Special Report No 3/2012 ‘Did the Commission successfully deal with deficiencies identified in the Member States’ management and control systems?’
Date: 2012-04-28
Institutions: European Court of Auditors
Subjects: EU Member State, EU aid, European Commission, Structural Funds, economic and social cohesion, management audit, management information system, structural expenditure

EUROPEAN
COURT OF AUDITORS

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STRUCTURAL FUNDS: DID THE COMMISSION 
SUCCESSFULLY DEAL WITH DEFICIENCIES 
IDENTIFIED IN THE MEMBER STATES’ 
MANAGEMENT AND CONTROL SYSTEMS?

EN

 
 
 
 
Special Report No 3 

 2012

STRUCTURAL FUNDS: DID THE 
COMMISSION SUCCESSFULLY DEAL 
WITH DEFICIENCIES IDENTIFIED IN 
THE MEMBER STATES’ MANAGEMENT 
AND CONTROL SYSTEMS?

(pursuant to Article 287(4), second subparagraph, TFEU)

EUROPEAN COURT OF AUDITORS

EUROPEAN COURT OF AUDITORS
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LUXEMBOURG

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Special Report No 3 

 2012

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© European Union, 2012
Reproduction is authorised provided the source is acknowledged.

Printed in Luxembourg

Special Report No 3 / 2012 – Structural Funds: Did the Commission successfully deal with deficiencies identified in the Member States' management and control systems?

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CONTENTS

Paragraph

GLOSSARY

I–IV	

EXECUTIVE	SUMMARY

1–16	

INTRODUCTION

1–7	

STRUCTURAL	FUNDS

8–16	

SYSTEM	DEFICIENCIES	AND	CORRECTIVE	ACTIONS

17–20	

AUDIT	SCOPE	AND	APPROACH

21–77	

OBSERVATIONS

21–28	

	DID	THE	COMMISSION	INITIATE	APPROPRIATE	CORRECTIVE	ACTIONS	WHEN	DEFICIENCIES	IN	THE	MEMBER	
STATES’	MANAGEMENT	AND	CONTROL	SYSTEMS	WERE	IDENTIFIED?

21–22	

	BACKGROUND	AND	AUDIT	CRITERIA

23–24	

	CORRECTIVE	ACTIONS	WERE	SYSTEMATICALLY	INITIATED

25–28	

	IN	90 %	OF	CASES	DEFICIENCIES	IDENTIFIED	WERE	APPROPRIATELY	ADDRESSED

29–41	

WERE	THE	CORRECTIVES	ACTIONS	IMPLEMENTED	WITHIN	A REASONABLE	TIME?

29–31	

	BACKGROUND	AND	AUDIT	CRITERIA

32–34	

ON	AVERAGE,	30	MONTHS	TO	IMPLEMENT	CORRECTIVE	ACTIONS

35–39	

	THE	MEMBER	STATE	AUTHORITIES	WERE	PRIMARILY	RESPONSIBLE	FOR	THE	DELAYS	INCURRED	BUT	THE	
COMMISSION	ALSO	CAUSED	DELAYS	…

40–41	

	…	AND	SOME	ACTIONS	HAVE	BEEN	TAKEN	BY	THE	COMMISSION	TO	REDUCE	THIS	TIME

42–77	

	DID	THE	COMMISSION	HAVE	SUFFICIENT	ASSURANCE	WHEN	IT	CONCLUDED	THAT	DEFICIENCIES	HAD	BEEN	
REMEDIED?

42–43	

BACKGROUND	AND	AUDIT	CRITERIA

44–46	

VARIOUS	WAYS	FOR	THE	COMMISSION	TO	OBTAIN	ASSURANCE

47–52	

	FINANCIAL	CORRECTIONS	ADOPTED	FOR	MOST	PROGRAMMES	…

53–57	

	…	BUT	HIGH	ASSURANCE	OBTAINED	IN	RESPECT	OF	THE	ACCURACY	OF	FINANCIAL	CORRECTIONS	IN	ONLY	
67 % OF	CASES	…

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58–64	

	…	AND	SIGNIFICANTLY	LESS	ASSURANCE	IN	RESPECT	OF	THE	EFFECTIVE	FUNCTIONING	OF	THE	MANAGEMENT	
AND	CONTROL	SYSTEMS

65–72	

…	THEREFORE	FURTHER	ASSURANCE	HAS	TO	BE	OBTAINED	FROM	THE	CLOSURE	PROCESS	…

73	

	…	EVEN	THOUGH	FURTHER	FINANCIAL	CORRECTIONS	MAY	NOT	HAVE	ANY	IMPACT	AS	THE	EXPENDITURE	
DECLARED	EXCEEDS	THE	BUDGET	ALLOCATED

74–77	

FURTHER	EFFORTS	REQUIRED	FOR	SYSTEMS	TO	BE	EFFECTIVE	FOR	THE	2007–13	PROGRAMMING	PERIOD

78–88	

CONCLUSIONS	AND	RECOMMENDATIONS

80–81	

	THE	COMMISSION	TAKES	THE	APPROPRIATE	ACTIONS	WHEN	DEFICIENCIES	IN	MEMBER	STATES’	SYSTEMS	
ARE	IDENTIFIED	BUT	THE	PROCESS	UNTIL	IMPLEMENTATION	IS	LENGTHY

82	

	THE	COMMISSION	HAD	SOME	SUCCESS	IN	ENSURING	THAT	FINANCIAL	CORRECTIONS	WERE	CORRECTLY	
APPLIED

83–84	

	THE	COMMISSION	WAS	LESS	SUCCESSFUL	IN	OBTAINING	ASSURANCE	THAT	ITS	ACTIONS	LED	TO	
IMPROVEMENTS	IN	NATIONAL	MANAGEMENT	AND	CONTROL	SYSTEMS

85	

SCOPE	FOR	IMPROVEMENT

86–88	

	SUBSTITUTION	OF	INELIGIBLE	EXPENDITURE	DESERVING	CONSIDERATION	IN	THE	CONTEXT	OF	DECISIONS	
ABOUT	FUTURE	SPENDING	ON	COHESION

ANNEX		 —	 PROGRAMMES	COVERED	BY	THE	DESK	REVIEW

REPLY	OF	THE	COMMISSION

Special Report No 3 / 2012 – Structural Funds: Did the Commission successfully deal with deficiencies identified in the Member States' management and control systems?

Special Report No 3 / 2012 – Structural Funds: Did the Commission successfully deal with deficiencies identified in the Member States' management and control systems?

	
GLOSSARY

5

Article	13	report: Annual report, established according to Article 13 of Commission Regulation (EC) No 
438/2001, disclosing the results of second level checks and sent to the Commission.

Closure	process: On the basis of a winding-up declaration, financial settlement of outstanding EU commit-
ments for a programme through payment of the balance to the Member State or the issue of a debit note. Final 
settlement does not prejudice the Commission’s right to adopt financial corrections at a later stage.

Corrective	actions: Actions requested by the Commission after identification of deficiencies in management 
and control systems. They consist in the implementation of financial corrections with regard to expenditure 
already declared to the Commission and in changes in the systems to make them effective.

Error	rate: The irregular expenditure found as a proportion of total expenditure checked.

European	Regional	Development	Fund	(ERDF): One of the Structural Funds which aims to reinforce eco-
nomic and social cohesion by redressing the main regional imbalances through support for the development 
and structural adjustment of regional economies. It also supports cross-border, transnational and interregional 
cooperation. ERDF interventions are implemented through programmes involving a large number of projects.

European	Social	Fund	(ESF): One of the Structural Funds which aims to strengthen economic and social 
cohesion by improving employment and job opportunities, encouraging a high level of employment and more 
and better jobs. ESF interventions are implemented through programmes involving a large number of projects.

Financial	correction: Procedure consisting in disallowing an amount of expenditure already paid by the Com-
mission to a Member State because it was found irregular. When Member States make such corrections them-
selves, they may substitute the irregular amounts with other eligible expenditure. If the Member State fails to 
make them, the Commission may apply financial corrections itself. In such cases, irregular expenditure may not 
be substituted by other eligible expenditure, leading to a net reduction in the Structural Funds contribution.

First	level	checks	(Article	4	checks	in	the	regulation): Procedures carried out by the body in charge of the 
management of a programme according to Article 4 of Commission Regulation (EC) No 438/2001. The aim is to 
verify the reality of expenditure claimed and to ensure compliance with applicable national and EU rules. These 
rules concern in particular the eligibility of expenditure under the programme concerned, public procurement 
and state aid. The first level checks are part of the management and control systems.

Irregular	expenditure: Expenditure that is ineligible as not complying with EU and/or national rules or that 
is overstated.

Management	and	control	systems: Systems put in place to manage and control the assistance granted 
under the Structural Funds that is administered by the Member States. They should ensure the sound financial 
management of the Structural Funds and provide adequate assurance of the correctness, regularity and eligi-
bility of the expenditure declarations presented to the Commission.

Managing	authority: Authority designated by the Member State to manage a programme. It may decide to 
delegate tasks to so-called intermediate bodies.

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Operational	programme	and	single	programming	document,	called	‘programmes’	in	the	report: Docu-
ments prepared at central or regional level in a Member State and approved by the Commission, which should 
take the form of a coherent set of priorities comprising measures. The projects to be co-financed by the Struc-
tural Funds must fall within the scope of a measure. A Community support framework (strategy and priorities 
for action of the Structural Funds and the Member State to be implemented through various programmes) and 
an operational programme can be merged to take the form of a ‘single programming document’. A budget is 
established for each programme and is made up of national, regional and local public funds on the one hand 
and the Structural Funds co-financing on the other hand.

Paying	authority: Authority designated by the Member State for the purposes of drawing up and submitting 
payment applications and receiving payments from the Commission.

Programming	period: Multiannual framework within which Structural Funds expenditure is planned and 
implemented, such as the period 2000–06.

Second	level	checks	(sample	checks	or	Article	10	checks	in	the	regulations): Checks carried out by 
a body independent of the managing and paying authority according to Article 10 of Commission Regulation 
(EC) No 438/2001. The aim is to verify the effectiveness of the management and control systems in place and, 
selectively, expenditure declarations made at the various levels. The checks are carried out on the basis of 
a representative sample of the projects approved. They have to cover at least 5 % of the total eligible expendi-
ture already declared to the Commission and to be equally spread over the programming period. The results 
of these checks are reported to the Commission in annual reports (the Article 13 reports) and are the basis for 
the winding-up declaration of a programme. The second level checks are part of the management and control 
systems.

Structural	Funds: The EU’s principal policy instrument in support of the Treaty objectives of economic and 
social cohesion. ERDF and ESF are the two Structural Funds.

Winding-up	body: Body issuing the winding-up declaration at the end of the programming period. It can be 
the same as the body carrying out the second level checks.

Winding-up	declaration: Opinion provided by the winding-up body on the validity of the final request for 
payment and the final certificate of expenditure presented for a programme co-financed by Structural Funds. 
Important management and control weaknesses or a high frequency of irregularities should lead to a negative 
opinion. In case of a high frequency of irregularities, the opinion shall refer to these circumstances and shall 
estimate the extent of the problem and its financial impact.

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EXECUTIVE SUMMARY

I.
When  significant  deficiencies  are  identified  in  the 
Member States’ management and control systems, the 
Commission’s objective is to ensure that past irregu-
larities are corrected and that systems are improved 
for the future. To do so, the Commission can:

(a)  request the Member States to implement finan-
cial corrections. Where a Member State does not 
agree,  the  Commission  can  impose  a  financial 
correction;

(b)  request  the  Member  States  to  implement  cor-
rective  actions  so  that  the  expenditure  still  to 
be  declared  is  processed  by  effective  systems 
able to prevent or otherwise detect and correct 
irregularities;

(c)  suspend payments until appropriate corrections 

are carried out.

II.
The Court’s audit was mainly carried out on the basis 
of a review of 40 programmes in which significant 
deficiencies had been identified. It aimed at assess-
ing whether the Commission dealt in a satisfactory 
way with deficiencies identified in the Member States’ 
management and control systems and in particular 
whether:

(a)  the Commission initiated appropriate corrective 

actions;

(b)  the Commission ensured the timeliness of their 

implementation;

(c)  the Commission had sufficient assurance that its 
actions led to appropriate financial corrections 
in respect of past irregularities and to improve -
ments in the systems to prevent the recurrence 
of irregularities.

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EXECUTIVE SUMMARY

III.
Overall the Court concluded that:

IV.
The Court recommends that:

(a)  the Commission generally takes the appropriate 
actions  when  deficiencies  in  management  and 
control  systems  are  identified  but  the  process 
until implementation is lengthy;

(b)  the  Commission  had  some  success  in  ensuring 
that financial corrections were correctly applied;

(c)  the Commission obtained varying degrees of as-
surance that its actions led to improvements in 
national management and control systems;

(d)  the  Member  State  authorities  were  able  to  re -
place ineligible expenditure disallowed by new 
expenditure and to have a buffer to compensate 
for further financial corrections.

(a)  as far as the implementation of corrective actions 

is concerned the Commission should:

 — reduce the duration of the administrative pro-
cedure from identification of deficiencies until 
implementation of corrective actions;

 — give higher priority to its audit work on the 
audit authorities to ensure that they produce 
robust error rates so that financial corrections 
can  be  applied  on  the  basis  of  these  error 
rates;

 — disseminate checklists that serve as best prac-
tice to be followed by the Member State au-
thorities for their first level checks;

 — ensure that financial corrections implemented 
before closure cover all expenditure incurred 
under  deficient  management  and  control 
systems;

(b)  as far as the substitution of ineligible expenditure 
is concerned the Commission, the Council and the 
European Parliament should:

 — reconsider when discussing future plans for 
spending on cohesion whether any changes 
should be made to the arrangements regard-
ing  the  possibilities  for  substitution  of  ex-
penditure found to be ineligible, in order to 
enhance the added value of European funds.

Special Report No 3 / 2012 – Structural Funds: Did the Commission successfully deal with deficiencies identified in the Member States' management and control systems?

Special Report No 3 / 2012 – Structural Funds: Did the Commission successfully deal with deficiencies identified in the Member States' management and control systems?

INTRODUCTION

9

1.	

2.	

STRUCTURAL	FUNDS

Structural Funds represent about one third of the EU budget. Table 1 
shows the financial resources dedicated to the main funds for the 2000–
06 and 2007–13 programming periods (as at 3 January 2012).

Management of Structural Funds expenditure is shared between the 
Commission  and  the  Member  States 1:  Member  States  prepare  multi-
annual programmes which are assessed and approved by the Commis-
sion and later implemented by the Member States. The Commission has 
to ensure that Member States have smoothly functioning management 
and control systems so that EU funds are efficiently and correctly used. 
The Commission bears the ultimate responsibility for the implementation 
of the EU budget2.

1  At the Commission, 
the European Regional 
Development Fund is 
managed by the the 
Directorate-General for 
Regional Policy (Regional 
Policy DG) and the European 
Social Fund by the Directorate-
General for Employment, 
Social Affairs and Inclusion 
(Employment, Social Affairs 
and Inclusion DG).

2  Articles 17(1) TEU and 
317 TFEU.

TABLE	1

FINANCIAL	RESOURCES	FOR	THE	STRUCTURAL	FUNDS

(billion euro)

2000–06

2007–13

Total  
allocation1

Amount paid to 
Member States

Total  
allocation1

Amount paid to 
Member States

European Regional 
Development Fund (ERDF)

129,6

124,3

200,3

European Social Fund (ESF)

68,5

64,5

76,6

68,7

27,1

1  Financial resources made available to the ERDF and the ESF in the financial framework for the 
period concerned. This framework is a multiannual spending plan that translates into financial 
terms the EU’s policy priorities.

Source: Commission database InfoView.

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3.	

The management and control system for the 2000–06 period is illustrated 
in the Figure and described in the paragraphs below. The set-up for the 
2007–13 period aimed at reinforcing this system 3. Where differences are 
important in the framework of this report, they will be mentioned in the 
relevant section.

3  The responsibilities of the Commission and the Member States with regard to the 2000–06 programming period were mainly defined in 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) and in 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). With regard to the 2007–13 period, 
the responsibilities are mainly defined in Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European 
Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999 (OJ L 210, 31.7.2006, p. 25) 
and Commission Regulation (EC) No 1828/2006 of 8 December 2006 setting out rules for the implementation of Council Regulation (EC) No 1083/2006 
laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and of Regulation (EC) 
No 1080/2006 of the European Parliament and of the Council on the European Regional Development Fund (OJ L 371, 27.12.2006, p. 1).

