by the Commission at each
stage were often relevant and rendered assistance more effective
and consistent with the policies of the European Union.

(1) The Court has already stressed in the part of Opinion No 10/98 con-
cerning proposals for regulations governing the SFs that program-
ming procedures should be designed in such a way that they do not
perceptibly complicate management, prolong the period of prepara-
tion or detract from the consistency of the whole.

(2) Communication on the results of the programming of the Structural
Funds for 2000 to 2006 (Objective 1), SEC(2001) 1140 and
COM(2001) 378 final of 5 July 2001.

(3) CSF Portugal, SPD Burgenland (Austria) and SPD Hainaut (Belgium).

As regards the programme complement (PC), the Com-
22.
mission itself stated (4) that the regulatory three-month deadline
for forwarding the PC was observed in only a few cases. The final
presentation of the PC to the Commission was sometimes delayed
because Community and national responsibilities were not suf-
ficiently clear. Interim payment requests are subject to compli-
ance with the requirement that the programme complement sub-
mitted to the Commission must contain the information specified
in Article 18(3) of Regulation (EC) No 1260/1999. In certain
cases, non-compliance with this requirement led to the Commis-
sion’s delaying the corresponding interim payments, thereby slow-
ing down the progress of structural measures (5).

23.
It was expected that simplification would be achieved by
leaving responsibility for approving the programme complement
with the management authority and the monitoring committee,
but in cases such as these it has not always materialised. In effect
the gain obtained by simplifying the earlier stages, and OP and
SPD approval in particular, is not necessarily carried over to the
subsequent process. It can even lead to loss of efficiency since the
Commission always has to verify the PC content subsequently,
before making the corresponding payments.

24.
The timetables envisaged for the adoption of regional aid
and SF maps were not respected for the majority of Member States.
Almost all the regional aid schemes expired on 31 Decem-
ber 1999. After that date, it was no longer legally possible for the
regions to grant aid. The late adoption of the new regional aid
maps led to uncertainty among managers and beneficiary enter-
prises and caused a hiatus in the aid-granting process, especially
where grants to enterprises were concerned.

Programming and ex ante evaluation approaches and
techniques: the need for improved consistency and greater
impact

25.

The audit was to assess:

(a) whether the Commission specified the formal characteristics
(in terms of precision, quantification, consistency and trans-
parency) of plans, draft SPDs, OPs and PCs and whether it
provided suggestions and recommendations concerning the
programming and evaluation methods and techniques to be
applied;

(4) The results of the programming of the Structural Funds for 2000 to

2006 (Objective 1), COM(2001) 378 final of 5 July 2001.

(5) Annual Report concerning the financial year 2001, Chapter 3, Struc-

tural measures, paragraph 3.31 (OJ C 295, 28.11.2002).

23.7.2003

EN

Official Journal of the European Union

C 174/11

(b) whether the various programming stages made use of appro-
priate verifiable methods and techniques and, in particular,
whether the ex ante evaluations had the desired impact;

Without such information it is difficult to establish the jus-
tification for choices made in connection with a CSF or a
draft SPD;

(c) whether the actual programming was consistent and rel-
evant in terms of the specific problems of the regions and
whether, with the help of appropriate indicators at the dif-
ferent levels, it resulted in precise (or quantified) attainable
objectives that clearly showed the hierarchical links and the
links of complementarity and interchangeability, between
objectives and between objectives and measures.

Methodological guidelines for programming

26.
The Commission’s working documents are useful for the
Member States and contribute to the success of their program-
ming work (especially as regards the content of plans, CSFs, OPs
and SPDs under Articles 16 to 19 of Regulation (EC)
No 1260/1999). Although the Commission documents refer in a
general way to some basic documentation (1), with the exception
of the indicators methodology they are still not sufficiently detailed.
It was noted that:

(a)

(b)

(c)

(d)

there was very little practical explanation of methods of
analysing requirements in order to grade identified needs.
This also applies to the method of drawing up a hierarchy
of objectives, which should result in a genuine tool for
appraising the financial weightings of different priorities,
OPs or measures relative to an objective (2);

the Commission’s working documents place emphasis on
the quantification of objectives and indicators and refer to
existing methods in this area. They do not require details of
them in the programming documents, although clarification
in this respect would be a factor for transparency;

the working documents made no attempt to investigate
alternative strategies and activities within the socioeconomic
development framework, with an evaluation of them in
terms of impact, efficiency and cost;

although the strategy and priorities of a CSF or an SPD are
to be consistent with regional, national and Community
policies, the working documents do not specifically require
detailed information on all the national and regional poli-
cies concerned, especially as regards their general and spe-
cific objectives, the measures implemented, the financial
resources allocated and the timetables for implementation.

(1)

(2)

In particular, the MEANS collection (Means for Evaluating Actions of
a Structural Nature), which is a broad reference framework for the
evaluation and programming of socioeconomic development pro-
grammes, could have given a more comprehensive presentation.
In principle the structure of objectives must include the most impor-
tant hierarchical impact relationships and must preserve complemen-
tarity and interchangeability of objectives and of objectives and mea-
sures.

(e)

(f)

the basic principles which justify public intervention, and to
which political decision-makers may refer (3), are inad-
equately highlighted. The working documents and guide-
lines also fail to highlight other principles, such as those
which aim to avoid deadweight (4) or displacement effects (5)
or to guarantee the added value or incentive effect of aid or
the sustainability of results and impacts;

the main emphasis is placed on thematic priorities to be
taken into account under the three strategic priorities
(regional competitiveness, social cohesion and employment,
development of urban and rural areas). Other approaches to
regional development (6) or the reduction of disparities were
not covered in the Commission’s guidelines and working
documents.

(3) Such principles distinguish mainly between:

— measures in the field of public goods (services or investments

that ideally are produced only by the public sector);

— measures that are designed to have a corrective effect in view of
price distortions and external factors, whether positive or nega-
tive;

— measures designed to effect changes in behaviour, where this

does not conform to expectations;

— measures that aim chiefly at the redistribution of income, for

example by maintaining employment.

(EU Structural Funds in Ireland: a Mid-Term Evaluation of the CSF 1994-
99, Economic & Social Research Institute (ESRI), Dublin, 1997, Part 2
- Microeconomic effects and recommendations, pp. 72-161; National Invest-
ment Priorities for the Period 2000-2006, ESRI, Dublin, 1999, pp. 134-
273).

(4) Dead-weight effects are effects which would have come about even

without intervention.

(5) The substitution effect occurs, in the context of assistance to a geo-
graphical area, when the creation or maintenance of employment is
favoured at the expense of jobs in other areas covered by the pro-
gramme.
In particular, regional development approaches based on:
— clustering, a strategy which aims chiefly to bring about a pro-
duction system characterised by an increase in productivity
owing largely to cooperation and partnerships, the internalisa-
tion of external factors, economies of scale and specialisation,

(6)

— convergence, whereby a combination of factors such as market
integration, international trade, direct foreign investment, inno-
vation, knowledge and technology transfer, and improvements
to infrastructure, should reduce the per capita income gap
between developed and less developed regions,

— the dichotomy between central and peripheral areas, which arises
in development situations where the economic dominance of
the core zone attracts the lion’s share of direct investment from
home and abroad,

— the establishment of growth hubs, an approach which states that
an enterprise (or group of enterprises) may stimulate its eco-
nomic surroundings, resulting in a focus of growth that pro-
motes faster growth in the region in which that focus is located.

C 174/12

EN

Official Journal of the European Union

23.7.2003

The Court noted that all these weaknesses in the work-
27.
ing documents and guidelines subsequently had repercussions on
the policy analysis techniques that were applied (see paragraphs 31
to 36).

Policy analysis techniques

Methods and techniques in practice

The role of ex ante evaluation

28.
According to Article 41 of Regulation (EC) No 1260/1999
the purpose of ex ante evaluation is to provide a basis for prepar-
ing the development plans, assistance and programme comple-
ment with which it is associated. It must involve analysis of the
strengths, weaknesses and potential of the Member State, region
or sector concerned. Further, it aims to assess the consistency of
the strategy and objectives selected with the specific features of
the regions or areas concerned, and the expected impact of the
priorities for action, by quantifying their specific targets in rela-
tion to the starting situation, where they lend themselves thereto.
In its working paper on ex ante evaluation the Commission stressed
the need for a strong degree of interaction between ex ante evalu-
ation and programming, with the evaluators independently pro-
viding justification for the balance of priorities and the allocation
of resources in terms of the expected impact and results.

29.
In practice, at Member State level the evaluator’s role was
often not clearly defined by contract and ranged extensively
between the provision of advice and critical analysis. One reason
was that, unlike in the past, the Commission was unable to influ-
ence the choice of evaluator. In several of the countries and
regions visited (1) evaluation took the form of scientific help with
the preparation and drafting of the CSF and focused on justifying
the chosen strategy. There was no critical appraisal or analysis of
alternative strategies (2).

30.
A further result of this lack of precision concerning the
evaluator’s role was that the quality of evaluations was rather
uneven and at times unsatisfactory. This view was shared by the
Commission (3), which, however, intervened in only a few cases,
mainly in the context of large-scale regional development plans
(RDPs), by insisting that the Member State supplement the ex ante
evaluation or by deciding that the plan should undergo further
evaluation (4).

(1) Germany (new Länder), Greece, France (Corsica, Réunion), Italy (Mez-
zogiorno), the Netherlands (Flevoland), Portugal and the United King-
dom (Merseyside).

(2) True critical appraisal was explicit and systematic only in the case of

Ireland and Hainaut (B).
(3) Spain and France (Réunion).
(4)

In particular, the Italian Objective 1 plan and the plan for the new
German Länder were subjected to macroeconomic assessment.

Various weaknesses were found as regards the applica-
31.
tion of analysis, evaluation and programming methods and tech-
niques.

32.
For example, although the strengths, weaknesses and
potential of the Member State or region were examined, this sel-
dom included the use of analytical techniques for grading needs
and highlighting the relative importance of factors contributing to
development or decline and the relationships between them and
the structural actions (5).

33.
Similarly, the structure of objectives and structural mea-
sures adopted in the plans and CSFs was often the result of
approaches other than that of highlighting the most important
relationships between objectives, objectives and measures and
between the latter in terms of a given objective, even though this
approach would have simplified choices and decisions (6).

34.
Only a few national development plans included a detailed
presentation of a significant proportion of the national and
regional priorities
concerned (see para-
graph 26(d)) (7).

and measures

(5) Belgium (Hainaut).
(6) The structure of Réunion (F) Objective 1 SPD was influenced more
extensively by administrative requirements, with the result that it is
built around 10 priority themes using a single financing source. The
draft SPD, however, broke measures down according to four priority
guidelines that better reflected the structure of objectives and means
and the synergy between funds.
Operational requirements strongly influenced the structure of the Ital-
ian Objective 1 CSF, making it essentially operational in its subdivi-
sion into themes, sectors and macro-areas, the last of which are the
only points that are the direct target of specific objectives, while the
links between themes and general or global objectives designed to
ensure a given rate of growth for GDP and employment are not made
clear. This structure is not conducive to the making of choices or the
identification of priorities.
The chief criterion affecting the structure of the Spanish Objective 1
CSF was the institutional and administrative system: the CSF and the
RDP are based upon a combination of regional plans and elements of
national sectoral plans that are not necessarily homogenous. On the
other hand, the integration of the Funds was no guarantee of the inte-
gration of structural measures. Although the regional programmes
originally submitted by the Spanish authorities under the Objective 1
CSF were monofund in nature (ERDF, ESF or EAGGF Guidance), for
ease of management the integration of the Funds was in fact confined
to the production of a single combined document with no guarantees
that activity would be based on the genuine integration of structural
measures.
In Portugal, the effect of previous programming has been that the
new core priority is not explicitly reflected in the structure of the CSF.
The goal of significantly improving productivity has had too little
impact on the CSF structure, the main aims of which are not funda-
mentally different from those of the previous period and are not
explicitly linked to this priority.

(7) Spain, Ireland and Portugal.

23.7.2003

EN

Official Journal of the European Union

C 174/13

measurements, the Commission had to arrange for the impact of
the CSFs (and sometimes of the plans) of eastern Germany and of
the Member States in receipt of aid from the Cohesion Fund (6) to
be evaluated using models that it had developed (7). In the case of
Italy, the Commission arranged for the Objective 1 plan to be
independently modelled.

39.
In the context of Objective 1 programming the models
were used to limited effect, mainly to quantify the expected results
of a proposed strategy. They were not, in fact, used to evaluate
alternative strategies by comparing the impact of each strategy
and thus identifying the optimum plan structure and financial
allocation in the light of the objectives and available resources.
Furthermore, the estimations based on the models were found to
contain some anomalies at the level of impacts. The Commission
did not subsequently take them into account during the pro-
gramme process, thus highlighting their limited influence (see
Annex 2, paragraph 6). Macroeconomic models were indeed some-
times used to evaluate the impact of programmes, but only at a
later stage, after work on the national plan had been completed,
but before the CSFs and assistance measures were due to be
approved by the Commission (8).

