2017 Discharge to the Commission

WRITTEN QUESTIONS TO COMMISSIONERCREŢU

Hearing on 19 November 2018

Error rates

1. In the Annual Activity Reports the Commission presents at least 13 different rates for the two programming periods as a measure of the expenditure at risk. Such a large number of rates leads to a lack of clarity and confusion as to their relevance and the assurance provided. Is the Commission ready to simplify its system of presentation of error rates?

The different rates disclosed in the 2017 Annual Activity Report (AAR) are linked to the fact that the expenditure of the year concerns payments relating to several programming periods which obey to different rules and are therefore based on different error rates reported by audit authorities.

In addition, under the 2014-2020 period, the Commission also confirms the error rates reported for the previous annual accounting period, following its own audit work as well as the one performed by the ECA.

Further explanation on the details of these error rates is given in the reply to question 3 a) below.

The Honourable Member is referred to the Commission's reply to recommendation 4 under paragraph 6.78 of the 2017 ECA Annual Report, where it stated that it is open to reflect on, and to discuss with the ECA, how to improve and simplify its presentation of error rates in the AAR, while ensuring the compliance with the corporate rules applicable to the drafting of the Commission's AARs.

The Honourable Member is also referred for further details to the written reply provided by Director General Marc Lemaître to the CONT Chair and Rapporteur on 7/11/2018.

2. Those above mentioned rates include the residual error rate for the financial year 2015/16, for which the Commission has concluded its revision in terms of regularity. The new control and assurance framework means that it takes almost two years before the Commission can first report its conclusion on the reliability of audit authorities’ residual error rates. Furthermore, the regulation gives the Commission the possibility to carry out further audits until the end of retention period for supporting documents. These audits may further increase error rates for 2015/2016. Can the residual error rates on which the Commission concludes in the AARs 2017 be considered as final?

The residual error rates reported in the annual activity report (AAR) are calculated by the Directorate General following thorough assessment based on error rates

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reported by the Member States' audit authorities. For some of these reported error rates the Commission completed its assessment and therefore reports, as of the date of signature of the AAR and based on all audit evidence gathered at that date, a final, validated result (e.g. in relation to 2015-2016 annual programme accounts in the 2017 annual activity report). Other reported error rates were at the time of signature of the AAR (April 2018) in the process of being verified by the Commission (e.g. on-going closure of 2007-2013 programmes, "reportable" error rates in relation to the 2016-2017 annual programme accounts reported by the Member States in February/March 2018, just before signature of the AAR).

The Commission plans to finalise its assessment of the reliability of the reported error rates one year after reception of the annual control reports (and not two years as indicated in the question), namely in the subsequent annual report (annual control reports with reported error rates received by 15 February N, assessed and confirmed as reliable in the subsequent AAR related to year N to be signed end April N+1).

However, as rightly indicated in the question, the regulation gives the Commission the possibility to carry out further audits until the end of retention period for supporting documents (up to three years following the year in which the accounts containing the concerned expenditure). Such provision aims at protecting the Commission's powers to supervise the execution of the European budget and give it the necessary investigative and audit powers to do so. Therefore the Commission cannot exclude to have to do further on-the-spot audit work before it can confirm the reliability of the error rate for an individual programme, each year. In such cases, the concerned error rate reported by the Commission in the AAR will not be considered yet final. Such clarification will be clearly disclosed in the AAR.

When the Director General signed the 2017 AAR, the information available in relation to the 2015-2016 accounts did not require such additional audits. Therefore the Directorate general confirmed in the 2017 AAR that the calculated error rate for 2015-2016 was final (see pp. 47-48 2017 AAR of 2017: "(…) REGIO is in a position to report for the 2nd accounting year 2015-2016 a weighted average total error rate of 0.5% and a weighted average residual error rate of 0.4% (…) REGIO confirms that the estimate for the risk at payment included in the 2016 AAR (i.e. below 2%) remains valid.").

3. The Commission’s AAR presents at least 13 different error rates for the programming periods 2007-2013 and 2014-2020.

a. Can the Commission please specify each error rate in detail?

The Honourable Member is referred to the detailed reply sent on 07/11 by the Director General Marc Lemaitre to the Chair of the CONT committee and the Rapporteur for the Discharge, as a follow-up to questions received during his hearing before CONT.

In particular, it is underlined in this mail that payments made in 2017 by the Directorate General for Regional and Urban Policy (REGIO) concern different instruments and funds managed under shared, indirect and direct management.

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They also concerned two programming periods with very distinct financial architecture (interim and closure payments under a cumulative system for 2007-2013 programmes and interim payments under annual accounts for 2014-2020).

In line with corporate instructions, REGIO disclosed in its Annual Activity Report (AAR) an average error rate at payment of 1.1% for 2017 relevant expenditure for all management modes. This indicator represents the estimated risk taken by the Directorate general when making payments in 2017, for the relevant expenditure, taking account of all available information.

This composite, overall risk rate includes different risk levels for payments made in relation to the various types of programmes and management modes, estimated or calculated based on specific information obtained through Commission and national audits.

A summary of the calculated risk levels per type of payments / instrument is provided in the following table (see page 97 of the 2017 REGIO AAR):

Estimated overall and detailed amount at risk at payment (column (7)) and at closure for 2017

For the 2007-2013 and 2014-2020 programmes, and based on error rates reported by audit authorities and validated by the Commission or in the course of validation, REGIO further reported in the AAR the average error rates and residual error rates (after implementation of the required financial corrections) per programming period and accounting year for 2014-2020.

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Average total error rate

Average residual error rate (after corrections)

Confirmed by Commission audit

assessment ?

on-going closure 2007-2013 (cumulatively over the period)(p.62 AAR)   0,6% on-going

2014-2020 programmes:

2015-2016 accounts (p.48 AAR) 0,5% 0,4% yes

2016-2017 accounts (p. 50 AAR) 1,4% 0,8% on-going

Finally, at the request of the Court and in line with its 2016 recommendation (see ECA 2016 Annual Report, recommendation 2(a) of chapter 6), the Commission reported, in addition, the same average error rates but without the impact of the EU advances paid to financial instruments.

b. What do the different error rates measure? Why does the Commission think so many error rates are necessary?

The Honourable Member is referred to the reply provided under a).

As explained above, several error rates are reported related to the different risk levels for payments made by DG REGIO in relation to the various types of programmes and management modes during the year. These composite error rates allow establishing the overall risk at payment for the relevant expenditure in the reporting year, as requested by corporate instructions and in line with the obligations under the financial regulation. These different error rates for each segment of expenditure, in addition to the overall, composite one, were disclosed in the Annual Activity Report for the sake of transparency.

Payments under shared management executed by DG REGIO in 2017 relate to both 2007-2013 and 2014-2020 programming periods, the latter period having a further specific feature of annual programme accounts reported together with an annual (residual) error rate. Therefore, average error rates relating to each programming period and accounting year concerned by the 2017 payments, before financial corrections (total error rates) and after financial corrections (residual error rates), were further calculated and disclosed in the AAR. These error rates give a complete picture of the different levels of risks linked to each type of expenditure concerned, before and after corrections. Since this was the first year that information was disclosed in relation to this new feature of annual accounts for 2014-2020, REGIO considered useful to provide to the reader all detailed information to allow for comparisons with previous years (where only the total error rate reported in relation to 2007-2013 programmes was reported).

The Directorate General understands that this approach may lead to confusion and will from next year on focus its reporting on the residual risk, overall for all payments in the year and more specifically for the accepted accounts.

c. How does the Commission explain the difference in residual error rates calculated by the ECA and the Commission?

