Communication from the Commission to the European Parliament and the Council The respective responsibilities of the member states and the Commission in the shared management of the Structural Funds and the Cohesion Fund  - Current situation and outlook for the new programming period after 2006
Date: 2004-09-06
Institutions: European Commission
Subjects: Cohesion Fund, EU Member State, European Commission, Structural Funds, enlargement of the Union, financial management

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 06.09.2004 
COM(2004)580 final 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

The respective responsibilities of the Member States and the Commission in the shared 
management of the Structural Funds and the Cohesion Fund 

Current situation and outlook for the new programming period after 2006 

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I. 

EXECUTIVE SUMMARY 

This  communication  fulfils  the  commitment  given  by  the  Commission  in  the  “Synthesis  Of 
Annual  Activity  Reports  2002  of  DGs  and  Services”1  to  carry  out  a  legal  analysis  of  its 
responsibilities and those of the Member States for the shared management of the budget of 
the European Communities and to clarify the procedures through which, in cooperation with 
the  Member  States,  it  can  discharge  its  general  responsibility  for  the  implementation  of  the 
budget2. 

In  the  first  part  (Section  II),  the  Commission  sets  out  its  interpretation  of  the  current  rules 
governing  the  Structural  Funds  and  the  Cohesion  Fund  in  order  to  clarify  the  shared 
management responsibilities of each party. The Commission considers that these rules allow 
its obligations concerning the implementation of the budget to be reconciled with the specific 
features of the Union’s cohesion policy and its management system which, under the Council 
Regulations,  make  the  Member  States  responsible  in  the  first  instance  for  the  management, 
monitoring  and  day-to-day  financial  control  of  the  resources  of  the  Funds.  The  existing 
structure  includes  arrangements  which  allow  the  Commission  to  discharge  its  general 
responsibility by ensuring the existence and proper operation of the management and control 
systems. If its subsequent audit work detects deficiencies in the audit and control systems, the 
risk of irregular expenditure is determined and appropriate financial corrections are applied. 
This  communication  sets  out  the  measures  taken  by  the  Commission  to  comply  with  these 
provisions. 

The  relevance  of this problem is highlighted by the obligation on the Member States which 
joined  the  Union  in  May  2004  to  establish  management  and  control  systems  which  can 
guarantee that their initial implementation of the Structural Funds and the Cohesion Fund will 
ensure effective use of Community funding.3 

The  second  purpose  of  the  communication  (Section  III)  is  to  set  out  the  general  guidelines 
which the Commission followed in preparing the legislative proposals which it adopted on 14 
July  2004.4  These  cover  the  period  2007-2013,  the  aim  being  to  increase  the  coherence, 
complementarity  and  efficiency  of  the  overall  structure  of  the  implementation  system, 
including  clarification  of  the  obligations  on  the  Member  States  to  cooperate  and  the 
consequences for them if they do not comply with the rules. 

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2 
3 

4 

COM(2003)391 final of 09.07.2003, action 5.3.3.C 
Ibid., action 5.3.3 A. 
COM(2003)433  final,  Communication  from  the  Commission  to  the  European  Parliament  and  the 
Council on the implementation of commitments undertaken by the acceding countries in the context of 
accession negotiations on Chapter 21 - Regional policy and coordination of structural instruments. 
Proposal  for  a  Council  Regulation  laying  down  general  provisions  on  the  European  Regional 
Development Fund, the European Social Fund and the Cohesion Fund, COM(2004)492 final of 14 July 
2004. 

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II. 

LEGAL  ANALYSIS  OF  THE  RESPONSIBILITIES  OF  THE  COMMISSION  AND  THE 
MEMBER STATES 

Shared management, as defined in Article 53 of the Financial Regulation5, is one of the ways 
in which the Commission implements the Community budget, a task laid on it by Article 274 
of the Treaty: “The Commission shall implement the budget […] on its own responsibility and 
within  the  limits  of  the  appropriations,  having  regard  to  the  principles  of  sound  financial 
management.  The  Member  States  shall  cooperate  with  the  Commission  to  ensure  that  the 
appropriations are used in accordance with the principles of sound financial management.” 

