Changes from report parliamentary committee draft to plenary report

Change 54

Changed72.102. NotesIs 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; takes notenotes 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;

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Changed73.103. 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 inDirectivein Directive (EU) 2017/1371on2017/1371 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; takes note ofnotes 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;

Change 56

Changed74.104. Notes that in the annual activity reports, the Commission reports errorthe rates,risk at payment, for each programme and overall for the funds, that strictly 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;

Change 57

Removed75. Welcomes that the Commission accepts allrecommendations of the Court and its commitment to clarify applicable rules and audit work required with all stakeholders, including in close cooperation with the Court, to limit these divergences in future assessments and quantification of errors; encourages the two institutions, together with all relevant stakeholders, to work further to reduce divergences in order to ensure legal clarity and to ensure that audits do not lead to an excessive administrative burden on beneficiaries and, in this way, policy objectives are reached on the ground;

Added105. 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;

Removed76. Notes 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, which are the same categories of irregularities identified by the Commission and the audit authorities based on their common typology; 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; 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 takes note of the fact that the Commission took measures to prevent such risk;

Added106. 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;

Removed77. Takes note 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 further that the Commission continues the implementation of its targeted ‘action plan on public procurement’ in cooperation with Member States;

Added107. 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;

Added108. 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;

109. 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;

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Changed79.110. Notes that complementarity characterises the relation between the cohesion policy funds and the other Union funding instruments; recalls thatthat, although the cohesion policy funds and the RRF are different in terms of general objectives, timeline, management mode and financing, butcurrent experience shows that several RRPs foresee investments which would have been eligible for financing under cohesion policy; highlights that complementarity between themcohesion 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;

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Changed80. Notes111. thatUrges the Commission is closelyto monitoringmonitor 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;

Change 60

Changed81.112. 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;

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Removed82. Notes that the Court considers that the Commission’s desk reviews and compliance audits have inherent limitations in confirming the validity of the residual total error rates reported by audit authorities; takes note of 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;

Added113. 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;

Removed83. Notes the Court’s finding that the proportion of assurance packages with residual error rates of above 2 % reached a peak of 61 % of the expenditure in the Court’s sample in 2022 compared to 39 % in the previous year, reflecting the persistent shortcomings in the work of the audit authorities; stresses with concern that the Court’s audit results over the last six years demonstrate that the controls currently in place do not yet sufficiently offset the high inherent risk of error in cohesion, and that managing authorities do not always effectively prevent or detect irregularities in expenditure declared by beneficiaries; notes with concern that the errors found by the Court represent significant weaknesses in the audit authorities’ work on verifying the eligibility of expenditures and projects, and the compliance with internal market rules; notes that a part of the residual error rates recalculated by the Court above 2 % in the audited assurance packages are attributable to the aforementioned divergences;

Added114. 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;

Removed84. Is concerned about the persistent shortcomings observed by the Court in the national audits, which can be due to inadequate scope, unclear documentation of audits and sample filtering performed by national audit authorities, as well as resource issues, including inadequate funding and a lack of a skilled workforce within national audit authorities; notes that the Commission considers the work of the majority of the audit authorities to be reliable and that only 7 out of 81 audit authorities need serious improvements;

Added115. Stresses with concern that the Court’s finding that the proportion of assurance packages with residual error rates of above 2 % reached a peak of 61 % of the expenditure in the Court’s sample in 2022 compared to 39 % in the previous year, reflecting the persistent shortcomings in the work of the audit authorities; stresses with concern that the Court’s audit results over the last six years demonstrate that the controls currently in place do not yet sufficiently offset the high inherent risk of error in cohesion, and that managing authorities do not always effectively prevent or detect irregularities in expenditure declared by beneficiaries; notes with concern that the errors found by the Court represent significant weaknesses in the audit authorities’ work on verifying the eligibility of expenditures and projects, and the compliance with internal market rules; notes that a part of the residual error rates recalculated by the Court above 2 % in the audited assurance packages are attributable to the aforementioned divergences;

Removed85. Notes the Court’s finding that, as a way to simplify expenditure, beneficiaries of cohesion policy funding used SCOs for 77 transactions, or 30% of its sample, applying either flat rates, standard sales of unit costs or a combination of both; stresses that SCOs are one of the most important measures to reduce administrative costs and burdens for the beneficiaries and thus, to facilitate the access of small beneficiaries to the funding and focus more on the achievement of the objectives while reducing the error rate;

