Original publication: April 2018
Author:European Policies Research Centre, University of Strathclyde, Glasgow: Martin FERRY and Laura POLVERARI
Short link to this post: http://bit.ly/2HJcvhr
Introduction: Aims of the study and research questions
This study assesses the relationship between two components of European Structural and Investment Funds (ESIF) – control and audit systems, and simplification measures designed to reduce the complexity of ESIF implementation – and explores how this relationship conditions ESIF performance.
The research included four specific aims:
- To provide an overview of ESIF control and audit systems.
- To analyse control and audit provisions in 2014-20 in terms of their contribution to simplification.
- To assess the role of the European Court of Auditors (ECA), including specific features of their audit approach.
- To develop insights for the development of control and audit arrangements that enhance the pursuit of simplification and improved ESIF performance in the post 2020 period.
The methodology combined desk-based research, interviews at EU and MS levels, and seven case studies from a mix of ESIF programmes from across the EU.
Control and audit in the simplification agenda: what is working?
The CPR introduced a number of measures to simplify procedures and reduce the complexity of financial control and audit. Nevertheless, in 2017 the European Commission and the European Parliament restated the need to reconsider arrangements for simplifying control and audit.
Responses from programme authorities have recognised the need for effective rules in order to avoid errors, fraud and the misuse of funds and welcomed the basic principles on which these measures are based. Nevertheless, OP authorities continue to call for greater simplification of OP financial management and proportionality in audit and control.
A key underlying theme in the debate on the future of Cohesion policy is the need to reduce the costs of administering the funds while retaining the positive trend in the reduction of error rates. Basic questions are whether and how a differentiated approach could be designed that moves away from the one-size-fits-all model of shared management and which recognises that different models may be appropriate for different contexts.
Conclusions and recommendations
The current ESIF management and implementation system has been working effectively in driving errors and irregularities down. The problem is essentially one of efficiency (cost). While the costs of the current control and audit system are problematic, there is still a need for checks to be carried out to ensure that rules are respected.
Substantial simplification has yet to be realised. A significant problem is the lack of stability and consistency in regulatory frameworks. Further, a substantial portion of the complexity of administering ESIF relates to rules that are outside the sphere of Cohesion policy (e.g. relating to state aid and public procurement).
Key simplification measures have not always been effective in reducing complexity and administrative burden:
- One aim of the designation process was to give increased scope for simplification with MS given the option to carry out the process without direct Commission review. However, many MS opted to have a ‘heavier’ approach due to concerns that future audits and controls would identify errors.
- The ‘rolling closure’ process presents some challenges for programme authorities and is seen to create an additional administrative burden, as well as an increased risk of error.
- Risk-based methods of sampling for controls are viewed as beneficial by MAs, but AAs tend to underline the importance of retaining statistical sampling to maintain the necessary level of confidence in the audits realised.
- The ‘Single Audit’ model is seen by programme authorities to have potential in terms of simplification. However, there is a need for more clarity on how and when an auditor can rely on existing findings.
- Simplified cost options are welcome but need to be further developed.
- ‘Once only’ audit for small operations is useful in principle but defining ‘small’ is problematic in practice. Further tailoring could use a risk-based approach.
The research highlights a number of general principles for the future in order to reduce complexity, while continuing to drive errors and irregularities down. In deciding the emphasis to be placed on different principles, clear choices have to be made on the ultimate goals of simplification and the types of actors simplification efforts should target:
- Harmonisation. Genuine simplification must begin with greater harmonisation of rules across Commission services, funds and instruments. This highlights the role of EU initiatives in this field, including the Better Regulation Agenda and the REFIT Platform.
- Stability. More stability from one programme period to the next and better predictability for programme authorities and beneficiaries would simplify implementation, cut the times and costs of adaptation, and reduce the risk of errors and irregularities.