Since Article 274 of the Treaty makes no distinction based on the mode of management, the 
Commission's responsibility for implementing the budget is general.  

The  arrangements  for  the  Commission  to  discharge  this  responsibility  in  the  context  of  the 
shared management of the Funds, and the obligations on the Member States, are set out in the 
sectoral legislation. 

In the case of the Structural Funds and the Cohesion Fund, shared management is the way in 
which the legislator chose to have the Community budget implemented, and the Commission 
has no discretionary power to choose another means of implementation; it “is not able to act 
in any other way than as laid down in sectoral legislation.”6 

The  Member  States  have  an  obligation  to  cooperate  with  the  Commission  to  ensure  that 
appropriations  are  used  in  accordance  with  the  principles  of  sound  financial  management, 
which  reflects  the  general  obligation  to  cooperate  correctly  (Articles  274  and  10  of  the 
Treaty). Furthermore, Article 280 of the Treaty requires the Member States to “take the same 
measures to counter fraud affecting the financial interests of the Community as they take to 
counter fraud affecting their own financial interests.” 

Article  53(3)  and  (5)  of  the  Financial  Regulation,  on  methods  of  implementing  the  budget, 
sets out the general operating principles which apply to all areas of the budget which employ 
shared  management.  It  first  states  that  “Where  the  Commission  implements  the  budget  by 
shared management, implementation tasks shall be delegated to Member States in accordance 
with  the  provisions  of  Titles  I  and  II  of  part  two.” and  then  that  “In  cases  of  shared  or 
decentralised management, in order to ensure that the funds are used in accordance with the 
applicable rules, the Commission shall apply clearance-of-accounts procedures or financial 
correction mechanisms which enable it to assume final responsibility for the implementation 
of the budget in accordance with Article 274 of the EC Treaty and Article 179 of the Euratom 
Treaty.” 

Articles 155 to 159 of  the  Financial Regulation then state that the general provisions of  the 
Regulation apply to expenditure effected under the Structural Funds and the Cohesion Fund 

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6 

Council  Regulation  (EC,  Euratom)  No  1605/2002  of  25  June  2002  on  the  Financial  Regulation 
applicable to the general budget of the European Communities, OJ L 248 of 16.9.2002, p. 1. 
Point  16(c)  of  the  Resolution  of  the  EP  containing  the  comments  which  are  an  integral  part  of  the 
decision  on  the  discharge  for  2002  -  general  budget  of  the  European  Union  (Commission) 
(SEC(2003)1104-C5-0564/2003-2003/2210 (DEC)) . A5-0200/2004, 21.4.2004. 

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save  as  otherwise  provided  for.  These  exceptions  concern  payments  by  the  Commission, 
automatic decommitments, aspects concerning the management and selection of projects and 
inspection  procedures,  provided  the  sectoral  Council  Regulation  contains  provisions  to  that 
effect.  

A. 

The rules for 20002006. Decentralisation – Partnership – Cooperation 

In Regulation (EC) No 1260/19997, the basic Regulation governing the Structural Funds, and 
Regulation (EC) No 1164/948 establishing a Cohesion Fund, the Council created a structure 
for  the  method  of  managing  the  Funds.  As  regards  the  Structural  Funds  in  particular,  the 
legislator decided that the action of the Structural Funds and the EAGGF Guarantee Section 
concerning  rural  development  measures  should  be  “complementary  to,  or  intended  to 
contribute  to,  the  action  of  the  Member  States”  (preamble  27  to  Regulation  (EC)  No 
1260/1999)  and  so  should  “complement  or  contribute  to  corresponding  national  actions” 
(Article  8(1)  of  Regulation  (EC)  No  1260/1999).  Accordingly,  in  the  case  of  rural 
development  measures  the  Structural  Funds  and  the  EAGGF  Guarantee  Section  provide 
assistance  by  part-financing  measures  decided  on  at  national  or  regional  level.  The  clearest 
reflection of this principle is additionality (Article 11 of Regulation (EC) No 1260/1999). 

