Changes from plenary report to adopted text

78. Notes that the Court estimates that the level of error in spending on ‘Single Market, Innovation and Digital’ in 2022 was material at 2,7 % ; notes with satisfaction that this is a considerable decrease compared to 4,4 % in 2021; notes the Court’s observation that the research and innovation expenditure is most affected by error, particularly in the area of personnel costs; is concerned that the Commission calculated an error rate of 1,5 % for this heading, which is in the lower half of the range of the Court estimation; is concerned that the Court’s observation of the underestimation of the rate by the commission has persisted for a number of years, with a specific weakness identified in the Commission’s ex post audits;

79. Notes that quantifiable errors relating to ineligible costs represent 98 % of the Court’s estimated level of error of 2,7 % in 2022; notes with concern, in particular, that the rules for declaring personnel costs under Horizon 2020 remain complex and that their calculation remains a significant source of error (67 % of the estimated error level in 2022); notes that the Commission has developed and promotes the use of the ‘Personnel Costs Wizard’ to help beneficiaries to declare their personnel costs correctly;

80. Notes that Horizon 2020 continues to represent the large majority of projects in the Court’s sample, with just one Horizon Europe project in the 2022 sample; stresses that, according to the Court, certain simplifications in Horizon 2020, in particular the introduction of a flat rate for indirect costs, have reduced the administrative burden on beneficiaries and have the potential to reduce the risk of error;

81. Notes the remarks made by the Director-General for Research and Innovation in his discharge hearing that the Commission intends to increase the disbursement of Horizon Europe funds through lump sums from 2 % in 2022 to 50 % in 2027; notes, in that context, the Court’s specific review of the Commission’s procedures and guidance on lump-sum funded grants in research; notes the Commission’s statement that the level of scrutiny in terms of economy, efficiency and effectiveness is higher in the evaluation of lump-sum proposals; emphasises the need to check the actual implementation of projects using lump sums;

82. Stresses the crucial role of the private sector in addressing the innovation gap in the Union and improving Union competitiveness and growth; believes, in particular, that it is imperative to keep promoting and facilitating as much as possible the participation of small and medium-sized enterprises (SMEs) in Union R&I funding programmes; notes the Court’s conclusion that SMEs and newcomers are more prone to errors than other beneficiaries, since they lack the experience and resources to administer the funds, and welcomes the efforts made by the Commission to specifically support them, for example through information campaigns, contacts with the system of National Contact Points and the dedicated helpdesk of the Research Enquiry Service; considers that the simplification of rules and procedures are the most important driver for increased participation of SMEs;

93. Notes that, in total, CEF Energy 1 and 2 (2014-2022) provided EUR 6,24 billion of support to energy projects (EUR 5,74 billion works, EUR 0.5 billion studies) to 118 Projects of Common Interest (PCIs) and by the end of 2022, 123 actions that received support from CEF-1 Energy were completed;

94. Notes that Russia’s war of aggression against Ukraine and weaponisation of energy upended energy markets in 2022, triggering price volatility and energy insecurity across the Union’s energy system; highlights the Commission’s response to the crisis by developing the REPowerEU Plan aiming to reduce dependence on Russian fossil fuels and phase out Russian energy imports before 2030; notes that the REPowerEU Plan mobilises close to EUR 300 billion, approximately EUR 72 billion in grants and EUR 225 billion in loans; notes that the REPowerEU Plan has additionally provided a legal basis for both Member States and the Commission to modify national RRPs and to check whether Milestones and Targets (M&Ts) are well defined to clarify them where necessary;

Recommendations

95. Calls on the Commission to:

(i) include extra funds needed for Horizon 2020 and Horizon Europe in the draft 2025 budget to improve on the current state where 7 out of 10 high-quality proposals still cannot be funded;

(ii) continue to apply simplified rules and procedures, digitalisation measures and simplified cost options (SCOs) while addressing, in particular, the risk of irregularities and fraud and the costs of controls;