40.
In this context it must also be pointed out that, despite
the relatively comprehensive results achieved by some of the
models, their relevance was nevertheless still limited by the fact
that they were essentially national in scope, and so could not
always be used as the basis for assessing convergence between
regions of a Member State or the role of plans, CSFs and SPDs in
making up permanent ground on European averages (9). More-
over, these models simplify economic mechanisms and thus
require additional information in order to improve the interpreta-
tion of economic circumstances. For example, the information
needed to quantify supply-side effects in relation to investment in
infrastructure or human resources is not always available, and fur-
ther investigation of these effects is still necessary. Lastly, in the
context of the models used, adequate statistical information is
sometimes lacking (see Annex 2).

The audits revealed shortcomings in the quantification of
35.
relevant indicators and objectives (see paragraph 44) which
impeded any subsequent technical analysis. For example, the glo-
bal objectives were sometimes overstated (1), so that it was impos-
sible to establish to what degree the CSFs and SPDs might con-
tribute to them. Generally speaking, the programming did not
ensure that the methods used to quantify indicators and costs
were verifiable. In a similar vein, the Commission and the Mem-
ber States seldom verified that the principles justifying public-
sector intervention had been applied (2). The other principles
described in paragraph 26(e) were barely touched upon in the
programming of CSFs and assistance.

36.
These are significant omissions, because they weaken the
cohesion of CSFs and SF intervention (OPs and SPDs). They are a
barrier to the optimum choice of the resources to be used to sat-
isfy the specific needs of the regions as regards sustainable devel-
opment, convergence, employment, competitiveness, productiv-
ity and the integration of target groups.

Evaluation of the macroeconomic impact of the SF (3)

37.
In the case of the Objective 1 regions (especially those
above a certain size), the use of models to evaluate the macroeco-
nomic impact of the SF is an important analytical tool, yielding
results that can make a useful contribution to the process of pro-
gramming as regards choices and decision-making at the level of
objectives and instruments (see Annex 2). In the case of major
Objective 1 plans the Commission also recommended the use of
state of the art macroeconomic models (4) for ex ante analysis of
impacts on regional GDP, employment, productivity and com-
petitiveness.

This type of evaluation was not always developed and
38.
applied as effectively as it might have been in the context of CSF
and assistance programming. In point of fact, the models applied
by the Member States did not deal in full with all of the four types
of impact envisaged (see Annex 2). The impact of some major
Objective 1 plans was not measured in the light of a macroeco-
nomic model, and the measurement was sometimes incom-
plete (5). In order to obtain comparable and, often, more complete

(1) This was the case in particular for Spain, Réunion (F), Italy and

Flevoland (NL).
Ireland and Belgium (Hainaut).

(2)
(3) During its audit the Court called on the services of an external asses-
sor specialising in macroeconomic modelling and models of the
European economy.

(5)

(4) Commission working paper 2: The ex ante evaluation of the Structural
Funds interventions, p. 18. The Commission specified in Annex 1 the
elements to be taken into account.
In the case of the Mezzogiorno there was no direct assessment of the
different impacts of the plan; only its impact on GDP and employ-
ment were estimated directly.
In the case of the new German Länder there was no impact assessment
within the framework of the plan itself: at CSF level less sophisticated
techniques were used to estimate the impact on GDP, and the impact
on productivity and competitiveness was not calculated.

(6) Greece, Spain, Ireland and Portugal.
(7) The Hermin and QUEST II models.
(8)

In the case of eastern Germany, the Hermin model was developed and
applied largely outside the framework of programming the Länder
CSFs and OPs.

(9) This limit was observed in particular in connection with the Hermin
model, which always adopts an essentially national approach; in the
case of Ireland, for example, this approach does not coincide with the
regional objectives and precludes estimates of the development of
each Irish region, especially in terms of impact. Similarly, eastern Ger-
many is considered separately from the German economy as a whole.
Lastly, it does not examine convergence at the European level. In con-
trast, the HELM model allows the situation of Hainaut to be examined
in terms of European averages.

C 174/14

EN

Official Journal of the European Union

23.7.2003

Even though they may have certain shortcomings, these
41.
models are useful, both for the national authorities responsible
for programming and for the Commission. However, the Com-
mission has not yet mastered this combining of approaches and
models in order to obtain a valid comparative analysis of results
between Member States.

Indicators

Quantified indicators of physical achievements, results

42.
and impact must be introduced:

(a)

(b)

in order to establish adequate causal relationships between
objectives, between measure targets and the end results at
measure level and at the level of the component actions.
Indicators must thus express objectives, results and achieve-
ments in a relevant way;

so that, at specified intervals while the programme is being
implemented, the indicators can be monitored and a record
made of their real change in relation to a known baseline,
thereby providing data for the mid-term and ex post evalua-
tions;

However, work still needs to be done, with a view to the
44.
mid-term reviews and evaluations and the ex post evaluations in
particular:

(a)

(b)

it was noted that indicators had not yet been established (5)
or, if established, not quantified (6) or without a baseline (7).
Quantifications were not properly justified by pertinent
analysis (see paragraph 35);

for all the regions where audits were carried out, it was also
noted that the indicators’ expression of objectives, results
and achievements was often incomplete or sometimes irrel-
evant. Therefore the indicators could not readily be used to
establish clear causal relationships between objectives and
between plan or programme level, priorities level and mea-
sures level. The lack of coherence between indicators of dif-
ferent levels stems from the programme logic, which identi-
fies indicators for overall objectives and priorities within the
CSF and SPD framework, before moving on to identify indi-
cators at the level of the measures in the programme comple-
ment. Had a ‘bottom-up’ approach been applied at the same
time, starting from actions and measures and going on to
priorities and programmes, priorities and general objectives,
there would have been more coherence in the indicator
structure.

(c)

as an aid to any necessary adjustments that have to be made
where results do not match forecasts, or where priorities
have changed.

Financing plans

Progress was observed as regards the weaknesses detected
43.
in connection with the Court’s Special Report No 15/98 on the
assessment of Structural Fund intervention for the periods 1989
to 1993 and 1994 to 1999 (1). During the programming phase
for 2000 to 2006, a Commission working document was wholly
devoted to indicators for programming methodology and to the
selection of key indicators for the various fields of intervention (2).
Furthermore, the Member States and regions concerned have all
tried (3) to ensure that there is greater consistency between indica-
tors (see paragraph 42(a)) and to improve quantification (4).

45.
The financing plans for the assistance measures that result
from the programming process reflect the annual breakdown set
out in the financial perspective, whereby a similar amount is dis-
tributed every year. The allocation profile for available budgetary
appropriations is similar (see Tables 3 and 4). The financing plans
thus do not take account of the real cycle of structural assistance
programming, which generally consists of a start-up phase, fol-
lowed by a consolidation phase and, finally, completion. In actual
fact they simply reproduce the annual breakdown set out in the
financial perspective, without including realistic forecasts of how
the structural actions will progress. This robs this particular finan-
cial instrument of its effectiveness as a means of monitoring the
progress of assistance measures and evaluating them (8).

(1) OJ C 347, 16.11.1998, paragraphs 4.16 to 4.21.
(2) According to the Commission they were chosen on the basis of their
relevance to common priorities, ability to determine objectives quan-
titatively and define a baseline, clarity and reliability of aggregation.
(3) The Irish authorities in particular have developed indicators of the
same nature for both the cofinanced part of its Regional Develop-
ment Plan and the part that is not cofinanced.
In general the quantification of outturn indicators was satisfactory,
whereas that was seldom the case for the period 1994 to 1999. For
example it was then difficult to make an overall assessment of the
productive investment generated by Community investment aid. The
content of the result indicators is often similarly better defined, so
that it is possible to quantify variables such as time saved or traffic
increase in relation to transport infrastructure.

(4)

(5)

(6)

(7)

Impact indicators for the Irish OPs, overall performance indicators for
the SPD for Corsica, impact indicators at measure level for the Réunion
SPD, the Flevoland SPD, indicators for the Calabria OP.
In the France-Réunion SPD, where the indicators were often expressed
in qualitative terms, in the CSF for Germany, the programme comple-
ment to the NOP Sviluppo Imprenditoriale Locale and the Calabria OP
(Italy), and the programme complements for the Portuguese OPs and
some of the Réunion SPD.
In the programme complement to the NOP Sviluppo Imprenditoriale
Locale (Italy) and the Flevoland SPD.

(8) This point was made in the 2000 Annual Report, paragraph 3.19.

Annual breakdown of appropriations available for Objective 1 programming (excluding performance reserve) in mio EUR at current prices

Regions eligible under Objective 1 (after revision of the profile)

Table 3

B
DK
D
EL
E
F
IRL
I
L
NL
A
P
FIN
S
UK

2000

0
0
2 852
3 054
5 506
491
236
3 203
0
0
38
2 553
133
54
745

2001

0
0
2 887
3 115
5 614
495
215
3 264
0
0
39
2 445
136
55
732

2002

0
0
2 919
3 179
5 724
498
195
3 326
0
0
40
2 354
138
56
718

2003

0
0
2 954
3 241
5 836
499
171
3 391
0
0
40
2 506
141
58
704

2004

0
0
2 705
2 998
5 392
453
130
3 131
0
0
37
2 194
131
53
623

2005

0
0
2 760
3 057
5 499
465
188
3 195
0
0
38
2 271
133
54
672

EUR15 (1)

18 865

18 997

19 147

19 541

17 847

19 712

18 332

20 235

2006

Period 2000 to 2006

2004

2005

2006

Appropriations assigned to the performance reserve

0
0
2 882
3 118
5 615
475
118
3 260
0
0
39
2 399
136
55
663

18 760

20 702

0
0
19 959
21 762
39 186
3 376
1 253
22 770
0
0
271
16 722
948
385
4 857

131 489

137 199

0
0
283
309
556
48
18
323
0
0
4
237
13
5
69

0
0
289
315
567
49
18
329
0
0
4
242
14
6
70

0
0
295
321
578
50
19
336
0
0
4
247
14
6
72

1 865

1 903

1 942

Total

0
0
867
945
1 701
147
55
988
0
0
12
726
41
17
211

5 710

IRL
UK

Total (2)

S (3)

2000

20
82

102

2000

51

2001

21
83

104

2001

52

PEACE Programme

2002

21
85

106

2003

22
87

109

2004

22
88

110

Special programme for Swedish coastal areas

2005

2006

Period 2000 to 2006

106
425

531

531

2002

53

2003

54

Total

2004

2005

2006

Period 2000 to 2006

50

55

51

56

52

57

363

378

Appropriations assigned to the performance reserve

2004

5

2005

5

2006

5

Total

15

Appropriations assigned to the performance reserve

2000

2001

2002

2003

2004

2005

2006

Period 2000 to 2006

2004

2005

2006

Total

Total
(1)+(2)+(3)

19 018

19 153

19 306

19 704

18 007

19 877

18 383

20 291

18 812

20 759

132 383

134 253

1 870

1 908

1 947

5 725

Indexation rate

1

1

1

1

1

1

1

Source: Commission.

.

.

2
3
7
2
0
0
3

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C
1
7
4
/
1
5

Annual breakdown of appropriations available for Objective 1 programming (excluding performance reserve). Transitional support in mio EUR at current prices

Table 4

2000

2001

2002

2003

2004

2005

2006

Period 2000 to 2006

2004

2005

2006

Total

Appropriations assigned to the performance reserve

B
DK
D
EL
E
F
IRL
I
L
NL
A
P
FIN
S
UK

105
0
122
0
78
83
400
32
0
23
0
650
0
0
216

100
0
121
0
67
81
350
30
0
21
0
640
0
0
204

95
0
121
0
56
79
300
28
0
20
0
610
0
0
193

95
0
120
0
45
79
250
26
0
19
0
350
0
0
181

EUR15

1 709

1 614

1 502

1 165

Source: Commission.

79
0
104
0
30
67
165
21
0
16
0
242
0
0
143

866

1 034

78
0
103
0
30
65
115
20
0
15
0
213
0
0
110

748

916

49
0
8
0
32
75
123
22
0
5
0
84
0
0
73

471

471

600
0
700
0
338
529
1 702
180
0
118
0
2 789
0
0
1 119

8 075

8 411

13
0
15
0
7
11
35
4
0
2
0
58
0
0
23

13
0
15
0
7
11
35
4
0
2
0
58
0
0
23

168

168

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

0

25
0
29
0
14
22
71
7
0
5
0
116
0
0
47

336

C
1
7
4
/
1
6

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

.