Added116. Is concerned about the persistent shortcomings observed by the Court in the national audits, which can be due to inadequate scope, unclear documentation of audits and sample filtering performed by national audit authorities, as well as resource issues, such as inadequate funding and a lack of a skilled experts; stresses its concern that the Court observed weaknesses in a wide range of audits, for example cases of insufficient checks on information provided by beneficiaries on the eligibility of projects, on the compliance with internal market rules and on the risk of fraud and conflict of interest; notes that the Commission, on the other hand, considers the work of the majority of the audit authorities to be reliable and that only 10 out of 116 audit authorities need serious improvements; recalls its recommendations in the Parliament resolution of 21 November 2023 on possibilities to increase the reliability of audits and controls by national authorities in shared management;

Removed86. Notes that, for 2021-2027 programmes, the Commission has encouraged the use by programme authorities of the simplification measures foreseen under the CPR, in particular, the use of SCOs and financing not linked to costs (FNLC) schemes to tackle eligibility issues, ease management verifications and control the burden on beneficiaries; notes that, as a result of this effort, for the ERDF and the CF for example, 120 SCO schemes at programme level were adopted so far in 11 Member States and for Interreg programmes (EUR 5,7 billion of total contribution) as well as 4 FNLC schemes in 4 Member States (for EUR 1,2 billion of total contribution);

Added117. Notes the Commission’s commitment to continue its close work with the audit authorities in order to strengthen their capacity to prevent and correct errors, to better document their audit work and therefore to contribute to the assurance process;

Added118. Notes the Court’s finding that, as a way to simplify expenditure, beneficiaries of cohesion policy funding used SCOs for 77 transactions, or 30% of its sample, applying either flat rates, standard sales of unit costs or a combination of both; stresses that SCOs are one of the most important measures to reduce administrative costs and burdens for the beneficiaries and thus, to facilitate the access of small beneficiaries to the funding and focus more on the achievement of the objectives while reducing the error rate; highlights that the Court considers that SCO’s are not always adequately implemented and shares the Court’s audit conclusion that SCOs should not result in an excessive financial benefit for a member state; on the other side SCO should in practice lead to real reductions of bureaucratic burden and not to an exhaustive ex-ante and ex-post control; notes that slight variations of prices in SCO estimates compared to the prices identified during ex-post controls should be acceptable;

Added119. Notes that, for the 2021-2027 programmes, the Commission has encouraged the use by programme authorities of the simplification measures foreseen under the CPR, in particular, the use of SCOs and financing not linked to costs (FNLC) schemes to tackle eligibility issues, ease management verifications and control the burden on beneficiaries; notes that, as a result of this effort, for the ERDF and the CF for example, 120 SCO schemes at programme level were adopted so far in 11 Member States and for Interreg programmes (EUR 5,7 billion of total contribution) as well as 4 FNLC schemes in 4 Member States (for EUR 1,2 billion of total contribution); underlines that urgently further simplification and flexibility is needed; calls on the Commission to find the right balance between necessary flexibility for slight price variations and on the other sider inappropriate intentional cost and price overestimations;

Added120. Is concerned by the Court’s finding regarding an ERDF programme in Slovakia aimed at renovating a public building’s interior space, despite the fact that under that program only energy-efficiency measures were eligible; notes the Court’s observation that this project should not have passed the evaluation phase, as in the application the threshold of at least 25 % of the expenditure for the project linked to energy efficiency was not met; notes similar cases identified by the Court that lack a Commission response;

121. Recalls that for the 2021-2027 period, Member States need to comply with certain horizontal or thematic enabling conditions of the CPR, which are prerequisite conditions for the effective and efficient implementation of the specific objectives of the funds; recalls that when enabling conditions are not fulfilled at the time of submission of a payment application to the Commission for the specific objective concerned, the related expenditure will not be reimbursed from the Union budget until the Commission is satisfied that the enabling condition has been fulfilled;

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Removed88. Notes from the Annual Report on the Protection of the EU Financial Interests for the year 2022 (PIF Report) that from 2021 to 2022, the number of fraudulent irregularities relating to the Cohesion Policy increased by 4,2 %, while non-fraudulent irregularities increased by 10,2 %; notes that the Commission requested audit authorities to pay particular attention to new risks related to the multiplication of Funds and additional funding under NGEU, in particular, ‘double funding’, conflicts of interest, fraud or corruption; notes the efforts made by the Commission to promote the use of the ARACHNE risk scoring tool to the reluctant Member States, and to introduce improvements in the tool; notes that the audit authorities explicitly addressed the risk of fraud for 65 % of the audited operations in the 2014-2020 period, which is an improvement on the 38 % found in 2021 by the Court;