Without calling into question the Commission’s responsibility for implementing the budget as 
laid down by the EC Treaty, Regulation (EC) No 1260/1999 defines for the Structural Funds 
various arrangements for implementing the budget based on a decentralised structure resting 
on partnership  and  cooperation  between the Commission and the Member State. Regulation 
(EC) No 1164/94 does likewise for the Cohesion Fund.  

As regards inspections, the sectoral legislation has two pillars, the first being a series of 
provisions  allowing  the  Commission  to  ensure  the  compliance  of  the  Member  States’ 
management  and  control  systems  and  the  second  being  a  further  series  of  rules  which 
define  the  arrangements  for  the  financial  corrections  to  be  applied  when  irregularities 
are detected during audits.  

The  regulatory  provisions  on  ensuring  the  existence  and  sound  operation  of  national 
management and control systems are set out in Article 38 of Regulation (EC) No 1260/1999 
and Articles 5 and 6 of Regulation (EC) No 438/20019, and in Article 12 of and Article G of 
Annex II to Regulation (EC) No 1164/94 and Article 5 of Regulation (EC) No 1386/200210 11. 

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Council  Regulation  (EC)  No  1260/1999  of  21  June  1999  laying  down  general  provisions  on  the 
Structural Funds, OJ L 161, 26.6.1999, p. 1. Regulation as last amended by the 2003 Act of Accession, 
OJ L 236, 23.9.2003. 
Council  Regulation  (EC)  No  1164/94  of  16  May  1994  establishing  a  Cohesion  Fund,  OJ  L  130, 
25.5.1994, p. 1. Regulation as last amended by the 2003 Act of Accession, OJ L 236, 23.9.2003. 
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 p. 21. 
Commission  Regulation  (EC)  No  1386/2002  of  29  July  2002  laying  down  detailed  rules  for  the 
implementation  of  Council  Regulation  (EC)  No  1164/94  as  regards  the  management  and  control 
systems  for  assistance  granted  from  the  Cohesion  Fund  and  the  procedure  for  making  financial 
corrections, OJ L 201, 31.7.2002, p. 5. 
In the case of the Structural Funds and the Cohesion Fund, the aim of ensuring the existence and sound 
operation of management and control systems mentioned in Article 35 of Commission Regulation No 
2342/2002 laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No 

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The  mechanisms  for  financial  corrections  under  the  Structural  Funds  as  described  in 
Article 39  of  Regulation  (EC)  No  1260/1999  and  in  Regulation  (EC)  No  448/2001,12  are 
detailed in Commission decision C(2001) 476 of 2 March 2001 “Guidelines on the principles, 
criteria  and  indicative  scales  to  be  applied  by  the  Commission  departments  in  determining 
financial corrections under Article 39(3) of Regulation (EC) No 1260/1999”. 

More specifically, Article 38(2) of Regulation (EC) No 1260/1999 allows the Commission to 
carry out on-the-spot checks, including sample checks, or require the Member States to do so. 
The  purpose  of  these  checks  is  to  ensure  the  existence  and  smooth  functioning  of  the 
management  and  control  systems  or  to  check  individual  operations  financed.  In  addition, 
Articles 5 and 6 of Regulation (EC) No 438/2001 state that the Commission is to receive from 
the Member States, within three months of the approval of the assistance, a description of the 
management  and  control  systems  in  place  and  that  it  is  to  satisfy  itself  in  cooperation  with 
each Member State that these systems meet the standards required by the Council Regulation 
concerned. The operation of the system is to be reviewed regularly. The Commission and the 
Member  States  adopt  bilateral  administrative  arrangements  to  coordinate  the  methodology 
and  implementation  of  inspections  and  exchange  results.  Cooperation  continues  throughout 
the  programming  period  through  reviews  which  take  place  at  least  once  a  year  at  meetings 
between national and Community auditors. Article 38 also provides for financial corrections if 
an  hitherto  undetected  serious  irregularity  affecting  expenditure  included  in  an  intermediate 
payment is discovered, while Article 39(2) sets out the procedure the Commission is to follow 
when  it  finds  failings  in  the  systems,  in  the  form  of  the  suspension  of  payments,  to  be 
followed if necessary by net financial corrections.  

