Execution of annual budgets 2007-2013: recommendations for regional and local authorities

1. Execution of annual budgets 2007-2013: recommendations for regional and local authorities Axel VolkerySenior Fellow and Head Environmental Governance 5 September 2013 Committee of the Regions, Brussels

2. Background File note was commissioned by COR to • Review recommendations of relevance to local and regional authorities (LRAs) included in official EU reports on implementation of EU budget in the period 2007-2013 • Analyse development of pending claims and Reste à Liquider (RAL) in the period 2007-2013 and their implications for LRAs

3. Information sources • The following sources of information were utilised: • Last five annual financial reports from European Court of Auditors (ECA) • Comments / requests from Parliament & Council as part of the discharge process for the same period • Response from Commission as part of the discharge process for the same period • Other relevant EU documents • Note: • ECA reports are factual documents • Reports do seldom contain any statements or recommendations addressing LRAs directly

4. Synopsis of ECA reports: key areas of concern • Error rates • Budget implementation has been regularly found to be affected by material level error of legality and regularity • Cohesion Policy stands out: > 5per cent for Cohesion, between 2 and 5 per cent for employment and social affairs • Eligibility errors are the most frequent errors in ERDF, ESF, EMFF, but error rate is decreasing • Accuracy errors are most frequent errors under EARDF • Cohesion Policy is also affected by public procurement errors • Withdrawal practice • Eligibility errors should not result in new irregular expenditure being declared • Commitments • High level of outstanding commitments is repeatedly criticised

5. Synopsis of ECA reports: root causes Lack of sufficiency and transparency in information and evaluation systems Difficult to applyeligibility rules Root causes Lack of effective evaluation and audit systems (particularly for first level checks) Lack of effective sanctioning systems Incoherent requirements for reporting and monitoring

6. Synopsis of ECA reports: key recommendations Improve feedback between authorities Better guidance and training for managing and audit authorities Simplify eligibility rules and ensure strict compliance Improve withdrawal practice Cohesion Policy Apply corrective mechanisms on operational programmes Strengthening sanctions (interruptions, suspensions) Align reporting periods for annual control reports

7. Synopsis of ECA reports: key recommendations More rigorous administrative and on-the-spot checks Better control of beneficiaries in terms of keeping obligations Rural development and EMFF Simplify rules and conditions Take a more systemic approach towards addressing weaknesses in EMFF

8. Parliament and Council responses Parliament • Reiterates many of ECA’s conclusions – emphasizes differences in Member State management and control systems • Criticises lack of incentives for norm compliance, part. Cohesion Policy • Reiterates need for simplification, uniform auditing standards and greater cooperation between Commission and authorities • Calls for greater supervisory role of Commission and strengthening of sanctions Council • Urges national authorities to apply ex-ante controls more effectively • Improve management and control systems, simplify rules and apply correction mechanisms more rigorously • Points to the relevance of supervision and action by European Commission

9. Outstanding commitments 2012 Source: European Commission

10. RAL as per main programme of funding A much larger than thought proportion of 2013 payment appropriations will need to be used to honour 2012 claims – already the additional EUR 11.2 bn claimed by the Commission were at risk of falling short but Council approved only EUR 7.3 bn so far - Gap in meeting 2013 commitments remains present after draft amending budget 06/2013, putting greater pressure on annual budgets from 2014 onwards RAL is projected to grow to EUR 250 bn by 2020 Source: European Commission

11. RAL over time • RAL normally increased towards ends of MFF periods, but RAL in 2013 is much higher compared to RAL in 2006 • Underlines the need for greater flexibility, as discussed in budget negotiations

12. Member State implications • Main implications arise under funds under shared management • for example, support from Cohesion Policy amounts to – on average – around 55 per cent of expenditure on environment or 25 per cent on transport, energy, telecom. • RAL differs between Member States (MS) • MS with largest pending claims are Poland, Italy, Spain • Ireland, Denmark, Cyprus and Luxembourg have lowest amount • Differences in RAL often have a specific domestic connotation • Change in economic context conditions, administrative capacities, incoherence between programme planning and project selection • Quality and capacity of authorities seem to be much more relevant influencing factors compared to other factors (level of decentralisation)

13. Thank you! Contact: Axel Volkery avolkery@ieep.eu T. +32 2111090 For more information about IEEP’s, please visit: http://www.ieep.eu twitter @ieep_eu London office Brussels office 11 Belgrave Road, Hooikaai 55/ Quai au Foin 55 IEEP Offices, Floor 3 1000 Brussels London Tel: +32 (2) 738 74 82 SW1V 1RB Fax: +32 (2) 732 40 02 Tel: +44 (0) 20 7799 2244Fax: +44 (0) 20 7799 2600