FIGURE

MANAGEMENT	AND	CONTROL	OF	A STRUCTURAL	FUNDS	PROGRAMME

Project 
promoter

First level checks

Checks

Audits

Project 
promoter

Expenditure
incurred

Managing authority/
Intermediate body

Aggregated
expenditure

Paying
authority

Certified
expenditure
declaration

European 
Commission

Project 
promoter

First level checks

Second level checks

Independent body/
Winding-up body

Payment

Yearly reporting &
winding-up declaration 
at closure

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4.	

5.	

6.	

7.	

Individual projects proposed by promoters4 are appraised and approved 
by the managing authority of the programme or under its authority by 
intermediate bodies. The expenditure incurred during project implemen-
tation is reported at regular intervals to the managing authority, which 
is also responsible for carrying out first level checks. These checks are 
done to ensure the legality and regularity of expenditure.

The expenditure incurred by the various project promoters is then ag-
gregated and forwarded to the paying authority, which is responsible for 
certifying expenditure declarations sent to the Commission. The paying 
authority has to make sure that the managing authority has adequately 
fulfilled its tasks and that the statement of expenditure only includes 
legal and regular expenditure. On the basis of this certified expenditure 
declaration the Commission pays the Structural Funds co-financing 5 
amount to the Member States.

A body, which must be independent of the managing and the paying 
authorities, is responsible for carrying out second level checks designed 
to verify the effectiveness of the systems in place and the expenditure 
declarations made at the various levels. The results, which particularly 
towards the end of the 2000–06 period often included error rates for 
expenditure checked, are reported yearly to the Commission in the so-
called annual Article 13 reports6.

After the programming period, the programmes enter the closure proc-
ess  where  the  Commission  and  the  Member  States  finally  settle  the 
accounts. This process starts with the submission to the Commission of 
the closure documents for the programmes, not later than 15 months 
after the end of the programming period7. They include a winding-up 
declaration in which the winding-up body, which can be the same as 
the independent body, has to provide an opinion on the legality and 
regularity of the expenditure included in the certified statement of final 
expenditure. The main building block for this opinion is the error rate 
as established at the level of a programme by the second level checks 
that were carried out during the programming period by the independ-
ent body.

4  Promoters can be 
public or private bodies 
and persons. Example of 
a public promoter: a road 
administration implementing 
the construction of a new 
highway. Example of a private 
promoter: a private company 
that intends to rationalise its 
production process by the 
purchase of new machinery.

5  The budget allocated to 
a programme is financed by 
public funds of the Member 
State, private funds and 
Structural Funds.

6  The reports take this name 
as they are required under 
Article 13 of Regulation (EC) 
No 438/2001.

7  For the 2000–06 
programming period, 
expenditure was eligible for 
most programmes from the 
moment the Commission 
received the request for 
approval of the programme 
(mostly 1 January 2000) 
until 30 June 2009. The 
closure process started 
with the submission of the 
documents 15 months after 
this deadline, that is on 30 
September 2010. However, 
for some programmes, the 
process started earlier as 
31 December 2008 was 
set as the end date for 
eligibility while for the Greek 
programmes it started later 
as they benefited from an 
extension of the end date for 
eligibility up to 31 December 
2009.

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8  Regarding the 
1994–99 programming 
period, see Commission 
Regulation (EC) No 2064/97 of 
15 October 1997 establishing 
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). This 
regulation was repealed by 
Regulation (EC) No 438/2001 
which applied for the 2000–06 
period.

9  The checks carried out 
by the paying authorities 
(see paragraph 5) were not 
considered as part of the key 
elements as they were rarely 
of a nature to compensate 
for deficient first and second 
level checks. They also were 
rarely the subject of extensive 
corrective actions.

8.	

9.	

10. 

11. 

SYSTEM	DEFICIENCIES	AND	CORRECTIVE	ACTIONS

The requirements with regard to the control systems in the Member 
States (such as bodies to be nominated and checks to be carried out) 
were defined for the first time in the middle of the 1994–99 program-
ming period 8. They were further developed in the regulations for the 
following programming periods.

Systems are effective when they prevent or otherwise detect and correct 
irregular expenditure. The key elements in the systems for the 2000–06 
period are the first- and second level checks9:

(a) 

(b) 

the first level checks have to be done before expenditure is de-
clared to the Commission and have to cover all expenditure decla-
rations submitted by a project promoter unless there is justification 
to do it on a sample basis;

the second level checks have to cover both the systems in place 
as well as expenditure declared for projects. Checks on projects 
have to be done on a sample covering a minimum of 5 % of the 
expenditure already declared to the Commission but do not need 
to be carried out on a statistically representative sample. The ir-
regular expenditure found in the sample as a proportion of the 
total expenditure checked is the error rate.

When these checks are deficient, the risk of declaring and paying for 
irregular expenditure is high. This is confirmed by the continously high 
error rates identified by the Court in its yearly audits of the programming 
period 2000–06. Examples of system deficiencies and errors are given in 
Box 1.

Deficiencies in the management and control systems are identified by 
the Commission on the basis of its own audits, of audits of the European 
Court of Auditors or audits and checks of Member State authorities (such 
as disclosed in the Article 13 reports). The Employment, Social Affairs and 
Inclusion DG and the Regional Policy DG provide their assessment on 
the effectiveness of the systems for each approved programme in their 
annual activity reports.

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12. 

Once the deficiencies are identified, the following courses of action are 
available to the Commission10:

10  See Articles 38 and 39 
of Regulation (EC) 
No 1260/1999.

(a) 

(b) 

to suspend payments until deficiencies are remedied, after send-
ing a so-called pre-suspension letter requesting the Member State 
authorities to submit their comments;

to  request  the  Member  States  to  implement  corrective  actions. 
Depending on the source of identification of the deficiencies, the 
Commission’s request takes the form of recommendations either 
in its audit reports or in letters referring to observations in reports 
from other authorities. They can be complemented by separately 
agreed action plans.

BOX	1

EXAMPLES	OF	SYSTEM	DEFICIENCIES	AND	ERRORS

Low coverage of expenditure by first level checks or insufficient quality of the first level checks increase the 
risk of non-detection of irregular expenditure such as:

 ο ineligible expenditure: for example, if the expenditure declared concerning a project not located in an 

eligible area is detected in an audit, this irregularity will result in a 100 % error rate; or

 ο expenditure not actually incurred or not documented: for example, if staff costs are declared for four 
persons working on a project and an audit detects that one person was not actually part of the project, 
the irregularity will result in a 25 % error rate. 

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13. 

The Commission’s objective is to achieve a situation where expenditure 
is legal and regular and to improve future management (see examples 
in Box 2):

11  Article 39(1) of Regulation 
(EC) No 1260/1999.

(a) 

regarding  expenditure  already  incurred  and  reimbursed  by  the 
Commission: the Member State authorities are requested to assess 
the extent of irregularities and to apply financial corrections as 
a consequence. Where a Member State agrees to make a correc-
tion, the EU funding that is released can be reused for other eligi-
ble expenditure under the programme concerned 11. If a Member 
State does not agree to implement a correction, the Commission 
can make the financial corrections itself. When the correction is 
made by the Commission, EU funds are lost for the Member State 
concerned;

(b) 

regarding expenditure still to be declared to the Commission: the 
Member State authorities are requested to implement changes in 
the management and control systems to make them effective.

BOX	2

EXAMPLES	OF	ACTIONS	REQUESTED	BY	THE	COMMISSION	TO	CORRECT	DEFICIENCIES

Following audits it had carried out in a Member State, the Commission requested the implementation of an action 
plan which concerned three programmes and dealt with public procurement12. It included the following actions:

 ο to carry out, on a statistical sampling basis, a retrospective verification of public procurement contracts for 

which expenditure had been declared and to quantify the financial impact of the errors found;

 ο to revise the methodology for checking the legality of public procurement procedures and send a description 

to the Commission.

In another case, inadequate first level checks were found by the Commission during an audit. It requested the 
national authorities:

 ο to increase the number of expenditure items to be checked;

 ο to ensure that the eligibility rules were verified in the first level checks (a sufficient level of detail should appear 

in the checklist used).

12  There are European directives which set out the rules to be followed for public works, services and supplies contracts if the initial budget for 
these contracts exceeds the ceilings defined in the directives. The directives of the European Parliament and of the European Council currently 
in force (and transposed into law at the level of the Member States) are Directive 2004/17/EC of the European Parliament and of the Council 
of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors 
(OJ L 134, 30.4.2004, p. 1) and Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination 
of procedures for the award of public works contracts, public supply contracts and public service contracts (OJ L 134, 30.4.2004, p. 114). 
For contracts that are not subject to the provisions of the directives (budget not exceeding the ceiling), there may be specific provisions in 
national or regional laws.

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14. 

15. 

16. 

Once the Commission has sufficient and reliable evidence of the suc-
cessful implementation of the actions requested, it can close the actions 
and/or lift the suspensions and restart payments for the expenditure 
declarations received.

The Commission’s last opportunity to deal with system deficiencies is 
during the closure process that is currently ongoing for the 2000–06 
programming period. The Commission does quality checks to obtain 
assurance inter alia on the validity of the error rate presented in the 
winding-up declaration. Where the final error rate validated by the Com-
mission exceeds 2 %, the Commission will impose financial corrections 
on an extrapolated basis. Irregular amounts are corrected individually 
when error rates are below 2 %.

In 2008, following the Court’s annual report of 2006, the Commission 
adopted an action plan13 to strengthen its supervision of Member States. 
The objective was to address the high level of errors in reimbursements 
for structural actions and weaknesses in the Member States’ systems. 
Two years later, in February 201014, the Commission concluded that the 
first audits of the 2007–13 programmes indicated positive results and 
the numerous preventive actions taken for closure, including financial 
corrections, provided expectations that at closure the overall risk of error 
would be substantially lower, reducing the risk of loss to the EU budget15.

15

13  ‘An action plan to 
strengthen the Commission’s 
supervisory role under shared 
management of structural 
actions’, COM(2008) 97 final 
of 19 February 2008. This 
action plan, which concerns 
the Commission itself, is not 
to be confused with a type 
of corrective action, also 
called ‘remedial action plan’, 
requested by the Commission 
and to be implemented 
in the Member States (see 
paragraph 12).

14  ‘Impact of the action 
plan to strengthen the 
Commission’s supervisory role 
under shared management of 
structural actions’, COM(2010) 
52 final of 18 February 2010.

15  According to the annual 
accounts of the European 
Union for the year 2010, the 
total amount of financial 
corrections confirmed 
for the period 2000–06 is 
4 165 million euro for ERDF 
and 1 174 million euro for 
the ESF. The total amount of 
financial corrections reported 
for the period 1994–99 is 
1 758 million euro for the 
ERDF and 397 million euro for 
the ESF.

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AUDIT SCOPE AND APPROACH

16

17. 

The  audit  assessed  whether  the  Commission  dealt  successfully  with 
deficiencies identified in the Member States’ management and control 
systems.

18. 

The Court addressed the following sub-questions:

(a)  Did  the  Commission  initiate  the  appropriate  corrective  actions 
when deficiencies in the Member States’ management and control 
systems were identified?

(b)  Were the corrective actions implemented within a reasonable time?

(c)  Did the Commission have sufficient assurance when it concluded 

that deficiencies had been remedied?

19. 

The audit focused on the actions taken by the Commission to correct de-
ficiencies found mostly from 2005–06 onwards, on ERDF and ESF 2000–06 
programmes.

20. 

The audit was based on the review of:

(a) 

the 210 programmes for which significant deficiencies had been 
identified by the Commission between 2006 and 2008 (see Table 2), 
in order to assess whether it took action each time deficiencies 
were identified;

(b)  a  random  sample  of  40  programmes  (see  the  Annex)  (23  pro-
grammes for the ERDF and 17 programmes for the ESF with a total 
budget allocated of 43 109 million euro) in order to assess the ap-
propriateness of the actions taken, the time spent to implement the 
actions, and the degree of assurance obtained by the Commission 
to draw conclusions in respect of these actions. On-the-spot visits 
were carried out for four programmes of the sample;

(c) 

the evaluation by the Commission, in its annual activity reports 
(see paragraph 11) for the 2007–13 programming period, of the 
degree of assurance it has on the effectiveness of the management 
and control systems of the successor programmes of the 40 pro-
grammes sampled.

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TABLE	2

POPULATION	OF	PROGRAMMES

Programmes in total1

Programmes for which significant deficiencies were identified by 
the Commission between 2006 and 2008

Programmes for which financial corrections were agreed by the 
Commission and Member States

Programmes for which a suspension decision was taken by the 
Commission

ERDF

223

113

110

27

ESF

212

97

58

5

1  This population does not include programmes for Interreg (promotion of cross-border, 
transnational and inter-regional cooperation), Urban (promotion of economic and social 
regeneration of cities and urban neighbourhoods in crisis) and Equal (promotion of the 
development of human resources in the context of equal opportunities). One and the same 
programme can include some measures co-financed by the ESF and others co-financed by the 
ERDF. In such cases the programme is to be found both in the ERDF and the ESF column.

Source: European Court of Auditors on the basis of Commission data.

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OBSERVATIONS

18

DID	THE	COMMISSION	INITIATE	APPROPRIATE	
CORRECTIVE	ACTIONS	WHEN	DEFICIENCIES	IN	THE	
MEMBER	STATES’	MANAGEMENT	AND	CONTROL	
SYSTEMS	WERE	IDENTIFIED?

BACKGROUND	AND	AUDIT	CRITERIA

21. 

In order to adequately fulfil its supervisory role, the Commission has to 
initiate a procedure with the responsible Member State authorities once 
it becomes aware of significant deficiencies in the management and 
control systems of a programme. The aim of this procedure is to define 
relevant corrective actions to be implemented by the Member State 
authorities so that irregular expenditure already declared is corrected 
and that the systems become effective.

22. 

The Court assessed whether:

(a) 

the Commission took action each time significant deficiencies were 
identified;

(b)  all significant deficiencies were addressed by appropriate correc-

tive actions.

23. 

24. 

CORRECTIVE	ACTIONS	WERE	SYSTEMATICALLY	INITIATED

An examination of the 210 programmes, for which significant deficiencies 
had been identified between 2006 and 2008, shows that the Commission 
took action in all cases.

When the Commission formulated requests on the basis of information 
found in Article 13 reports (which was mainly the case for the Employ-
ment, Social Affairs and Inclusion DG), they were necessarily formulated 
in general terms as detailed information on deficiencies was not avail-
able. In the majority of cases (around 75 %) these requests based on the 
Article 13 reports did not lead to financial corrections.

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25. 

26. 

27. 

IN	90 %	OF	CASES	DEFICIENCIES	IDENTIFIED	WERE	APPROPRIATELY	
ADDRESSED

For the majority of the 40 programmes reviewed by the Court, the Com-
mission’s actions to improve the systems in the Member States tackled 
all the deficiencies identified.

When it identified errors on projects which were potentially systemic in 
character16, the Commission requested action to be taken with regard to 
other expenditure that was likely to be affected. Furthermore, in some 
instances, the findings for one or more programmes implemented in 
a specific Member State led the Commission to request action on other 
programmes in that Member State, even though they had not been au-
dited. An example of such an extension of a request for action is given 
in Box 3.

For the majority of the 40 programmes which the Court reviewed (90 %), 
the actions requested by the Commission were the appropriate response 
to the deficiencies identified. An example where the response was not 
complete is given in Box 4.

16  An error is considered as 
systemic when there is a high 
probability that the same 
problem may affect other 
projects in a similar manner. 
It is then necessary to identify 
the extent of this systemic 
error. Example: a project 
promoter has wrongly 
interpreted an eligibility rule. 
If the promoter carried out 
several projects, these may 
all be subject to the same 
misinterpretation and thus 
irregular expenditure might 
have been declared for all of 
these projects.

BOX	3

EXAMPLE	OF	AN	EXTENSION	OF	A REQUEST	FOR	ACTION	TO	PROGRAMMES	NOT	
AUDITED

Audits carried out by the Commission on two programmes in a Member State (Sardinia and Lazio) identified 
problems with regard to the application of public procurement rules. As these problems were considered to 
be of systemic nature, the Commission did not limit its request to carrying out financial corrections for the 
projects audited only. The Member State was requested to carry out a check on a representative sample of all 
contracts subject to public procurement rules and for all its programmes. On the basis of the results, financial 
corrections were made.

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28. 