Regulation (EC) No 1164/94 and its implementing rules provide for a similar mechanism for 
managing the Cohesion Fund13. 

B. 

The allocation of responsibilities 

1. In this decentralised structure, a Member State has three levels of responsibility. 

a) Through cooperation with the Commission, it is the guarantor of the sound management of 
Community  resources  and  takes  primary  responsibility  for  correct  financial  implementation 
through:  

•  the  managing  authority,  which  is  responsible  for  “the  correctness  of  operations…, 
particularly  by  implementing  internal  controls  in  keeping  with  the  principles  of  sound 
financial  management”  and  acting  in  response  to  any  observations  or  requests  for 
corrective  measures  to  the  management,  monitoring  and  control  system  required  by  the 
Commission,  the  compatibility  of  operations  with  the  Community  policies  and  the 
preparation of the data or reports which the Commission requires to monitor a programme 
(Article 34(1)); 

1605/2002 on the Financial Regulation applicable to the general budget of the European Communities 
(OJ L 357, 31.12.2002) is achieved by the provisions mentioned in the sectoral legislation. 
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 No L 64, 6.3.2001 p. 13). 
Article 12 of Regulation (EC) No 1164/94 and Article 5 of Regulation (EC) No 1386/2002. 

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•  the  paying  authority,  which  certifies  expenditure  (Article  32(3)  of  Regulation  (EC)  No 
1260/1999 and Article D(2) to Annex II to Regulation (EC) No 1164/94) and ensures that 
the managing authority and intermediate bodies have complied with Regulation  (EC)  No 
1260/1999  (Article  9  of  Regulation  (EC)  No  438/2001) or  Regulation  (EC)  No  1164/94 
(Article 8 of Regulation (EC) No 1386/2002); 

•  its  contribution  to  improving  estimates  of  the  utilisation  of  financial  resources  and  the 

implementation of expenditure by supplying forward estimates; 

•  the application of the relevant national rules on eligibility where there are no Community 

rules (41st recital to and Article 30 of Regulation (EC) No 1260/1999); 

•  its responsibility for the ex-ante evaluation for the preparation of the plans, the assistance 
and the programme complement (Article 41(1) of Regulation (EC) No 1260/1999) and the 
mid-term evaluation and its updating (Article 42(4) of Regulation (EC) No 1260/1999). 

b) Under Article 38 of Regulation (EC) No 1260/1999 and Article 12 of Regulation (EC) No 
1164/94, “Member States shall take responsibility in the first instance for the financial control 
of assistance”, in particular by: 

•  verifying  that  management  and  control  arrangements  have  been  set  up  and  are  being 
implemented in such a way as to ensure that Community funds are being used efficiently 
and correctly and providing the Commission with a description of these arrangements; 

•  certifying expenditure, ensuring that it is compatible with Community law and the use of 
the  Funds  in  accordance  with  the  principles  of  sound  financial  management  (Article 
38(1)(g)  of  Regulation  (EC)  No  1260/1999  and  Article  12(1)(c)  of  Regulation  (EC)  No 
1164/94); 

•  taking  the  corrective  measures  required  by  the  Commission  (Article  38(4)  of  Regulation 

(EC) No 1260/1999 and Article G(1) of Annex II to Regulation (EC) No 1164/94); 