2
3
7
2
0
0
3

23.7.2003

EN

Official Journal of the European Union

C 174/17

The processes of negotiation and decision-taking

This made it difficult for the Commission to put forward work-
able proposals (3).

The negotiations between the Commission and the Mem-
46.
ber States could not deal fully with all the problems of consis-
tency between the CSFs and assistance measures, or determine
precisely what their foreseeable impact on regional development
might be. The shortcomings that were identified during the audits,
in terms of information, quantification and consistency between
needs, objectives and mesures (see paragraphs 31 to 35 and 44),
will have to be considered again, at a later date, as part of the mid-
term review, in order to make the Community programmes as
effective as possible (see paragraph 36).

49.
Importance was attached to such formal aspects of pro-
gramming as the description of priorities or measures, details of
the Funds’ contribution for each priority and each year, the
description of the management authority and management pro-
cedures, the description of monitoring systems and specific con-
trol procedures. The budget breakdowns for CSFs and programmes
were thus heavily influenced by previous utilisation of appropria-
tions in connection with certain measures, the history of imple-
mentation and the need to guarantee the best possible take-up of
funds in each Member State, rather than by a well-established
development strategy and technical analysis of alternative alloca-
tions.

In particular, the Commission did not seek substantial
47.
improvements in some key aspects of programming in the nego-
tiation phase:

(a)

for example, since there was no request for detailed informa-
tion about the national and regional policies surrounding
the CSF or SPD, the negotiations between the Commission
and the Member States barely touched on the issue of the
overall funding earmarked for regional development. This
was also true of the small number of development plans that
covered a relatively large part of national and regional devel-
opment priorities and measures, with no more than a small
part being devoted to the CSF (1). The part of development
measures that is not cofinanced and not systematically
addressed during the negotiations (2) is therefore not neces-
sarily subject to the same principles. Because measures are
interactive, whether or not they are cofinanced, differences
in the treatment of them affect the consistency and impact
of CSFs and SPDs at every level;

(b)

in practice, with the exception of grants for investment in
the production sector, the Commission paid little attention
to the principles of public-sector financing, or to the dead-
weight and displacement effects that may characterise some
measures (see paragraph 26(e)).

48.
As regards the appropriateness of the measures submit-
ted and the level of funding to be allocated to them, some of the
negotiations suffered from a lack of relevant study data.

(1)

In Ireland the CSF accounts for 12 % of the plan, while in Spain it
accounts for 37 %.

(2) For example, negotiations with a view to approval of the Irish CSF did
not address in any detail the subject of growth to be developed in
relation to investment, either in general terms or in specific fields, or
the question of State aid for the production sector, even though these
themes were a matter of disagreement between the external assessors
and the national bodies responsible for drawing up the national
development plan (NDP).

(3) Some examples:

— the question that was not sufficiently addressed was whether the
approach adopted for the Mezzogiorno Regional Development
Plan (PSM) should be a territorial one, with the main focus on
growth hubs, rather than the sectoral approach eventually
adopted. The former would have been more advisable, in that
the functional structure of the PSM and the CSF and limited use
of the macroeconomic model do not prove that the CSF’s bud-
getary allocation for the various priorities and measures repre-
sents the most appropriate strategy for tackling development
problems in the Mezzogiorno,

— one of the main priorities of the Portuguese CSF is to improve
productivity and industrial modernisation. However, given the
greater emphasis placed on regional programmes in the new
CSF, it is insufficiently clear how important a contribution they
can make to improving productivity (especially in those sectors
where they had no role to play in the previous CSF), and to pur-
suing the objectives specified for each economic sector,

— the quantitative evaluation of the anticipated impact of the CSF
for the new Länder on the economy of the new German regions
does not satisfactorily lend itself to an assessment, based on the
programmes and quantitative indicators of whether the pro-
posed strategies will allow sufficient progress to bring develop-
ment in the new Länder up to speed with the German and Euro-
pean Union averages. Similarly, the repercussions of regional
initiatives on other regions are not taken into account when
Länder development plans are being formulated. More consider-
ation should have been given to whether the national aid scheme
(‘Common task’) would contribute more to the development of
regional growth hubs, as well as to the matter of the Funds’ inte-
gration,

— in the case of Hainaut (B), a number of important measures, such
as the clearing and rehabilitation of former industrial sites with
the main aim of enhancing area attractiveness, were supported
by no study data — even, on occasion, no site inspection —
demonstrating the real interest or impact of the measure or the
amount of financing essential to achieve a certain level of effec-
tiveness,

— in the case of Corsica (F), neither the ex ante evaluation nor the
available information are enough for any conclusions as regards
the effectiveness and relevance of the proposed strategy and its
priorities.

C 174/18

EN

Official Journal of the European Union

23.7.2003

Risk of inconsistency and ineffectiveness in the application of
the performance reserve

The audit was to assess whether, using the machinery for
50.
allocating the performance reserve provided for in Article 44 of
Regulation (EC) No 1260/1999, it is possible to compare and
assess the performance of SPDs/OPs on the basis of indicators
that give a fair view of effectiveness, management and financial
implementation and measure mid-term results against the initial
specific objectives.

The delayed publication of implementing Regulation (EC)
55.
No 438/2001, dated March 2001, does not entirely justify the
late introduction of management and control systems by the
Member States. The foundations of the ex post control system had
already been laid by the previous regulation, Regulation (EC)
No 2064/97 (1), especially as regards the requirement for certifi-
cation by an independent body. It was noted that, as at the end of
2001, the systems were in some cases still being put together or
finalised. Current national legislation did not always allow the
new structures to receive the full range of responsibilities and
resources required by the 2000 to 2006 SF regulations.

The performance reserve was introduced as an incentive
51.
for each programme to achieve objectives determined in advance
by means of quantifiable operational indicators. To this end, the
Commission provided the beneficiary Member States with an
indicative list of indicators for financial, effectiveness and man-
agement criteria and drafted a working document on the subject.

In practice, the performance reserve entails a complex
52.
procedure for reallocating funds, where the almost free choice of
criteria or indicators and the freedom to exploit them in the form
of specific objectives to be achieved by the mid-term may lead to
inconsistencies and ineffectiveness in the use of the reserve. In this
context, many of the choices made by the Member States depart
substantially from the indicative list provided by the Commission.
What is more, a number of SPDs, OPs and CSFs state that the per-
formance reserve will in any case be allocated to the OPs or within
the SPD, and that in no event will it remain unused. In such cir-
cumstances, the actual function of this performance instrument
is severely compromised.

53.
Two beneficiary Member States have set up additional
reserves that are not required by the regulations, worth 6 % in
Italy and 2,6 % in Portugal. On this point, the Commission should
verify that use of the Community budget has been uniform and
rigorous, so that these Member States cannot, without the Com-
mission’s agreement, readjust Community appropriations within
the allocation decided beforehand.

OBSERVATIONS CONCERNING THE MANAGEMENT,
PAYMENT, MONITORING AND CONTROL SYSTEMS

Weaknesses connected with the introduction of new systems
and procedures

54.
The question under consideration was whether, in rela-
tion to the period 2000 to 2006 and as result of the new rules on
management, payment, monitoring and control, the requisite sys-
tems and procedures were put in place without delay, in order to
ensure a proper separation of functions, reduce irregularities and
provide adequate flows of reliable data between the Member States
and the Commission.

56.
In Greece, for example, national regulations had to be
specially introduced in order to meet the new Community require-
ments and the start of some programmes was substantially delayed
in consequence. In Spain detailed provisions were drawn up to
coordinate the sharing of responsibilities between national and
regional levels. In Portugal the regional programmes have a strong
sectoral element, calling for a sound functional framework at
national and regional level to accommodate shared management
responsibilities.

57.
As the Commission itself noted (2), there were delays in
introducing the control structure and organising the controls that
are to cover the whole of the 2000 to 2006 period (3). As a result
the certification of the expenditure statements submitted in 2001
had often not been checked by the paying authority and ex post
sample checks had still not been carried out for the period 2000
to 2006 (4). Weaknesses (no on-the-spot check, insufficient audit
trail) were also found at the level of the internal controls for
which the managing authority is responsible (5).

(1) Commission Regulation (EC) No 2064/97 of 15 October 1997 estab-
lishing detailed arrangements for the implementation of Council
Regulation (EEC) No 4253/88 as regards the financial control by
Member States of operations co-financed by the Structural Funds,
(OJ L 290, 23.10.1997, p. 1).

(3)

(2) Audits of the management and control systems for the Structural
Funds for the period 2000 to 2006 — initial results — CDRR/01/
01340/00.
In Ireland the national structure of controls and responsibilities was
determined in June 2001. In the case of the Hainaut (B) SPD the Wal-
loon government decided in June 2001 that the paying authority
should set up an internal audit unit within the authority, with the
assistance of a private audit company, so that the paying authority
would be able to fulfil the obligations laid down in Article 9 of Regu-
lation (EC) No 438/2001.
In Germany, at the end of 2001, some Länder did not have a control
system that fulfilled the requirements of Regulations (EC) No 1260/
1999 and No 438/2001, and even as of mid-2002 the control system
was still not operational. In Portugal, because of the number of con-
trol bodies concerned with the SF, procedures for linking the various
control levels had to be formulated at the end of 2001 in order to
take account of the Community requirements regarding certification
of expenditure for the period 2000 to 2006.

(4) See Annual report of the Court of Auditors concerning the financial

year 2001, paragraphs 3.70, 3.71 and 3.72.

(5) See Annual report of the Court of Auditors concerning the financial

year 2001, paragraphs 3.67 and 3.68.

23.7.2003

EN

Official Journal of the European Union

C 174/19

In addition to the delays in introducing control systems
58.
in the Member States, problems of interpretation arose in several
Member States (1) concerning the actual definition of the control
approach to cover at least 5 % of total eligible expenditure (a
threshold already laid down for the period 1994 to 1999 in
Regulation (EC) No 2064/97 and repeated in Regulation (EC)
No 438/2001) by means of sample checks of transactions before
the closure of each intervention. Furthermore, the descriptions of
management and control systems (which were notified after the
prescribed deadlines (2)) were of varying quality and not always
practical, as further information was needed to ensure that they
could be followed up or updated.

59.
Council Regulation (EC) No 1260/1999 (3) on the Struc-
tural Funds 2000 to 2006 affirmed the principle of devolving
implementation of measures under the Funds to the Member
States. Devolution requires reliable data to be collected efficiently
and quickly and regularly updated. The Commission has estab-
lished a database, SFC, for that purpose, to be used in program-
ming, monitoring and implementing structural programmes. In
practice, as at the end of 2001, some Member States had not suc-
ceeded in making the electronic data interchange fully opera-
tional.

60.
In Hainaut (B), a new multi-user IT application was
brought into service in June 2000, but did not include the projects
that had not been adopted. In Spain the FONDOS 2000 system,
which had initially been designed for ERDF management, was to
be extended to the other Funds and the other existing IT systems,
but this was causing technical problems with conversion and the
maintenance of data integrity. In France the PRESAGE system
became operational in June 2001, but the connections to the
French regions, and the overseas départements in particular, were
erratic, as were the links with the Commission. In Portugal the
new SIFEC IT system was installed in October 2000 and regularly
updated so that it was possible for all the OP management sys-
tems to be transferred to this one database, with the migration
taking place between April 2001 and August 2002.

61.
The Commission database (SFC) still has some gaps and
is difficult to use for verifying and analysing expenditure state-
ments, annual reports and payment forecasts. In most cases the
Commission consulted the database only to ascertain totals for
eligible amounts at the level of the measure in question. This situ-
ation makes the Commission’s role more difficult, since it has to
use data interchange both for dynamic and strategic monitoring
of programme priorities and for formulating observations or rec-
ommendations for improving implementation to the managing
authority concerned.

(1)

In Ireland, Italy and the Netherlands the approach for the 5 % mini-
mum ex post control had still not been defined.

(2) Article 5 of Regulation (EC) No 438/2001.
(3)

In particular Articles 34(1) and 18(3) of Regulation (EC)
No 1260/1999.

The Member States have installed IT systems with links
62.
to the Commission (SFC) database, but for many of the systems
the data from previous programming periods had not been fully
recorded, making it difficult to carry out comparative analysis and
identify project phases. In some cases there is even a risk of dupli-
cate payments to beneficiaries.

63.
Annual implementation reports were submitted late, with
delays of one month or more, in the cases of several OPs in Spain
(average delay four months), France (average three months), Ire-
land (average two months) and the United Kingdom (average three
months). This was explained by the delay in forwarding instruc-
tions about the content of the reports. The instructions were con-
tained in a Commission working document dated 25 May 2001,
but it did not specify sufficiently the extent of the information
required, nor explain the consequences of its being found not sat-
isfactory by the Commission. The quality of the different annual
reports also varied widely between Member States. Delays in
approving SF intervention and the consequent delays in carrying
out the related measures also combined to reduce the content of
the first annual implementation reports.