The extent of the Commission’s demands varied sometimes, in particular 
with regard to the implementation of the first level checks as shown 
by  the  examples  in  Box  5. While  for  some  programmes  the  authori-
ties checked 100 % of expenditure declared, for other programmes this 
percentage  was  as  low  as  1  %. When  only  a  small  percentage  of  the 
expenditure is covered this implies a higher risk of non-detection of 
irregular expenditure, which has to be tackled no later than closure.

BOX	4

BOX	5

EXAMPLE	OF	A CASE	WHERE	THE	REQUESTED	ACTIONS	WERE	NOT	COMPLETE

An audit carried out by the Commission in 2007 for one programme (Galicia) dealt with an intermediate body 
and six bodies (out of 13) to whom the management was further sub-delegated. The audit revealed significant 
deficiencies despite the fact that the Member State authorities had carried out a number of system audits 
between 2003 and 2005. Although the Commission’s report concluded that the intermediate body should 
supervise all sub-delegate bodies and should deduct all irregular expenditure, the specific recommendations 
concerned the audited sub-delegate bodies only. These were the most important bodies in terms of amount 
of funds managed (around 80 %). Nevertheless, considering the seriousness of the issues identified (first level 
checks not working, ineligible expenditure declared, etc.), the Commission should have requested the Member 
State’s authorities to undertake further work to provide assurance that similar problems did not exist in respect 
of the non-audited bodies.

EXAMPLES	OF	MORE	OR	LESS	STRINGENT	REQUIREMENTS	WITH	REGARD	TO	FIRST	
LEVEL	CHECKS

For the programmes in one Member State (such as Extremadura), the Commission requested a minimum check 
of 25 % of the expenditure which had to be increased in case a material error rate was found.

For programmes in another Member State, the Commission accepted the guidance note of the Member State 
authorities, which did not set any numerical requirement in terms of number of projects to be checked but 
specified that, for those projects checked, supporting documentation would be analysed for five cost items per 
cost category. For example, for the programme Merseyside, supporting documentation was checked for 1,3 % 
of total expenditure declared.

For another case (Saarland), the Commission did not succeed in imposing any requirement with regard to these 
checks.

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WERE	THE	CORRECTIVE	ACTIONS	IMPLEMENTED	
WITHIN	A REASONABLE	TIME?

BACKGROUND	AND	AUDIT	CRITERIA

29. 

30. 

The period between identifying and remedying the deficiencies should 
be  as  short  as  possible  so  as  to  avoid  expenditure  continuing  to  be 
declared with a high risk of error or projects running into difficulties as 
payments are interrupted or suspended.

The length of the phase of implementation of the corrective actions 
depends on:

(a) 

the respect by the Member States of the deadlines set by the Com-
mission for individual actions;

(b) 

the Commission issuing its audit reports (identification of defi-
ciencies and follow-up audits) within the deadline set internally 
(3 months after the audit for the Regional Policy DG and 9 weeks 
for the Employment, Social Affairs and Inclusion DG) and react-
ing promptly to the replies from the Member State authorities (2 
months).

17  The calculation of the 
average time taken considers 
the point in time when the 
last actions were closed 
to be the time when the 
deficiencies have been 
remedied. However, it should 
be noted that often various 
individual actions for one 
programme were closed at 
several different points in 
time.

18  Rules such as those 
relating to public 
procurement and state aid 
are more often applicable to 
projects co-financed by the 
ERDF.

31. 

The Court assessed:

(a) 

the time taken for closing corrective actions;

(b)  where responsibility lay for delays incurred.

ON	AVERAGE,	30	MONTHS	TO	IMPLEMENT	CORRECTIVE	ACTIONS

32. 

The average time taken from identification of the deficiencies until all 
corrective actions were implemented was 30 months for the sample 
reviewed17. On average, the Employment, Social Affairs and Inclusion DG 
required less time (27 months) than the Regional Policy DG (32 months). 
This reflects differences in the type of projects co-financed and differ-
ences in the way the corrective actions were followed up:

(a) 

the issues identified in the ERDF context generally take more time 
to resolve than those found in connection with the ESF because 
of the greater variety of projects that are eligible for co-financing 
and also the larger number of rules to be verified 18. In addition, 
ERDF projects and programmes generally involve more financial 
resources than the ESF and thus the volume of  additional work 
that may have to be carried out in order to remedy the deficiencies 
identified is larger;

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(b) 

(c) 

the Regional Policy DG undertook follow-up audits for more  cases 
in the sample than the Employment, Social Affairs and Inclusion DG 
(see paragraph 46). Such audits need to be organised, announced 
and the results need to be forwarded, starting a new phase of cor-
respondence for the issues identified, if any. This time is included 
in the Court’s calculation of time spent;

in 30 % of the programmes managed by the Employment, Social 
Affairs and Inclusion DG, the identification of deficiencies did not 
result from an audit by the Employment, Social Affairs and Inclusion 
DG but from reports from Member State authorities or an audit by 
the European Court of Auditors. That means that the time taken for 
the Employment, Social Affairs and Inclusion DG was reduced as 
it did not include the period from the end of the audit where the 
deficiencies were identified until the dispatch of the results.

33. 

34. 

The calculation of the time does not include the time necessary to imple-
ment the financial corrections once they were agreed. In the majority 
of cases the financial corrections agreed were implemented promptly 
when the next expenditure declaration was presented to the Commis-
sion. For around half of them this meant that all or part of the financial 
corrections had to be implemented when the final expenditure declara-
tion was presented at the closure of the programme as it was the next 
declaration.

The Commission came to a positive conclusion in respect of the imple-
mentation of corrective actions for 87 % of the programmes reviewed by 
the Court. This included programmes — around 8 % of cases — where, 
although the file was closed, some issues were still ongoing. For the 
remaining 13 % of the programmes for which the process of implementa-
tion of corrective actions had been ongoing for an average of 35 months 
at the closure deadline, the Commission decided to handle the deficien-
cies during the closure process.

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THE	MEMBER	STATE	AUTHORITIES	WERE	PRIMARILY	RESPONSIBLE	
FOR	THE	DELAYS	INCURRED	BUT	THE	COMMISSION	ALSO	CAUSED	
DELAYS	...

With regard to the 40 programmes reviewed, in 35 % of cases delays 
were mainly the responsibility of the Member States and in 39 % the 
responsibility was shared. In a further 5 % of cases, the responsibility 
lay mainly with the Commission. In 21 % of cases, there were prompt 
reactions from both sides.

Some authorities in the Member States accepted the deficiencies and 
agreed to take the required actions. Other authorities contested the 
deficiencies and only started to take action after it became clear that 
the Commission maintained its position (see Box 6).

The Commission was sometimes slow in forwarding the result of its au-
dits to the Member State authorities. For 16 % of the audits carried out 
by the Commission on the 40 programmes, this took approximately one 
year while the deadline set internally by the Commission is 3 months or 
9 weeks after the audit, depending on the DG (see paragraph 30 (b)).

35. 

36. 

37. 

BOX	6

EXAMPLES	OF	DIFFICULT	COOPERATION	BETWEEN	THE	COMMISSION	AND	MEMBER	
STATE	AUTHORITIES

The Commission had identified several deficiencies in its audits of mid-2006 with regard to a number of pro-
grammes (such as Southern and Eastern Region) in one Member State (Ireland). The competent authorities in 
the Member State had taken the lead role in the action plan and it was difficult — sometimes impossible — for 
the Commission to obtain the requested information. The corrective actions were still to be finalised at closure 
of the programme.

For another programme (Sardinia), the Member State authorities contested the corrective actions requested by 
the Commission. The Commission maintained its position in several subsequent letters. It was only 20 months 
after the first request that the Member State authorities accepted the Commission’s point of view for 25 out of 
33 corrective actions.

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38. 

39. 

40. 

41. 

With regard to the 40 programmes reviewed, a pre-suspension letter 
was sent in 60 % of cases, on average 16 months after the identification 
of the deficiencies. A suspension decision was taken in 10 % of cases. 
Finally, in several cases the Commission could not send such a letter or 
take a suspension decision anymore as there were no further payments 
to be made before the closure process.

Considering the small number of suspension decisions in the sample, it 
is not possible to conclude whether and to what extent such decisions 
would have speeded up the process.

...	AND	SOME	ACTIONS	HAVE	BEEN	TAKEN	BY	THE	COMMISSION	TO	
REDUCE	THIS	TIME

Under its action plan of 2008 (see paragraph 16), the Commission en-
deavoured to meet a target of 24 months from the identification of defi-
ciencies to the conclusion of suspension/financial correction procedures. 
It was, however, too late for this target to have a significant impact on 
the average time necessary for implementing corrective actions in the 
2000–06 programming period.

The regulation for the 2007–13 period makes it possible to interrupt 
payments and to decide on a financial correction without preliminary 
suspension proceedings. The Commission’s expectation is that this will 
encourage Member State authorities to react rapidly when problems are 
identified. It is also to be noted that, as the purpose of an interruption 
or a suspension is to prevent any irregular payments by the Commission 
until corrective actions for the deficiencies identified are implemented, 
it is likely to have a positive impact on the annual error rates as reported 
by the Court.

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DID	THE	COMMISSION	HAVE	SUFFICIENT	
ASSURANCE	WHEN	IT	CONCLUDED	THAT	
DEFICIENCIES	HAD	BEEN	REMEDIED?

BACKGROUND	AND	AUDIT	CRITERIA

42. 

When the Commission concludes that significant deficiencies have been 
satisfactorily addressed (which was the case for 87 % of the sample of 
40 programmes reviewed, see paragraph 34) this should be based on 
robust evidence concerning the corrective actions taken. These actions 
took the form of:

(a) 

financial corrections required on the basis of an assessment of the 
extent of error in the expenditure already declared; and

(b) 

improvements in the systems to make them effective in prevent-
ing or otherwise identifying and correcting irregular expenditure.

43. 

The Court examined whether the Commission:

(a)  had sufficient assurance that appropriate financial corrections had 
been implemented and that the systems were improved to avoid 
a repetition of similar errors;

(b)  assessed that the successor programmes were free of significant 

deficiencies in the 2007–13 programming period.

VARIOUS	WAYS	FOR	THE	COMMISSION	TO	OBTAIN	ASSURANCE

44. 

The Commission has various means to obtain assurance that the cor-
rective actions were satisfactorily implemented. The Commission can 
obtain assurance through carrying out follow-up audits. Otherwise, it can 
rely on statements/commitments made by the Member State authori-
ties or make an assessment on the basis of supporting documentation 
provided by the Member State authorities. Supporting documentation 
may include a description of the methodology used for sample selection 
and additional verifications, updated checklists and reports on individual 
checks carried out. These methods can be combined.

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45. 

46. 

These  sources  do  not  necessarily  provide  the  same  degree  of  assur-
ance. This is demonstrated by the fact that, when the Commission used 
follow-up audits to check the reliability of statements made and results 
of checks carried out by Member State authorities, it ended with a posi-
tive conclusion in only 22 % of the cases after the first follow-up audit. In 
all other cases, the Commission had to ask for further corrective actions 
and, for some, carried out further follow-up audits.

The Commission has to consider the resources necessary to obtain po-
tentially more reliable evidence: the human resources and time needed 
are  much greater  for a  follow-up audit  than when the  assessment  is 
based on supporting documentation or statements provided by Member 
States (see example in Box 7). As a consequence, the Commission has 
to perform a balancing act between the degree of assurance it wants 
to  obtain  and  the  degree  of  reliance  it  decides  to  place  on  Member 
State authorities on the basis of a risk analysis. Nevertheless, follow-up 
audits were carried out before concluding that corrective actions were 
satisfactorily implemented: this was the case for 89 % of the sampled 
programmes managed by the Regional Policy DG and 47 % of those for 
the Employment, Social Affairs and Inclusion DG.

BOX	7

EXAMPLE	OF	RISK	INCURRED	WHEN	A FINDING	IS	CLOSED	ON	THE	BASIS	OF	
A COMMITMENT/STATEMENT	BY	A MEMBER	STATE	AUTHORITY

For one programme (East of Scotland), the Commission had noted that the Article 13 reports had not provided 
any conclusion with regard to the systemic nature — or not — of the errors. The point was closed in 2009 on 
the basis of the commitment by the Member State authorities that any systemic issues would be identified. 
The winding-up declaration, however, did not provide any information on the nature of the errors but merely 
states that all systemic weaknesses identified were effectively addressed. Subsequently in 2011, the Commission 
carried out a closure audit including the examination of the treatment of systemic issues.

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19  Guidelines on the 
principles, criteria and 
indicative scales to be 
applied by Commission 
departments in determining 
financial corrections 
under Article 39(3) of 
Regulation (EC) No 1260/1999 
and, concerning public 
procurement, document 
COCOF 07/0037/03, final 
version of 29 November 2007.

47. 

48. 

49. 

50. 

FINANCIAL	CORRECTIONS	ADOPTED	FOR	MOST	PROGRAMMES	…

The expenditure processed by deficient systems and declared to the 
Commission was cleared in the majority of cases by financial corrections.

There are three types of financial corrections19:

(a) 

corrections where a specific quantification is made as the extent 
of error is identifiable at project level (hereafter called ‘quantifiable 
corrections’);

(b)  corrections based on extrapolation are applied when the popula-
tion of projects affected by certain type(s) of errors can be identi-
fied and the error can be quantified but it is not possible to check 
the whole population due to the high number of projects;

(c) 

flat-rate corrections for system failures or for projects not comply-
ing with public procurement rules are applied when the impact of 
the error cannot be quantified.

Corrections that are based on an extrapolation are made by applying the 
error rate established on a sample of projects to the whole population 
of projects affected by this deficiency.

Flat-rate corrections for system failures are made by applying a percent-
age to the expenditure that was processed by deficient systems. They 
generally relate to the expenditure declared up to the moment the sys-
tem deficiencies were remedied. The percentage to be applied, as deter-
mined in the guidelines of the Commission, depends on the seriousness 
of the deficiencies.

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51. 

52. 

With  regard  to  the  40  programmes  reviewed,  Table  3  indicates  the 
number of programmes per type of financial correction. The financial 
corrections agreed concerning the Structural Funds co-financing rep-
resent around 650 million euro and further financial corrections are still 
in the process of being agreed. A significant part of the financial correc-
tions was due to breaches of EU and national public procurement rules.

Nearly all financial corrections were made by the Member States. The 
EU funding released could therefore be reused for other eligible ex-
penditure 20, under the programme concerned, to be declared to the 
Commission before the end of the programming period (see footnote 7). 
However, for part of the expenditure of seven programmes it was the 
Commission that imposed financial corrections because the Member 
States did not apply the financial corrections requested. As a result the 
funds were lost for the Member State (see paragraph 13).

20  Newly declared 
expenditure can relate to new 
non-completed projects or 
to projects that had already 
been finalised and originally 
financed by national funds 
before being submitted 
for EU co-financing. The 
latter is called ‘retrospective 
financing’. Practices with 
regard to the acceptance of 
retrospective projects vary 
between DGs. The Court 
found that these projects 
were more error prone than 
those selected in the normal 
way (see paragraph 6.19 of 
the Court’s Annual Report for 
the year 2008).

TABLE	3

NUMBER	OF	PROGRAMMES	PER	TYPE	OF	FINANCIAL	
CORRECTION

Type of financial corrections

Quantifiable corrections

Corrections based on extrapolation

Flat-rate corrections
   System failures
   Public procurement

Number of programmes

Regional Policy  

Employment, 
Social Affairs and 
Inclusion 

15

2

8
131

13

4

3
2

Note: for one and the same programme, different types of financial corrections could have been 
agreed, depending on the number and nature of the deficiencies.

1  This does not include seven programmes for which flat-rate corrections for system failures were 
agreed which related mainly to public procurement issues.

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21  Checks carried out on the 
basis of rigorously applied 
checklists covering all risks in 
a detailed manner.

22  For example:

(i)   all contracts that 
are subject to the 
application of public 
procurement rules or
(ii)   part of the expenditure 
(such as administrative/
staff expenditure) for all 
projects declared.

…	BUT	HIGH	ASSURANCE	OBTAINED	IN	RESPECT	OF	THE	ACCURACY	
OF	FINANCIAL	CORRECTIONS	IN	ONLY	67 %	OF	CASES	…

53. 