(iii) continue to simplify rules and procedures in line with the new financial regulation, to support training sessions and practical information for applicants in member states, in particular for SMEs, spin-offs, start-ups, regional NGOs or local action groups;

(iv) continue to promote the use of the ‘Personnel Costs Wizard’ to beneficiaries, in particular newcomers and SMEs, to decrease the error level related to personnel costs;

(v) continue its efforts to achieve a more inclusive Union research programme by giving support, setting clear targets and organising special research programmes for under-represented target groups, such as women and young people, also aspiring for balanced geographical distribution across the Union;

(vi) encourage and support Members States, specially ‘catch-up countries’, to fully exploit the synergies between available Union funds, including RRF and Cohesion funds, to increase the number of research and innovation activities in these countries; and

(vii) continue the funding to create an integrated, innovative and resilient Energy Union that promotes secure, sustainable, competitive and affordable energy for all, particularly SMEs and vulnerable and energy-poor consumers, while accelerating Europe’s clean and just energy transition for it to become the first climate-neutral continent by 2050;

(viii) increase awareness, coherence, and sustainability of the support to SME internationalisation;

(ix) check the actual implementation of projects using lump sums;

(x) report to the discharge authority:

a. how many cases of suspected fraud have been referred by the competent Commission departments to the EDES panel, for what exclusion grounds, and how many of these cases have resulted in 1. an early detection decision, 2. an exclusion decision of the panel;

b. for how long entities have been excluded from participation in Union funds;

c. if any of the excluded entities has received Union funds after the exclusion decision had ended;

Cohesion, Resilience and Values

96. Notes that the budget for the programmes under MFF heading 2 ‘Cohesion, resilience and values’ was EUR 79,1 billion (40,4 % of the Union budget) distributed as follows: 53,6 % for the European Regional Development Fund (ERDF) and other regional operations, 23,6 % for the European Social Fund (ESF), 12,6 % for the Cohesion Fund (CF), 4,4 % for Erasmus+, 2,3 % for CEF Transport, 0,6 % for ESI and 2,9 % for other areas; notes that as of 31 December 2022 the final adopted budget commitments appropriations were EUR 67 805,19 million and 98,29 % of them were implemented (EUR 66 644,24 million); notes further that the final adopted budget payment appropriations amounted to EUR 63 104,31 million and 99,86 % of them were implemented (EUR 63 054,76 million);

97. Notes that in 2022, the implementation of the cohesion policy under the 2014-2020 programming period continued and that for the 2021-2027 period, the Commission concluded the negotiations of all programmes and made only advance payments, which amounted to EUR 6,5 billion;

98. Recalls that spending under the subheading “Economic, social and territorial cohesion” (Subheading 2a) focuses on reducing development disparities between the different Member States and regions of the Union; stresses the importance of Union cohesion policy in supporting the implementation of the European Pillar of Social Rights and achieving its headline targets and assisting Member States and regions to harness new opportunities and address challenges, such as globalisation, unemployment, poverty and social exclusion, industrial change, digitalisation and supporting up and re-skilling and lifelong learning;

99. Recalls the Court’s Special Report 27/2021 “EU Support to tourism – Need for a fresh strategic orientation and a better funding approach”; recalls the Court’s recommendation to the Commission to set out a consolidated new strategy for the Union’s tourism ecosystem in cooperation with the Member States in order to develop an effective tourism agenda for 2030 and to apply selection procedures for ERDF-funded tourism investments to support this new strategic orientation; underlines the Commission’s responsibility to support the Member States in promoting tourism-related investments, in accordance with the strategic agenda;

101. Welcomes the financial flexibility available in the use of cohesion funds and underlines that, thanks to this flexibility, cohesion policy played a frontline role in addressing the COVID-19 crisis, the war-related emergencies, as well as the energy crisis; reminds, however, that the rationale of this policy is to ensure a long-term planning of measures that should strengthen economic, social, and territorial cohesion between European regions; believes that post-2027 cohesion policy must provide the flexibility needed in the use of funds to enable the Member States and regional and local authorities to steer resources in an appropriate and reliable manner, always in line with cohesion policy long-term objectives;