In general, the audits showed that whenever new func-
64.
tions or procedures had been introduced incompletely or piece-
meal into the framework of national institutional, financial or
administrative systems there was an inherent risk as regards the
separation of functions and the independence and operational
efficiency of the new bodies.

65.
Chains of responsibilities and coordinating bodies can
complicate management and control if there is no back-up in the
form of precise, detailed guidelines and instructions to intermedi-
ate bodies on EU rules, the requisite lists of controls and the pro-
cedures to be followed. This was not always the case (4).

66.
Allocating the entire responsibility (for management, pay-
ment and certification) to a single authority, even in the form of

(4) For example, in the case of the Brandenburg OP the managing author-
ity (the Ministry of Finance) concluded an agreement with the minis-
tries responsible for managing OP measures (the Ministry of Economy,
the Ministry of Social Affairs and Employment and the Ministry of
Agriculture for the ERDF, ESF and EAGGF segments respectively)
whereby the latter were made delegated managing authorities, but
with no clarification as to practical arrangements. In Spain (Objective
1), a system of shared responsibility was set up by means of a declara-
tion annexed to all the OPs concerning the specific tasks of the
national and regional authorities. Under the declaration the Autono-
mous Communities and other entities assumed responsibility for a
number of measures that in principle fell to the managing authority,
however, no list of essential operational controls was drawn up. In
Ireland, certification by the paying authority is dependent on a ladder
of approval in which each level relies on the assurance granted by the
level immediately below it in the hierarchy.

C 174/20

EN

Official Journal of the European Union

23.7.2003

different departments, may lead to conflict of interests (1), unless
their operational independence has been safeguarded in advance.
Some departments even combined several functions (2).

concepts is now a matter for individual Member States and they
must define them, but they do not always do so.

67.
In many cases the paying authority did not clearly inform
managing authorities and intermediate bodies how it proposed to
apply the controls for ensuring that the regulations have been
respected (3). In many cases lists of controls and instruction manu-
als were still not available (4). It then became difficult for the pay-
ing authority to verify that all controls had been correctly imple-
mented.

The eligibility rules for the period 2000 to 2006: lack of
precision

71.
For example, the concepts of legal commitment and
financial commitment are no longer clearly defined. The new
rules no longer require a Member State to certify that deadlines
have been met when it makes its expenditure statement, nor do
they impose specific obligations for projects that overlap two
separate programming periods. They no longer provide for the
possibility of alternative financing (7) of projects cofinanced by
the SF. Certainly for one Member State (France), this severely
impeded the start of structural measures for which national cofi-
nancing was not yet available. The Court’s audits showed that for
the period 2000 to 2006 the practice of alternative financing
continued to exist in practice, although eligibility and specific
obligations were not defined in this context (8).

68.
In contrast to the previous programming period (5),
Article 30(3) of Regulation (EC) No 1260/1999 states, in relation
to the eligibility of expenditure for the period 2000 to 2006, ‘The
relevant national rules shall apply to eligible expenditure except
where, as necessary, the Commission lays down common rules
on the eligibility of expenditure…’. The new provisions (6) have
led to some rules being abolished or relaxed, while others have
been added.

72.
In some cases, expenditure related to a beneficiary’s cur-
rent activity (administrative costs) or the restructuring of com-
pany balance sheets (capital increase or debt reduction) could
now be considered eligible, without limitation, even though
improving the corporate trading account is not one of the SF
aims. Similarly, because of the absence of provisions specifically
covering repayable assistance (zero-rate loans), it is no longer pos-
sible to determine the allocation of capital repayments beyond the
end of the programming period, nor to determine the owner of
the sum in question.

The aim was to evaluate the precision of the new rules,

69.
as well as the legal security provided for final beneficiaries.

Eligibility principles not carried over to the period 2000 to
2006

Eligibility criteria already applied for the period 1994 to 1999

New eligibility rules for 2000 to 2006

70.
The concept of final beneficiary and the role and respon-
sibilities of final beneficiaries are less clearly defined than they
were in the previous programming period. Clarification of these

(1) For example, in Lower Saxony (D), the Ministry of Economics and
Transport comprises (in different departments) the managing author-
ity, the paying authority and the independent body responsible for ex
post control and final certification. In the case of PONSIL (NOP Svi-
luppo Imprenditoriale Locale, Italy) the managing authority and the pay-
ing authority are part of the same Directorate-General (Direzione
Generale per il Coordinamento degli Incentivi alle Imprese — DG C11).
In France, SGAR (Secrétariat général pour les affaires régionales), the
department for regional matters, reports direct to the prefecture (the
managing authority), assists it in programming, commitment of
expenditure and certification and takes part in ex post sample checks.
The delegated paying authority, Trésorier payeur général, also partici-
pates in controls of this type.

(2)

(3) Regulation (EC) No 1260/1999 and more specifically, Article 9(2)(a)

of Regulation (EC) No 438/2001.

(4) Germany, Greece, Spain, France (Corsica), Ireland, Italy, Portugal.
(5) Eligibility datasheets adopted by Decision of 23.4.1997 (OJ L 146,

5.6.1997).

(6) Regulation (EC) No 1685/2000 (OJ L 193, 29.7.2000).

73.
Certain eligibility concepts have been carried over in the
new rules, but their meaning has sometimes been changed or par-
tially eroded, allowing final beneficiaries a very wide margin for
manoeuvre as regards limitations or differences of interpretation
and leading to the persistence of unjustifiable differences between
regions or Member States.

74.
For example, as regards the concept of actual project
costs, the new rules do not always make it clear that only clearly
identifiable expenditure is eligible and that expenditure based on
an arbitrary allocation is to be excluded.

(7) Alternative financing is mainly a form of financial engineering. On
the principle that cofinancing rates are set at measure level, alterna-
tive financing offers the possibility of financing some projects entirely
from national appropriations and others entirely from Community
appropriations but, overall, still respecting the average cofinancing
rate at the level of each measure.

(8) Spain, France.

23.7.2003

EN

Official Journal of the European Union

C 174/21

Administrative expenses in connection with the imple-
75.
mentation of a project are not capped in terms of a percentage of
the total cost of the cofinanced operation. As a consequence
projects may be eligible for financing by the SF, even though
more than 80 % is made up of administrative expenditure.

the eligible expenditure aspects. They often referred to the Com-
mission’s eligibility datasheets, but seldom provided specific details.
There is thus a real risk of variations in treatment within a Mem-
ber State and from one Member State to another.

76.
In order to prevent unjustifiable differences in treatment
between Member States the inclusion of depreciation as eligible
expenditure ought to be better defined, since the fiscal and eco-
nomic rules governing it may differ substantially from one Mem-
ber State to another.

Eligibility of private expenditure

77.
The eligibility of expenditure such as value added tax
(VAT) and various other taxes and charges should be better
defined in view of their complexity, specific national aspects and
intrinsic characteristics: expenditure of this type does not neces-
sarily contribute to regional development. Likewise, in connec-
tion with the acquisition of real estate, the possibility of provid-
ing accommodation for public departments if such use is
compatible with the qualifying activities is not sufficiently speci-
fied in a regional development context.

Mention must also be made of the absence of procedures
78.
for establishing the rate of SF contribution to the financing of
infrastructure) (1);
revenue-generating investment (enterprises,
Article 29(4) of Regulation (EC) No 1260/1999, for example,
lends itself to various interpretations as regards the revenue com-
ponents in question, the reference period, part of the project con-
cerned and method for calculating the gross self-financing mar-
gin. The absence of defined procedures allows final beneficiaries
and managing authorities to set the rate of contribution as they
see fit, so giving rise to variations in treatment among identical
projects.

Various interpretations were made of the situation regard-
81.
ing the eligibility of private expenditure (2) under the SF.
Articles 18(2)(c), 18(3)(c) and 19(3)(c) of Regulation (EC) No 1260/
1999 can be interpreted as meaning that only public financing is
eligible. On the other hand, Article 29(2) does not necessarily
imply the same thing as it states that ‘the contribution from the
Funds shall be calculated in relation to either the total eligible
cost, or the total public or similar eligible expenditure… under
each assistance’, without specifying the nature of this ‘similar’
expenditure. Some managing authorities have therefore elimi-
nated all reference to private expenditure from their program-
ming documents, while others continue to refer to it as in the pre-
vious period, mainly to show the complementarity and synergy
of the two types of funding. Whilst decisions and financing plans
both distinguish between public expenditure and private funds,
neither of them specifies which of the two constitutes the eligible
cost. The type of decision being equal, the Commission’s manage-
ment is not always consistent. By way of example, in one case (3)
the Commission calculated the amount of the payment by apply-
ing the cofinancing rate to the total cost, whereas in another
case (4) the same rate was applied only to public expenditure for
each measure.

Specific aspects concerning the period 2000 to 2006

Project selection criteria

79.
The new rules on eligibility have added new concepts,
but without specifying how they are to be applied. For example,
expenditure relating to an operation outside an eligible area may
now be eligible under the new provisions, in proportion to the
impact on an adjacent eligible area. The rules do not deal with the
treatment of revenue potentially generated by projects on account
of their location. Furthermore, although the SF contribution to an
operation may not be retained, if the latter undergoes substantial
modification within five years, specific provisions for special cases
such as privatisation of a project or discontinuation of a project
for justifiable reasons are not stated.

80.
In general, the Court also found that at Member State
level the managing and paying authorities paid little attention to

82.
Within six months of assistance being approved the Moni-
toring Committee must consider and approve the criteria for
selecting the operations financed under each of the measures and,
if they are available, annex them to the programme comple-
ment (5).

83.
The audit considered whether implementation of the new
regulations has led to the introduction of systems which allow
projects to be selected on the basis of objective selection criteria
which reflect the aims pursued, after transparent decisions have
been taken.

(1) As mentioned in Special Report No 15/2000 on the Cohesion Fund
(OJ C 279, 2.10.2000) and the Annual Report concerning the finan-
cial year 2000, paragraph 3.82 (OJ C 359, 15.12.2001).

(2) Expenditure by private enterprises or individuals.
(3) Portuguese OP Agriculture and rural development (99PT061PO007).
(4) German OP Mecklenburg-Vorpommern (AGRI1999DE161PO004).
(5) Article 35 of the general regulation on the SFs for the period 2000 to

2006 (Regulation (EC) No 1260/1999).

C 174/22

EN

Official Journal of the European Union

23.7.2003

The Court’s audits showed that the establishment of these
84.
project selection criteria still varied widely from one Member
State to another and, as far as making the best possible use of
objectives and priorities was concerned, the criteria did not add
anything to the value of structural actions. In some Member
States (1) an additional scoring system combined with criteria
weighting was added to the pre-established selection criteria in
order to make them more selective and enhance the value added
by the structural actions.

85.
In other Member States, on the other hand, selection cri-
teria for the projects mentioned in the programme complement
were not selective and were not explained in detail. In this con-
nection, every managing authority should be given the task of
making the criteria workable and ensuring that they are consis-
tent with the objectives of structural intervention. In practice the
effort devoted to the selectivity aspect was not enough to ensure
that the best projects were actually adopted. There were many
examples of vague project selection criteria that did not include a
clear definition of the baseline, for example, increasing productiv-
ity, regional GDP or the number of SMEs (small businesses). Con-
cepts such as dead-weight effect, added value, maintaining employ-
leverage effects, private sector participation or cost-
ment,
effectiveness were poorly explained and were rarely among the
selection criteria that were verified. On a similar level, the method
of ranking selection criteria was seldom mentioned.

CONCLUSIONS AND RECOMMENDATIONS

Conclusions

The audit confirmed that, for the programming period
86.
2000 to 2006, the Commission had played an active and posi-
tive role through its indicative strategic guidelines, negotiation of
plans and programmes with the Member States, promotion of
best practice and constant concern to improve the effectiveness
of the SF. At all stages of the audit significant progress was noted
relative to the previous period. Alongside these broadly positive
aspects, a number of difficulties remained.

87.
The audit results showed that the Commission had deter-
mined the eligible areas more rigorously than for the previous
period. In the case of Objective 1, the data used for this purpose
related to years 1994, 1995 and 1996, as required by the regula-
tions. However, they did not include all the structural effects of
actions during the previous period and, in contrast with Objec-
tive 2, there was no provision for a mechanism for making neces-
sary adjustments in order to ensure that SF assistance was effec-
tively focused on the least favoured areas of the Community. In
the case of Objective 2, there were still shortcomings in the rel-
evance of the information used to determine eligible areas, and

(1) Belgium, United Kingdom and Ireland for some measures.

the exercise was based on criteria that were too imprecise and
allowed too much scope for bilateral negotiation. In addition,
regional policy and competition policy still lacked consistency
(see paragraphs 6 to 16).