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The error rate calculated at 3% by the ECA for the 2017 year concerns a sample of transactions relating to both closure of 2007-2013 programmes and to accepted accounts (2015-2016) under the 2014-2020 programmes, under the Court's adapted approach, and taking account of all financial corrections applied. ECA provides a single error rate which is calculated on the basis of a mix of transactions from all Funds falling under the competences of both Directorates general REGIO and EMPL (e.g. ERDF, Cohesion Fund, ESF, YEI, FEAD …). Therefore it cannot be directly compared to the residual error rates disclosed in the AAR of the respective Directorates General, which refer specifically to 2017 payments made by each of the DGs for each respective Funds under their competence, per programming period and, for 2014-2020, per accounting year concerned.

The Honourable Member is also referred to the reply provided under a) on the distinction "validated error rates" vs "reportable" ones.

d. The ECA concludes that the residual error rates in the Commission’s AAR cannot be considered final due to deficiencies found. What is the Commission’s position?

The Honourable Member is invited to also take note of the Commission's reply to the conclusion in paragraphs 6.74-6.75 of the Court's annual report.

The Court reports that audit authorities had already detected the majority of errors – all in the case of public procurement and State aid. As a result, appropriate financial corrections in relation to these errors were made in the accounts at national level.

The Court also identified quantifiable errors in addition to the errors already found by audit authorities for some programmes. It led the Court to recalculate a residual error rate above the materiality threshold for some of these programmes. Some of the undetected errors are clear cut, and we requested the concerned audit authorities to improve their checks, for example on the eligibility criterion for participants to Youth Employment Initiative actions.

However, for half of these undetected errors, the audit authorities were not in a position to detect the error identified by the Court: either the regulation did not allow the audit authority to carry out audits (errors linked to the specific programme SME Initiative) or the audit authority had to follow a national interpretation on VAT eligibility given by the competent national tax office, which was incorrect in the Commission's (and Court's) views.

The Commission considers that based on its extensive audit work under 2007-2013 it has overall assurance on the reliability of the work of professional and independent programme audit authorities, after more than 10 years of close cooperation. However reliance is not once for all and the Commission continues to closely monitor the work of audit authorities to ensure that the requested standards are continuously applied in their work. The Court reports shortcomings of varying importance in the work of some of the audited audit authorities. This reflects diverging professional judgement of technical issues such as sampling and record-keeping in the audit files, not necessarily covered

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in full details by international auditing standards and left to the appreciation of each auditor, as well as individual weaknesses in certain cases (for example in relation to checklists used).

The Commission agrees to further work with the audit authorities and the Court to clarify such issues and fix jointly agreed criteria in these remaining areas.As a consequence the Directorate general does not share the conclusion that the residual error rates disclosed in the AAR and based on the error rated reported by the audit authorities cannot be considered final, since DG REGIO could conclude in its 2017 AAR that even "taking into account the potential maximum impact of ongoing audits of the Court [later found in the contradictory process to be less severe than initially estimated], the overall weighted average residual error rate for ERDF/CF in 2015-2016 would still remain below 2%" (p. 48 REGIO AAR refers).

The Commission through its audit procedures seeks reasonable assurance that no material level of error remains in the validated annual accounts. This was the case overall for the 2015-2016 accounts, as indicated in the AAR. This does not prevent individual programmes from presenting still remaining levels of errors, which can lead to additional corrections imposed by the Commission, without impacting REGIO's overall conclusion in the AAR.

In any case, the Commission will follow-up additional irregularities detected and make any additional financial corrections necessary, in line with the regulatory provisions.

e. Can the Commission specify the residual error rate for financial transactions in 2017?

All error rates on 2017 expenditure are disclosed in the Annual Activity Report (AAR) of the reporting year.

As concerns DG REGIO, the information is made available on pages 10, 92 and 97 of the AAR.

The estimated average risk rate at payment for the 2017 relevant expenditure for all management modes is approximately 1.1%. It is composed of a risk at payment estimated at 1.39% for the 2007-2013 period and 1.05% for the 2014-2020 period (for all details the Honourable Member is referred to the reply to sub-question a) above and in particular the detailed table with error rate calculated by type of financial transactions in 2017).

This lower risk rate in 2017 compared to previous years is to be put to the credit of the control and assurance architecture set up for the 2014-2020 period which further protects the EU budget year on year through annual corrective actions to bring the residual risk for each programme each year below materiality. An equivalent set-up protects the EU budget at closure of the 2007-2013 period since payments of the final balance to programmes were done in 2017 only after having obtained reasonable assurance that any remaining material irregularities have been appropriately corrected.

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The residual error rates for financial transactions in 2017, after financial corrections, were therefore below materiality as disclosed in the annual activity report.

f. Can the Commission specify the error rate at payment for financial transactions in 2017?

The Honourable Member is referred to the reply to sub-questions a) and e) above. The mechanisms put in place in 2014-2020 requires that Member States make financial corrections in each programme account year on year, otherwise the Commission would launch additional financial correction procedures. Therefore the basis for the risk on payment already integrates financial corrections. This is reflected in annex 7D of REGIO's AAR (page 57), where the last column "rate of risk on payment" is equal (or estimated at flat rate 2% in case of no reported error rate) to the "residual total error rate" validated or recalculated by REGIO.

In only two programmes (Germany Brandenburg and ETC Central Baltic) was the rate risk at payment above 2%. Due to limited amounts paid for these programmes this had only marginal impact on the residual risk rate (or risk at closure in the AAR terminology) reported in the AAR (see last column of the table reported under sub-question a) above, equivalent to the risk at payment).

For future annual activity reports, would the Commission need to do substantial financial corrections in addition to those reported by the programme authorities (for example due to residual error rates reported or recalculated above 2%), these required additional corrections would impact the risk at closure.

g. How does the Commission decide which error rate to use for the AMPR?

In the context of the protection of the EU budget, at the Commission's corporate level, the DGs' estimated overall amounts at risk and their estimated future corrections are consolidated in the AMPR.

The estimated overall amounts at risk are calculated for all management modes of all Services. The error rate used is the "Estimated amount at risk at payment", i.e 1.1% for REGIO (included in page 96 of REGIO's AAR) and 1.1% also for EMPL (included in page 74 of EMPL's AAR).

As mentioned in the respective AARs, this is the best, conservative estimation by each authorising officer by delegation, of the amount of relevant expenditure during the year not in conformity with applicable contractual and regulatory provisions at the time the payment is made.

4. The Court found persisting weaknesses with the regularity of the expenditure declared by managing authorities, whereas the Commission considers the data communicated by Member States authorities to be reliable in general. How do you explain the difference of appreciation?

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The Court found weaknesses with the regularity of the expenditure declared by managing authorities. These weaknesses were for the vast majority detected by the audit authorities before submitting annual accounts to the Commission, as reported by the Court itself (see § 6.28 of the ECA 2017 Annual Report: the audit authorities reported 50 quantifiable error in the assurance/closure packages for the 2017 transactions sampled by the ECA). Therefore, despite initial weaknesses in systems, the Member States ultimately did apply the necessary financial corrections in relation to such irregularities in the accounts submitted to the Commission.

As explained in its reply provided under 3 d), the Commission considers the audit work and error rates reported by audit authorities to be reliable in general. This assessment refers to the audit work and not to the work of managing authorities, which do not report error rates under Cohesion policy (unlike paying authorities for agriculture, for example).

The error rates reported annually by audit authorities, together with system audit reports, reflect the level of effectiveness of the functioning of management and control systems at the level of the managing and certifying authorities. They constitute the cornerstone of the assurance process for the legality and regularity of underlying transactions. It is therefore crucial to ensure that audit authorities can be relied upon since their audit coverage is significant with approximately one third of the expenditure declared annually which is audited at national level, across all 295 ERDF/CF programmes.