The Court considers that the Commission obtains a high degree of as-
surance on the accuracy of the financial corrections with regard to the 
deficiency identified under the following conditions:

(a)  when quantifiable corrections are applied: all projects that are sub-
ject to a deficiency are identified and the financial correction ap-
plied corresponds to the error found on the basis of a good quality 
check21 by the Member State authorities;

(b)  when an extrapolated correction is applied: the sub-population 
concerned by the deficiency is correctly identified 22, the sample 
checked to assess the error rate is representative and the checks 
done by the Member State authorities are of good quality;

(c)  when a flat-rate correction is applied: the percentage applied cor-
responds to the guidelines established by the Commission.

54. 

The assurance level of the Commission is also influenced by the type 
of evidence it is able to obtain with regard to the fulfillment of these 
conditions (see paragraphs 44 to 46). It carried out follow-up audits for 
65 % of the programmes affected by financial corrections. Where the 
conclusion of the Commission’s audit was not positive, either the Mem-
ber State authorities had to do additional work which, at that stage, was 
very well delimited by the Commission or an agreement was reached on 
additional financial corrections. An example where further work was to 
be carried out is given in Box 8.

BOX	8

EXAMPLE	WHERE	THE	FOLLOW-UP	AUDIT	DID	NOT	LEAD	TO	A POSITIVE	CONCLUSION

For one programme (Industry and Enterprise, Czech Republic), the authorities responsible were requested to 
carry out a verification exercise on expenditure declared with regard to some specific issues (such as complying 
with public procurement rules). The Commission’s follow-up audit to assess the quality of the verifications car-
ried out concluded that these failed to detect a number of issues, or to propose adequate financial corrections 
for them. The authorities were thus requested to recalculate the error rates for the projects checked, taking into 
account the Commission’s findings. This meant reviewing all the initial checks to make sure that they covered 
all issues not previously covered and then calculating the necessary financial correction.

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55. 

56. 

57. 

The Court considers that in 67 % of the cases in the sample, the assur-
ance level obtained was high. For the remaining cases (33 %) 23 there 
were shortcomings reducing the assurance level.

One shortcoming is the full or partial lack of information regarding:

(a) 

the completeness of the financial corrections implemented;

(b) 

the justification of the amount of financial corrections on the basis 
of the deficiencies identified initially. An example is given in Box 9.

23  It is to be noted that 
for two programmes in 
the sample, the Member 
State authorities were not 
requested to carry out 
financial corrections. They 
are thus not included in the 
calculation.

Another shortcoming relates to the scope of the checks that were actu-
ally performed: in some cases the scope was not sufficient but this was 
not challenged by the Commission (see examples in Box 10), leading to 
unreliable conclusions concerning the rate of error.

BOX	9

EXAMPLE	WHERE	THERE	WAS	INSUFFICIENT	INFORMATION	REGARDING	THE	
JUSTIFICATION	OF	THE	FINANCIAL	CORRECTIONS	IMPLEMENTED

For one programme (Galicia), where the intermediate body had delegated the implementation of the measures 
to various bodies, the Commission had requested financial corrections with regard to expenditure declared 
for bodies where the Article 13 reports had shown high error rates. Corrections were made with regard to four 
bodies, one of which on the basis of a statistical verification exercise, but the Commission did not have any 
information to reconcile the amount of the corrections with the error rates identified by first level checks. For 
three other bodies, either no or incomplete information was received. The Commission did not request further 
information and restarted payments.

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…	AND	SIGNIFICANTLY	LESS	ASSURANCE	IN	RESPECT	OF	THE	
EFFECTIVE	FUNCTIONING	OF	THE	MANAGEMENT	AND	CONTROL	
SYSTEMS

58. 

The Court considers that the Commission obtains a high degree of as-
surance  on  the  effectiveness  of  management  and  control  systems  if 
the quantity and quality of the first and second level checks allow the 
Member State authorities to detect and correct irregular expenditure 
(see paragraphs 9, 10 and 28). The first level checks were a key element 
in the management and control systems for the 2000–06 period due 
to weaknesses in the legal framework regarding the requirements for 
second level checks (see paragraph 9).

59. 

The Court noted that for all cases where it assessed the assurance level 
as high, follow-up audits had been carried out by the Commission.

BOX	10

EXAMPLES	WHERE	THE	SCOPE	TO	DEFINE	THE	AMOUNT	OF	ERROR	AND	THUS	OF	
FINANCIAL	CORRECTIONS	WAS	NOT	SUFFICIENT

For one programme ( Transport, Italy), the Commission’s audit had identified a number of potential systemic er-
rors on the basis of a sample of projects audited. The authorities were thus required to carry out an enquiry to 
assess the full scope of these systemic errors and to apply financial corrections as a result. The enquiry resulted 
in a financial correction regarding one particular type of error only. For the other types of errors no corrections 
were proposed.

In a second case (Human Resources Development, Poland), the Commission had identified — for two projects of 
a total amount of around 214 million euro and managed by one body — a variety of errors in public contracts 
awarded on the basis of a specific tender procedure (accelerated procedure). A financial correction of around 
25 million euro was made. However, the Commission did not request a verification on the occurrence of the 
various types of errors in those contracts managed by this same body which were not awarded on the basis of 
the accelerated procedure.

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The Court assessed the assurance level as medium in cases where the 
solutions put in place regarding the systems were sufficient with the 
exception of some aspects of the first or second level checks. In those 
cases, the Commission relied mainly on the statements of Member State 
authorities (see example in Box 11).

The Court assessed the assurance level as low when significant aspects 
of the first level checks were not sufficient. These deficiencies mainly 
related to the quantity of checks (see paragraph 28) carried out, which 
were sometimes exacerbated by weaknesses in the second level checks.

For the programmes falling into the category ‘low’ the Commission had 
carried  out  follow-up  audits  for  64  %  of  cases. The  majority  of  these 
audits assessed the quality of the first level checks while the quantity of 
these checks was not questioned.

60. 

61. 

62. 

BOX	11

EXAMPLE	WHERE	THE	IDENTIFICATION	AS	WELL	AS	THE	CLEARANCE	OF	DEFICIENCIES	
BY	THE	COMMISSION	WAS	BASED	ON	REPORTS	FROM	THE	INDEPENDENT	BODY

A first request for action was made by the Commission as a result of significant deficiencies regarding the first 
level checks for one programme (Aquitaine). The Member State authorities launched a specific verification exer-
cise on a sample of expenditure declared in the period 2000–04. The Commission received a report on the result 
of the exercise showing an error rate of 2,12 %. It considered this situation to be satisfactory and did not take 
any further action. The Commission did not request any supporting documentation, such as filled-in checklists, 
and did not question the difference between this error rate and the error rate identified by the second level 
checks, which was much higher. A follow-up audit was not carried out. The report had not indicated the nature 
of the errors, in particular whether they were systemic. With regard to the improvement of the procedures from 
2005 onwards, the Commission received a confirmation from the responsible authorities that the procedures 
covering the expenditure would be in line with the Structural Funds regulations.

A second request for action was made by the Commission less than a year after the closure of this first action 
as a result of the persisting high error rate identified by second level checks, i.e. close to 12 %. The Commission 
requested the causes of the high error rate to be identified. A further specific verification exercise was launched 
by the authorities concerned. One systemic error was analysed and the population concerned was identified, 
which should already have been done following the first request. Through this further action, the remaining 
error rate for the second level checks could be reduced to 4,7 %. Although this is above the threshold of 2 % 
(see paragraph 15), the Commission decided to leave the final resolution of these issues for the closure process 
that started in October 2010.

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Where no audits were carried out or where the scope was not sufficient, 
at least part of the corrective actions were closed on the basis of state-
ments/commitments made or supporting documents provided by the 
Member State authorities. An example is given in Box 12.

On the basis of the criteria established, the Court’s assessment of the 
degree of assurance that the Commission obtained in respect of ex-
penditure processed through the improved management and control 
systems is shown in Table 4.

DEGREE	OF	ASSURANCE	IN	RESPECT	OF	THE	EFFECTIVE	
FUNCTIONING	OF	THE	MANAGEMENT	AND	CONTROL	SYSTEMS	
AS	EVALUATED	BY	THE	COURT

Degree of assurance

Percentage of programmes concerned1

High

Medium

Low

28

34

38

1  For six programmes, the improvements in the systems were not assessed as financial 
corrections covered all expenditure declared in the programming period. The impact of the 
corrective actions for these programmes has been taken into account in paragraph 55.

63. 

64. 

TABLE	4

BOX	12

EXAMPLE	WHERE	A FINDING	WAS	CLOSED	ON	THE	BASIS	OF	A DESCRIPTION	PROVIDED	
BY	A MEMBER	STATE	AUTHORITY

For one programme (Navarre), the identification as well as the clearance of the deficiencies were based on 
reports from Member State authorities. The national authorities informed the Commission that, with regard to 
the various bodies to which the management had been delegated, new procedures were in place with regard to 
several measures managed by one body (but did not provide any more detailed information which might have 
enabled the Commission to judge the quantity and quality of the new checks). For other measures managed 
by the same body, manuals had been prepared but there were still problems as to the content of the checks. 
Yet for other bodies, manuals and checklists, which are key elements for ensuring the effectiveness of checks, 
still did not exist. No further request was made by the Commission.

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65. 

66. 

…	THEREFORE	FURTHER	ASSURANCE	HAS	TO	BE	OBTAINED	FROM	THE	
CLOSURE	PROCESS	…

One of the aims of the follow-up of the deficiencies by the Commission 
was to avoid a long-lasting and resource-intensive closure process so as 
not to interfere with the ongoing programming period 2007–13. How-
ever, in particular for those programmes where the level of assurance 
obtained was not high, the final assessment of the remaining risk of er-
ror will have to be done by the Commission during the closure process 
which is currently ongoing (see paragraph 15).

In order to prepare the closure process, from 2007 the Commission car-
ried out audits at the level of the winding-up bodies responsible for 
programmes considered to present a high risk with regard to the finan-
cial interests of the EU budget. The deficiencies identified during these 
audits were however mainly considered as remedied by the Commission 
on the basis of statements made by the authorities concerned (see ex-
ample provided in Box 7).

67. 

On the basis of the review of the winding-up declarations for those pro-
grammes sampled where the Commission concluded positively (87 %, 
see paragraph 34), the Court concludes that:

(a) 

(b) 

in 23 % of cases (as at the end of June 2011), the information pro-
vided in the winding-up declaration will lead to further financial 
corrections; this relates mainly to cases where the Court con siders 
that the Commission did not have a high level of assurance (see 
paragraph 55 and Table 4);

in 57 % of cases, the opinion and/or error rate presented in the 
winding-up declaration is questionable, in particular because the 
error rate is too low when compared with the deficiencies that had 
been identified in the programme. Also, according to the Court’s 
evaluation, there are doubts with regard to the representativity of 
the results as the second level checks did not need to be carried out 
on a statistical sample. The results of these checks have, however, 
to be used as a main building block for the evaluation of the need 
for further financial corrections.

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68. 

69. 

Finally, with regard to the sample audited, there were situations (see 
Box 13) where expenditure initially withdrawn from an expenditure dec-
laration was reinstated in the final expenditure declaration. There were 
also cases where expenditure regarding newly approved projects was 
included shortly before the closure deadline. There is a risk that these 
projects, under the pressure to absorb the EU funds, may not have been 
checked in an appropriate way.

On the basis of its risk assessment of the programmes and with a view 
to assessing the validity of the error rate presented, the Commission can 
decide to perform audits in the framework of the closure process. Such 
audits are now being carried out on around half of those cases where 
the assurance is considered by the Court not to be high (66 % of those 
mentioned in paragraph 55 and 36 % of those mentioned in Table 4, 
category ‘low’). The number of audits may still increase.

BOX	13

EXAMPLES	OF	REINSTATEMENT	OF	INELIGIBLE	EXPENDITURE	AND	OF	LATE	INCLUSION	
OF	NEW	PROJECTS

For one programme (North East of England), which had been subject to corrective actions from March 2006 
to September 2007, an amount of 19,3 million euro in expenditure previously deducted was reinstated by the 
managing authority in the statement of final expenditure. In this case the winding-up body proved to be ef-
fective and disclosed the issue.

For another programme (Sardinia) that had been subject to corrective actions since September 2007 and which 
were ongoing at closure, an amount of 80 million euro of expenditure was included late in the statement of final 
expenditure. None of the projects concerned had been subjected to second level checks by the independent 
body. The Commission was able to detect this as it was disclosed in the winding-up declaration, which does 
not provide a final opinion on the programme. However, the assessment of the eligibility of related expenditure 
will require further work to avoid the risk of paying for ineligible expenditure.

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70. 

In all the cases where the Commission does not plan to carry out a clo-
sure audit, its final decision with regard to the application of further 
financial corrections will have to rely on the information and statements 
provided by the winding-up body either in the winding-up declaration 
or as a result of further requests from the Commission. The Commis-
sion may thus not be in a position to assess the veracity and accuracy 
of the information provided which may relate to key issues such as the 
arguments24 presented by the authorities for bringing an initially higher 
error rate down to the 2 % threshold (see paragraph 15). Box 14 is an 
illustration of the challenges that the Commission faces at closure.

24  Examples of arguments 
provided: (i) certain errors are 
reported as being ‘atypical’ 
or (ii) all systemic errors are 
reported as having been 
satisfactorily treated.

BOX	14

EXAMPLE	OF	DIFFERENT	INTERPRETATIONS	REGARDING	THE	FINAL	ERROR	RATE	OF	
A PROGRAMME

As a result of Commission audits, an action plan was agreed in the second half of 2005 for a number of pro-
grammes in a Member State. In addition to some specific issues, which were adequately dealt with, the key 
action required was to strengthen the first level checks. As a result, checks were introduced and/or formalised 
and relevant guidance notes were prepared. On this basis, the Commission considered the action plan to have 
been successfully implemented. Nevertheless, there was no requirement in terms of coverage to be achieved 
by the checks, such as a percentage of projects or of expenditure to be checked. The Commission carried out 
follow-up audits for a number of programmes, also assessing the quality of first level checks, and no major 
shortcomings were identified.

However, the audit carried out by the Court on one of the programmes concerned (Yorkshire and the Humber-
side) concludes that the first level checks only achieved a very low coverage of 3 %. Furthermore, the error rate 
established by the first level checks is much lower than the error rate identified by the second level checks, 
which casts doubts on the quality of the first level checks. This implies that at closure full reliance has to be 
placed on the results of the second level checks.

The error rate presented in the winding-up declaration for the whole programme is 1,959 %. However, the Court’s 
audit showed that the presentation is not statistically correct as it does not take into consideration the fact 
that the programme consists of three sub-populations25. Therefore the Court’s audit concluded, using the same 
figures, that the error rate was 9,3 %. The Commission accepted the error rate as presented in the winding-up 
declaration, with reference to the legal framework.

25  A population (the total number of projects) may be split by grouping the projects into homogeneous sub-populations (strata).

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71. 

Some new provisions were introduced in the regulations for the 2007-13 
programming period with the aim of solving some of the problems de-
scribed in the preceding paragraphs:

(a) 

the second level checks are to be done on the basis of a randomly 
drawn statistical sample; this should improve the validity of the 
error rates presented to the Commission at closure;

(b)  an audit authority (comparable to the independent body/ winding-
up body in the 2000–06 programming period) has to present yearly 
opinions to the Commission as to whether the management and 
control systems function effectively; they are expected to be more 
reliable than the Article 13 reports due to the statistical sampling 
method and will be the main building block for the Commission 
to draw assurance with regard to the effectiveness of the systems.

26  Member States can have 
a basket of projects that is 
bigger in volume than the 
financial allocation to the 
programme concerned.

27  At the moment of issuing 
this report, the Commission 
had not yet taken a final 
decision on which amount 
to apply for the financial 
correction: the budgeted 
amount or the declared 
amount if the latter exceeds 
the budget.

72. 

73. 

The  legal  framework  for  the  2007–13  programming  period  was  also 
modified by the introduction of, in particular, one simplification with 
the aim of reducing error rates. Member State authorities now have the 
possibility to declare overhead expenditure in the form of flat-rates or 
lump sums instead of actual costs.

…	EVEN	THOUGH	FURTHER	FINANCIAL	CORRECTIONS	MAY	NOT	HAVE	
ANY	IMPACT	AS	THE	EXPENDITURE	DECLARED	EXCEEDS	THE	BUDGET	
ALLOCATED

An analysis of the statements of final expenditure for the 40 programmes 
reviewed indicates that for 50 % of them (70 % for ERDF programmes 
and 24 % for ESF programmes), the Member State authorities declared 
expenditure which exceeds the budget allocated to the programme26. 
The range of over-declaration goes from 1 % to 28 %. This means, on 
the one hand, that in all these cases the Member State authorities were 
able  to  replace  the  entire  amount  of  financial  corrections  agreed  in 
the past (see paragraph 51) by newly declared expenditure and, on the 
other hand, that the Member State authorities have a buffer to allow for 
further financial corrections at closure27. In other words, further financial 
corrections would not lead to a reduction in the final amount to be paid 
by the Commission.