88.
In the programming context the Commission’s guide-
lines were a useful concept. However, the Member States’
approaches to SF programming differed from those of the Com-
mission and this was a cause of delays. The objectives which the
Commission pursued at the approval stage were supposed to
improve the quality of programming, but they were successful
only in part and at the cost of substantial overruns on the dead-
lines imposed by the regulations. The new mechanism of the pro-
gramme complement eventually proved to be a supplementary
procedure which heightened delays and gave rise to problems of
interpretation counter to the objective of simplification laid down
in the SF Regulation. Furthermore, the programme complements
did not always supply relevant information as intended (see para-
graphs 18 to 24).

89.
Ex ante evaluation had little impact on the programming
process. Evaluation was confined to justifying the programming
as proposed and only rarely considered its validity and the under-
lying strategy. Although the Commission’s aim was to reinforce
the evaluation approach, it did not prepare enough relevant infor-
mation or provide all the necessary resources (best practice, dis-
semination of methods and techniques, etc.). Models of the mac-
roeconomic impact of the SF were not always adequate to the
task of identifying the optimum programming structure or the
most suitable allocation of funds. In the same way, although the
Court did note some progress as regards indicators, these were
still not sufficiently quantified or relevant (see paragraphs 26 to
44).

90.
The internal and external coherence of the structural pro-
grammes adopted is an important factor in ensuring that the
desired objectives and impact are successfully achieved. Their
coherence can best be evaluated by a hierarchical structure of pri-
orities. Analysis of various programmes highlighted a number of
shortcomings in this area (lack of correspondence between objec-
tives and between objectives and resources, ill-defined synergies
between Funds or actions, insufficient supporting information,
etc.). The negotiations between the Commission and the Member
States did not always succeed in improving the coherence of assis-
tance measures before they were adopted (see paragraphs 31 to
35 and 46 to 49).

The budgetary allocations for CSFs and programmes was
91.
determined less by a well-established development strategy than
by the previous use made of of appropriations in connection with
certain measures, the history of implementation and the need to
guarantee the best possible take-up of funds in each Member State
(see paragraph 49).

23.7.2003

EN

Official Journal of the European Union

C 174/23

As the Court has already observed on previous occa-
92.
sions (1), the programming weaknesses detected affect the subse-
quent implementation of programmes. For example, if the Com-
mission has insufficient data concerning the national and regional
policy frameworks within which a plan or draft SPD is being
implemented, or if the indicators are found to be deficient, there
will be problems with any subsequent revisions of the CSFs or
OPs. Programme revisions would consequently tend to be shaped
by the rapid absorption of appropriations rather than reliable
indications of actual achievements, results and impact.

93.
The choice of criteria on which to base allocation of the
performance reserve is mainly a matter for the Member States.
This brings an inherent risk that application of the reserve will be
inconsistent and ineffective (see paragraphs 50 to 53).

94.
The management systems for the programming period
2000 to 2006 are still incomplete and inadequately defined as
regards the composition and responsibilities of managing and
paying authorities, electronic data interchange, the drafting of
annual implementation reports and procedures concerning project
selection criteria. Furthermore, several Member States have not
yet fully developed the national control systems provided for in
Regulation (EC) No 438/2001 in connection with the certification
of expenditure (see paragraphs 54 to 68).

95.
Efficient management of structural programmes presup-
poses that eligibility rules are clear and as comprehensive as pos-
sible. The new rules for the period 2000 to 2006, however, are
incomplete and insufficiently precise, leaving room for inequali-
ties of treatment when they are applied and making controls more
difficult (see paragraphs 68 to 81).

96.
Similarly, project selection criteria are supposed to ensure
that, as far as possible, projects target the same objectives as the
programme of which they are part. Some of these selection cri-
teria need to be further refined if they are to be fully effective (see
paragraphs 82 to 85).

97.
The objective of simplification has still not been fully
attained, and sometimes, in fact, the reverse has been achieved.
This is particularly the case, as mentioned above, with the process

of programme adoption (paragraph 88), programming consis-
tency (paragraph 90), the setting up of decentralised management
systems (paragraph 94) and eligibility rules (paragraph 95).

Recommendations

98.
In order to focus the SFs on the areas that are most seri-
ously affected and at the most appropriate geographic level, the
Commission should take full account of the most up-to-date reli-
able information. As regards Objective 2, in view of the weak-
nesses affecting the determination of eligible areas, the Commis-
sion should seek to improve the objectivity of the relevant criteria
and establish clearer rules in order to avoid all inconsistency and
lack of uniformity in Member States’ application of them.

99.
The definition of responsibilities should be clarified, espe-
cially as regards the programme complement and the duties of
the bodies that are involved in the management of assistance
measures at Member State level.

100.
It is recommended that the Commission and the Mem-
ber States take the necessary steps to make the programme comple-
ment an effective decentralised management instrument, to achieve
a correct approach to the later stages of mid-term and ex post
review and evaluation (by means especially of more appropriate
indicators) and to allocate the performance reserves consistently
and fairly.

On the management side, the Commission should ensure
101.
that it collects sufficient information and carries out relevant
analyses to guarantee consistency between the structural pro-
grammes adopted; it should also clarify the eligibility rules in
detail and ensure that adequate selection criteria are developed.

102.
In overall terms, the observations concerning the imple-
mentation of SF programming for 2000 to 2006 demonstrate the
need for the Commission to continue its efforts to improve the
effectiveness of the current drive for simplification whilst main-
taining the high standard of structural measures in terms of legal-
ity, regularity and sound financial management. Programming,
programme revisions and management must focus above all on
effectiveness rather than merely seeking the best possible take-up
of funds.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 8 May 2003.

For the Court of Auditors
Juan Manuel FABRA VALLÉS

President

(1) See Special Report No 15/98, paragraphs 4.14 to 4.21; Special Report
No 16/98, paragraphs 6.19 to 6.24 (OJ C 347, 16.11.1998); Annual
Report concerning the financial year 1998, paragraphs 3.68 to 3.84
(OJ C 349, 3.12.1999).

C 174/24

EN

Official Journal of the European Union

23.7.2003

ANNEX 1

PROGRAMMING PROCESS

23.7.2003

EN

Official Journal of the European Union

C 174/25

ANNEX 2

EVALUATION OF THE MACROECONOMIC IMPACT OF THE SFs

1.

The evaluation of macroeconomic impact for the large Objective 1 plans was based on economic models.

The evaluation of the macroeconomic impact of the SFs and the models used is expected to produce results which

2.
can be used for the following:

(a)

(b)

(c)

(d)

(e)

(f)

to estimate the extent to which the plan and, subsequently, the CSF further the general objectives of economic and
social cohesion and, in particular, the main variables (GDP of the region/Member State concerned, employment, global
productivity of factors or productivity of labour and/or capital, and competitiveness);

to demonstrate the contribution to growth made by the various instruments (investment in infrastructure, investment
in human resources and productive investment) while also highlighting the mode of interaction of SF assistance within
the framework of these instruments (1);

to identify demand-side effects as well as supply-side effects (longer-term effects on productivity and prices/income),
the improvement of supply-side factors being one of the main aims of SF assistance;

to differentiate between regions within the framework of the impacts at a Member State level, and to demonstrate the
reality and sustainability of convergence within that Member State and, also, relative to the EU averages;

to identify impacts on key factors of sustainable development, such as control of public debt and the balance of pay-
ments, income distribution and respect for the environment;

to simulate scenarios for the economic development of a region, given a set of hypotheses (without programme, with
alternative programmes), in order to provide estimations of programme impact.

The models applied included Hermes (in Ireland), Input-Output (Portugal), Moisees (Spain) and KEPE (Greece). Hain-
3.
aut (B) was the only region for which a macroeconomic model (HELM (2)) was specifically designed. Generally speaking,
these models provide estimations of the effects of the SF on GDP growth, private consumption, gross fixed capital forma-
tion, employment, unemployment and the balance of payments. Some also look into supply-side effects.

The following Commission models, too, were applied to the plans and CSFs of the Member States receiving Cohe-

4.
sion Fund aid:

(a)

the econometric model Hermin is built around three types of relationship (supply-side aspect, demand-side aspects and
the relationship between prices and wages) and takes account of the particular characteristics of each Member State,
combining the effects at national level. The model starts from the hypothesis that economies do not make full use of
their productive capacity and that as a consequence the multiplier and accelerator effects associated with increased
investment cause production and employment to expand. Its results appear to be satisfactory as regards demand-side
effects. It also considers longer-term supply-side effects, including effects on productivity and wages. It takes account
of external factors from the SFs in particular, as well as the impact on sustainable development aspects such as the
public deficit and the balance of payments;

(1)

For example, expenditure on infrastructure as a complement to private capital may increase the return on private capital and act as an
accelerator in terms of productivity and convergence.

(2) HELM: Hainaut Economic Lead-in Model. The model was described in Special Report No 15/98 on the assessment of Structural Funds

intervention (OJ C 347, 16.11.1998, p. 33).

C 174/26

EN

Official Journal of the European Union

23.7.2003

(b)

in a multinational framework, the QUEST II model is concerned with the transmission of economic policy effects at
the national and international levels. This model is used to quantify scenarios in various fields (monetary policy, budget-
ary policy, analysis of the economic repercussions of changes in the international arena such as movements in exchange
rates, currency interest rates, oil prices and other world prices). It is a neo-classical framework the key equations of
which are rooted in certain hypotheses: that consumers, enterprises and workers will in time maximise utility and
profit, and that the economy does not operate at full capacity because of imperfect competition on the market in goods
and services and because of the search for employment combined with the wage-bargaining mechanism on the labour
market. Where the SFs are concerned, although the QUEST model does not distinguish between the Funds’ sectoral
and regional aspects, it does consider demand-side effects, especially in relation to unemployment (where they derive
from the wage-bargaining mechanism and imperfect competition), supply-side effects (particularly through the rela-
tionships between wages, inflation and exports or concerning supply-side externalities produced by investment in infra-
structure and human resources) and the effect on public debt and the trade balance as important aspects of sustainable
development.

As well as being applied to the plans and CSFs of the countries benefitting from cohesion measures, the Hermin
5.
model was also adapted to eastern Germany. In that context, as the existing statistical data were unreliable or incomplete, it
made use of greatly simplified or extremely approximate information (e.g. the parameters used for Greece, Ireland or Por-
tugal), on the assumption that the situations are broadly comparable. Similarly, it took account, without explanation, of the
income and price elasticities of demand used for Ireland. In view of this degree of amalgamation, the results of the Hermin
model for eastern Germany should be viewed very cautiously and, indeed, with considerable reservation.

6.
Anomalies observed in the application of the Hermin and QUEST II models did not give rise either to genuine ques-
tions or to a review of the structure of the CSF and assistance or of the corresponding fund allocations. The same is true
where these models have produced relatively divergent results concerning the effects on price levels, GDP, employment
(Greece) or when the effects they revealed were fairly weak (Spain). In the case of the Italian Objective 1 plan, the conclu-
sions of the analysis performed with the aid of the model showed, amongst other things, that an increase in public invest-
ment in the south of Italy would have limited impact on growth and an insignificant effect on employment because of
substitution effects between the public and private sectors (1). In addition, there was no evidence of convergence between
the North and the South. These observations, the plausibility of which was verified, had no real effect on the Italian CSF that
was adopted.

(1) Otherwise known as ‘crowding-out’.

23.7.2003

EN

Official Journal of the European Union

C 174/27

COMMISSION’S REPLY

SUMMARY

(a) The Commission followed the Regulation, which takes account of the fact that the regions whose

III.
development is lagging behind require long-term assistance.

In view of the varying situations of the regions undergoing socioeconomic changes, the Regulation
(b)
allowed half the population covered to be in areas proposed which met objective and justified qualitative cri-
teria based on national statistics. The other 50 % had to be industrial or rural areas meeting Community cri-
teria. The Commission applied the Regulation.

The Member States made use of the freedom which the Regulation allowed them. However, the two maps

(c)
correspond to a greater extent than before.

The Commission agrees with the Court about the progress achieved in these fields, the cumbersome
IV.
nature of the procedures laid down by the Regulation and the resulting problems in complying with deadlines.
It will take this experience into consideration in its thinking about the next programming period. It believes
that a judgement should be made on the advantages of the system of programme complements on the basis
of the experience of the whole period, and not just the start.