For this reason, the main block of the audit activity under the Commission's audit strategy, since 2007-2013, is to review the reliability of the audit authorities' work. Cumulatively, in the previous period, over 330 missions have been carried out on-the-spot in that respect since 2009, including re-performing some of their on the spot work. This allowed the Commission to build enormous administrative capacity with all concerned audit authorities, including through cooperation and exchange of audit tools. The Commission thus discussed and provided with audit authorities additional, targeted guidance, based on feedback from on the spot re-performance audits and desk assessment of annual control reports. As a result, and where necessary after the implementation of improvements or corrective action plans, REGIO could eventually rely on the work and results of 52 main audit authorities responsible for over 98% of the ERDF/Cohesion Fund allocations.

The Commission will continue to supervise and monitor the work of audit authorities under the 2014-2020 programmes, to ensure they continue to work and report results in accordance with the high expected standards.

5. The Court found that most errors occurred when financial instruments were used, during the 2007-2013 programming period as well as for the current one (SME Initiative). What measures has the Commission taken?

Financial instruments indeed contributed most to the additional errors found by the Court this year. This concerned in particular two instruments of a Member State dedicated to small and medium enterprises (SMEs) in both programming periods.

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The first case is an EU-level financial instrument, the SME Initiative programme. This type of programme is governed by specific rules under the regulation due to its innovative nature. In line with its methodology, the Court audited loans implemented by financial intermediaries and not the Commission advance payment to the programme. It found 9 ineligible loans and ineligible companies, which it reports to account for one third of the Court's error rate in 2017.

The programme, covered by a 100% EU advance in accordance with the regulation, has until closure to present eligible investments to the Commission. The Commission has ensured that the Fund manager and the financial intermediaries concerned take appropriate actions to improve their system and to do the necessary corrections (based on the audit of an extensive sample of the loans granted) so that only expenditure eligible is declared and accepted at closure.

The second case refers to a financial instrument dedicated "primarily" to small and medium enterprises under the previous period. The Court considered any investment to large enterprises not eligible under this instrument.

The Commission notes that the regulation does not preclude loans to be given also to large enterprises for such instruments and that there can be different, equally valid interpretations of this legal provision. This example illustrates how important it is for all actors to have clear-cut legal provisions in place to avoid later diverging interpretations and ensure legal security for Member States and beneficiaries..

6. Could the Commission provide the Memorandum of Understanding/FAFA with the EIB concerning arrangement with regard EIB management functions towards financial instruments financed by ESIF/ EU budget related to ESIF, such as JASPERS?

Under ESIF, it is the managing authority which signs a funding agreement with the beneficiary, i.e. the body implementing a financial instrument (e.g. the EIB or EIF) to set up a financial instrument. The relevant legal framework is the Common Provisions Regulation (and related Delegated and Implementing Acts). There is no Memorandum of Understanding or equivalent between the Commission and the EIB to regulate the management of ESIF financial instruments (there is not contractual relation between the Commission and the EIB in this case).

It is different in the case of indirectly managed financial instruments like COSME, InnovFin: for these the Commission signs a Delegation agreement with the Implementing Partner which usually is the EIB Group. This agreement governs the relation between the Commission and the EIB as regards the implementation of the instrument (including eligibility, monitoring, reporting). There is also a framework agreement (FAFA) between the Commission and the EIB governing general rules of cooperation between the institutions including remuneration which applies to all contracts with the EIB (including service and grant contracts such as fi-compass). This however does not apply to ESIF financial instruments which are not contracted between the Commission and the EIB.

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7. Investigations into alleged fraud using financial instruments figure prominently in the 2017 OLAF report. Which preventive action does the Commission take?

For one of the two cases in Germany mentioned in the 2017 OLAF report, the financial follow up procedure is ongoing. The Commission is currently analysing the Member State's position on the OLAF report.

An important feature of fraud prevention in the domain of financial instruments is the alignment of interests, i.e. entrusted entities are selected under the premise that they share the risks linked to the financial instrument, or have a similar economic interest of their own to prevent fraud and other irregularities. An alignment of interests is required under the new Financial Regulation and to a certain extent under sector-specific legislation.

Key players as entrusted entities, namely the EIB and the EIF, have in place anti-fraud policies to protect both their own funds and EU funds entrusted to them.

8. How does the Commission assist audit authorities to avoid faulty sampling methods being used?

Over the previous programming period, REGIO concluded based on more than 330 audits that we can rely on the work of all main audit authorities.

Almost all these audit authorities continue their duties in the current programming period and can therefore benefit from the extensive administrative capacity building developed in 2007-2013. Indeed using sampling techniques requires deep expertise and sound professional judgement to ensure that results are statistically valid and reliable. The audit authorities are therefore benefitting from detailed guidance and training by the Commission on how to use statistical sampling techniques. Most of them have developed internal technical expertise or use also outsourced, specialised expertise, when necessary. They also have an open, consultancy line with the Commission audit services.

Audit authorities received since 2010, updated in 2013 and 2016, an exhaustive state of the art guidance on sampling techniques, developed by the Commission with the help of one of the most recognised academic experts in the field of statistics at European level. Each release of the Commission guidance was followed by several meetings and targeted training activities organised by the Commission with the help of this academic expert and proposed to the audit authorities. In additional, targeted, individual trainings to some audit authorities, are organised on demand or when the Commission detects weaknesses in the work of a particular audit authority.

Finally, each year, in the frame of the preparation for and assessment of the annual control reports, the Commission audit services, using consultancy services from the academic expert where necessary, provide detailed feedback on samples drawn, sampling parameters used and on methods for calculating reported error rates. This feedback is also discussed in the frame of the annual control coordination meeting organised by the Commission services with audit authorities of each Member State.

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The Commission therefore continuously monitors and re-assesses the work of audit authorities to ensure they continue to provide fully reliable audit results.

9. What measures will the Commission take in order to avoid that Member States’ audit authorities include advance payments in audit populations?

The issue of the treatment of advance payments paid into financial instruments in line with the regulation (article 127 CPR) and included in the audit population was raised by the Court in its 2016 Annual Report. The Court's recommendation was presented to audit authorities during the Homologues Group Meeting in Tallinn and it was agreed to create a joint working group with representatives from the Commission services, the audit authorities and the Court to ensure that a common understanding is applied for the treatment of advances paid to financial instruments and under State aid in the audit population and corresponding audit work to be carried out.

Following the discussions with audit authorities and the Court, and after careful analysis of the provisions of the Regulation on eligible expenditure and audit population (including article 127 CPR), the Commission with the help of a working group from audit authorities and representatives from the Court issued in November 2017 a reflection paper on possible ways forward for the audit of financial instruments (and State aid) advances under the 2014-2020 period. In the agreed paper it is established that the regulation foresees that the audit population includes all payments, including advance payments. But for the sake of transparency, audit authorities will have to provide to the Commission services sufficient detailed information in their annual control reports, so as to allow the Commission services disclosing in their AARs an additional evaluation of the amounts at risk for incurred expenditure (without advances).

This could be used to complement the disclosure in the AARs of Residual Total Error Rate (RTER) based on declared expenditure, provided by the audit authorities and validated by the Commission. As a consequence, in its 2017 AAR, REGIO has disclosed additionally a Total Error Rate (TER) and a RTER, calculated without the impact of EU advances to financial instruments.

REGIO have also disclosed additional reservations in the AAR when the total error rate recalculated (or reported) without the impact of advances into financial instruments was above 10% (DE Brandenburg programme and CZ Enterprise and innovation for Competitiveness programme).