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74. 

75. 

76. 

77. 

FURTHER	EFFORTS	REQUIRED	FOR	SYSTEMS	TO	BE	EFFECTIVE	FOR	
THE	2007–13	PROGRAMMING	PERIOD

Considering that many deficiencies were identified between 2006 and 
2008 and considering the time required to carry out corrective actions 
(see paragraph 32), they were often considered as remedied just before 
commencement of the closure process. This meant that the real improve-
ment in the management and control systems would only take place in 
the 2007–13 programming period.

The systems of the successor programmes in the 2007–13 programming 
period of 10 of the programmes reviewed were once again evaluated 
negatively by the Commission in 2010, as reflected in the annual activity 
reports of the Regional Policy DG and the Employment, Social Affairs and 
Inclusion DG. The Commission will thus have to take further corrective 
actions for these programmes.

28  With regard to the 
programmes managed by the 
Regional Policy DG: 22,5 % of 
the programmes had an error 
rate ranging from 2 to 5 % 
and 13,1 % had an error rate 
exceeding 5 %. With regard 
to the programmes managed 
by the Employment, Social 
Affairs and Inclusion DG: 
19,0 % of the programmes 
had an error rate ranging 
from 2 to 5 % and 28,4 % had 
an error rate exceeding 5 %.

29  Lower error rate limit: 
4,7 %; upper error limit: 
10,7 %.

These annual activity reports also indicate that the error rates provided 
by the audit authorities exceeded the 2 % threshold (see paragraph 15) 
for 35,6 % of the programmes managed by the Regional Policy DG and 
47,4 % of the programmes managed by the Employment, Social Affairs 
and Inclusion DG28. The DGs’ own assessment of the effectiveness of the 
systems for the 2007–13 period results in 15,4 % of the programmes 
managed by the Regional Policy DG and 25,8 % of the progrmmes man-
aged by the Employment, Social Affairs and Inclusion DG being classi-
fied as presenting significant deficiencies. The most likely error estimate 
reported by the Court in its annual report 2010 for cohesion, energy and 
transport is 7,7 %29.

It  should  be  noted  that  wherever  the  Commission  was  successful  in 
bringing the Member States’ management and control systems to an 
effective level, there is still no guarantee that the systems of the suc-
cessor programmes will be equally effective. This is due to the fact that 
Member States could change at their discretion the entities, systems and 
personnel responsible for the control of Structural Funds programmes, 
for example for budgetary reasons. The Commission has already faced 
a number of such cases.

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CONCLUSIONS AND RECOMMENDATIONS

39

78. 

79. 

80. 

81. 

82. 

The Commission’s objective in taking corrective action is to ensure that 
irregular payments already made are the subject of appropriate finan-
cial corrections and that management systems are improved to provide 
sufficient assurance that future payments are made in accordance with 
the rules.

The Court’s audit showed that the Commission generally took appropri-
ate actions when deficiencies were identified but that the process was 
lengthy and that, for the programmes audited, it obtained varying de-
grees of assurance that deficiencies in national management and control 
systems are corrected as a result of its corrective actions.

THE	COMMISSION	TAKES	THE	APPROPRIATE	
ACTIONS	WHEN	DEFICIENCIES	IN	MEMBER	STATES’	
SYSTEMS	ARE	IDENTIFIED	BUT	THE	PROCESS	UNTIL	
IMPLEMENTATION	IS	LENGTHY

The Commission systematically initiated corrective actions when defi-
ciencies were identified. In 90 % of the cases, the Commission addressed 
the deficiencies appropriately (see paragraphs 23 to 27).

However, it took on average 30 months  to implement corrective  ac-
tions. Deficiencies for the 2000–06 period were mainly identified from 
2005–06 onwards which, together with a lengthy process, meant that 
for around half of the cases in the sample financial corrections had to 
be implemented at closure. The Commission’s current policy is that cor-
rective actions should be implemented within 24 months (see para-
graphs 32 to 40).

THE	COMMISSION	HAD	SOME	SUCCESS	IN	ENSURING	
THAT	FINANCIAL	CORRECTIONS	WERE	CORRECTLY	
APPLIED

The Commission obtained a high degree of assurance that financial cor-
rections had been properly applied in about two thirds of the cases ex-
amined by the Court. For the remaining cases there were shortcomings 
which reduced the assurance level. This was due to either insufficient 
information or weaknesses regarding the scope of checks carried out to 
assess the amount of financial corrections (see paragraphs 44 to 57).

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THE	COMMISSION	WAS	LESS	SUCCESSFUL	IN	
OBTAINING	ASSURANCE	THAT	ITS	ACTIONS	LED	TO	
IMPROVEMENTS	IN	NATIONAL	MANAGEMENT	AND	
CONTROL	SYSTEMS

For the programmes audited (see the Annex), the Commission obtained 
varying degrees of assurance that deficiencies in Member States’ man-
agement and control systems are corrected as a result of its corrective 
actions. Out of the programmes audited, the Court found the assurance 
level to be high in 28 % of the programmes, medium in 34 % and low 
in 38 %. Further work is being carried out by the Commission during 
the closure process but difficulties have to be handled to obtain a suf-
ficient degree of assurance regarding the information provided and in 
particular the final error rate presented in the winding-up declaration 
(see paragraphs 28 and 58 to 73).

For 10 of the programmes reviewed by the Court, their successor pro-
grammes in the 2007–13 period were again evaluated negatively by the 
Commission in 2010. In addition, the error rates reported by national 
audit authorities under the current period are very often material (see 
paragraphs 74 to 77). The Commission will have to take further corrective 
actions for these programmes.

SCOPE	FOR	IMPROVEMENT

Though the Commission’s corrective actions can have significant benefi-
cial effects, there remains scope for improvement to stabilise the systems 
at a good quality level for the 2007–13 period. Improvement is however 
likely to have resource implications which the Commission will need to 
take into account.

83. 

84. 

85. 

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RECOMMENDATION	1

The Commission should:

— 

— 

— 

— 

reduce the duration of the administrative procedure from identification 
of deficiencies until implementation of corrective actions;

give higher priority to its audit work on the audit authorities to ensure 
that they produce robust error rates so that financial corrections can be 
applied on the basis of these error rates;

disseminate checklists that serve as best practice to be followed by Mem-
ber State authorities for their first level checks;

ensure that financial corrections implemented before closure cover all 
expenditure incurred under deficient management and control systems.

SUBSTITUTION	OF	INELIGIBLE	EXPENDITURE	
DESERVING	CONSIDERATION	IN	THE	CONTEXT	
OF	DECISIONS	ABOUT	FUTURE	SPENDING	ON	
COHESION

For half of the programmes examined by the Court, Member State au-
thorities declared expenditure which exceeds the budget allocated to 
the programme. This means that they were able to replace ineligible 
expenditure disallowed by new expenditure and to have a buffer to com-
pensate for further potential financial corrections (see paragraph 73).

Substitution of expenditure in this way is allowed by the rules (see par-
agraph 13 (a)) and permits the amounts of Structural Funds’ support 
allocated to Member States to be used in pursuit of expenditure pro-
grammes designed to increase economic and social cohesion.

86. 

87. 

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88. 

The ability of Member States to reuse Structural Funds support in this 
way however raises issues which deserve consideration, notably in the 
context of decisions about future spending on cohesion:

30  Paragraph 1.65 of annual 
report 2005 (OJ C 263 of 
31.10.2006, p. 1).

(a) 

(b) 

some of the deficiencies identified are systemic (e.g. incorrect ap-
plication of procurement rules). Unless these are tackled success-
fully, there is a risk that ineligible expenditure from one project 
might be replaced by ineligible expenditure from another project;

there are instances where the new expenditure replacing ineligible 
expenditure relates to projects fully financed by national funds 
(retrospective financing). Other Court reports have shown that such 
projects are more error prone (see footnote 20); in addition, when 
retrospective financing is used cohesion spending is turned into 
ex post support for the budgets of Member States;

(c)  Commission corrective action has significant resource and adminis-
trative costs. Where support has to be reallocated and the Member 
State has a significant reserve of genuinely compliant projects (see 
footnote 26), then Commission corrective action results in docu-
mentary  changes  (EU  support  is  attributed  to  a  different  set  of 
projects) but not in changes to the activity taking place. Also, as 
already observed by the Court30, financial corrections do not make 
the underlying transactions any less irregular but result in shifting 
the cost of the disallowed irregular transactions from the EU budget 
to national budgets.

RECOMMENDATION	2

The Commission, the Parliament and the Council should reconsider, when dis-
cussing future plans for spending on cohesion, whether any changes should 
be made to the arrangements regarding the possibilities for substitution of 
expenditure found to be ineligible in order to enhance the added value of 
 European funds.

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This Report was adopted by Chamber II, headed by Mr Harald NOACK, 
Member  of  the  Cour t  of  Auditors,  in  Luxembourg  at  its  meeting  of 
18 January 2012.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA
President

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ANNEX

PROGRAMMES	COVERED	BY	THE	DESK	REVIEW

Country

Programme #

Programme name

Budget allocated
(in million euro)

ERDF

Czech Republic

Germany

Spain

United Kingdom

Greece

Ireland

Italy

Poland

Portugal

Slovakia

2003CZ161PO003

2000DE162DO003

2000ES161PO004

2000ES161PO008

2000ES161PO010

2000ES162DO006

1999GB161DO002

2000GB162DO005

2000GB162DO012

Industry and Enterprise

Saarland

Asturias

Ceuta

Extremadura

Madrid

Merseyside

North East of England

East of Scotland

2000GR051PO003 

Health and Welfare

2000GR161PO004

2000GR161PO007

2000GR161PO011

2000GR161PO016

2000GR161PO026

2000IE161PO005

1999IT161PO010

1999IT161PO005

2000IT162DO009

2003PL161PO001

1999PT161PO008

1999PT161PO004

2003SK161PO002

Western Greece

Epirus

Ionian Islands

Competitiveness

Culture

Southern and Eastern Region

Sardinia

Transport

Lazio

Integrated Regional 

Economy

Information Society

Industry and Services

347,8

293,0

1 695,4

89,4

2 262,4

781,4

2 600,3

1 716,6

661,4

220,2

530,0

464,7

268,5

2 826,2

647,6

829,5

2 601,0

4 520,2

884,4

3 485,3

4 009,3

652,3

291,0

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Country

Programme #

Programme name

Budget allocated
(in million euro)

ESF

Belgium

Spain

France

United Kingdom

Italy

Netherlands

Poland

Slovakia

1999BE053DO002

2000ES051PO015

2000ES053PO305

2000ES161PO011

1999FR161DO002

2000FR162DO003

2000FR162DO019

2000FR162DO013

1999GB161DO002

1999GB161DO003

2000GB162DO010

2000GB162DO003

1999IT161PO007

1999IT053PO003

1999NL161DO001

2003PL051PO001

2003SK051PO001

Ministère Fédéral de l’Emploi et du Travail

Entrepreneurial initiative and continuous training

Navarre

Galicia

Nord-Pas-de-Calais

Lorraine

Picardy

Aquitaine

Merseyside

South Yorkshire

South West of England

Yorkshire and the Humberside

Campania

Piedmont

Flevoland

Human Resources Development

Human Resources Development

140,3

2 279,3

173,4

579,7

202,1

84,5

66,2

125,4

1 032,8

1 043,7

81,8

142,0

1 003,5

1 054,2

71,4

1 960,1

367,2

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EXECUTIVE	SUMMARY

I.	(a)
When  implementing  the  cohesion  polic y,  in  line  with 
the shared management principle, Member States are in 
first instance responsible to prevent, detect and correct 
irregularities.

Financial corrections should be based on individual irregu-
larities or, when this is not possible or not cost-effective, 
be based on extrapolation or take the form of a flat-rate 
correction, determined in accordance with Commission 
guidelines. 

III.	(a)
The  Commission  initiated  corrective  actions  in  all  cases 
when deficiencies were identified. It considers that this is 
a positive result, which demonstrates its strong commit-
ment to fully and correctly exercise its supervisory role in 
the management of the Structural Funds.

It agrees that the process is lengthy and that is why the 
2008 action plan to improve the Commission’s supervisory 
role in structural actions contained measures to speed up 
legal proceedings and to set up deadlines for the adoption 
of financial correction decisions (24 months after a final 
audit report). Under the 2007–13 programmes this policy 
was continued with the adoption of the timely interrup-
tion of payment deadlines when audits identify deficien-
cies. This is reflected in the lower error rates reported by 
the Court in the most recent DAS exercises in comparison 
to the files audited by the Court in this special report. 

Nonetheless,  in  shared  management,  programmes  are 
multiannual and the Commission and Member States can 
carry out all necessary corrections until programmes’ clo-
sure. In particular for large infrastructure projects, complex 
legal and regulatory issues take time to be sorted out. The 
Commission considers that the utmost objective is that 
deficiencies are remedied and that all irregular expendi-
ture is corrected.

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III.	(b)
The Commission obtained a high degree of assurance that 
financial corrections had been properly applied in about 
two thirds of the cases examined by the Court.

For  the  remaining  audited  programmes  for  which  it 
obtained  a  lower  level  of  assurance,  the  procedures  in 
place were well respected and financial corrections were 
implemented as a result of the Commission’s diligence to 
provide a reasonable follow-up on every single case. For 
these programmes the Commission decided to carry out 
risk-based closure audits allowing to reach high assurance 
after closure for these programmes as well. 

III.	(c)
The Commission did follow-up audits, including on-the-
spot, to test systems that went through remedial action 
plans and took account of the results in its risk analysis for 
closure. 

Having good systems in place aims at ensuring that the 
EU budget reimburses only legal and regular expenditure, 
ultimately when closing the programmes. The Commission 
considers that the levels of financial corrections it applied 
cumulatively for the 2000–06 programmes in addition to 
Member  States’  own  corrections  and  its  strict  approach 
during the closure process allow having adequate assur-
ance  that  the  levels  of  residual  error  for  cohesion  as 
a whole will be low at closure.

The Commission decides on resuming payments after an 
interruption of payments or a suspension decision on an 
operational  programme  only  after  receiving  reasonable 
assurance  from  the  national  authorities  on  the  legality 
and regularity of expenditure included in subsequent pay-
ments claims. 

III.	(d)
While ensuring legality and regularity of expenditure reim-
bursed  by  the  Commission,  the  overall  objective  of  the 
cohesion policy is to effectively enhance economic and 
social cohesion. The Commission considers that the volun-
tary implementation of financial corrections by withdrawal 
and replacement is a sound financial management prac-
tice. Indeed, as soon as affected expenditure is replaced by 
new eligible projects, the EU budget is protected. Replaced 
projects should be eligible, legal and regular and in con-
formity to the programme requirements.

At  closure,  expenditure  declared  beyond  programme 
appropriations is taken into account only after all neces-
sary financial corrections have been implemented. Finan-
cial corrections for system deficiencies in the closure proc-
ess as well as irregular expenditure detected after closure 
will always result in a net reduction of the EU assistance.

This  practice  aims  at  ensuring  the  best  possible  use  of 
financial resources, at providing an incentive for efficient 
national  controls,  while  at  the  same  time  ensuring  the 
sound  management  of  funds  and  protection  of  the  EU 
budget. 

IV.	(a)	first	indent
Within the framework of the action plan adopted in 2008, 
the Commission has adopted a strict policy on suspension 
of payments and financial corrections, which resulted in 
shorter deadlines and increased assurance in payments as 
shown in the evolution of the error rate reported by the 
Court over the last years.

The Commission notes that in the 2007–13 period inter-
ruptions of payment deadlines, a new and more flexible 
legal tool compared to suspension, have a beneficial effect 
on the time length of corrective actions. 

IV.	(a)	second	indent
Auditing the work of national audit authorities is precisely 
a core measure in the Commission’s audit strategy for the 
2007–13  programmes.  The  Commission  is  implement-
ing  a  multiannual  audit  enquir y  with  the  key  objective 
to review the work of the audit authorities most at risk, 
in order to be able to rely on their annual audit opinions. 
This  allows  the  work  of  the  reviewed  authorities  to  be 
improved, and additional guidance has been discussed and 
shared with all audit authorities, drawing the lessons from 
the first results of this enquiry. Focus has therefore been 
put  on  ensuring  that  audit  authorities  produce  robust 
annual error rates and audit opinions on programmes.