•  providing a final declaration by an independent body on the closure of the assistance in the 

case of the Structural Funds or the project in the case of the Cohesion Fund. 

c)  As  stated  in  Article  39  of  Regulation  (EC)  No  1260/1999  and  Article  12(1)(h)  of 
Regulation (EC) No 1164/94, the Member State bears responsibility in the first instance for 
investigating irregularities and making the corrections required. 

the 

Mirroring 

responsibilities  of 

2. 
the  Commission’s 
responsibilities  are  defined  so  as  to  allow  it  to  discharge  its  responsibility  for  the 
implementation  of  the  Community  budget  by  verifying  that  the  Member  States  are  carrying 
out the tasks entrusted to them correctly. With that end in mind and to ensure the respect of 
the  treaty  and  of  the  acts  adopted  by  the  Community  institutions,  the  Commission  notably 
intervenes at four levels in order to: 

the  Member  State, 

•  take  the  decisions  required  for  the  implementation  of  the  Structural  Funds  where  the 
statutory requirements are respected (Articles 28 and 30 of Regulation (EC) No 1260/1999 
and Article 10 of Regulation (EC) No 1164/94); 

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•  ensure, in cooperation with the Member States, that management and control systems exist 
and  are  functioning  smoothly,  which  may  include  making  on-the-spot  checks,  including 
sample  checks,  on  operations  and  management  systems  or  asking  the  Member  State  to 
make those on-the-spot checks itself (Article 38(2) of Regulation (EC) No 1260/1999 and 
Articles  5  and  6  of  Regulation  (EC)  No  438/2001  for  the  Structural  Funds,  Article  G  of 
Annex II to Regulation (EC) No 1164/94 and Article 5 of Regulation (EC) No 1386/2002); 

•  ensure the efficiency of assistance: 

- by analysing through the annual reports and the final implementing report the progress of 
the  implementation  of  assistance  in  terms  of  the  objectives  laid  down  (Article  37  of 
Regulation (EC) No 1260/1999 and Article F of Annex II to Regulation (EC) No 1164/94) 
and the annual review (Article 34(2) of Regulation (EC) No 1260/1999), 
-  in  financial  terms,  in  particular  by  the  application  of  automatic  decommitments,  the 
suspension  of  payments  when  the  statutory  requirements  are  not  respected  and  the 
formulation and, where necessary, adoption of the corrective measures required to support 
the  sound  financial  implementation  of  assistance  (Articles  31,  32  and  38  of  Regulation 
(EC) No 1260/1999 in the case of the Structural Funds and Articles C(5) and G of Annex 
II to Regulation (EC) No 1164/94), and 
- the evaluation of the results (Articles 42, 43 and 44 of Regulation (EC) No 1260/1999); 

•  carry out inspections and on-the-spot audits of operations and systems, particularly through 
sample checks on them, without prejudice to those carried out by the Member States, and 
applying financial corrections when irregularities and failings are detected and the Member 
State has made no such correction (Articles 38 and 39 of Regulation (EC) No 1260/1999 
and Articles G and H of Annex II to Regulation (EC) No 1164/94). 

C. 

A necessary clarification of the scope of the Commission’s responsibility 

We  have  to  concede,  as  the  European  Parliament  did  most  recently  in  its  resolution  on  the 
discharge for 200214, that for several years the Court of Auditors has been pointing out in its 
statements  of  assurance  on  the  reliability  of  the  accounts  that  the  underlying  operations  are 
frequently subject to errors, particularly in areas where shared management applies. Although 
neither of these two Institutions thought it realistic or compatible with the arrangements  for 
shared management described in the sectoral legislation for the Commission to be required to 
detect  all  errors  and  irregularities  affecting  payments,  they  identified  the  failings  of  the 
systems  and  encouraged  the  Commission  to  take  steps  to  improve  its  supervision  of  the 
inspection systems. 