In relation to the State aid advances, as already done for closure 2007- 2013, the Commission clarified to the audit authorities that they have to carry out audit work (i.e. system audits) to confirm that the managing authorities have put in place a system ensuring that advances are properly justified within the regulatory deadline of three years.

10. The AAR reporting period is not the same as the period covered by the Member States' assurance packages. The reporting requirements for AARs have not been adapted to the new control and assurance framework. In order to provide assurance for the calendar year DG REGIO decided to estimate the risk by projecting a provisional residual error for 2017, which they had not yet accepted

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and validated. How reliable is this method? Does not it undermine trust if the Commission applies such methods?

In their Annual Activity Reports, the Authorising Officers by Delegation (AODs) are required by the Financial Regulation (Art. 74 (9)) to report on the results of controls for the preceding year and provide “reasonable assurance” that the control procedures in place provide the necessary guarantees concerning the legality and regularity of the underlying transactions. Accordingly, this “reasonable assurance” must cover all the payments made during that year and provide the best estimation of the level of error affecting those payments, taking into account the different levels of assurance obtained. This is a general rule applicable to all AODs, which has been translated in the corporate AAR instructions.

The timeframe set for the assurance for 2014-2020 allows for a better alignment of the reporting periods compared to 2007-2013, with only six months gap (as compared to previously twelve months) due to the cut-off date which is now set at 30 June N, the end of the accounting year, instead of 31 December N-1 in the previous period.

For the purpose of its assurance, the Commission needs to use all information available, validated and most recent if different (or in particular in 2017 since not all programmes had still reported expenditure and therefore error rates for the previous accounting year ending in June 2017, while interim payments were made in the second semester 2017 for which REGIO had to estimate the risk).

Different levels of assurance are available for the different payment types. The Commission residual error rates reported in the Annual Activity Report are mainly based on the ones reported by the audit authorities for shared management programmes, with different levels of verifications carried out by the Commission, depending on the timing of reporting. The rates reported in February of the previous year (for the accounting year N-2/N-1) went through our complete audit cycle (desk and risk-based on the spot audits). The error rates reported in February just before the drafting and signing of the annual activity report relate to the most recent accounting year N-1/N) but are still under assessment by the Directorates general when signing the annual activity report.

However, these latest reported error rates provide most updated information on the quality of management and control systems that generated the latest expenditure accepted and paid by the Commission. They were therefore taken into account as reported in the AAR, for the purpose of additional reservations for example (if the reported error rate increased and was reported beyond 10%, compared to the previous, validated one which may have been much lower). In some cases, in 2017 and due to the slow start of some programmes, the reported error rates were also the only indication of the risk, due to the absence of reported error rate for the previous accounting year. The Commission also used professional judgement and flat rates of 2% to estimate risks on interim payments occurring after the accounting year in the second semester of 2017, when no error rate was reported.

The Commission therefore estimates that it has taken a prudent estimate of the risk for the payments under shared management in 2017, taking account of the

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worst case scenario for each programme (the highest of the validated or recently reported error rate). For future AARs, the Directorate general will carefully consider the recommendation of the Court and the requirements of the financial regulation for determining its risk calculation method, in close cooperation with the concerned horizontal services and the Court.

11. Does the Commission intend to refrain from calculating a residual error that has not yet been examined?

The Honourable Member is referred to the replies to questions 3.a) and 10 above.

The use of the latest data information received from audit authorities may need necessary in some cases when it provides most updated information on the quality of management and control systems that generated the latest expenditure accepted and paid by the Commission (namely when the reported, not yet finally assessed error rate, is higher than the validated one for the previous accounting year). Furthermore REGIO is currently assessing with the Commission central services how to give better visibility in the Annual Activity Report to the residual error rate in relation to the previous accounting year, as validated following the completion of its audit activities.

12. According to ECA the Commission could produce an overall residual error rate for MFF sub-heading 1b with a little additional effort. Instead the AMPR provides a combined error rate for "Cohesion, migration and fisheries". It would help the discharge authority to have such an overall rate. Does the Commission consider the usefulness of providing such an error rate?

In the next AMPR the Commission will provide an overall residual error rate for MFF heading 1b only, in addition to the combined error rate for "Cohesion, migration and fisheries".

13. According to the ECA 2017 AR significant percentage of errors is caused by ineligible costs and ineligible beneficiaries. From the comparison of 2016 and 2017 ECA AR one can draw the conclusion that most of the errors caused by incorrect public procurement process were eliminated by more simple and effective procurement directives. According to Commission´s replies in 2016 ECA AR (6.10. and 6.11.) “The Commission will follow up the cases identified by the ECA and will propose action as it deems necessary” and “The Commission considers that its call to Member States for further simplification of rules at national level and for the increased use of simplified cost options should contribute to reducing errors linked to loss of the audit trail or ineligible expenditure”. What actions were proposed by the Commission? Is Commission successful in promoting simplification of rules at national level in Member States? If not, why? What are the main obstacles?

On the corrective side, the Commission always follows up the cases identified by the ECA which may lead to financial corrections if legal conditions are met, following the detailed individual final assessment provided by the ECA for each quantifiable error identified. This is the meaning of the reply to paragraph 6.10 in the 2016 ECA annual report.

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On the preventive side (reply to paragraph 6.11), it is clear that simplification of rules remains a priority for the Commission as complex rules, sometimes added in the legislative process for European regulations or due to national additional legislation, are often a source of errors. Some complexity is inherent due to the variety of investments and activities that are funded under Cohesion policy

This is why in the Omnibus regulation further important simplifications proposed by the Commission in various areas, have been supported by the co-legislator. Past recommendations from the Discharge authority and ECA calling for enhanced simplification and better assessment of performance have been largely reflected in key elements of the 2014-2020 reform for increased quality of spending and added value of co-financed operations.

The common rules for ESI Funds offer a wider range of simplification opportunities like simplified cost options (SCOs), simplified ways to take account of revenue-generating projects and financial instruments and the move towards e-cohesion. In particular, simplified cost options do reduce burden for beneficiaries and are less error-prone, as recognised by the ECA for several years in a row now. With the entry into force of the Omnibus regulation, the use of simplified cost option becomes obligatory for operations below one hundred thousand euros, though with a transitory period.

But it is important to underline that Member States and regions also have to play their role and must now make use of these newly introduced opportunities and take them up in their day-to-day management of programmes. A recent Commission study  (https://publications.europa.eu/en/publication-detail/-/publication/19e73be4-476a-11e8-be1d-01aa75ed71a1/language-en/format-PDF/source-70393571)  shows that between 2014 and 2017 the large majority of ESIF management authorities used SCOs (64% of EAFRD Rural Development Programmes (RDPs), 73% of ERDF-CF Operational Programmes (OPs) and 95% of ESF OPs. In terms of projects, the number of projects using SCOs is 19% for EAFRD, 65% for ESF, 50% for ERDF and 25% for CF. SCOs are expected to be used even more as from 2018. It is expected that at the end of the programming period SCOs will cover approximately 33% of ESF, 2% of EAFRD and 4% of ERDF/CF budget.

The relatively low part of the budget concerned in the area of ERDF/CF may be explained by the fact that where an operation or project is implemented exclusively through public procurement, reimbursement of eligible costs incurred remains the only form of assistance. In Member States declaring a high percentage of the budget covered by simplified cost options, they are mainly used in projects or programmes supporting research and development, business development and technical assistance projects to cover personnel costs.

The Commission is continuously strongly encouraging them to do so. Member States must also look into their national complexities as "Gold-plating" is too common and should be tackled. The Commission encourages using peer-to-peer tools for this purpose and tries, together with national auditors, to identify procedures which are not needed, not required by EU law or are unnecessarily burdensome.