For those cases where limited or no reliance can be placed 
on the work done by the audit authorities, the Commission 
conducts its own audit work on the managing and certify-
ing authorities to obtain direct assurance.

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INTRODUCTION

3.
The Commission notes that the management and control 
framework  for  the  2007–13  period  contains  substantial 
improvements compared to the 2000–06 period.

6.
The  Commission  would  like  to  clarify  that  repor ting  of 
error rates was not required annually but only at closure 
under the legal framework for the 2000–06 period. 

7.
The  reliability  of  the  error  rate  is  suppor ted  by  other 
impor tant  elements  of  the  winding-up  declaration,  for 
example the independent audit opinion of the winding-up 
body, the estimation of the frequency of errors, the assess-
ment of the quality and sufficiency of audit work carried 
out throughout the period, and the assessment of the suf-
ficiency of treatment of errors and weaknesses detected. 
See also answer to paragraph 6.

9.
In addition to the first and second level checks, the certifi-
cation of expenditure is another key function in the man-
agement and control system introduced in the 2000–06 
regulatory framework. 

Therefore,  controls  implemented  by  the  paying  author-
ity  (2000–06)  and  the  certifying  authority  (2007–13)  on 
expenditure  incurred  at  beneficiar y  level  and  based  on 
the first level checks already carried out by the managing 
authority should also be taken into account when assess-
ing the global assurance level.

9.	(a)
Requirements for the first level checks should be distin-
guished  between  the  2000–06  and  subsequent  period. 
There was no regulatory threshold for desk and on-the-
spot checks, while 100 % desk checks are required in the 
2007–13 period.

IV.	(a)	third	indent
As eligibility rules for the 2007–13 programming period 
are defined at national level, eligibility checklists can only 
be defined by managing authorities at the national or pro-
gramme level. However, the Commission has been giving 
guidelines  to  the  Member  States  on  the  way  managing 
authorities should define and implement their manage-
ment verifications.

Moreover,  the  Commission  developed  in  2009  compre-
hensive guidelines for first level checks and a self-assess-
ment tool for managing authorities, which they can use 
to  improve  their  functioning. The  Commission  has  also 
developed and disseminated in 2011 to audit authorities 
checklists for the audit of management verifications which 
can be used by the managing authorities themselves, as 
a benchmark.

IV.	(a)	fourth	indent
The  Commission  considers  that  it  already  ensures  that 
financial corrections cover all expenditure incurred under 
deficient management and control systems. The final veri-
fication that all affected expenditure has been hit by the 
financial  corrections  implemented  can  only  be  done  at 
closure, when all financial corrections are cumulated and 
a residual error rate is calculated.

In that sense, the Commission considers that this recom-
mendation is already implemented. 

IV.	(b)	first	indent
The  Commission  considers  that  Member  States  should 
have  the  right  to  substitute  ineligible  expenditure  they 
detect with legal and regular expenditure in order to opti-
mise the use of cohesion spending, which contributes to 
its added value and to ensuring efficient controls at Mem-
ber State level. The Commission’s proposal for the 2014–20 
regulatory framework provides that ‘ Where irregularities 
affecting  annual  accounts  sent  to  the  Commission  are 
detected  by  the  Commission  or  by  the  European  Court 
of Auditors, the resulting financial correction shall reduce 
support  from  the  Funds  to  the  operational  programme’ 
(Article 137.6), thereby limiting the possibilities of with-
drawal/replacement to the ongoing financial year. This pro-
vision is intended as an incentive for expenditure included 
in the annual certified accounts to be legal and regular.

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10.
The annual error rates reported by the Court in its annual 
report give a snapshot of the situation at the time of the 
Court’s audits before all controls such as the second level 
checks foreseen by the regulations were carried out. As 
cohesion policy programmes are implemented over several 
years and expenditure is subject to several levels of control 
during this time, the impact of those controls in terms of 
reducing the error rates and applying the necessary cor-
rective measures is usually only seen in subsequent years.

As reflected in the Commission staff working document of 
6 October 2011 and in the 2010 annual report of the Court, 
although the global error rate remains high for cohesion, 
the latest error rates calculated by the Court of Auditors 
for DAS 2009 and 2010 are well below the level reached in 
previous DAS exercises (2006–08). 

The Commission also refers to its reply to paragraph 41. 

Box	1	–	first	indent
An analysis made by the Commission of quantifiable errors 
reported  by  the  Court  since  2006  shows  that  eligibility 
constitutes a major source of errors (39 %).

Box	1	–	second	indent
The same analysis shows that non-existing or inadequate 
audit trails is also an important (11 %) source of errors, but 
that is decreasing over the recent years. 

11.
In exercising its supervisory role, the Commission has at 
its  disposal  many  sources  of  information  in  addition  to 
EU  audits  and  the  national  annual  control  reports,  such 
as  bilateral  coordination  meetings  with  audit  bodies, 
day-to-day  exchange  of  information  on  audits  and  the 
management  of  programmes,  and  the  results  of  OLAF 
investigations.

12.	(a)
Suspension of payments to a programme is adopted by 
Commission decision after a contradictory process with 
the national authorities. The pre-suspension letter is only 
the start of this procedure that may not necessarily lead to 
a suspension, if the Member State implements the neces-
sary corrective measures in time.

In case serious system deficiencies were detected for the 
2000–06 period, and in order to fully respect the sound 
financial management principle, the Employment, Social 
Affairs  and  Inclusion  DG  took  measures  to  ensure  that 
interim payments were not made. 

13.	(a)
During the 2000–06 period and in cases where first level 
checks  were  deficient,  the  Commission  has  requested 
national authorities to put in place remedial action plans 
aiming  at  increasing  the  quality  and  coverage  of  those 
checks. These included in some cases extensive look-back 
exercises, in which the national authorities had to control 
expenditure declared to the Commission in previous years 
and to apply the necessary corrections. 

15.
When estimating the need for financial corrections to be 
carried  out  at  closure,  in  addition  to  the  error  rate,  the 
Commission  also  takes  into  account  any  corrective  and 
mitigating actions already carried out by the Member State 
or the Commission. Therefore issues known at the time of 
closure will be resolved before releasing the final payment 
of the Commission.

In addition, the Commission has the possibility to impose 
financial corrections also after the closure of programmes 
if new irregularities are detected. 

16.
The action plan adopted by the Commission in 2008 dem-
onstrated its strong political commitment to work inten-
sively towards the reduction of the error rate in interim 
payments and the improvement of management and con-
trol systems for structural actions.

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OBSERVATIONS

23.
The Commission welcomes this positive result, which dem-
onstrates its strong commitment towards the improvement 
of management and control systems and the correction of 
detected irregularities.

25.
The  Commission  welcomes  the  Court’s  assessment  and 
considers that this is a positive result. For the other cases, 
the Commission considers that the remaining issues were 
manageable  and  therefore  they  are  being  addressed  at 
closure.

The Commission also refers to its reply to paragraph 15.

26.
The  Commission  welcomes  the  Court’s  assessment  and 
considers that this is a positive result. Effectively, the Com-
mission seeks to ensure that, when deficiencies are identi-
fied, actions are taken to the widest possible extent and 
that any areas or programmes which may be affected by 
the  same  deficiencies  are  also  included  in  the  scope  of 
those actions.

27.
The  Commission  welcomes  the  Court’s  assessment  and 
considers that this is a positive result. Even in the cases 
quoted by the Court, the Commission considers that the 
remaining issues were manageable and therefore they are 
being addressed at closure.

For the Galicia programme, the Commission refers to its 
reply to Box 4.

Box	4
The bodies with the highest financial risk were selected for 
the Commission audit according to a risk-based analysis.

The other bodies under this programme have been cov-
ered  by  national  audits  (11  system  audits),  the  results 
of  which  are  available  in  the  Ar ticle  13  repor ts  to  the 
Commission.

The remaining issues will be adressed at closure. Further 
financial corrections will be implemented since the resid-
ual error rate is above 2 %.

28.
There was no regulatory threshold for the coverage of first 
level checks for 2000–06 programmes. The coverage per-
centage of first level checks needed to be assessed against 
the programme context; lower coverage may have been 
sufficient, when the samples checked were representative 
and if other mitigating measures were in place. Therefore 
a lower amount checked may not necessarily have resulted 
in  an  increased  risk  that  declared  expenditure  was  not 
regular.

Box	5
For the English programmes, the authorities did not pro-
vide for a numerical coverage for Article 4 checks in the 
ESF guidance. Indeed, the Member State adopted a risk-
based approach, which was accepted by the Commission 
to a certain extent. 

Following six audits carried out by the Commission from 
2002 to 2005, the ESF guidance on performance of man-
agement checks has been strengthened:

 — set-up of standardised procedures (such as the obligation for 
the local bodies to submit yearly the planning of those checks 
to the central ESF authority in England); 

 — introduction of checklists developed to support the level of 

the management checks.

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For a specific case (South Yorkshire), first level checks on 
all projects had been foreseen during their lifetime. For the 
programme Merseyside, the projects audited were selected 
on a risk basis. The Member State has indicated that ‘a sig-
nificant amount’ of the total number of projects has been 
foreseen for checks (160 out of 454, i.e. 35 %). Within the 
checked projects a subset of documents has been control-
led. When comparing this total of documents controlled to 
the global number of documents available for all projects 
in the programme, the checked percentage can be estab-
lished at 1,3 %. However, the Commission considers that 
this low percentage suggests a far lesser level of control 
than is actually the case.

The managing authority refused to carry out retroactive 
verifications  but  agreed  instead  to  implement  financial 
corrections in the context of the closure of the programme 
(7,3 %).

32.
This  assessment  is  consistent  with  the  one  made  in  the 
framework of the 2008 Commission action plan and was 
a  reason  for  proposing,  as  one  of  the  measures  in  the 
action plan, to speed up legal proceedings.

32.	(b)
The Commission has made every effort to perform as many 
follow-up audits as possible, given its resource constraints, 
in cases where remedial action plans were put in place. 
Follow-up audits were conducted on a risk basis, taking 
into account cost-benefit considerations and other sources 
of evidence of assurance available to the Commission. 

The Commission also refers to its reply to paragraph 45.

33.
The  Commission  notes  that  during  the  programming 
period, financial corrections are in the vast majority imple-
mented  ver y  soon  after  the  national  authorities  have 
accepted the correction.

34.
Given the important number of issues which are usually 
treated  in  the  implementation  of  remedial  action  plans 
and the advanced stage in the programming period, it is 
a pragmatic course of action to close a case and to treat 
any open issues at closure. This makes human resources 
available for other audit priorities, without reducing the 
assurance that the Commission will obtain at the end of 
the multiannual programming cycle on the legality and 
regularity of expenditure reimbursed for a programme.

35.
The Commission notes that remedial action plans, follow-
ing audit findings, generate extensive exchanges of docu-
ments that have to be translated for the needs of interserv-
ice consultations.

Furthermore, delays can also be due to the fact that the 
execution of the on-the-spot audits is often outsourced 
to external audit firms. The Commission resorts to exter-
nal audit firms as its staff is not sufficient to manage the 
whole audit plan with its own auditors. The procedure for 
acceptance of the reports drafted by the audit firm may 
take longer than expected. 

36.
One  aim  of  the  2008  Commission  action  plan  was  pre -
cisely to urge Member States to take immediate corrective 
actions, as soon as a weakness is detected, and to dem-
onstrate the Commission’s commitment to launch timely 
legal proceedings, if necessary.

37.
While the Commission in most cases respects the dead-
lines it has set itself for communicating the audit results, 
delays in producing the audit report may occur due to the 
complexity of files, the needs for interservice consultations, 
or the need for translation of extensive documentation. 

The Commission also refers to its reply to paragraph 35.

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38.
One consequence of the 2008 Commission action plan was 
precisely  to  speed  up  procedures,  while  respecting  the 
right of Member States to provide additional information 
and arguments in order to ensure their rights of defence.

The suspension procedure was not launched or was dis-
continued when the required actions were implemented 
as  agreed,  or  when  there  was  no  possibility  to  suspend 
payments any more before closure. That is why in half of 
the cases the implementation of the corrective measures 
could continue without a pre-suspension letter.

39.
The Commission notes that it adopted suspension deci-
sions each time it was necessary. 

Suspensions are not primarily intended to speed up the 
process of implementing remedial action plans. A suspen-
sion is a legal measure the Commission has at its disposal 
to  ensure  that  no  payments  are  made  in  programmes 
where significant deficiencies are identified and the Mem-
ber State authorities do not take appropriate action. 

40.
In the report on the first impact of its 2008 action plan, the 
Commission notes that the actions aimed at improving the 
reporting and increasing the impact of the Commission’s 
audit activity allowed to speed up most of the ongoing 
and, at that time new, suspension/financial correction pro-
cedures (19 suspension decisions adopted in the frame-
work of the action plan and another six in 2010) and to 
increase the reported figures on financial corrections as 
from 2008. 

It is underlined that by the end of 2010 and for the pro-
gramming period 2000–06, the Commission has applied 
cumulative financial corrections of 5,3 billion euro for ERDF 
and ESF, a figure which demonstrates the important work 
done in this field. 

The Commission would like to underline the fact that the 
reference period for the operational programmes sampled 
by the Court preceeds the action plan of 2008.

41.
Interruptions, a legal instrument available for the 2007-13 
period, allows taking immediate action, as soon as defi-
ciencies  are  detected  if  not  yet  fully  proved. They  have 
therefore improved the Commission’s capability to even 
better  protect  the  EU  budget  by  speeding  up  the  proc-
ess for the current programmes following reservations in 
the 2010 and 2011 annual activity reports. The Commission 
systematically  uses  the  possibility  to  interrupt  payment 
deadlines when it has evidence suggesting that deficien-
cies exist, and sends out warning letters when there is no 
pending payment claim for the concerned programme. 

Between 1 January 2008 and 22 December 2011, for ERDF 
and Cohesion Fund, the Regional Policy DG took measures 
to ensure that interim payments were not made for 122 
programmes  and  12  Commission  suspension  decisions 
were adopted. For ESF operational programmes, 76 inter-
ruptions of payment deadlines and 18 Commission suspen-
sion decisions were adopted. 

The Commission notes that, in 2010 and for the second 
consecutive year, the level of error reported by the Court 
remains well below those reported in its annual reports 
for  the  period  2006–08. The  Commission  considers  that 
this positive and promising development reflects the rein-
forced  control  provisions  of  the  2007–13  programming 
period and the impact of its 2008 action plan.

For ESF, as reflected in the Commission staff working docu-
ment of 6 October 2011, the contribution of projects to the 
cumulative quantifiable errors for cohesion policy dropped 
significantly in 2008 and 2009, when it was very limited. 
This positive trend, confirmed in 2010, reflects the continu-
ous implementation of a strict policy on interruptions and 
suspensions (which was already launched by the Employ-
ment, Social Affairs and Inclusion DG since 2008) and the 
first positive impact of the simplification measures for the 
2007–13 period. 

43.	(b)
The Commission notes that programmes are not exactly 
the same between the two programming periods, as pro-
gramme authorities and responsibilities may have been 
changed compared to the previous period.

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48.	(b)
Extrapolated corrections are possible only where audits 
were  carried  out  on  a  statistical  sample  of  operations. 
The error rate is then projected for the whole, unaudited 
concerned  population  of  projects. This  is  usually  possi-
ble for limited, homogeneous populations but is resource 
consuming.

48.	(c)
The  Commission  has  adopted  guidelines  and  internal 
instructions for the determination of proportionate flat-
rate  corrections  in  case  of  systems  failures  or  of  lack  of 
compliance with public procurement procedures. These 
rates are also used by Member States. 

49.	and	50.	Common	reply
When  agreeing  with  the  M ember  states  on  ex trapo-
lated  and  flat-rate  corrections,  the  Commission  ensures 
that  all  concerned  payment  claims  are  corrected,  up  to 
the  moment  in  time  where  the  system  deficiencies  are 
remedied.