In  its  Opinion  2/200415  the  Court  of  Auditors  suggested  interesting  approaches  for 
consideration  and  outlined  the  role  it  thought  the  Commission  ought  to  play  in 
discharging its responsibility for implementing the budget, an approach which was very 
similar  to  the  Commission's  own.  It  identified  the  key  principles  which,  in  its  view, 
should guide the work of inspecting the Community budget at all levels under the law as 
it  stands,  and  the  guidelines  which  could  guide  the  legislator  in  the  preparation  of  an 
amended framework for legislation. 

14 
15 

See above, footnote 6. 
Opinion  No  2/2004  of  the  Court  of  Auditors  on  the  ‘single  audit’  model  (and  a  proposal  for  a 
Community Internal Control Framework). 

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To  begin  with,  the  Court  states  that:  “no  system  can  reasonably  be  expected  to  assure 
absolute correctness of all transactions” and “(it is unrealistic to think that) the purpose of 
internal control systems is to guarantee or assure the complete legality and regularity of all 
transactions.”  It  therefore  considers  that  controls  should  present  an  appropriate 
cost/efficiency  ratio,  “The  overall  cost  of  controls  should  be  in  proportion  to  the  overall 
benefits  they  bring  in  both  monetary  and  political  terms.”  It  also  considers  that  the 
Commission should have the role of supervising the operation of control systems both by 
defining the minimum requirements for them and by coordinating both the objectives to 
be achieved and their implementation at all levels, national and Community. 

The  Commission,  which  is  attentive  to  the  recommendations  of  the  two  Institutions 
responsible  for  monitoring  the  implementation  of  the  budget,  has  already  developed  the 
instruments required to coordinate its work with that of the Member States. In view of 
the  difficulties  encountered  by  the  Member  States  in  developing  and  applying  these 
instruments  during  the  1994-1999  programming  period,  the  Commission  included  in  the 
implementing  Regulations  for  the  Structural  Funds  and  the  Cohesion  Fund  the  conditions  it 
considered  necessary  for  control  procedures  which  would  provide  it  eventually  with 
reasonable assurance as to the regularity of the transactions carried out by the Member States.  

the  Commission  has  encouraged 

Furthermore, under Article 38 of Regulation (EC) No 1260/1999 and Article G of Annex II to 
Regulation  (EC)  No  1164/94, 
the  conclusion  of 
administrative  arrangements  on  audits  with  the  Member  States  in  order  to  step  up  the 
coordination of checks and the exchange of results between the Commission and the Member 
States  concerned  and  apply  joint  audit  methods.  Similarly,  as  part  of  the  simplification 
process16,  the  Commission  has  asked  the  Member  States  to  make  a  concerted  effort  to 
exchange the detailed annual inspection programmes in good time so as to avoid overlapping 
and  duplication.  In  the  case  of  the  Member  States  which  joined  the  Union  in  May  2004, 
following the approach of cooperation for implementation of the pre-accession instruments17, 
the  provisions  mentioned  in  the  legislation  on  the  Structural  Funds  and  the  Cohesion  Fund 
will be applied.  

The Commission  has  also developed the concept of the contract of confidence with the 
Member  States.  This  is  a  voluntary  commitment  by  the  Member  States  which  assures  the 
Commission  that  the  resources  required  to  allow  checks  on  the  regularity  of  the  underlying 
transactions  are  in  place  and  providing  a  global  approach  to  checks  on  a  particular 
programme, Fund or region, in line with an audit strategy approved by the Commission, and 
improved annual reporting on the results of that strategy. A contract of this type also depends 
on the existence of the Commission’s prior assurance that the systems in place comply with 
the statutory requirements. The contract provides the Commission with a guarantee that it can 
have  confidence  in  the  Member  State  without  imposing  further  statutory  requirements  but 
within a coordinated approach between it and the Member State. However, the effect of such 
assurance lapses if it is found that the Member State is not complying with its obligations.  