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For its post-2020 proposals, the Commission made a step further into simplification. Based on the Commission's analysis and on recommendations expressed by the High Level Group, stakeholders and beneficiaries, the Commission made radical proposals in a much simpler draft regulation. Its proposals provide further possibilities for the use of simplified cost options and payments against conditions to further reduce complexity. The Honourable is referred to the Commission brochure listing not less than 80 proposed measures that will simplify the programming, implementation and control of these funds.

14. What is the share of public procurement tenders for EU funded projects with Single Bidder in each Member State in 2017?

The data on single bidding at end 2015 was made available to the Commission based on a requested detailed research across Europe and was reported in the 7th

report on economic, social and territorial cohesion.

The Commission does not have the means to update such a detailed and comprehensive analysis every year and has no update available for 2017. The Commission has however mandated a more specific study on single bidding in ten Member States and will communicate its results as soon as they become available (see reply to question 15 below).

15. What is the state of play regarding the in-depth analysis on single bidding and the corresponding barriers of competition in the Member States? Will the results be ready for publication by November 2018 as indicated to the European Parliament?

The study on single bidding is on-going. The deadline for the final results of the study has been postponed as the Commission wants to have sufficient time for consultations and assessment on the interim reports and draft final report of the study before finalising this assignment. According to the new timetable the results of the study are expected to be ready for publication at the end of January 2019. They will immediately be communicated to the CONT Committee.

16. The public procurement often involves subcontractors. Could the Commission provide data for each Member State on the funding received by subcontractors?

Under shared management operations implemented under the programmes are selected and monitored by each programme authority and intermediate bodies in the Member States and regions. Such detailed data on subcontractors involved in public procurements is not available at the level of the Commission. There is no legal basis for the Commission to request programme authorities to disclose such details on subcontractors for thousands of co-financed projects. This would imply a disproportionate administrative burden on programme authorities and Member States.

The obligation of the contracting authority to ask the tenderer to indicate sub-contractors by name is provided at the latest from the moment the effective implementation of the contract commences. This is mainly requested in an effort to ensure compliance of Member States with applicable law in the field of social and labour law (see Directive 2014/24, Articles 18 (2) and 71 (2) (5)). Therefore

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the information is collected by Member States in accordance with their obligations under the Directive, but it is not centrally collected at European level for ESIF co-funded programmes.

17. Could the Commission provide aggregated data on corrections for ERDF by region and highlight what the principal reasons for these corrections were?

The Annual Activities Report for 2017 of REGIO contains tables on financial corrections, withdrawals and recoveries for each Member State (annex 8 pages 70-71) concerning the 2007-2013 and previous programming periods.

These amounts of financial correction reported reflect the Commission supervisory action over programmes, cumulatively since the start of the reporting in accordance with the " 2008 Commission Action Plan to strengthen its supervisory role", up to and in 2017. Amounts reported refer to corrections "confirmed" (meaning accepted by the Member State) or "decided" (through a Commission decision) (first table p.70). These corrections are reported as "implemented" once effectively deducted from a payment made by the Commission (second table, p.71).

For the 2007-2013 period, the amounts, when imposed by the Commission but accepted by Member States, have also to be reported by the Member States under their annual reporting in accordance with Article 20 of regulation (EC) No 1828/2006. REGIO therefore refers in its annual activity report also to the amounts of financial corrections implemented by Member States (3rd table reported in annex 8, p. 72). These data are presented in the annual activity report by Member State, for all programmes including regional ones.

The list of 2017 financial corrections accepted or decided for regional programmes only is disclosed below:

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Programme ProgrammeFinancial

correction

(CCI number) (Name)(fund

contribution) DE 2007DE162PO006 Bremen                5.103.912   EL 2007GR161PO006 Attica              13.475.011   EL 2007GR161PO008 Macedonia-Thrace              16.785.181   HU 2007HU161PO003 West Pannon                1.135.405   HU 2007HU161PO004 South Great Plain                5.382.075   HU 2007HU161PO005 Central Transdanubia                1.417.819   IE 2007IE162PO001 Border, Midland and Western Operational Programme                1.812.165   IT 2007IT161PO008 POR Calabria                1.108.648   PL 2007PL161PO005 Regionalny Program Operacyjny Województwa Dolnośląskiego              10.684.056   PL 2007PL161PO006 Regionalny Program Operacyjny Województwa Kujawsko-Pomorskiego              11.323.419   PL 2007PL161PO007 Regionalny Program Operacyjny Województwa Lubelskiego              16.902.619   PL 2007PL161PO008 Regionalny Program Operacyjny Województwa Lubuskiego                3.593.606   PL 2007PL161PO009 Regionalny Program Operacyjny Województwa Łódzkiego              14.820.161   PL 2007PL161PO010 Regionalny Program Operacyjny Województwa Małopolskiego                5.420.680   PL 2007PL161PO011 Regionalny Program Operacyjny Województwa Mazowieckiego              19.907.639   PL 2007PL161PO012 Regionalny Program Operacyjny Województwa Opolskiego                 4.554.856   PL 2007PL161PO013 Regionalny Program Operacyjny Województwa Podkarpackiego              18.580.976   PL 2007PL161PO014 Regionalny Program Operacyjny Województwa Podlaskiego                9.078.114   PL 2007PL161PO015 Regionalny Program Operacyjny Województwa Pomorskiego                5.027.273   PL 2007PL161PO016 Regionalny Program Operacyjny Województwa Zachodniopomorskiego                4.933.988   PL 2007PL161PO017 Regionalny Program Operacyjny Województwa Wielkopolskiego                3.865.465   PL 2007PL161PO018 Regionalny Program Operacyjny Województwa Świętokrzyskiego                7.940.590   PL 2007PL161PO019 Regionalny Program Operacyjny Województwa Śląskiego              20.665.675   PL 2007PL161PO020 Regionalny Program Operacyjny Województwa Warmińsko-Mazurskiego              12.155.319   PT 2007PT161PO002 Regional do Norte 2007-2013                8.389.006   UK 2007UK161PO003 Cornwall and the Isles of Scilly                2.481.159   

Grand Total 226.544.813

Financial corrections accepted/decided in 2017 - 2007-2013 programming period

MS

As for the reasons of these financial corrections in general, they are diverse (including sometimes for each individual programme) but usually linked to:

- system weaknesses detected in the management and control systems, in particular weak management verifications performed by managing authorities or lack of supervision over their intermediate bodies; this leads to risks of irregularities for expenditure already declared, detected through EU audits or through national audits but insufficiently corrected;

- individual errors, in particular in relation to incorrect public procurement procedures or ineligible projects / expenditure, identified in Commission or ECA audits or in OLAF investigations;

- or additional extrapolated financial corrections in case of recalculation of error rates by the Commission, either due to wrong estimations of the error rate by the audit authority (clerical or sampling mistakes) or inadequate treatment of a specific error with bearing on the overall reported error rate.

The Honourable Member is also referred to the annual communications on the protection of the EU budget and the Annual Management and Performance reports

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which contain detailed information on the corrective actions taken (see Annex 4 of the last AMPR 2017 COM(2018) 457 final).

Annual activity report

18. In 2016 and in 2017, 9 audits were carried out that aimed to obtain direct assurance in view of closure declarations. Were the identified risks appropriately treated and adequately mitigated in the examined Member States (BG, DE, HU (3), IT (2) and RO (2))?

Indeed Commission audits are risk-based and this was particularly the case for closure audits where audits or fact finding missions were planned based on identified risks, either to help programme authorities to appropriately prepare for closure, or for the Directorate general to obtain additional clarifications on closure packages received by the regulatory deadline of 31 March 2017.