V.
The Commission’s working documents contain guidance to the Member States on evaluation, but do
not aim to cover every specific situation. The ex ante evaluation was the sole responsibility of the Member
States. It was their role to draw up terms of reference and select evaluators. Detailed information on method-
ologies is available in the MEANS collection (1). The evaluators had to develop methodologies appropriate to
the situation of the Member State. The Commission believes that the majority of ex ante evaluations were
constructively critical. Exploring the likely impact of alternative strategies represented good practice and was
done in some cases. Detailed information on national and regional policies was not always readily available.
The added value of the ex ante evaluation was to enhance the coherence of the programmes and to improve
the quantification of objectives.

The selection of indicators for the performance reserve was not left solely to the Member States. There
VI.
are three types of indicator, relating to management, finance and effectiveness. Although Member States could
choose, management and finance indicators are in most cases those proposed by the Commission. Effective-
ness indicators must vary by programme and Member State since they are output and result indicators from
the programmes. The Commission is monitoring the situation closely.

VII.
The Commission considers that the Member States have made and are continuing to make substantial
progress in all these areas. It is carrying out preventive audits covering the various aspects of the new systems
and in spring 2003 will publish a report on its findings as far as the ERDF is concerned.

VIII.
The Commission regards the rules as sufficiently precise and complete since the aim is to regulate as
little as possible at Community level and leave the provisions on other than this common core to the Member
States. It will provide clarifications wherever doubts exist.

(1) The six-volume MEANS (Means for Evaluating Actions of a Structural Nature) Collection (European Commission, 1999)
on evaluating socioeconomic programmes was the outcome of a four-year programme on evaluation methodologies
which was funded by the Commission and was drawn up by independent experts in evaluation.

C 174/28

EN

Official Journal of the European Union

23.7.2003

The Commission has encouraged the establishment of relevant selection criteria and insists that they
IX.
are applied systematically. It considers that progress has been made compared with the previous period
although naturally there are differences in performance between the Member States in this field and the Com-
mission is continuing to seek improvements. It is well aware of the crucial importance of project selection if
assistance is to have an impact.

The Commission agrees with the Court and is taking action simultaneously on the two fields of quality

X.
and sound financial management.

(a) The problem to which the Court refers is currently being considered as part of the preparation of the

future of the Structural Funds.

(b) The current regulations already set out these responsibilities to a considerable degree, although further

progress in the field of shared management would be desirable.

(c)

The Commission intends to follow the path advocated by the Court and welcomed the discussions with
the Member States on this point at a conference on the future of the Structural Funds held on 3 and
4 March 2003.

(d) The Commission endeavours to stress effectiveness rather than absorption but considers that sound finan-

cial management should allow both objectives to be attained.

IDENTIFICATION OF ELIGIBLE REGIONS

8.
Regulation (EC) No 2223/96 on the European system of
accounts (ESA 95) did not require the Member States to make
available data using ESA 95 until April 1999. Regional GDP data
based on this new system were published for the first time only
in January 2000.

Publication of regional GDP data takes more than two years: the
national statistical institutes have to collect and process the data
and Eurostat has to make the checks required to validate them.

There is no ‘mechanism for making adjustments on the
9.
basis of more recent data’ for Objective 1 because the regions
whose development is lagging behind require long-term assis-
tance if they are to catch up. The Objective 2 areas, the list of
which may be reviewed at mid-term, suffer from short-term
handicaps relating to socioeconomic changes to which answers
may be found in a shorter period. In any case, unexpected restruc-
turing in a particular sector may justify the adjustment of the map
of eligible areas.

10.
The Commission agrees with the Court that changes to
the administrative division of regions on the basis of ‘gentlemen’s
agreements’ with the national statistical institutes is unsatisfac-
tory. That is why it proposed a draft Regulation of the Council
and of the European Parliament laying down the arrangements
for defining the NUTS. Adoption of this regulation is expected in
May 2003.

11.
The fragmentation of designated areas results from the
fact that each Member State was free to propose the most seri-
ously affected areas for eligibility under Objective 2; however,
under Article 4(3), these could be smaller than NUTS level III. In
these circumstances, it is true that some Member States preferred
to maximise territorial coverage by proposing small areas.

In its second report on economic and social cohesion, the Com-
mission noted the fragmentary nature of the areas designated.

In the 1989 to 1993 and 1994 to 1999 program-
13-14.
ming periods, Objective 2 and Objective 5(b), which was included
in Objective 2 for the 2000 — 2006 programming period, cov-
ered only two types of area: those undergoing industrial conver-
sion and rural areas. From 1 January 2000, new types of areas
were included, for which harmonised data at Community level
are not available at the appropriate level: these are the urban
areas, the areas dependent on fisheries and the additional specific
areas (Article 4(9)).

The eligibility of areas in these three categories could be deter-
mined only on the basis of national statistics. In 2000 to 2006
these three categories account for 24 % of the total eligible popu-
lation. Their inclusion in Objective 2 goes a very long way to
explaining the smaller share taken by the areas meeting the Com-
munity criteria.

The Commission required the Member States to make proposals
on the list of eligible areas using standard tables which had been
sent to the national authorities in June 1999. These tables required

23.7.2003

EN

Official Journal of the European Union

C 174/29

in particular that, in the case of areas submitted under national
criteria, the indicator used should be provided not only for the
area in question but also at the level of the NUTS III region, the
NUTS II region or the Member State. The purpose was twofold:

In any case, the results of the programming process in 2000 to
2006 can be judged only on the basis of the period as a whole.

— to ensure that the situation in the area selected within these
regions was more serious than the regional or national aver-
age,

The Commission agrees with the Court that the deadlines
19.
in the Regulation were unrealistic — they were even shorter than
those for 1994 to 1999.

— and, as far as possible, to compare the value of the indicator
with the Eurostat data available at the NUTS levels III, II and
I.

16.
In its Communication to the Member States in March
1998, the Commission suggested that there should be a high level
of consistency between State aids for regional purposes and the
Structural Funds: as a rule, no area should be included in the new
Objective 2 if the Member State did not undertake to place it on
the list of assisted areas sent
to the Commission under
Article 92(3)(c).

The Council reduced the level of consistency required by simply
stating in recital 16 to the general Regulation on the Structural
Funds that the Objective 2 areas should correspond to a large
extent to the assisted areas.

Accordingly, the Member States have retained a certain freedom
in their proposals of areas eligible under Objective 2, while the
Commission alone can decide on the areas assisted using national
aid. This meant that complete consistency could no longer be
guaranteed. However, the geographical correspondence between
the maps for Objectives 1 and 2 and the map of regional aid has
improved slightly compared with 1994 to 1999 in all Member
States except Belgium and the United Kingdom.

Nor should it be forgotten that, because of the limited coverage
of the areas assisted under Article 87(3)(c), the economic gaps
between these areas and other non-assisted areas are often only
slight and that the non-assisted areas can enjoy aid for small firms
and the full range of development instruments which do not entail
State aids.

OBSERVATIONS ON THE PROGRAMMING OF OBJECTIVE 1
ASSISTANCE

20.
Programming was complicated by the extra requirements
intended to ensure that assistance complied with the rules and to
improve its quality. Hence the Commission insisted, as a precon-
dition for the approval of programmes, on the establishment of
the lists and procedures required by the Natura 2000 directives.
It also had included in each programme a list of the State aid
schemes to be applied and information on the measures taken to
avoid cumulation. In addition to these regulatory requirements, it
sought better quality programming, for example by making greater
use of the results of the ex ante evaluation, taking account of the
Commission’s horizontal priorities (employment, sustainable
development, innovation and the information society and equal
opportunities) and, in the case of the ESF, the European Employ-
ment Strategy, with particular attention given to defining moni-
toring indicators accompanied by quantified objectives and fix-
ing criteria for the allocation of the performance reserve. The
Commission also paid special attention to the reliability of the
structures created to manage assistance.

It is true that the large number and complexity of the subjects to
be negotiated created a considerable workload for all the partners,
including the Commission, despite the efforts it made to reduce
this.

21.
The programming process was divided into stages, some
of which were new, to comply with the new division of respon-
sibilities between the Commission and the Member States required
by the rules. The Commission will consider how the procedure
can be simplified in the forthcoming period.

22 and 23.
In October 2001 the Commission clarified the
division of responsibilities concerning the programming comple-
ment (1).

24.
When it adopted the guidelines on State aids for regional
purposes, the Commission, in its letter of 24 February 1998, pro-
posed that all the Member States should send it their draft regional
aid maps (regions proposed and aid intensity to be applied) by
31 March 1999 so that they could come into force from 1 Janu-
ary 2000. Despite delays by certain Member States (in particular,
four notifications reached the Commission in December 1999

17.
In its Communication of 5 July 2001 on the results of the
programming of the Structural Funds in 2000 to 2006 (Objec-
tive 1), the Commission identified the strengths and weaknesses
of the new rules on programming.

(1) Note to the Committee on the Development and Conversion of

Regions, No CDCR/01/0113/00.

C 174/30

EN

Official Journal of the European Union

23.7.2003

and three others only during 2000), the Commission was able to
approve the maps for Denmark, Greece, Ireland and Finland and
parts of the maps for Germany and Portugal concerning the
regions eligible under Article 87(3)(a) of the Treaty before the end
of 1999. The process of adopting the regional aid maps was com-
pleted in September 2000 when the Commission approved the
maps for Belgium and the part of the map for Italy dealing with
the regions eligible under Article 87(3)(c).

All the decisions concerning the adoption of the lists of areas eli-
gible under Objective 2 were taken before the end of February
2000 except in the case of Italy, where this was done in July
2000. In some cases the procedure was prolonged for the follow-
ing reasons:

— the late submission of proposals;

— problems of acceptability (e.g. failure to respect the popula-
tion ceiling laid down by the Commission, failure to respect
the clause stating that areas meeting the so-called ‘Commu-
nity’ criteria had to account for at least 50 % of the total eli-
gible population, lack of statistical indicators demonstrating
the eligibility of the areas proposed).

Finally, each Member State required two decisions, a decision in
principle before the Committees were consulted and a final deci-
sion.

For the period 2000 to 2006 the Commission published
26.
working papers to guide Member States and evaluators in meet-
ing the requirements of Regulation (EC) No 1260/1999 as regards
evaluation (1).

The working papers complemented the methodological guidance
provided in the MEANS series and were addressed to the Euro-
pean evaluation community which already had considerable exper-
tise in techniques and methods. They could not deal with every
specific situation that could arise. Their objective was to recom-
mend an overall approach and identify the key components. Pro-
fessional evaluators bring their experience to bear in developing
methodologies specific to the task at hand, which can become
good practice. The good practices in ex ante evaluation highlighted
by the Court were developed within national contexts. Such good
practice in evaluation is developing continuously, which is why
the MEANS collection is currently being updated to disseminate
good practice developed during the process of the ex ante evalu-
ation for the 2000 to 2006 programme period. The new version
will be available in the middle of 2003.

(1) http://europa.eu.int/comm/regional_policy. These papers were on ex ante
evaluation (Working Paper No 2); Indicators for monitoring and
evaluation (Working Paper No 3); Implementation of the performance
reserve (Working Paper No 4); and Mid-term evaluation (Working
Paper No 8).

(a) Different methods exist for analysing needs as the basis for
determining priorities and drawing up hierarchies of objec-
tives. The purpose of this part of the ex ante evaluation was
to elicit the judgement of the evaluator on the proposals of
the Member State. Working Paper No 2 proposed the SWOT
analysis (2) as an appropriate approach and recommended
that the ex ante evaluation should attempt to link the needs
to the priorities and the financial allocations (page 18). The
MEANS collection provides details on SWOT analysis and
other tools (e.g., concept mapping, multi-criteria analysis,
Delphi surveys, etc.) which can be used (Volume 3). Evalu-
ators needed to identify the appropriate tools for this task,
depending on the context and the information available.

(b) Working Paper No 2 emphasises the importance of the ex
ante evaluation examining the quantification of objectives,
particularly their reliability. Where the Commission had
concerns about methods used, these were raised with the
Member State in the negotiations.

(c) Alternatives were considered in a number of programmes
and the Commission will consider how to disseminate and
encourage such practices in the future.

(d) The benefits of the practice supported by the Court’s pro-
posal would need to be weighed against the administrative
cost and the impact on the length of the programmes and
the programming process.

(e)

The Court’s proposal is based on the approach taken by the
evaluator for the Irish CSF. The principles applied repre-
sented good practice. They were applied first in the mid-
term evaluation of the Irish CSF in 1996 and the results were
published and disseminated. However, all Member States
had responsibility for drawing up their own terms of refer-
ence for their ex ante evaluations and selecting the evalua-
tors. Avoiding dead-weight and displacement effects is
implicit in the approach to the quantification of objectives
put forward by the Commission. Deadweight and displace-
ment are considered in estimating net results and impacts
from gross results and impacts (e.g. gross jobs to net jobs).
The added value of support, multiplier effects and the dura-
bility of results are also core evaluation issues. All these
effects tend to receive greater emphasis in mid-term and ex
post evaluation rather than at the ex ante stage. The effects are
difficult to estimate in advance and are rather the result of
effective or ineffective implementation; in the case of dis-
placement it should be noted that occasionally it is posi-
tively supported by the Funds in the interests of targeting
disadvantaged areas or groups.