102. Notes further that, in 2022, Cohesion's Action for Refugees in Europe (CARE) and the Flexible Assistance to Territories (FAST-CARE) mobilised over EUR 1,3 billion to help Member States and regions to support millions of Ukrainian refugees seeking shelter in Union territory, including mainstream social integration programmes, healthcare, food or essential assistance, and orientation for the job market; welcomes that the proposed measures are subject to the same obligations regarding adequate management and control systems and sound financial management that apply to cohesion policy funds;

103. Notes that the Court has examined a sample of 260 transactions covering the full range of spending under MFF Heading 2; notes with concern that the Court’s estimated overall level of error in ‘Cohesion, resilience and values’ in 2022 increased to 6,4 %, which is significantly above the materiality threshold, having already taken into account corrections with a total value of EUR 618 million applied by Member States in 2022; draws attention to the marked increase in the overall level of error estimated by the Court in 2022 compared to previous years (3,6 % in 2021, 3,5 % in 2020) while the Commission’s estimates of the payment risk for 2022 is between 1,9 % and 2,7 %, similar to previous years (1,9 %-2,5 % in 2021, 2,1 %-2,6 % in 2020); draws attention to the Court’s report that a significant part of errors (3 % out of 6,4 %) were made in expenditure originating from CRII and CRII+;

104. Is concerned about the Court’s observation that approaching the end of the eligibility period for 2014-2020 programmes (31 December 2023) added absorption pressure and that during the COVID-19 period, the effectiveness of the checks and verifications by managing and audit authorities may have been reduced, potentially increasing the risk of undetected errors and irregularities; notes that the Commission acknowledges that the specific situation and flexibilities given during COVID-19 may have played a role in the risk of irregularities due to the need to find alternative (remote) ways to control expenditure; stresses, however, that according to the Commission the risks and irregularities identified are rather linked to the type of actions implemented during the COVID-19 period or to the implementation or understanding of the flexibility introduced in public procurement rules;

105. Notes the Court’s explanations that its error rate refers to the share of expenditure declared, for which it considers that the conditions for payment set out in Regulation (EU, Euratom) 2018/1046 (‘the Financial Regulation’) , the CPR and in Directive (EU) 2017/1371 on the protection of the Union’s financial interests (‘PIF Directive’) have not been fully met, leading to a direct and measurable financial impact on the payment amount authorised at the time from the Union budget; notes the Court’s clarification that the error rate should not be interpreted as being equivalent to the potential amount of financial corrections the Commission can impose in accordance with the applicable rules; considers that the high error rate indicates a waste of resources, in particular in cohesion policy, where many managing authorities are confronted with the parallel implementation of the RRF;

106. Notes that in the annual activity reports, the Commission reports the risk at payment, for each programme and overall for the funds, that refer to irregularities leading to financial corrections; notes that to impose financial corrections, the Commission needs to conclude that an irregularity within the meaning of the Article 2(36) of the CPR has occurred, while not all formal breaches and errors included by the Court as quantifiable errors in its estimated error rate lead to ineligible expenditure because they do not qualify as an irregularity as defined in Article 2(36) of the CPR; notes that it is helpful for the discharge authority to have a managerial perspective on errors identified;

108. Notes with concern that the Court identified an increase in the specific types of errors, such as ineligible costs and projects and infringements of internal market rules, including public procurement and state aid rules, stresses that these types of errors could be related to poor governance; notes that 3 % of the Court’s estimated 6,4 % error rate in Heading 2 is related to 100 % co-financed priorities under the Coronavirus Response Investment Initiative (CRII+) which allowed for more flexible spending; reiterates that more flexibility should never lead to compromising quality and controls; asks for a review from the Commission of the current situation in order to avoid similar situations in the future; notes that the Commission has not found audit evidence of a significant impact overall of the new types of measures and flexibilities introduced on the programme error rates and notes the fact that the Commission took measures to prevent such risk;