Added122. Recalls that on 15 December 2022, based on a Commission proposal, the Council adopted Implementing Decision (EU) 2022/2506 on measures for the protection of the Union budget against breaches of the principles of the Rule of law in Hungary; stresses that the decision was based on the Commission’s concerns regarding severe issues related to the public procurement system in Hungary; welcomes the temporarily suspension of 55 % of commitments for certain cohesion policy programmes for the period 2021-2027; notes that the Commission has been monitoring the implementation of the remedial measures proposed by Hungary in the framework of the ‘Conditionality Regulation’; notes that in December 2023, the Commission reassessed on its own motion the situation in Hungary and concluded that the Union’s budget remains at the same level of risk as there are still commitments that were neither correctly nor timely fulfilled;

Added123. Notes that in December 2022, the Commission concluded that Hungary was not fulfilling the horizontal enabling conditions under the CPR on the Charter with regard to judicial independence and the provisions of several laws posing serious risks to LGBTIQ+ rights, academic freedom and the right to asylum; strongly regrets the Commission decision of 13.12.2023 considering that Hungary has fulfilled the horizontal enabling condition related to the judiciary independence, thus enabling the Hungarian authorities to submit reimbursement claims of up to EUR 10.2 billion without adequate control mechanisms or public procurement procedures in place to guarantee sound financial management and the protection of the Union budget; believes that this decision politically contradicts the prolongation of the measures adopted under the Conditionality Regulation and expresses its disappointment that Parliament was not adequately informed during the process; reiterates its concerns regarding the judicial independence, even after the recent reforms, as expressed in its Resolution of 18 January 2024 on the situation in Hungary and frozen Union funds;

Added124. Reiterates the need of treating as a single, integral package all the measures required for the release of Union funding under the Conditionality Regulation, the CPRs and the RRF Regulation; stresses the importance of the protection of the Union financial interests also for disbursement of pre-financing;

Added125. Notes from the Annual Report on the Protection of the EU’s Financial Interests for the year 2022 (PIF Report) that from 2021 to 2022, the number of fraudulent irregularities relating to the Cohesion Policy decreased by 11,6 % (233 reported in 2021 compared to 206 reported in 2022), while non-fraudulent irregularities increased by 9,3 %; notes that the Commission requested audit authorities to pay particular attention to new risks related to the multiplication of Funds and additional funding under NGEU, in particular, ‘double funding’, conflicts of interest, fraud or corruption; notes the efforts made by the Commission to promote the use of the ARACHNE risk scoring tool to the reluctant Member States, and to introduce improvements in the tool; notes that the audit authorities explicitly addressed the risk of fraud for 65 % of the audited operations in the 2014-2020 period, which is an improvement on the 38 % found in 2021 by the Court;

Added126. Stresses that the Court, OLAF and the EPPO should have access to a single integrated IT system for data-mining and risk-scoring provided by the Commission, in a proportionate manner, within the exercise of their respective competences, as is envisaged in the recast of the Financial Regulation;

Added127. Highlights the importance of the legality and regularity of cohesion spending as well as the crucial role that managing and audit authorities play in this respect; recalls the need to simplify and rationalise audits, concentrating on what is necessary to fight against fraud; recalls, in addition, that according to the 21-27 Common Provisions Regulation, Member State authorities should report all cases of suspected or established fraud related to Union-funded projects that they identify, and that they should report these cases even if they detect them before declaring expenditure to the Commission;

Added128. Highlights the significant role of the European Anti-Fraud Office and the European Public Prosecutor’s Office (EPPO) in protecting the Union budget; calls on all Member States to join the EPPO; reminds that, in her appearance before the Committee on Regional Development on 25 May 2023, the European Public Prosecutor noted that the management and control system for Union expenditure currently in place is not designed to detect fraud and that audits or administrative investigations rarely detect financial crime, which often has a cross-border dimension; stresses the need to provide the EPPO with the necessary means to carry out its duties; is of the opinion that a strengthened EPPO would make it possible for the legislator to further simplify the regulatory framework for cohesion in order to improve the implementation of the funds;

Added129. Requests OLAF to carry out a thorough investigation on the possible misuse of Union funds through Erasmus+ and the European Solidarity Corps by networks of associations that present false projects, with the aim of verifying recent reports on this matter by some national agencies, measuring the scale and importance of such cases of fraud, and analysing their treatment by competent authorities in the Member States;

Recommendations

130. Calls on the Commission to:

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Changed(i) proactively engage in constructive dialogue with the Court to overcome the growing number of situations where the Commission’s official response to the Court’s findings is to ‘agree to disagree’ and continue its cooperation with the Court in order to look for possible comparability ofalign the results of their estimated error rates, as well as torates alignand the interpretation of legal texts;