- Brevity. There should be single texts, made available to programme authorities in a timely manner, rather than a proliferation of rules and interpretations. This would enable better coordination between different actors and the timely identification of administrative capacity gaps.
- Trust and capacity building. The Commission has tried to introduce simplification by increasing the scope for flexibility and proportionality in control and audit fields. However, lack of trust and/or capacity have constrained take up of these options. Thus capacity-building activities should be implemented to enhance implementation efficiency in the longer term.
- Flexibility and differentiation. Complexity affects all MS, but it has distinctive dimensions in different MS and OP contexts. Especially where the scale of ESIF is small, complexity can create disproportionate administrative workloads and lead potential beneficiaries to pursue alternative funding opportunities. There is considerable debate about a more flexible, differentiated approach to control and audit that reflects variation in scale of funding, regularity of spending, administrative capacity etc. However, practical questions remain about what would be suitable objective criteria for differentiation.
- Appraisal, to avoid unintended consequences. A number of valuable simplifications have already been introduced but their benefits have been undermined by new requirements which generated further complexity. It is paramount that the impact on administrative cost and burden of any reform proposal is carefully appraised and compared with the benefits associated with retaining the current rules and systems.
- Timing. Commission and programme authorities, including AAs, are being asked to make proposals for the future over the next few months. However, due to delays in programme implementation, they have little evidence to assess what is and is not working. All involved should take a longer-term view in appraising what works and what doesn’t.
- Role of the European Commission. Continued pursuit of simplification initiatives, reviewing and revising current regulations, including the HLG on Simplification, ‘Better Regulation Agenda’ and the REFIT Platform and support of capacity-building initiatives in MS to strengthen simplification (e.g. in the take up of SCOs, extension of the ‘Single Audit’ etc.).
- Role of ECA. The ECA is crucial in balancing the need for legality and regularity of expenditure with the need for simplification. Current initiatives to strengthen cross reliance with the Commission and MS should be further developed.
- Role of Member States. It is important that MS play an active part in reducing complexity, by reviewing domestic choices that can have an impact on complexity, e.g. ‘gold-plating’, number of OPs implemented, design of programme management systems etc.
- Performance auditing. The spread of performance audits and their use in making financial decisions should be further pursued at EU and MS levels. However, this should not detract from efforts to lower the historical error rate. Performance audits have different goals than compliance audits: increasing use of performance audits should not mean reducing the emphasis on financial regularity and compliance.
- Accountability. ESIF control and audit procedures are part of an accountability chain involving MS and EU authorities which has seen not only a reduction in error rates, but also increased transparency on Cohesion policy’s legality, regularity and achievements. The strength of this chain relies on the strength of its individual components at both EU and MS levels.
The research also provided some practical recommendations:
- The designation procedure should be reconsidered, targeting systems that are or have recently been in flux for full designation process but applying lighter approaches for established, stable systems;
- More clarity should be provided on aspects that relate to the application of SCOs. Procedures should be put in place to ensure that simplified controls on some aspects are not counterbalanced with additional controls on other elements of the same projects. A useful rule is contained in Article 14(i) of the ESF Regulation, which allows standard scales of unit costs and ‘lump sums’ to be set out in a delegated act.
- Annual reporting should be further streamlined. Simplification should include the timely publication of Commission guidelines, so that IT systems can be planned to collect the right data from the start, and the elimination of duplications or overlaps between this task and the Annual Control report prepared by the Audit Authority.
- Dedicated rules and support should be established for the control and audit arrangements of specific types of programmes and operations, notably European Territorial Cooperation programmes and Financial Instruments. For FIs, options include: separating out FIs in dedicated priorities; setting minimum allocations for the funds to be established (e.g. EUR 200 million); standardising the structures of funds; providing targeted and clear-cut Commission guidance to enhance legal certainty. For ETC, special exemptions or differentiation of rules could simplify management and limit the risk of errors. Special consideration should be given to the application of State aid rules.
Link to the full study: http://bit.ly/601-972
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