109. Notes that the Court identified cases of projects for which ineligible expenditure was accepted, as well as their contribution to the overall estimated level of error; stresses the importance of remedying the systemic root causes and the need for audit authorities to effectively assess the eligibility criteria;

110. Notes that the Commission considers that self-declarations are a useful tool for providing assurance when finding alternative supporting evidence would be difficult or administratively too costly for the beneficiaries; supports the Court’s recommendation to improve checks by audit authorities of self-declarations issued by beneficiaries of the funds in order to ensure their validity and reliability;

111. Notes that for ERDF and CF, the Commission implemented financial corrections and withdrawals amounting to EUR 11 billion over the programming period, including EUR 2,4 billion for the accounting year 2021-2022; notes that these financial corrections have not resulted in any loss of funding for Member States so far, as the Commission has not yet implemented any net financial correction in the 2014-2020 period; notes further that the Commission continues the implementation of its targeted ‘action plan on public procurement and State aid’ in cooperation with Member States; acknowledges that national authorities are primarily responsible for making the financial corrections decided by the Commission but believes that additional checks shall be implemented in order to confirm that all corrections have been implemented correctly;

112. Notes the Court’s remark that the overlap of programming periods, combined with the availability of additional funding instruments under NGEU (REACT-EU and the RRF), with a more limited lifetime, may have put a strain on the administrative capacity of Member States in the programming period and at the start of the implementation of their 2021-2027 cohesion programmes; notes that in 2022, national and regional authorities had to shift their focus on reprogramming the 2014-2020 cohesion policy programmes, including the introduction of measures funded under CRII(+), REACT-EU, Flexible Assistance to Territories (FAST-CARE) and Supporting Affordable Energy (SAFE), as well as implementing the national plans under the RRF, in order to address different crisis, recovery and rescue measures; notes that the Directorate-General for Regional and Urban policy (DG REGIO) provides support to the national and regional authorities to ensure full implementation of the 2014-2020 programmes;

114. Notes that complementarity characterises the relation between the cohesion policy funds and the other Union funding instruments; recalls that, although the cohesion policy funds and the RRF are different in terms of general objectives, timeline, management mode and financing, current experience shows that several RRPs foresee investments which would have been eligible for financing under cohesion policy; highlights that complementarity between cohesion policy funds and RRF is possible and expected, provided that the RRF brings real added value and that the same costs are not covered twice; underlines that the risk of overlaps will increase towards the end of the RRF lifetime and points to the Commission to do its utmost to mitigate these risks;

115. Urges the Commission to monitor the situation, in particular when RRF national coordinating authorities are the same as for cohesion policy funds, and insisted on having sufficient additional administrative capacity and human resources allocated to the different strands of Union funding; nevertheless, points to the potential risks that this parallelism may lead to unidentified cases of double funding; calls on the Commission to draw lessons from the experiences out of two different funding models;

116. Welcomes that for the moment neither the Court nor the Commission identify any cases where the obligatory national co-funding of a cohesion project was paid for by RRF funds in the 2022 RRF disbursements; urges the Commission to continue to monitor the situation and prevent such financing from happening;

117. Is concerned by the Court’s persistent comments on the shortcoming identified in the way audit and managing authorities work notably weaknesses in the ex post checks by the audit authorities and in controls by the managing authorities that do not always effectively prevent or detect irregularities in expenditure declared by beneficiaries and the over-reliance of the Commission on the quality of programme authorities’ work, related to inherent limitations in the Commission’s desk reviews;

118. Notes the Commission’s reply that its assessment, based on a combination of desk and on-the-spot audit work covering the different individual programmes and assurance packages, enables it to establish a reasonable and fair estimate of the error rates for each programme, every year, and cumulatively for cohesion policy funds; agrees with the Court that the Commission’s desk reviews have inherent limitations in confirming the validity of the residual total error rates reported by audit authorities; notes that these weaknesses might also affect the Commission’s estimated risk at closure, as the Commission may not in all cases carry out the necessary corrections to bring the residual error rate below materiality;