Change 64

Removed(ii) pay particular attention in its audits to the risks linked to the flexibilities introduced with the CRII/CRII+ amendments;

Added(ii) match the Court’s findings concerning Member States’ declarations with the information coming from the Commission’s risk at payment and risk at closure exercise on managing authorities to identify error hotspots that need to be addressed with urgency;

Removed(iii) continue its support to Member States given the completion of the 2014-2020 programming period and the implementation of the current one, in particular by supporting administrative capacity building;

Added(iii) continue its close work with the audit authorities in order to strengthen their capacity to prevent and correct recurring errors, to better document their audit work and therefore to contribute to the assurance process;

Removed(iv) continue the implementation of its targeted “action plan on public procurement” in cooperation with Member States to help programme authorities and contracting authorities to improve their practices in the area of public procurement, including how to avoid the most common errors in public procurement linked to the management of the ESI Funds, as well as targeted training sessions for Member States’ officials;

Added(iv) improve and strengthen Member States' management and control system to ensure member states declare only eligible expenditure to the Commission;

Removed(v) further enhance simplification in the implementation of cohesion programmes and work closely with Member States to identify best practices regarding the digitalisation of practices and procedures;

Added(v) ensure that audit authorities have appropriate methods in place to check self-declarations by means of identifying good practices and issuing a guidance to Member States;

Removed(vi) work, in order to achieve a successful uptake of SCOs, in parallel with all stakeholders, on methodological and assurance harmonisation so that there is sufficient predictability for the beneficiaries on how those options are expected to be implemented; and ensure that audits do not lead to further bureaucratisation of implementation and an unnecessary audit burden on beneficiaries;

Added(vi) carry out specific targeted checks as part of the closure audits to ensure that Member States have applied the necessary financial corrections for errors detected;

Removed(vii) work together with Member States' audit authorities to ensure that the specific risk of double funding, especially with the RRF financing, is well covered by national controls and audits; insists that the Commission performs thematic or compliance audits tailored to target high-risk areas and Member States; and

Added(vii) pay particular attention in its audits to the risks linked to the flexibilities introduced with the CRII/CRII+ amendments; launch an immediate review of spending under these programmes to identify and correct systemic issues which have led to an abrupt increase of the error rate;

Removed(viii) establish a comprehensive mechanism for the use of cohesion funds in the event of exceptional or unforeseen circumstances using guiding provisions on its scope, funding availability, governance, audit and control, and application;

Added(viii) continue its support to Member States and at the same time prepare an action plan on how to best avoid the administrational over-burden towards the end of the MFF that will come on top of the planned RRF eligibility period, given the completion of the 2014-2020 programming period and the implementation of the current one, in particular by supporting administrative capacity building;

Added(ix) continue the implementation of its 4th revision of the“action plan on public procurement” in cooperation with Member States to help programme authorities and contracting authorities to improve their practices in the area of public procurement, including how to avoid the most common errors in public procurement linked to the management of the ESI Funds, as well as targeted training sessions for Member States’ officials;

Added(x) deliver on its promise to provide both the Discharge Authority as well as the general public with the list of Union funds’ biggest final beneficiaries, where such a list considers the final beneficiary to be the natural person or an entity that, as the last in the chain of recipients, receives the Union funds;

Added(xi) further enhance simplification in the implementation of cohesion programmes; furthermore encourages the Commission to implement tools for digitalisation of public procurement based on the the model of e.procurement , and to help Members states in this transition;

Added(xii) work, in order to achieve a successful uptake of SCOs, in parallel with all stakeholders, on methodological and assurance harmonisation so that there is sufficient predictability for the beneficiaries on how those options are expected to be implemented; and ensure that audits do not lead to further bureaucratisation of implementation and an unnecessary audit burden on beneficiaries; ensure SCOs are not implemented in a way that Member States gain excessive financial benefit, while guaranteeing an appropriate flexibility in the cost and price estimations;

Added(xiii) work together with Member States' audit authorities to ensure that the specific risk of double funding, especially with the RRF financing, is reduced by adequate national controls and audits; insists that the Commission performs thematic or compliance audits tailored to target high-risk areas and Member States; and

Added(xiv) establish a comprehensive mechanism for the use of cohesion funds in the event of exceptional or unforeseen circumstances using guiding provisions on its scope, funding availability, governance, audit and control, and application; underlines that such use for exceptional circumstances should be restricted to specific and well defined situations, limited in time and scope and with an increased degree of controls to mitigate risks;