Bulgaria

In 2016, one audit was performed for Bulgaria for the Environment programme. The audit was appropriately followed up by the Member State and thus closed in November 2018. There are no open findings to be followed up in the context of the closure exercise for the 2007-2013 programming period in relation to this audit

Germany

In 2016, an audit was performed on Thüringen. All corrective actions were taken and the programme has been closed.

Hungary

The results and required financial corrections from all 3 audits performed in 2016 and 2017, covering the Electronic Administration programme (effectiveness of management verification), Implementation programme (eligibility of public procurements on monitoring system) and Transport programme (eligibility of retrospective projects) are still open. In case of continued disagreement, the Commission will pursue its follow up by applying the required financial corrections at closure.

Italy

- In January 2017 a preventive audit was carried out to examine the preparation for closure of the Liguria and Lazio audit authorities as regards the audit work to be carried out at closure on the eligibility of financial engineering instruments (FEI). The audit identified weaknesses in the preparation of both audit authorities as regards auditing of financial engineering instruments at closure. Both audit authorities took appropriate measures to ensure that additional, sufficient audit work was carried out on FEI at closure. The required additional audit work delayed the process of closure of these programmes. Moreover, the Commission auditors identified the risk that these issues could also affect the quality of audit work at closure for other Italian operational programmes as well. They sent a

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horizontal note to all Italian audit authorities (circulated by the national audit coordinating body IGRUE) to remind them of the specific audit work they needed to carry out on FEI at closure.

- In October 2017, a fact finding audit mission was carried out at the level of the audit authority of region Campania on the information submitted in the final control report at closure. The Commission auditors requested further clarifications on irregularities initially detected at the draft stage of the audit report but ultimately not quantified following contradictory procedures. The contradictory process on these findings is still ongoing (reply of the audit authority under assessment).

Romania

The audit on the Environment programme, covering mainly public procurement, has been closed and the corrections agreed will have to be deducted from the final closure payment.  The closure process for this programme is still ongoing.

The audit on competiveness programme, covering both public procurement and the review of the selection process of the projects, is still in contradictory procedure.    In case of confirmed disagreement, the Commission will pursue the correction financial in the framework of the closure.

19. What are the results of the two audits on the spot (in Romania and Slovakia) at the level of the certifying and managing authorities and three desk audits covering Greece, France and Italy that were carried out in 2017? Is the residual risk rate to be calculated and reported by audit authorities at closure reliable? Why has DG REGIO chosen RO and SK for its on-the-spot checks?

Italy

The desk review for Italy carried out in 2017 covered the amounts declared by the certifying authorities for 8 programmes in the statement for withdrawal and recoveries (W&R statement) (financial corrections at national level to be taken into account by audit authorities in the calculation of residual risk rates (RRR) at closure). The audit scope was to verify on a sample basis (focusing on large transactions) the reliability of the data reported during the programming period and which would form the basis of the calculation of the residual risk rate (RRR) at closure. The results of this desk review showed that in several cases there was an error in the amounts declared in the W&R statements. In particular, the programme declared temporary withdrawals of amounts declared in subsequent payment claims but without correcting the past W&R statements. In all cases the programmes took the necessary corrective actions on the findings identified by the Commission auditors so that these amounts were not taken into consideration when calculating the RRR at closure. The Commission auditors checked each calculation reported by the audit authorities of the RRR at closure.

France

Following a desk review of the French statements for withdrawal and recoveries, the final audit report was sent to Member State on 7 June 2017 with an overall

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positive conclusion, except for the yearly withdrawal and recoveries declarations submitted for one operational programme (Guadeloupe). In relation to this operational programme, the Commission proposed to reduce the amount of withdrawal and recoveries declared by the French authorities by an amount of EUR 14.9 million in the calculation of the residual error rate. By letter of 26 March 2018 the French authorities accepted the correction proposed. Since the closure documents had already been submitted by the Member State on 29 March 2017, the Commission is applying this correction at the moment of the closure proposal (planned to be issued shortly).

Greece

In the Greek case, REGIO carried out in 2016 an audit on the statements for withdrawal and recoveries in view of the closure. Following our audit, the Certifying Authority re-submitted all article 20 declarations with the required corrections.

Furthermore, REGIO in June 2017 carried out one on the spot closure audit at the level of the audit authority. The reported residual error rate (RRR) was validated at the moment of the audit. However, this RRR was not final as additional audit work by the audit authority was needed on the expenditure declared at closure (and for which the audit authority did not have time to carry out audits by the closure deadline). Following communication of the results of these additional audits and submission of the revised final control report, the final reported RRR was validated by REGIO, through desk review.

Slovakia

In September 2017, REGIO carried out an early preventive system audit (EPSA) with respect to the 2014-2020 period on the Integrated Regional OP at the level of the managing authority and 3 intermediate bodies focused on adequate selection of operations. REGIO auditors concluded that the audited part of the management and control system works, but some improvements are needed. This programme was selected through a single risk assessment performed jointly by REGIO and EMPL.

Romania

REGIO carried out in 2016 an audit on the statements for withdrawal and recoveries in view of the closure. Following this audit, the Certifying Authority made the necessary corrections. However, further review work is being performed on the reported withdrawal and recoveries at closure. The Romanian programmes have not yet been closed.

20. According to the 2017 AAR of DG REGIO, the KPIs 1 to 4 are showing very little progress in reported achievements (0,2 % to 7,7 %) while presenting relatively high forecasted achievements (26,5 % to 41,7 %) at the end of 2016. Can the Commission provide a confidence level for the forecasted achievements?

The forecasted achievements presented in the REGIO 2017 AAR correspond to the target achievements declared by the individual projects already selected for

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funding by end 2016. Therefore, due to the state of implementation of these projects, the reported achievements were necessarily low, while should be much higher when projects would be fully implemented (forecast).

Forecasted achievements do not result from a poll or a statistical sample (as in the case of the estimated error rates resulting from the audit work), therefore no confidence level is calculated. Setting reliable target achievements for any investment is complex by nature and requires in-depth knowledge of investment conditions and of means mobilised. This is scrutinized by managing authorities through the project selection procedures, which allow assessing the plausibility of target figures announced for each project. Additional review and plausibility checks on the forecasted target achievements for each investment area are also carried out by the Commission, notably during the programming phase. Audits on the reliability of reported performance data are also carried out, by audit authorities and by the Commission.

In addition such targeted achievements are publicly available through the REGIO Open Data Platform which is publicly available. The Commission has no indications that the forecasted achievements communicated so far by the Member States might be overstated.

21. How does the Commission intend to bring in line the AAR reporting period and the period covered by Member States’ assurance packages?

As explained in the reply to question 10 above, the timeframe set for the assurance for 2014-2020 allows for a better alignment of the reporting periods compared to 2007-2013, with only six months gap due to the cut-off date which is now set at 30 June N, the end of the accounting year, instead of 31 December N-1 in the previous period. The audit authority therefore provides in February each year an assurance on the legality and regularity of expenditure included in the previous accounting year, ending by 30 June of N (the AAR reporting year).

With a final payment claim for the accounting year to be sent to the Commission by 31 July each year, and paid within 60 days (by end September), this leaves only the three months of the year during which Member States can submit additional payment claims, which should be paid within 60 days and subject to budget availability. This additional expenditure is covered by assurance provided by the audit authority through the next accounting year cycle but is however covered by the 10% retention, as for any EU interim reimbursement.

There is therefore an improvement compared to the previous programming period, where the AAR reporting period (N) was one year later than the expenditure on which audit authorities were calculating an error rate (year N-1 expenditure) for the purpose of the assurance.