16 

17 

Point  2.5.5  of  Commission  Communication  C(2003)  1255  on  the  simplification,  clarification, 
coordination and flexible management of the structural policies 2000-2006 (not published). 
Articles  11  and  12  of  and  the  Annex  to  Council  Regulation  (EC)  No  1266/1999  of  21  June  1999  on 
coordinating aid to the applicant countries in the framework of the pre-accession strategy and amending 
Regulation  (EEC)  No  3906/89  (OJ  L  161,  26.6.1999  p.  68);  Article  9  of  and  Annex  III  to  Council 
Regulation (EC) No 1267/1999 of 21 June 1999 establishing an Instrument for Structural policies for 
Pre-accession (OJ L 161, 26.6.1999 p. 73). 

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But, as the Court of Auditors noted in its Opinion 2/2004, although the principles or standards 
required to ensure the effective and efficient internal control of the Funds are already “either 
fully  or  partially  in  place”,  others  will  need  to  be  developed  and  introduced,  to  ensure  that 
“the extent and intensity of checking … make an appropriate balance between the overall cost 
of operating those checks and the overall benefits they bring.” 

Accordingly, on the basis of its experience with the current rules, the Commission wishes to 
improve the effectiveness and efficiency of the management and control systems in the next 
programming period. It has therefore adopted the proposals set out in the next section.  

III. 

OUTLOOK FOR THE RULES IN 2007-2013 

One  of  the  main  aims  of  the  future  rules  for  the  2007-2013  programming  period  as  regards 
shared  management  is  to  clearly  define,  on  the  basis  of  the  obligations  imposed  by 
Community law and experience with the present rules, the framework, nature and division of 
the  responsibilities  among  the  various  parties  involved  in  the  implementation  of  the 
Community  budget,  i.e.  on  the  one  hand  the  Member  States  and  their  implementing  bodies 
and on the other the Commission. 

The  Commission  has  sought  to  increase  the  coherence,  the  transparency  and  the  security  of 
the  overall  structure  of  the  systems  for  implementing  and  checking  the  Funds  –  coherence 
because the minimum requirements on the control and audit system must be clearly defined at 
all  levels  of  the  process,  along  with  the  tasks  and  obligations  of  the  various  parties,  and 
transparency because  all those  involved in the checks need to know the results  achieved  by 
the other parties if the effectiveness, efficiency and economy of the process is to be increased. 
Security,  because  the  Commission  must  have  an  additional  guarantee  that  the  management 
and  control  systems  are  in  place  and  that  they  are  conform  to  the  minimum  requirements 
defined  in  the  regulation  before  being  able  to  proceed  with  the  first  interim  reimbursement, 
through  an  initial  assessment  of  the  system  which  will  be  established  by  an  independent 
auditor  of  the  Member  state,  previously  agreed,  and  transmitted  at  the  same  moment  as  the 
description of the systems. 

The Commission has also proposed that the extent of its involvement in the checks should be 
proportionate to the assessed level of risk of irregularities. Accordingly, its proposal provides 
that  where  it  has  assurance  on  the  existence  and  smooth  functioning  of  the  national 
management  and  control  systems,  it  may  legitimately  base  its  assurance  of  the  legality  and 
regularity of the expenditure declared on the results of the national checks, and so reduce its 
own checks to exceptional situations. 

Using  the  same  approach  based  on  risk  assessment,  the  Commission  has  proposed  that  the 
degree  of  Community  intervention  in  the  management  and  control  procedures  should  also 
depend on the size of the Community contribution to the assistance. The principle followed is 
that the Community rules lay down a common threshold of minimum conditions to which all 
management  and  internal  control  systems  involved  in  the  management  of  the  Community 
Funds  must  conform  in  any  event,  while  at  the  same  time  it  allows  the  Member  States  to 
apply  their  own  rules  and  management  and  inspection  structures  where  part-financing  is 
mainly  national  and  the  Community  contribution  is  below  a  certain  threshold.  These 
arrangements  would  in  any  case  apply  only  if  the  Commission  received  assurance  on  the 
reliability of the national management and inspection systems. 