51.
An analysis of quantifiable errors reported by the Court 
since  2006  made  by  the  Commisison  in  the  staff  work-
ing document of 6 October 2011 also shows that public 
procurement  constitutes  a  major  source  of  errors  (41  % 
of  repor ted  quantifiable  errors  for  ERDF  and  Cohesion 
Fund). In addition, the Commission refers to its answers 
to the 2009 annual report of the Court, in particular para-
graph  4.20  where  it  stated  that ‘Possible  shor tcomings 
in  the  implementation  of  public  procurement  rules  at 
national, regional or local level in applying EU law are not 
strictly related to the implementation of cohesion projects.’ 
The Commission takes preventive and corrective actions to 
address such infringements of public procurement rules in 
programmes funded under the cohesion policy.

45.
For the supervision of programmes implemented under 
shared management, the Commission has to obtain assur-
ance from the various sources (national or EU) as described 
by the Court, taking into account the cost and benefits of 
its choice (see paragraph 46).

The Commission, in the context of its supervisory role, sys-
tematically reviews national statements from the Member 
States,  which  should  be  backed  by  strong  national  evi-
dence. It also conducts follow-up audits based on a risk 
assessment, as illustrated by the fact that cases were not 
closed after the first follow-up audit.

Furthermore, in certain cases, follow-up audits are simply 
not appropriate where for example financial corrections 
are carried out on a flat-rate basis or no more interim pay-
ments can be reimbursed to the Member State (after the 
95 % threshold has been reached) and the amount left to 
be reimbursed at closure is very small. 

46.
The Commission has made a balancing act when deciding 
to carry out follow-up audits. Follow-up audits are not the 
only method to obtain high assurance on the implementa-
tion of corrective measures and are conducted on a risk 
basis. Alternative ways exist such as desk reviews on the 
revised procedures put in place by the Member States. The 
decision whether to gain assurance on the implementation 
of audit recommendations (Court, national or Commission 
source) by a follow-up audit depends on the reliance the 
Commission can put on the programme authorities, the 
gravity of the findings as well as their nature.

Box	7
Th e   w i n d i n g - u p   b o d y   fo r   S c o t t i s h   p ro gr a m m e s   w a s 
audited  and  assessed  as  reliable  by  the  Commission  in 
the framework of its preparatory work for the closure of 
2000–06 programmes and a closure audit has taken place 
to assess the validity of the winding-up declaration. There-
fore, the Commission auditors obtained sufficient assur-
ance  at  closure  that  all  systemic  weaknesses  identified 
were effectively addressed. The Commission also refers to 
its reply to paragraph 45.

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52.
I n   a c c o r d a n c e   w i t h   A r t i c l e   3 9   o f   R e g u l a t i o n   ( E C ) 
No  1260/1999,  amounts  released  through  financial  cor-
rections agreed and implemented by Member States can 
be reused for other eligible expenditure and only finan-
cial corrections decided by the Commission are net. The 
Commission considers that this is an incentive for Member 
States to appropriately detect irregularities and to with-
draw  any  irregular  expenditure  from  previous  payment 
claims already reimbursed by the Commission. The Com-
mission also refers to its reply to paragraphs 68 and 88 (b) 
and (c). 

54.
The Commission refers to its reply to paragraphs 45 and 46.

Box	8
This example shows indeed that the Commission is satisfy-
ing itself that problems have been satisfactorily corrected 
before it can close a case.

55.
The remedial actions undertaken (action plans and finan-
cial corrections applied by the Commission totalling 5.3 
billion  euro  for  ERDF  and  ESF  cumulatively  for  the  pro-
gramming period 2000–06) mitigated the risk related to 
the implementation of programmes during the program-
ming period. Therefore, in the Commission’s opinion, for 
the majority of programmes the assurance level was high. 

For the remaining limited number of programmes with less 
assurance, the Commission decided to carry out risk-based 
closure  audits  allowing  high  assurance  at  closure  to  be 
reached for these programmes as well. 

For the specific issues, please refer to the Commission’s 
reply to Boxes 9 and 10.

56	(a)
The Commission obtains at closure assurance on the com-
pleteness and accuracy of all financial corrections carried 
out in the lifetime of the programme. Moreover, the Com-
mission can carry out closure audit missions to the pay-
ing  or  other  programme  authorities,  during  which  the 
implementation  of  financial  corrections  is  checked  for 
a sample of programmes. This was effectively the case for 
one of the programmes in which the Court has identified 
shortcomings.

Box	9
Before  payments  resumed  the  Commission  was  able  to 
calculate  all  the  corrections  made. The  most  important 
correction was assessed on the basis of work of the Gali-
cian Statistics Institute, which answered the Commission’s 
requirements perfectly.

57.
The  Commission  refers  to  its  reply  to  paragraph  9  (a), 
where it indicates that neither a 100 % check of projects 
nor a statistical sampling approach were required for the 
period in question.

The coverage of the checks needed to be assessed against 
the programme context; lower coverage may have been 
sufficient, when the samples checked were representative 
and if other mitigating measures were in place. Therefore 
a lower amount checked may not necessarily have resulted 
in  an  increased  risk  that  declared  expenditure  was  not 
regular.

Box	10
The remaining issues have been identified by the Commis-
sion as a particular risk for the closure of this programme. 
The final results of the enquiry carried out will be assessed 
by the Commission during the closure audit mission for 
this specific programme. Thus, additional financial correc-
tions may be applied.

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Special Report No 3 / 2012 – Structural Funds: Did the Commission successfully deal with deficiencies identified in the Member States' management and control systems?

For the contracts which were not awarded on the basis of 
the accelerated procedure, the occurrence of various types 
of errors was not systematically checked by the Commis-
sion since it considers that it did not have sufficient basis 
to carry out additional financial corrections. Further audit 
work  was  not  deemed  necessar y  since  the  main  weak-
nesses were corrected.

58.
The  Commission  refers  to  its  reply  to  paragraphs  9,  10, 
11 and 28.

The Commission considers that the 2000–06 legal frame-
work regarding the requirements for second level checks 
was adequate and provided a good basis for the work of 
the audit bodies. 

The  legal  framewor k  for  the  per iod  2007–13  fur ther 
enhanced the provisions of the previous period. It is how-
ever underlined that the first level checks remain a key ele-
ment in the 2007–13 period, without this implying a weak-
ness in the legal requirements for second level checks in 
the previous programming period.

59.
A  follow-up  audit  by  the  Commission  is  not  the  only 
method to obtain high assurance on the implementation 
of corrective measures. The decision whether to gain assur-
ance on the implementation of audit recommendations 
(Cour t,  national  or  Commission  source)  by  a  follow-up 
audit or through alternative ways, such as desk reviews of 
(new) procedures, depends also on the reliance the Com-
mission can put on the programme authorities, the gravity 
of the findings as well as their nature. In other situations, 
where  national  control  bodies  are  common  to  different 
programmes, the results of the follow-up audit carried out 
by one Commission service can be shared with other con-
cerned services.

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60.
The Commission assesses the assurance it can draw from 
systems based on all key requirements in place, including 
for 2000–06 programmes the work of the paying author-
ity before certifying expenditure. The Commission consid-
ers that, due to the principles of shared management and 
single auditing, it can base part of its assurance and rely 
on national audit reports for 2000–06 programmes when it 
has information that confirms the reliability, independence 
and professionalism of such audit bodies. As indicated in 
the Commission’s reply to paragraph 45, the Commission 
should also make the best use of its resources to obtain 
assurance and to follow-up remedial action plans imple-
mented in the Member States. 

Box	11	—	first	request
This first action plan was conducted on a large statistical 
sample (one seventh of all files, 269 in number). An anal-
ysis  of  the  error  rate  of  2,12  %  showed  that  errors  were 
concentrated in the years 2000 and 2001. The error rate 
was well below 2 % for the years 2002, 2003 and 2004. It 
should be noted that the first action plan was carried out 
on a much larger population (and selected on a statistical 
basis) than the second level checks which, from a Commis-
sion point of view, could explain the difference with the 
second level checks.

Taking into account the overall error rate just above 2 % 
of the first action plan and the low error rates from 2002 
onwards, together with the confirmation that procedures 
had been reinforced, the Commission considered that pay-
ments for this programme could be resumed.

Box	11	—	second	request
The difference between the error rate from the action plan 
(2,12 %) and the one from the Article 10 checks is due to 
the characteristics of the sampling procedure: the sample 
for the action plan was extracted on a statistical basis (one 
seventh of the 2000–04 projects) whilst the sample for the 
Article 10 checks includes also risk selected projects. This 
explains the higher error rate of the Article 10 checks.1

1  According to Article 10(2) of Regulation (EC) No 438/2001, Member 
States shall organise checks on operations on a representative sampling 
basis, which includes the following elements: the need to check an 
adequate mix of operations, any risk factors which have been identified by 
national or Community checks and the concentration of operations under 
certain intermediate bodies or certain final beneficiaries.

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The  Commission  did  not  question  immediately  the  dif-
ference  between  the  results  of  the  first  action  plan  and 
the  second  level  checks  since  the  latter  were  expected 
to decrease as a result of the first action plan. However, 
less than a year later, the Commission requested to launch 
a second action plan because of the persisting high error 
rate of the second level checks. 

During  the  implementation  of  the  second  request  for 
action, it was clearly pointed out to the French authori-
ties that remaining error rates higher than 2 % at the stage 
of  closure  could  imply  financial  corrections. The  French 
authorities should therefore continue remedial actions to 
further reduce the error rate.

T h e   c l o s u re   e xe rc i s e   fo r   t h e   Aq u i t a i n e   p ro g r a m m e 
has  been  interrupted  and  additional  information  was 
requested on the calculation of the residual error rate. The 
information was received on 1 April 2011 and is subject to 
an ongoing Commission analysis.

61.
The Commission assesses the assurance it can draw from 
systems based on all key requirements in place, including 
for 2000–06 programmes the work of the paying authority 
before certifying expenditure, which can be a mitigating 
factor to considering the whole system satisfactory. Since 
there is no regulatory requirement on the volume of first 
level checks to be carried out, the assessment must take 
into account all available mitigating factors (see also reply 
to paragraph 28).

62.
Concerning the ERDF English programmes identified by 
the Court under this category, the quantity of checks to 
be done was agreed with the authorities. The action plan 
agreed  with  the  programme  authorities  were  to  cover 
at least 30 % of programme spendings, underpinned by 
a minimum of 10 % spending check back to source doc-
umentation  at  each  on-the -spot  visit  of  the  ser vice  in 
charge of verifications. In addition, a minimum coverage 
was set, dependent on total project numbers. 

The Commission also refers to its reply to paragraph 28.

Box	12
For  Navarre,  the  Commission  considers  that  the  main 
weaknesses  identified  were  cleared  on  the  basis  of  the 
national audit report: 

The Commission confirms that the report referred to by the 
Court describes the measures taken with the amount of 
detail required by the applicable rules and in a satisfactory 
manner.

64.
The Commission notes that it systematically initiated cor-
rective actions when deficiencies were identified and that 
audit evidence of the implemented actions (either through 
its own audits or through the programme’s audit body) is 
ensured for 90 % of the cases. Furthermore, the Commis-
sion will include the remaining programmes in its closure 
audits (see reply to paragraph 69).

For the six programmes in the sample for which financial 
corrections taken covered the whole programming period 
(see footnote in Table 4), the Commission had high assur-
ance on the corresponding expenditures as well. 

65.
As the Commission has often noted, closure is a key proc-
ess in the multiannual corrective mechanism for Structural 
Funds and a final security net to ensure legality and regu-
larity. At closure, in any case, a thorough analysis of the 
sufficiency of the corrective actions already taken by the 
Member States and the Commission is carried out in order 
to be able to address any remaining risks to the EU budget. 
Additional closure audits, which may allow further irreg-
ularities to be detected, are carried out, based on a risk 
assessment arising from the closure process.

66.
In the framework of the preparatory audit enquiry carried 
out from 2007 onwards to review the winding-up bodies in 
order to verify the assurance which can be placed on their 
closure work underpinning the winding-up declarations for 
the 2000–06 programmes, 42 audit missions were carried 
out with a view to verifying the preparation of Member 
States for closure and to identify and mitigate risks. The 
audit exercise covered approximately 85 % of the decided 
amount for the 2000–06 programmes at the end of 2010. 

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The deficiencies identified were followed-up during the 
normal  contradictor y  procedures  leading  also  in  some 
cases to follow-up missions being carried out by the Com-
mission, where this was considered necessary.

The  Commission  is  aware  of  the  risk  of  retrospective 
projects, which concerns in particular a limited number of 
Member States and programmes. 

The Commission also refers to its reply to Box 7. 

67.	(a)
The  Court’s  observation  that  further  corrections  will  be 
implemented  based  on  information  in  the  winding-up 
declarations illustrates the fact that the Commission takes 
the closure exercise very seriously as a last security net to 
ensure legality and regularity of the programme’s expendi-
ture,  even  when  problems  were  deemed  to  have  been 
treated satisfactorily in the lifetime of the programme.

67.	(b)
The Commission has mitigating actions in place to address 
the risks identified at closure. Based on its risk assessment, 
the Commission carries out specific closure audits to verify 
and validate the quality of the winding-up declaration.

The information provided by the winding-up body ( WUB) 
is based on the cumulative audit information originating 
from  all  audit  sources  (national,  Court  and  Commission 
audits), including from additional audits carried out at clo-
sure by the winding-up body when necessary.

The checklist used by the Commission at closure covers 
these issues.

The Regional Policy DG has a specific closure review panel 
which meets regularly to ensure consistency in the most 
difficult cases.

68.
The Commission has clarified to Member States that the 
practice  of  reinstating  irregular  expenditure  previously 
withdrawn is in general not allowed.

During the assessment of the winding-up declarations, the 
Commission is therefore carefully addressing these risks (in 
particular in the closure risk assessment established per 
Member State by the Commission).

Box	13	-	Common	reply	for	both	examples
In these cases the winding-up bodies proved to be effec-
tive in disclosing the issue in the winding-up declaration. 
The reintroduction of expenditure at risk has been consid-
ered in the context of the closure of the concerned pro-
gramme. One of the objectives of closure audits is to verify 
the level of supervision exercised by the winding-up body 
on the work carried out by the managing authority under 
the special enquiry on public procurement before issuing 
the winding-up declaration.

69.
As stated in the Commission’s reply to paragraph 64, the 
closure  process,  including  closure  audits,  will  in  many 
cases allow to complement the assurance obtained when 
assessing  the  implementation  of  remedial  actions,  thus 
allowing  high  assurance  for  all  programmes.  Closure  is 
a dynamic process and additional audits may be decided 
based on the results of the assessment of winding-up dec-
larations or of additional information requested and com-
municated or not by the Member States.

70.
The Structural Funds are managed through shared man-
agement and therefore there always has to be an element 
of reliance on the work of the Member State authorities.

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Furthermore, the Commission services have at their dis-
posal  at  closure  the  results  of  the  enormous  amount  of 
audit  work  carried  out  during  the  programming  period, 
which has helped to identify any issues or risks in the reli-
ability of the management and control systems, for exam-
ple on the independence of audit bodies. The Commission 
also refers to the extensive enquiry to review the work and 
methodologies of the winding-up bodies prior to closure. 
Where previous audit results raised concerns on the relia-
bility of a winding-up body, the Commission services have 
taken this into account in their risk assessment and analy-
sis of the submitted closure documents. When the informa-
tion provided by the winding-up declaration is not exhaus-
tive, additional background information is requested to the 
Member State. The risk-based closure enquiry set out in 
the Commission’s audit strategy includes 50 programmes, 
being the equivalent of 9,5 % of all 525 ERDF and ESF pro-
grammes.  If  considered  necessar y,  fur ther  on-the -spot 
audit work may be carried out up to 3 years following the 
closure letter.

Moreover, the Commission recalculates the residual error 
rate presented in the winding-up declaration if some errors 
or  misinterpretations  are  present  and  imposes  financial 
corrections when such error rate is beyond 2 %. 

Box	14
The process of closure of the programme Yorkshire and the 
Humberside  was  based  on  the  underlying  audit  results, 
applied consistently throughout the 2000–06 period. The 
calculation of the error rate in the winding-up declaration 
was aligned according to the sampling that has been tak-
ing place over the whole period — based on a methodol-
ogy defined in the beginning of the period and in compli-
ance with Article 10(2) of Regulation (EC) No 438/2001.

This methodology met the dual requirements concerning 
the sample — representative (random) and based also on 
risk analysis.

The calculation of error rate and residual error rate at clo-
sure has been made by the winding-up body in accord-
ance with the same sampling methodology. Therefore, in 
consideration  of  the  regulator y  requirements  in  effect, 
the Commission considered the residual error rate to be 
accurate  and  accepted  unconditionally  the  winding-up 
declaration.