22. What is the current state of play for the implementation of the remaining - at the end of 2017 - 1% of the action plans in order to comply with ex-ante conditionalities? Are there new cases of suspension decisions and pre-suspension letters in 2018? Has the suspension decision from 2017 been lifted or it is still in force?

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As of September 2018, 99 % (651) of these action plans related to ex ante conditionalities have been completed.

There are currently 7 non-completed action plans, which concern the following Member States: Cyprus (1), Italy (1), Romania (2) and Spain (3). They are linked to the following ex-ante conditionalities: 6.1 water sector (2), 6.2 waste sector (3), 7.1 transport and 11.1 institutional capacity.

In line with the regulation, the rare cases of unfulfilled ex-ante conditionalities constitute a possible ground for suspending interim payments to affected (parts of) programmes. Currently, one suspension has been adopted (transport sector for Extremadura operational programme in Spain). Following subsequent actions taken by the programme authorities and formally communicated to the Commission, REGIO is currently examining whether the conditions to lift this decision are met. But the suspension decision is still active, meaning that no expenditure related transport can be declared for the programme.

Two other suspension decisions are under inter-service consultations for adoption: for the waste sector in Sicily (Italy) and for the water sector in the Canary Islands (Spain, two programmes concerned).

A pre-suspension letter has also been sent to Romania for the waste sector. The Romanian authorities reported on the fulfilment of the waste sector ex ante conditionality in July 2018. The Commission does not consider this ex ante conditionality as fulfilled yet and asked the Romanian authorities to implement measures included in the relevant Governmental Ordinance. Finally, the ex ante conditionality on institutional capacity in Romania is on hold, pending assessment requested by the Romanian President to the Constitutional Court on compliance of the draft administrative code with the Romanian Constitution. The Commission decided to put the case on hold until the decision of the Romanian Court.

23. Regarding the Cyprus solid waste case, the internal ex-ante conditionalities Suspension Committee decided not to suspend payments, since the suspension would have been counterproductive effect on the required action: Cyprus needs to invest in municipal waste re-use and recycling, including with EU funds, to overcome the deficiencies and reach its targets by 2020. The Committee therefore concluded that the implementation of projects contributing to achievement of the conditionality should not be suspended. This ex ante conditionality is expected to be met in the first semester of 2019. Does the Commission monitor and analyse if the respect of public procurement rules has improved once of the ex-ante conditionality related to public procurement were fulfilled? What have been the main obstacles for Member States to fulfil this ex-ante conditionality?

The monitoring of the status of public procurement system is carried out by DG GROW as a part of the Single Market Scoreboard (the Public Procurement section) at http://ec.europa.eu/single-market-scoreboard. REGIO is using the results of the Scoreboard for discussions with Member States and future negotiations.

The main obstacles for Member States to fulfil public procurement ex-ante conditionalities were related to the need for professionalization (capacity building,

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standard tender documents etc.) and increased efficiency/effectiveness of control procedures (incl. IT solutions). Ex ante conditionalities contributed to establishing the right framework conditions for cohesion policy investments, to ensure compliance with the EU acquis, to improve the overall governance and performance of programme authorities in area of public procurement. This was the conclusion of the Commission staff working document on ex-ante conditionalities: http://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/value_added_exac_esif_en.pdfAccording to the Commission proposal for post 2020, the “next generation” of ex-ante conditionalities (called enabling conditions) will have to be fulfilled and their application monitored throughout the programming period.

Absorption

24. In its special report 17/2018, the European Court of Auditors (ECA) mentioned that Member States were obliged to monitor contractual advances but they were not required to report to the Commission on this. Why does the Commission not ask for such an information in order to be in a position to report on their overall use and impact? How could the Commission - in that situation - ensure that Member States monitor contractual advances?

Contractual advance payments are perfectly common in service and works contracts and considered eligible expenditure in the legal base. They are an important means to ensure timely start of implementation and a common feature of almost all public contracts. The Commission – and the legal base – do not require systematic project level reporting and even less contract-level reporting. This would be a practice going against the shared management principle and implying disproportionate administrative burden to programme authorities, who do report at programme level but not each individual operation and contracts within operations.

While there may be some risks linked to contractual advance payments, the Commission considers that the clarification and advice provided as regards the eligibility and the good practices shared with respect to the use/eligibility of contractual advance payments in the Question & Answer on Closure and through the Task Force on Better Implementation, achieved sufficient mitigation of the risk. In addition the Commission has in due time warned audit authorities about this particular risk and requested them to verify, y closure, that all contractual advances were covered by effective contract implementation and expenditure. When not sufficiently clear in closure documents, the Commission systematically asked confirmation to the Member States that this aspect had been adequately verified before the closure of programmes.

25. The absorption rate of some European regions is still low. What actions has the Commission carried out to address the issue in 2017?

The Commission services provide substantial support to Member States including technical assistance and advisory services (e.g. Peer-to-Peer, JASPERS, TAIEX, fi-compass, World Bank assistance) in order to improve their capacity to implement the Funds.

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Accompanying low-performing programmes is a priority. REGIO has established a special monitoring at the level of the management board in that respect, with programmes put under special scrutiny when implementation problems (including on absorption) are identified.

This close monitoring allows setting up action plans tailored to the needs of each programme and following up on the specific issues identified.

For instance, an action plan was set for Romania which had a very slow start. Implementation is thus now gathering pace across programmes.

REGIO also launched last year a first phase of the "Catching-up Regions" initiative, which aims at overcoming key development bottlenecks in low-income regions. It involved four pilot regions, two in Poland and two in Romania and led to some significant structural changes there.

The second phase of this initiative is currently underway, in new regions and with new themes such as energy efficiency. In Poland, it is adjusted with other Commission's projects, complementing two initiatives led by DG ENER: "Coal Regions in Transition" and "Smart Finance for Smart Buildings".

The third phase of the initiative will focus on boosting economic growth in small and medium-size towns in danger of deprivation to enhance their attractiveness for investors, businesses and citizens.

The "Catching-up Regions" initiative is also being gradually rolled-out in other Member States. Thus at the beginning of this year it was officially launched in two regions of Slovakia, focusing on their specific needs.

The Commission services will continue their efforts to ensure that programmes deliver on the ground. With the approaching deadline for the assessment of performance in view of the allocation of the performance reserve, they carefully monitor the situation and will warn programmes which are at risk of not fulfilling 85% of their expected targets. Such programmes are therefore under increased scrutiny and monitoring.

26. ECA Special Report 17/2018 on absorption show that Member States failed to take due account of performance considerations, which led to insufficient focus on results. Wouldn't be there a need for exceptional consideration for results safeguards, besides improving absorption?

Through the "Task Force for Better Implementation" initiative under the previous programming period, the Directorate general proposed to Member States being at risk of absorption, different measures which were in line with the 2007-2013 legal framework and were adapted to the circumstances of each programme. Such measures were also in accordance with the programme objectives, including its indicators, intervention logic and the selection procedures applied by the programme. Therefore there was no need for any exceptional consideration for results, only for safeguards that the proposed results and set objectives are indeed delivered through effective use of the available allocations.

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It is noted that the ECA Special Report 17/2018 did not examine programme or project results and did not conclude on lower level of performance than already set and ensured in the programmes. On the contrary the ECA Special Report concluded positively on the impact of this initiative on the absorption for the concerned programmes. Thus, through this initiative the Commission did help Member States to deliver the set objectives and expected performance.

27. Numerous Member States (https://cohesiondata.ec.europa.eu/funds/erdf# ) have not even spent 10% of their financial envelopes under the ERDF. What measures does the Commission take to avoid a huge backlog? How does the Commission ensure the result-orientation of the spending? Can the EC provide a hierarchical list of the causes of absorption delay?