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Against  this  general  background,  the  more  specific  guidelines  on  the  division  of 
responsibilities  which  guided  the  Commission  in  drawing  up  its  proposals  should  be 
described. 

A. 

The Commission’s responsibilities 

The  Commission  is  obliged  to  propose  legislation  which  clearly  defines  the  responsibilities 
and  obligations  of  both  parties  in  shared  management  and  the  arrangements  for  their 
cooperation. 

These  include  firstly  the  definition  of  essential  minimum  standards  which  national 
management  and  inspection  systems  must  meet  and  the  financial  corrections  to  be  applied 
where irregularities revealing the non-compliance of these systems are detected. 

Clear legislation should also stipulate that the role of the Commission, from the point of view 
of  budgetary  management,  is  to  supervise  the  existence  and  smooth  functioning  of  the 
national  management  and  inspection  systems  and  must  describe  how  these  will  operate  to 
prevent irregularities. 

The result is that, as regards audit, the Commission will continue to concentrate on evaluating 
management  and  control  systems  and  on  the  procedural  and  management  weaknesses 
identified by risk analysis, without giving up its right to inspect individual operations where 
necessary, for example when a Member State fails to follow up an irregularity. 

B. 

The Member States’ responsibilities 

The role of the Member States should concentrate on their obligations to: 

•  provide  the  Commission  at  the  beginning,  before  implementation  of  a  programme  and 
before  being  able  to  make  interim  payments,  with  adequate  assurance,  delivered  by  an 
independent  body  approved  by  the  Commission,  attesting  the  quality  and  conformity  of 
their  management  and  control  systems  in  terms  of  defined  standards,  and  certifying  that 
their accounting system is correct. Where necessary, this assurance is to be accompanied 
by reservations and an action plan. If the assurance is with reservations, the Member State 
will  have  to  present  a  corrective  action  plan  to  be  implemented.  Only  the  satisfactory 
implementation  of  the  corrections  of  the  management  and  control  system  foreseen  in  the 
action plan will allow the Commission to make the interim payments. 

•  provide annual assurance delivered by an audit authority on the expenditure declared and 
the  correct  operation  of  the  management  and  control  system  and/or  the  detection  and 
correction  of  the  weaknesses  identified  by  on-the-spot  checks  on  the  use  made  of  the 
Structural Funds. 

•  provide a declaration of the validity of the amounts certified on closure of the operational 
programmes  on  the  basis  of  the  audits  and  checks  on  the  operations  carried  out  during 
programming. 

Application of the financial corrections to the beneficiaries of the Funds who do not comply 
with the conditions governing the grant from the Structural Funds is primarily a matter for the 
Member  States,  who  will  deduct  the  expenditure  concerned  from  the  declarations  to  the 
Structural Funds. 

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C. 

Consequences of non-compliance 

As stated in the Third Report on economic and social cohesion, application of the principle of 
efficiency  and  a  greater  simplification  in  management  and  financial  checks  should  be 
accompanied  by  heavier  penalties  and  measures  to  ensure  rapid  recovery  in  the  event  of 
irregularities or fraud. The rules should provide for clear consequences, particularly in terms 
of  financial  flows,  where  principles  and  minimum  standards  are  not  respected  when  a 
programme starts or a weakness in national inspection systems is detected which may result in 
irregularities or frauds in the implementation of the programme, which has not been corrected 
by the Member State. 

The rules should also include arrangements for the Commission to make financial corrections 
if a Member State does not take adequate steps to comply with its obligations. 

Nor should the Commission hesitate to make use of procedures under Articles 226 and 228 of 
the EC Treaty where it considers that Member States have failed to fulfil their obligations. 

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