The  Court  proposes  an  alternative  methodology  for  the 
process of sampling, which treats the population differ-
ently, dividing it into three sub-populations based on cri-
teria which are not part of the sampling methodology of 
the audit body. 

71.	(b)
The Commission refers to its assessment of the reliability 
of a sample of 2007–13 audit authorities published in the 
2010 annual report of the Court. The Commission contin-
ues  to  work  with  audit  authorities  to  further  harmonise 
their audit approach and ways of presenting error rates in 
their annual control reports. 

72.
In  addition  to  simplified  cost  options  for  ESF  and  ERDF 
under  the  2007–13  programmes  (use  of  indirect  costs 
declared  on  a  flat-rate  basis  up  to  20  %  of  direct  costs, 
standard  scales  of  unit  costs  or  lump  sums),  the  use  of 
national (or sometimes regional) eligibility rules to manage 
programmes is also considered as an important simplifica-
tion and a way to avoid compliance errors against EU rules 
which are not always well known and understood. 

73.
The declaration of additional expenditures beyond the pro-
gramme resources (overbooking) requires an investment 
by the Member State in order to ensure an optimal utilisa-
tion of the funds. Not all Member States can necessarily 
decide to make this investment.

The Commission services take into account overbooking 
when  implementing  financial  corrections  at  closure,  as 
always done during programme implementation. 

The  purpose  of  financial  corrections  is  not  to  sanction 
Member  States  in  systematically  reducing  the  allocated 
EU co-financing, but they are a means to ensure that at 
closure only legal and regular expenditure has been reim-
bursed by the EU budget. However, financial corrections 
for system deficiencies in the closure process, as well as 
irregularities and deficiencies detected in an audit con-
ducted after the closure of programmes, will result in a net 
reduction of the EU assistance.

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74.
I m p rove m e n t s   i n   2 0 0 0 – 0 6   s y s te m s   m ay   b e n e f i t   t h e  
2007–13  systems  under  strict  conditions  that  the  same 
authorities  and  rules  are  applied,  but  also  through  the 
improvement of know-how of the national authorities.

75.
The only moment where a final conclusion can be reached 
on the functioning of an operational programme is at clo-
sure where a residual error rate is established taking into 
account all financial corrections incurred during the life 
of the programme. The Commission does take action for 
the programmes under reservation in the annual activity 
reports.

76.
The Commission underlines that error rates reported by 
Member  States’  audit  authorities  at  the  end  of  2010  are 
only one element for the Commission to assess the effec-
tiveness of management and control systems for the pur-
pose  of  the  annual  assurance  of  Directors-General. The 
Employment, Social Affairs and Inclusion DG indicates in 
its 2010 annual activity report (page 45) that the average 
estimated error rate for all 2007–13 ESF programmes based 
on  the  2010  annual  control  reports  submitted  by  audit 
authorities covering 2009 expenditure is in the range of 
2,5 % to 3 %. 

Annual activity reports from the Regional Policy DG and 
the Employment, Social Affairs and Inclusion DG provide 
a comprehensive assessment of the management and con-
trol systems for all programmes under Structural Funds, 
based on all sources of assurance available to services. In 
the 2010 annual activity reports of both Commission serv-
ices, 10 % and 12 % respectively of all programmes for the 
programming periods 2000–06 and 2007–13 are classified 
in the two lowest categories of assurance. The remaining 
90 %-88 % of programmes are deemed to be functioning 
effectively or with only minor improvements needed.

77.
The possibility to change their national management and 
control  systems  is  limited  by  the  obligation  to  submit 
the ex ante description of their sytems to the approval of 
the Commission, before the first interim payment on the 
operational programme (Article 71 of Regulation (EC) No 
1083/2006) together with an audit strategy (Article 62 of 
Regulation (EC) No 1083/2006). The Commission considers 
that the compliance assessment has contributed to reduc-
ing errors. 

Error rates reported by the Court so far in 2009 and 2010 
also show that the current systems better prevent errors 
than  in  the  past.  I n  an  analysis  of  quantifiable  errors 
reported by the Court since 2006 made by the Commisi-
son in the staff working document of 6 October 2011, the 
Commission services conclude that errors are concentrated 
under some programmes in few Member States. Additional 
efforts are though still necessary to bring the overall error 
rate to more acceptable levels. 

CONCLUSIONS	AND	RECOMMENDATIONS

79.	and	80.	Common	reply	
The Commission welcomes the fact that the Court con-
cludes in paragraph 80 that ‘ The Commission systemati-
cally initiated corrective actions when deficiencies were 
identified.’ The Commission considers that this is a posi-
tive  result,  which  demonstrates  its  strong  commitment 
to fully exercise its supervisory role in the management 
of  the  Structural  Funds.  Fur thermore,  the  Commission 
has included in its closure audits programmes for which 
some  issues  remain,  thus  allowing  to  reach  high  assur-
ance at closure for these programmes as well (see reply to 
paragraph 69). 

81.
In  the  2008  action  plan  to  improve  the  Commission’s 
supervisory role in structural actions, one of the measures 
proposed was intended to speed up legal proceedings and 
it set up deadlines for the adoption of financial correction 
decisions (24 months after a final audit report).

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Nonetheless,  in  shared  management,  programmes  are 
multiannual and the Commission and Member States can 
carry out all necessary corrections until programmes’ clo-
sure. In particular for large infrastructure projects, complex 
legal and regulatory issues take time to be sorted out. The 
Commission considers that the utmost objective is that 
deficiencies are remedied and that all irregular expendi-
ture is corrected. 

82.
The  Commission  welcomes  the  Cour t ’s  conclusions.  I t 
considers that it obtained a high degree of assurance that 
financial corrections had been properly applied in about 
two thirds of the cases examined.

For  the  remaining  audited  programmes  for  which  it 
obtained  a  lower  level  of  assurance,  the  procedures  in 
place were well respected and financial corrections were 
implemented as a result of the Commission’s diligence to 
provide a reasonable follow-up on every single case. For 
these programmes the Commission decided to carry out 
risk-based closure audits allowing high assurance after clo-
sure to be reached for these programmes as well.

83.
The  Commission  considers  that  it  carried  out  follow-up 
audits each time it needed additional assurance from infor-
mation provided, on a risk basis. For the other cases, the 
Commission has to make the best use of its resources and 
rely on national audit reports. 

When initiating corrective actions, the Commission seeks 
to  ensure  that  adequate  assurance  can  be  obtained  on 
the declared expenditure, taking into account the over-
all  robustness  of  the  existing  systems  and  their  effec-
tiveness in preventing errors (see also reply to table 4 in 
paragraph  64).The  remedial  actions  undertaken  (action 
plans and financial corrections applied for the program-
ming period 2000–06) allowed mitigating the identified 
risks in all cases. For the remaining programmes with less 
assurance, the Commission decided to carry out risk-based 
closure  audits  allowing  high  assurance  at  closure  to  be 
reached for these programmes as well.

84.
The  effectiveness  of  management  and  control  systems 
evolves over time and audit opinions issued for the pro-
grammes in the annual activity reports of the Structural 
Funds  ser vices  only  relate  to  the  year  covered  by  the 
report. Many observations issued at the beginning of the 
2007–13 period were due to causes totally different to the 
implementation of the previous period.

Therefore, the Commission is not convinced that a direct 
link can be made between all programmes in the two pro-
gramming periods, in order to be able to refer to successor 
programmes.

The Commission continues its strict approach in supervis-
ing 2007–13 programmes. Improvements obtained in sys-
tems have to be continuously monitored, and the annual 
error  rates  and  audit  opinions  provided  by  the  audit 
authorities for 2007–13 programmes allow to do this con-
tinuous monitoring based on improved indicators. 

The  Commission  does  take  action  for  the  programmes 
under reservation in the annual activity reports.

85.
The  Commission  agrees  that  there  remains  scope  for 
improvement  to  stabilise  the  systems  at  a  good  quality 
level for the 2007–13 period. It is commited to make every 
possible  effort  to  ensure  that  this  improvement  comes 
about the soonest possible.

Recommendation	1	—	first	indent
Within the framework of the action plan adopted in 2008, 
the Commission has adopted a strict policy on suspension 
of payments and financial corrections, which resulted in 
shorter deadlines and increased assurance in payments as 
shown in the evolution of the error rate reported by the 
Court over the last years.

The Commission notes that in the 2007–13 period, inter-
ruptions of payment deadlines, a new and more flexible 
legal tool compared to suspension, have a beneficial effect 
on the time length of corrective actions.

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Recommendation	1	—	second	indent
Auditing the work of national audit authorities is precisely 
the principal enquiry in the Commission’s audit strategy 
for 2007–13 programmes. The Commission is implement-
ing  a  multiannual  audit  enquir y  with  the  key  objective 
to review the work of the audit authorities most at risk, 
in  order  to  be  able  to  rely  on  their  annual  audit  opin-
ions. The Commission review on audit authorities, started 
in  2009,  was  also  an  oppor tunity  to  develop  capacity-
building  actions  towards  national  audit  authorities,  as 
further  explained  in  the  2010  annual  activity  reports  of 
the Directors-General of the Regional Policy DG and the 
Employment, Social Affairs and Inclusion DG. This allowed 
improving the work of the reviewed authorities. Focus has 
therefore been put on ensuring that audit authorities pro-
duce robust audit opinions and error rates on programmes. 

Recommendation	1	—	third	indent
As eligibility rules for the 2007–13 programming period 
are defined at national level, eligibility checklists can only 
be  defined  by  managing  authorities,  at  national  or  pro-
gramme level. However, the Commission has been giving 
guidelines  to  the  Member  States  on  the  way  managing 
authorities should define and implement their manage-
ment verifications.

Moreover, the Commission developed in 2009 comprehen-
sive guidelines for the first level checks and a self-assess-
ment tool for managing authorities, which they can use 
to  improve  their  functioning. The  Commission  has  also 
developed and disseminated in 2011 to audit authorities 
checklists for the audit of management verifications which 
can be used by the managing authorities themselves, as 
a benchmark. 

Recommendation	1	—	fourth	indent
The Commission ensures that financial corrections cover 
all  expenditure  incurred  under  deficient  management 
and control systems. The final verification that all affected 
expenditure has been covered by the financial corrections 
implemented can only be done at closure, when all finan-
cial corrections are cumulated and a residual error rate is 
calculated. 

In that sense, the Commission considers that this recom-
mendation is already implemented.

86.
The overall objective of the cohesion policy is to enhance 
economic and social cohesion. 

The regulatory framework on Structural Funds expressly 
gives  the  possibility  to  the  Member  States  to  voluntar-
ily implement financial corrections, without Commission 
decision,  by  withdrawing  the  affected  expenditure  and 
replacing it by new unaffected expenditure, in an interim 
payment claim. This possibility aims at ensuring the best 
possible use of financial resources, and not at punishing 
Member States by systematically reducing the allocated 
funds, while at the same time ensuring the sound manage-
ment of funds and protection of the EU budget.

At closure, overbooked expenditure is taken into account 
only  after  all  necessar y  financial  corrections  have  been 
implemented. 

Financial  corrections  for  system  deficiencies  in  the  clo-
sure  process  will  always  result  in  a  net  reduction  of  the 
EU  assistance,  as  well  as  ir regular ities  and  deficien-
cies detected in an audit conducted after the closure of 
programmes. 

87.
While  ensuring  legality  and  regularity  of  expenditure 
reimbursed by the Commission, the overall objective of 
the  cohesion  policy  is  to  effectively  enhance  economic 
and  social  cohesion.  The  legal  possibility  for  Member 
States to substitute expenditure goes in that direction, in 
that it aims at ensuring the best possible use of financial 
resources, but also at not sanctioning Member States by 
systematically reducing the allocated funds, while at the 
same time ensuring the sound management of funds and 
protection of the EU budget. 

88.	(a)
When the Commission identifies systematic deficiencies, 
remedial actions are imposed on the concerned Member 
States to prevent similar errors in future operations. 

The Commission also refers to its reply to paragraph 87.

The  new  expenditure  must  be  in  conformit y  with  all 
applicable rules. In addition, where errors systematically 
occur as a result of an incorrect transposition or applica-
tion of EU law, the Commission also initiates infringement 
procedures.

Special Report No 3 / 2012 – Structural Funds: Did the Commission successfully deal with deficiencies identified in the Member States' management and control systems?

62

REPLY OF THE  
COMMISSION

Recommendation	2
The  Commission  considers  that  Member  States  should 
have  the  right  to  substitute  ineligible  expenditure  they 
detect with legal and regular expernditure in order to opti-
mise the use of cohesion spending which contributes to 
its added value and to ensure efficient controls at Mem-
ber State level. The Commision’s proposal for the 2014–20 
regulatory framework provides that ‘ Where irregularities 
affecting  annual  accounts  sent  to  the  Commission  are 
detected  by  the  Commission  or  by  the  European  Court 
of Auditors, the resulting financial correction shall reduce 
suppor t  from  the  unds  to  the  operational  programme’ 
(Article 137.6), thereby limiting the possibilities of with-
drawal/replacement to the ongoing financial year. This pro-
vision is intended as an incentive for expenditure included 
in the annual certified accounts to be legal and regular.

88.	(b)
The  co -financing  of  retrospec tive  projec ts  by  the  EU 
budget is subject to the full conformity of these projects to 
the eligibility criteria of the related operational programme 
and must be submitted to the same level of control as all 
other  expenditure  incurred  under  the  operational  pro -
gramme. Where the requirements are not met the Com-
mission imposes financial corrections.

Th e   i s s u e   o f   re t ro s p e c t i ve   p ro j e c t s   d i f fe r s   f ro m   t h e 
replacement of irregular expenditure by legal and regu-
lar expenditure, in full conformity to all rules applicable 
to  the  operational  programme.  In  this  sense,  as  already 
mentioned in the Commission’s reply to paragraph 86, this 
possibility aims at ensuring the best possible use of finan-
cial resources, and not at sanctioning Member States by 
systematically reducing the allocated funds, while at the 
same time ensuring the sound management of funds and 
protection of the EU budget.

88.	(c)
The Commission considers that the cost-effectiveness of 
corrective measures cannot be based on whether or not 
they result in a net reduction of the funding support to an 
operational programme, but rather on whether they ensure 
legality and regularity of the underlying transactions of the 
concerned programme. The cost of such corrective meas-
ures  is  thus  entirely  justified. This  objective  is  achieved 
regardless of whether the impact of those corrections is 
absorbed by genuine additional expenditure incurred as 
overbooking  beyond  the  programme’s  allocations. The 
Commission corrective action intends to ensure that Struc-
tural Funds spending is dedicated to compliant projects, 
thereby protecting the EU budget as well as contributing 
to cohesion policy objectives. Member States are required 
to recover the irregular expenditure from the concerned 
project beneficiaries. Therefore, it cannot be considered as 
a burden for the tax payers. When this is not possible, for 
example because the responsibility for irregularities is with 
the Member State administration (system deficiencies) and 
not with individual beneficiaries, the financial burden falls 
upon the national budget of the concerned administration. 
Financial corrections are a useful tool for Member States 
to improve their management and control systems and to 
prevent irregularities in the future. Corrections imposed 
to Member States mean less revenue from the EU budget 
than initially planned and the necessity to find additional 
national public funds to pay for the projects not eligible 
for EU co-financing.

Special Report No 3 / 2012 – Structural Funds: Did the Commission successfully deal with deficiencies identified in the Member States' management and control systems?

63

European Court of Auditors

Special	Report	No	3/2012
Structural	Funds:	Did	the	Commission	successfully	deal	with	deficiencies	identified	in	the	Member	States’	management	and	control	systems?

Luxembourg: Publications Office of the European Union

2012 — 62 pp. — 21 × 29.7 cm

ISBN 978-92-9237-465-5
doi:10.2865/53010

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WHEN SIGNIFICANT DEFICIENCIES ARE IDENTIFIED IN THE MEMBER STATES’ 

MANAGEMENT  AND  CONTROL  SYSTEMS  FOR  STRUC TURAL  FUNDS, THE 

COMMISSION HAS TO ENSURE THAT PAST IRREGULARITIES ARE CORRECTED 

AND THAT SYSTEMS ARE IMPROVED FOR THE FUTURE. IN THIS REPORT THE 

COURT ASSESSED WHETHER THE COMMISSION DEALT IN A SATISFACTORY 

WAY WITH DEFICIENCIES IDENTIFIED IN THE MEMBER STATES’ SYSTEMS.

EUROPEAN COURT OF AUDITORS