(2) Analysis of strengths, weaknesses, opportunities and threats.

23.7.2003

EN

Official Journal of the European Union

C 174/31

(f)

The number of development priorities has been kept small
deliberately, to avoid there being too many priorities. It is
the responsibility of the Member States to identify relevant
priorities in addition to the global priorities listed by the
Commission. Furthermore, it is also the responsibility of the
Member States to propose approaches to regional develop-
ment, such as those cited by the Court, or others which may
be more relevant to the national or regional contexts.

The recommended role for the evaluator was outlined in
30.
Working Paper No 2, which stressed the interactive role between
the planners and the experts involved. While all ex ante evalua-
tions added value, in a minority of cases the Commission was not
satisfied with the quality or it desired additional inputs and there-
fore contracted its own experts to give an alternative view and an
additional input to the programming process.

27.
In the context of greater decentralisation to the Member
States of responsibility for programming, evaluation and moni-
toring, the weaknesses the Court identifies are rather areas where
the Member States and evaluators should design and develop
approaches suitable to national or regional circumstances.

32.
Working Paper No 2 asked for the ex ante evaluation to
demonstrate the sound foundation of the strategy and the pro-
posed financial allocations (p. 18). Practice in this regard varied
widely across Member States and regions and particular practices
are not well established. The example cited by the Court repre-
sents good practice, which may be adopted by other Member
States in the future.

The Commission drew up the working papers after discussion
with evaluation experts in the Member States. These agreed that
they formed a useful and high quality support to the evaluation
effort, which in the case of ex ante evaluation is a national respon-
sibility.

The conclusion of the Commission’s communication of 5 July
2001 on the results of the programming of Structural Funds for
2000 to 2006 was that the quality of the strategies adopted in the
programme documents for the current programme period has
improved. The ex ante evaluation made an important contribu-
tion in this respect — particularly in developing the SWOT analy-
sis approach and in the quantification of objectives. At the Infor-
mal Council of regional policy ministers in Namur in July 2001
the Member States agreed with this conclusion.

The Commission nevertheless believes that Member States can
further improve the ex ante evaluation process. While all the
Member States satisfied the requirements of the regulation, there
were variations in performance. Some organised particularly effec-
tive ex ante evaluations, drawing on their history and practice in
evaluation; others were less open to the process, but even in these
cases progress was evident.

29.
The Commission believes that the majority of ex ante
evaluations were constructively critical. The analysis of alterna-
tive strategies is good practice and was undertaken by two Mem-
ber States, but it was not a requirement. The Commission agrees
that in some cases the ex ante evaluation acted to justify strategies
chosen by the Member States, but even in these cases the ex ante
evaluation enhanced the coherence of programming and the
quantification of objectives.

33.
Many of the programming documents followed the struc-
tured hierarchy of objectives set out in the Commission’s Work-
ing Papers Nos 2 and 3. Where there were weaknesses, the ex ante
evaluation in some cases contributed to improve the internal
coherence of the strategy, particularly the relationship between
objectives and actions. However, the Commission believes there
is still room for further improvement, especially in enhancing the
coherence of measures in the programme complements with the
overall objectives of the programmes.

34.
This was good practice but was not always followed
because it was uncertain whether the possible benefits outweighed
the administrative costs.

35.
It is not always possible to quantify objectives precisely.
The Commission believes that significant improvements have
taken place since the last programming period, but there is still
scope for further improvement, including with regard to the veri-
fiability of quantification methods. An approach based on the
principles justifying public-sector intervention was carried through
in the cases of Ireland and Belgium. Member States had respon-
sibility for programming and for developing their strategies and
this approach was not adopted by other Member States who were
drawing up their programmes at the same time.

36.
The Commission believes that good progress has been
made in the ex ante evaluation and programming process. It would
refer to its replies to the Court’s observations at point 27.

C 174/32

EN

Official Journal of the European Union

23.7.2003

In Working Paper No 2, the Commission indicated the
38.
key components needed for macroeconomic modelling. Differ-
ent principles of economic intervention exist in different Member
States depending on the political systems in operation and these
lead to different models. However, the Commission has under-
taken some additional modelling work which is comparable (the
Hermin model, developed by the ESRI in Ireland). The results
were published in the Second Cohesion Report (1). The Commis-
sion supports the development of macroeconomic models in dif-
ferent countries and regions and, indeed, the availability of more
than one model allows for analysis of the differences and a greater
understanding of the levers for economic development in the
country or region.

39.
The Regulation requires an evaluation of impact in terms
of anticipated results. There was no requirement at the time for it
to evaluate the impact of alternative strategies. In any case, the
Commission believes that macroeconomic modelling provides
just one further input into the process of decision making. All
macroeconomic models provide estimates and they have limita-
tions. They are one important tool among several.

Under the general Regulation on the Structural Funds,
45.
the purpose of the financing plan is to determine the financial
resources provided by each source of finance on an annual basis
formally determining the Community appropriations to be com-
mitted in each year of the period 2000 to 2006 pursuant to
Article 31(2) of Regulation (EC) No 1260/1999.

The rules also provide other specific instruments, such as the
annual report on implementation, to monitor and evaluate the
progress of assistance.

46 to 49.
Court’s observations, particularly points 27 and 36.

The Commission would refer to its replies to the

47. (a) National policies,

including non-co-financed parts of
development plans, formed the context of the negotia-
tions on the CSFs referred to and influenced the results,
even if only indirectly.

40 and 41.
The Commission has recently initiated a study to
develop regional macroeconomic models. The work is experi-
mental at this stage but may lead to the availability of better infor-
mation at regional level.

(b) See reply to point 26(e).

The Commission would refer to its replies to the observa-

43.
tions of the Court at point 27.

The Commission agrees that further improvements can

44.
be made in the quantification of objectives.

(a)

The Commission encourages continuous development of
targets during the programming cycle. In some cases further
work has been done after the approval of programmes. Nev-
ertheless, the examples cited by the Court are not sufficiently
representative of the general situation. Where further work
has been done, the mid-term evaluation to be completed by
December 2003 can verify this work.

48.
If the Commission did not prevail in all the suggestions
it put forward and if not all issues of development impact could
be resolved, this is part of the nature of negotiations, which have
to reach a mutually acceptable conclusion within a short time
frame.

49.
The Commission considers that progress has been made
in programming the Structural Funds to ensure their implementa-
tion in accordance with a well-established development strategy,
and that the quest for effectiveness was not neglected in favour of
the use of funds. Calculating the resources required to achieve the
objectives set is not always easy without reference to the con-
sumption of appropriations by earlier measures of the same type.

(b) There can be difficulties in identifying and quantifying indi-
cators for Structural Fund assistance. These difficulties and
limitations were recognised in Working Paper No 3 and
evaluation experts and those responsible for developing pro-
grammes are well aware of these challenges. In fact, indica-
tor systems are a mix of top-down and bottom-up indica-
tors. The difficulty for any system of indicators is forging the
causal link between the two approaches.

(1) Second report on economic and social cohesion, adopted by the

European Commission on 31 January 2001.

52.
There are three sets of indicators for the performance
reserve: effectiveness, management and financial indicators. All-
Member States in fact use the same set of management and finan-
cial indicators, in some cases with adaptations. Effectiveness indi-
cators are directly related to the content of the programme as they
are a subset of the programme’s output and result indicators as
proposed by the Member State. Allocation of the performance
reserve within programmes is provided for in the Regulation
(Article 44(2)), where Member States asserted that the institu-
tional context is such that transfers of funding across regions are
not possible. This was not the original proposal of the Commis-
sion but was the result of agreement by the Council and the Euro-
pean Parliament.

23.7.2003

EN

Official Journal of the European Union

C 174/33

The Commission has agreed with the Italian and Portu-
53.
guese authorities that national reserves will not be used to com-
pensate for the performance reserve.

by the managing authorities. The Commission will be reporting
to the European Parliament the results of its survey of the new
management and control systems in Member States.

OBSERVATIONS CONCERNING THE MANAGEMENT,
PAYMENT, MONITORING AND CONTROL SYSTEMS

55.
Regulation (EC) No 438/2001 was finalised in December
2000 after eight months of negotiations in the Structural Fund
committees culminating in a unanimous vote of approval in the
CDCR. Although the Regulation appeared a little too late for its
provisions to be reflected in all programme documents, Member
States were able to decide early in 2001 how they were going to
implement the new requirements. If not all the systems were in
place and fully operating by the end of 2001, this was largely due
to the scale of the changes required and the intense work still
being done on the 1994 to 1999 programmes. Regulation (EC)
No 438/2001 lays down detailed provisions on the requirements
of Regulation (EC) No 1260/1999, for example those on paying
authorities, the organisation of managing authorities and inter-
mediate bodies, and project monitoring (vérification de service
fait) to ensure delivery of the goods and services part-financed, the
eligibility of expenditure declared and compliance with legislation
(Article 4 of Regulation (EC) No 438/2001).

Regulations (EC) Nos 1260/1999 and 438/2001 required
56.
new legislation in many Member States, for example Spain (1),
Portugal (2) and France (3). The Greek legislation referred to by the
Court was followed by many detailed circulars to implement
Regulation (EC) No 438/2001.

In some of its own audits too, the Commission has found
57.
that paying authorities were not yet operating properly, often
because of understaffing or lack of established checking proce-
dures (see its replies to the Court’s observations at the points of
its 2001 report referred to). In such cases it has asked for the defi-
ciencies to be rectified. Article 9 of Regulation (EC) No 438/2001
requires paying authorities to check a number of matters. The
Commission’s audits have found that certain areas of checking are
now well implemented, while others need to be improved. In this
connection the Commission refers to its answer at point 67. The
Commission shares the Court’s concern about the generally late
start of audit work for the new period. It has continually empha-
sised the urgency of launching this work without delay and
impressed on Member States the importance of internal controls

58.
The problems of interpretation to which the Court refers
were also found by the Commission in its extensive audit of the
application of Regulation (EC) No 2064/97 in preparation for the
closure of 1994 to 1999 programmes. As a result of this work,
they have now largely been overcome. To further clarify the
requirements the Commission is re-issuing updated Audit Manu-
als, which will include a new guidance note on sample checks.
With regard to the system descriptions submitted under Article 5
of Regulation (EC) No 438/2001, most of these documents
adequately described the extremely varied systems that had been
set up. Nevertheless, further information was frequently necessary
because of the sheer variety of the arrangements, the lack of details
in the original descriptions, also observed by the Court, and the
desire of the Commission to check the systems carefully before
giving an opinion under Article 6 of Regulation (EC)
No 438/2001. The assurance afforded by these desk reviews is
naturally less than that obtained from on-the-spot systems audits,
which can verify that the systems described are indeed in place
and operational.

From the start the SFC base provided two methods of

59.
exchanging information:

1.

real-time connection to the SFC base through a Web-type
application for entry and consultation;

2.

exchange of information through structured files (flat files).

The first solution, which is well suited to those Member States
which do not wish to develop an electronic interface with the
Commission, or were in a particular hurry, was available from
June 2000 and required only a PC and a modem to be usable.

The second solution, which entailed the development by the
Member States of an interface meeting the Commission’s specifi-
cations (which were available early in 2000) was specially suited
to Member States which had a local information system and
expected to make many exchanges with the Commission.

The two solutions were, and still are, compatible with each other.

(1) Royal Decree No 1330/2000 of 7 July 2000.
(2) Decree-Law 54-A/2000 of 7 April 2000.
(3) Amended circular of the Prime Minister of 15 July 2002.

The Commission has always actively supported the information
technology services of the Member States which wish to install
electronic exchange using this interface. The difficulties encoun-
tered by some Member States in implementing the interface will
have to be looked at on a case-by-case basis.

C 174/34

EN

Official Journal of the European Union

23.7.2003

Almost all programme authorities in Member States are
60.
introducing powerful databases to fulfil the stringent require-
ments of the regulations. Teething troubles are not surprising.
The Commission has given the Member States guidance on its
requirements and the technical specifications to ensure that the
databases are efficient and secure and can supply the information
the Commission needs for various purposes.

Problems are inevitable when adapting the systems to conform to
organisational principles, such as separation of functions and
independence, and ensure reliable procedures.

61.
SFC is now recognised as the main ‘reference’ database
for the Structural Funds, with local interfaces with SINCOM, but
the Commission is still using a variety of other databases, espe-
cially for non-financial data such as information on monitoring
indicators. SFC should gradually take over more and more of
these functions, but meanwhile up-to-date monitoring informa-
tion on programmes is available from a variety of sources. Finan-
cial calculations, such as those of expenditure declared for the
purposes of applying the ‘n + 2’ rule, are now generally done on
SFC. Also, SFC provides tools for verifying the application of the
18-month rule for the decommitment of unused parts of the
advance under Article 32(2) of Regulation (EC) No 1260/1999
and for checking the consistency of co-financing rates. For the
ESF the Commission has made use of SFC compulsory under
Article 7 of Regulation (EC) No 1784/1999.

It was not possible to adapt SFC to hold data on 1994 to
62.
1999 programmes. The risk of duplication of funding is reduced
by the requirement for programme authorities to distinguish
clearly projects or phases of projects financed under different pro-
grammes and programme periods. Article 9(2)(b)(ii) of Regulation
(EC) No 438/2001 reinforces these safeguards.

Most systems involve a greater or lesser degree of delega-
65.
tion of tasks to intermediate bodies. With proper service agree-
ments, audit trails and reporting lines, such systems can operate
satisfactorily. In its own system audits and desk reviews the Com-
mission consistently emphasises the safeguards that are required.

66.
Article 9(n) of Regulation (EC) No 1260/1999 allows the
managing and paying authorities to be the same body, and
Article 9(o) states that it is up to the Member State to determine
the modalities of the relationship between the managing and the
paying authority. It is possible to maintain a proper separation of
functions even where the three functions of managing and pay-
ing authority and independent audit are assigned to different parts
of the same ministry. It agrees with the Court that the assignment
of the functions to one unit under common management as origi-
nally in French prefectures could pose a risk and in such cases has
asked for changes. In France the functions are now separated into
different units. For ESF the Commission found a case of conflict
of interest in Ireland where a hierarchical superior combined cer-
tain responsibilities. The steps necessary to obtain a clear separa-
tion of duties and to avoid such situations in future have been
taken.

63.
The punctuality of Member States in submitting annual
reports has improved compared with previous programming
periods thanks to the pressure exerted by the Commission and
the link to payments (Article 32(3) of Regulation (EC) No 1260/
1999). The reports are now also generally of higher and more
uniform quality thanks to the new model. The Commission regu-
larly requires Member States to supplement reports that do not
contain all the required information. Pending payments are with-
held until the report is satisfactory.

67.
Whenever it finds it necessary, the Commission impresses
on Member States the vital responsibilities of the paying author-
ity and the need for it to have established checking procedures
and to ensure that all bodies reporting expenditure to it them-
selves have and apply such procedures. The Commission intends
to issue a guidance note on the role and work of paying authori-
ties in view of their key function for sound financial management.

64.
The regulatory framework for 2000 to 2006 and in par-
ticular Regulation (EC) No 438/2001, introduced more detailed
requirements than in the previous programming period for the
organisation of the management, payment, monitoring and con-
trol functions within Member States. Nevertheless, the regulations
allow Member States to keep their national systems for manag-
ing the Structural Funds (see Articles 8 and 34 of Regulation (EC)
No 1260/1999 and recital 10 of Regulation (EC) No 438/2001).

68.
The Commission’s approach in adopting Regulation (EC)
No 1685/2000 was to leave out those rules previously in the eli-
gibility datasheets which were redundant or unnecessary, to learn
from the experience of applying the datasheets by being less
restrictive where this was justified, and to present rules retained
more clearly and concisely in the form of a regulation. One new
rule (leasing) was also added to meet a clear need. The rule con-
cerning final beneficiaries was incorporated into Article 9 of
Regulation (EC) No 1260/1999 itself.

23.7.2003

EN

Official Journal of the European Union

C 174/35

‘Final beneficiary’ is defined in virtually the same terms as
70.
before in Article 9(l) of Regulation (EC) No 1260/1999 and its
responsibilities, in particular the recording of expenditure and
retention of supporting documents, are set out in Article 1.2 of
the Annex to Regulation (EC) No 1685/2000 and in Annex I to
Regulation (EC) No 438/2001. The concept can still give rise to
difficulties and the Commission issued further guidance in Sep-
tember 2001.

guidance note to the Member States in September 2001. Rule 1
also lays down conditions for the eligibility of certain imputed
costs, including pro rata allocation (properly documented) and
depreciation (but not purchase and depreciation at the same time).
Where there are doubts, the Commission, as usual, provides the
clarifications required.

71.
The legislator has, in the view of the Commission cor-
rectly, removed the time limit for commitments on the ground.
The purpose of the time limit was to spur implementation and
ensure orderly closure. This purpose is now served by the rule on
automatic decommitment in year ‘n+ 2’. All that is now required
is for the eligible expenditure to be incurred between the starting
date of the assistance and 31 December 2008. This is easy to
manage and check. Alternative financing continues to be possible
as far as the source of payments to final beneficiaries is con-
cerned. The Commission wrote to the French authorities to this
effect early in 2001. The new regulations separate cash flow man-
agement (entirely the responsibility of the Member State) from
declarations of expenditure.

72.
Under the State aid rules, operating costs and replenish-
ment of capital are allowed only in precisely defined circum-
stances. Sheet 17 was therefore considered superfluous, especially
as its wording created a degree of uncertainty as to the eligibility
of many venture capital operations (new rule 8). However, this
area was further clarified by the Commission’s communication on
State aid and risk capital published in 2001.

The sheet on repayable aid has been replaced by rule 8, which
also covers loan funds. Rule 8 regulates the reuse of returns, giv-
ing effect to Article 28 of Regulation (EC) No 1260/1999, which
stipulates that assistance repaid to the managing authority or to
another public authority shall be reallocated to the same purpose,
and to Article 30, which requires that operations stay in place for
five years. After an EU-funded measure is closed, the Member
State remains responsible for monitoring. This monitoring can be
audited during three years following closure.

73.
The Regulation states that national rules are applicable
except when the Commission establishes a common eligibility
rule. Hence a larger margin of discretion is left to implementing
bodies and final beneficiaries. The purpose of the eligibility rules
is not to harmonise all national practices.

75.
For certain types of projects a high rate of overheads in
eligible expenditure is justified. Apart from the conditions laid
down in point 1.7 of rule 1 (1), national rules are applicable.

The tax treatment of depreciation is subject to national

76.
rules.

77.
The Commission recognises the difficulty posed by the
VAT included in projects. The relevant eligibility rule tries to
ensure that VAT is part of the eligible cost only in those cases
where the final beneficiary or recipient must bear this cost. With
regard to building purchase, use of these buildings to house
administrative services may be justified in certain cases and the
Commission considered that it was no longer necessary to regu-
late this in detail.

78.
In July 2002 the Regional Policy Directorate-General pre-
sented an indicative guidance note on revenue-generating infra-
structure projects to the Committee for the Development and
Conversion of Regions.

The rule on the location of projects was required to clarify
79.
a number of open questions and has been further clarified for ESF
projects. With respect to privatisation and abandonment of
projects, it is clear that the Commission cannot establish rules on
every possible case in advance.

80.
See reply at point 68. The intention was to provide basic
and relatively simple rules on matters that required common
treatment at EU level. The Member States apply these rules in
their specific national context, especially as regards tax and
accounting treatment (see the fifth recital of Regulation (EC)
No 1685/2000).

81.
From the outset the Commission made it clear (in the
vade mecum) that any financial table should contain only eligible
costs. Thus if a Member State wishes to be reimbursed on the
basis of public cost, private costs should not appear in the table.
The approach was admittedly not followed with sufficient rigour,
as in some cases it was considered appropriate to indicate the
leverage effect through the financing table. These situations are

74.
The purpose is to reimburse costs that are eligible for the
co-financed project and actually paid. The requirement for actual
expenditure is laid down both in Article 32 of the basic Regula-
tion, rule 1 of Regulation (EC) No 1685/2000, and in Regulation
(EC) No 438/2001. The Commission clarified the question in a

(1) Overheads are eligible expenditure provided they are based on real
costs which relate to the implementation of the operation part-
financed by the Structural Funds and are allocated pro rata to the
operation, according to a duly justified fair and equitable method.

C 174/36

EN

Official Journal of the European Union

23.7.2003

now being corrected. It should now be clear to Member States
that there are two bases for the Structural Fund contribution: total
eligible costs or total eligible public expenditure. The base is
determined at the level of each measure and stated in the pro-
gramming complement, in accordance with Article 18(3)(c) of
Regulation (EC) No 1260/1999.

term factors. The Commission has encouraged the more scientific
approach now applied and will continue to move in this direc-
tion. The Member States, however, bear the main responsibility
for programming.

The Commission recognises that the selection criteria
84-85.
vary throughout the EU. In part this is justified because of the spe-
cific situation in the regions, in others improvement is possible.
In the Commission’s view, it is better to leave the responsibility
where it presently is, i.e. the Monitoring Committee, and gradu-
ally improve the situation through the exchange of experience.

CONCLUSIONS AND RECOMMENDATIONS

87.
The Commission would refer to its replies to the Court’s
observations at points 9 to 16. The decisions on the designation
of Structural Fund areas were taken in accordance with the Regu-
lation. For Objective 2 the Regulation allowed Member States
considerable leeway, including as regards the selection of assisted
areas qualifying for national aid.

91.
The Commission considers that progress has been made
in the programming of the Structural Funds to ensure their imple-
mentation in accordance with a clearly laid down development
strategy and that the quest for effectiveness has not been neglected
in favour of the consumption of funds. Calculating the resources
required to achieve the objectives set is not always easy without
reference to the consumption of appropriations by earlier mea-
sures of the same type.

92.
A considerable amount of information on development
needs and national policies was available to programmers for the
2000 to 2006 period, thanks in part to the work of ex ante evalu-
ators. The Commission considers that progress was made in bas-
ing programming on development strategy rather than absorp-
tion of funds.

93.
The management and financial indicators for the perfor-
mance reserve are in most cases those recommended by the Com-
mission in Working Paper No 4. The Commission will examine
Member State’s proposals with a view to correcting any inconsis-
tencies.

88.
The Commission would refer to its replies to the points
concerned. It accepts that the time limits were unrealistic given
the procedures laid down and the number of matters requiring
negotiation. The quality of programme documents has generally
improved and the Commission is working to secure further
improvement.

94.
While it has taken Member States time to implement the
new provisions, the impression the Commission has gained from
its audit work is that the systems set up by Member States are
beginning to operate satisfactorily. It will present a report giving
its assessment of the new management and control systems to the
European Parliament in spring 2003.

89 .
All Member States carried out ex ante evaluations, which
led to a greater coherence of strategies and greater knowledge of
the basis of the choices made and significantly improved quanti-
fication of objectives. In those Member States where the ex ante
evaluation examined alternative strategies, the intention was to
use this evaluation as part of their national planning process. The
Commission’s working paper did not provide information on all
appropriate practices and methods. For detailed methodological
advice, Member States and evaluators were referred to the MEANS
handbooks. In addition, evaluators were supposed to be experts
in evaluation methodologies. The use of macroeconomic model-
ling is just one input to the process of deciding on priorities and
financial allocations. Systems of indicators can always be improved,
although the Commission believes very significant progress has
been made in this regard. The mid-term evaluation will verify that
progress.

95.
The Commission believes that the division of responsibil-
ity for the eligibility rules in 2000 to 2006 programmes has sim-
plified implementation of the programmes. It attempts to clarify
questions whenever necessary.

This is an area in which performance has improved vastly

96.
in recent years and is continuing to improve.

97.
In fact the objective of simplification has not always been
achieved and the programming process has sometimes had effects
opposite to those originally desired. The Commission is making
considerable efforts to simplify the rules and practices for both
present and future programmes.

90.
Although advances have been made in programming the
use of Structural Fund monies in order to achieve development
goals, there is room for improvement. Input-output analysis is a
guide but outcomes are determined by many external and longer-

98.
The Commission will take account of the Court’s obser-
vations in the programming of the Structural Funds after 2006.

23.7.2003

EN

Official Journal of the European Union

C 174/37

This question forms part of the consideration currently

99.
taking place on the rules for the period after 2006.

100.
The programme complement system will have an impact
throughout the period of implementation and the Commission
will make a judgement on it at a later stage. The points raised by
the Court as regards the mid-term evaluation will be considered
in this context.

The Commission would refer to its replies at points 68
101.
and 80. On eligibility the regulations lay down certain rules that
need to be applied in the same way throughout the EU and leave
the remainder to national legislation. At the beginning of the cur-
rent programming period, some attempts by the Commission to
further specify eligibility questions led to increased complexity or
rules that were not appropriate for many specific situations.

102.
As described in detail in the replies given above, specific
action has been or is being taken on most of the measures recom-
mended by the Court.