Slower implementation was indeed observed during the first years of the 2014-2020 programming period. However, all significant bottlenecks have now been resolved.

Currently, net cumulative payments (including pre-financing and interim payments, net of recoveries) from the Commission to Member States total EUR 52 billion, which is almost 20 % of the total Union contribution allocated to ERDF and Cohesion Fund (CF) (EUR 262 billion) for the period. 17% of the allocation are covered by interim claims for 2014-2020 programmes compared to 21,8 % for 2007-2013 programmes for the same period. This gap is expected to be reduced at end 2018. Significant claims are expected to be sent by the end of year, in line with the trend observed in the past years and according to the latest Member States payment forecasts for 2018.

In 2017, an important acceleration has taken place in the implementation of programmes co-financed by ESI Funds. Project selection rate almost doubled compared to end 2016 to exceed 52% of the total funding by year end.  Based on the most recent data reported by Member States by the end of October 2018, implementation shows a continued acceleration on the ground in terms of volume of projects selected, reaching 69 % of planned total allocation (ERDF/CF support + national contributions). It corresponds to more than EUR 236 billion allocated to nearly 250 000 projects. Since end-2017, the overall average ERDF/CF project selection rate for EU28 remains comparable to the same period in 2007-2013.

At Member States level progress in selecting projects and spending varies.

Regarding result-orientation, the 2014-2020 framework for the European and Structural Funds represented a move towards a more focused policy approach, improved result orientation, solid framework conditions and prioritisation of EU common objectives alongside regional needs. There is clear intervention logic for each programme and priority axis. It is starting from a clear assessment of needs and required/intended changes.

The intervention logic at programme and priority axis comprises:

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- the identification of the needs and the objectives (changes sought), the setting of result indicators1 to measure change,

- the development of a strategy with specific actions aiming at achieving the change objective,

- the allocation of funds to the actions, and

- the monitoring of the outputs deriving from the actions.

This is complemented by strict ex-ante conditionalities.

It should facilitate the programme authorities to select the most suitable projects in order to achieve the envisaged outputs. The specific objectives are aligned with thematic objectives, which reflect EU priorities. Amongst the 11 thematic objectives, research and development, information and communication technologies, support to SMEs and the shift to low-carbon economy are the main investment priorities for ESIFs. The managing authorities have developed evaluation plans to assess the impact of the Funds under the specific objectives.

The Performance Framework builds on elements of the result orientation. Its objective is to give incentives to programme and priority managers to deliver what is under their control – namely the actions and direct outputs – and that the programme is kept on course to achieve its objectives. Performance is measured against milestones set for these indicators to be achieved by the end of 2018 and targets to be achieved by the end of 2023. The performance framework will reward programmes which progress well towards the milestones set (6% performance reserve) but will also trigger measures for priorities which fail to do so. There will be a formal review of performance in 2019: it will be the basis for the allocation of the associated performance reserve and for any changes needed for programmes to reach their objectives. Managing authorities may request modifications of programmes and of the performance framework values. However, the Commission services assess carefully and critically every request for modification of programmes which may impact on the performance framework indicators in order to make sure that such modifications are justified, necessary and performance oriented and simply a tentative to align indicators to delayed implementation. If the review identifies a serious failure to achieve the milestones, the priority axis concerned in addition to not receiving its associated performance reserve may, under specific conditions, be subject to the suspension of interim payments. The serious failure to achieve targets set for the end of 2023 may lead to financial corrections.

We see several reasons for these absorption delays. However, it is not possible to make a hierarchical list, as the progress in implementation results from several factors combined together, and can vary by Member State and region.

The late adoption of the Common Provisions Regulation (6 months later than for 2007-13), the resulting delay in adoption of programmes, the need for many delegated and implementing acts, the overlap of the two periods and the

1 In Cohesion Policy we concentrated on output and result indicators in order to be able to report on concrete achievements.

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complexity of the rules all contributed. New provisions in the CPR, such as the designation procedure, ex ante conditonalities and increased focus on results and performance, also had a delaying impact. As did the introduction of annual accounts and the threat of net financial corrections if serious deficiencies remain undetected or uncorrected, which has led to increased caution by Member States in controlling expenditure before declaring it.

And last but not least, the combination of significantly higher pre-financing amounts and the introduction by the co-legislators of the n+3 automatic de-commitment rule dis-incentivised faster budgetary implementation.

Lessons learnt have informed the Commission's legislative proposal for post-2020 which should ensure radical simplification, a quicker start-up for programmes and smoother transition between periods through a roll-over of well-functioning programmes. To provide a few concrete examples:

- the proposal includes rules which are simpler, reduced in number and clearer (so as to avoid the need for voluminous guidance), whilst not introducing substantial changes that would require adjustment of management and control systems,

- the proposal already includes all the rules necessary to start implementation immediately (rules that were before secondary legislation)_

- the use of simplified cost options and financing not linked to costs are also increased thus facilitating implementation on the ground and

- the n + 2 rule for the post 2020 period should provide an incentive for faster implementation.

28. The Court of Auditors warns in its Annual Reports for 2015, 2016 and 2017 that there is a risk that delays in budgetary execution for the 2014-2020 period could be greater than those for the 2007-2013 period. In AAR of DG REGIO the Commission reports about measures taken in 2017 for strengthening the absorption capacity of Member States. The results at the end of the third quarter of 2018 are still twice lower compared to the third quarter of the fourth year of implementation of the 2007-2013 programming period.

a. Does the Commission envisage using the same measures to assist Member States as those in the previous period (2007-2013) and when? How will the Commission ensure that the shortcomings identified by the ECA in the SR 17/2018 regarding the previous period will be avoided at the end of the 2014-2020 period?

Slower implementation was indeed observed during the first years of the 2014-2020 programming period. However, in 2017, implementation has speeded up. Since end-2017, the overall average project selection rate for EU28 (ERDF, CF) remains comparable to the same time in 2007-2013, even if this level of project selection comparable to 2007-2013 at the same period has not yet fully translated into payments. The Honourable Member is also referred to the reply to question 27 above.

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The lessons learnt from the Task Force for Better Implementation set up to improve the implementation of ESI Funds for the previous period have been mainstreamed for programmes in difficulty in the current period. There is regular monitoring and reporting to the Directorate general's senior management on the state of implementation and measures are taken for programmes which are implementing slowly. Targeted action plans are put in place for all these programmes and followed up through technical meetings, targeted advice and dialogue with the national authorities and closer follow-up on the implementation. In view of the 2019 Performance Review, particular attention is being paid to the programmes at risk of underperformance so as to support the identification and implementation of corrective actions on the ground.

Geographical units provide extensive support as well as close examination and structured assessment of programmes' performance to accelerate quality implementation on the ground. This includes: direct advice and assistance to the national and regional authorities, close monitoring of implementation on the ground and timely contribution to identifying and removing bottlenecks, participation in monitoring committees and annual review meetings, thorough examination of Annual Implementation Reports, cross-comparisons of programmes' performance based on scorecards and corresponding follow-up.

Examples of specific action plans agreed can be given.

In Croatia, the government adopted on 8 June 2016 an "action plan to increase the efficiency of the use of the European Structural and Investment Funds", setting out a set of 20 remedial actions. A dedicated project team for a better implementation in Croatia has been created by the Commission and is led by REGIO, to support the national authorities in its implementation.

In Romania, in July 2017, REGIO and the national authorities made a joint analysis of the bottlenecks and agreed on a list of actions to speed up implementation and enhance quality of projects and results, including on providing assistance to urban authorities and beneficiaries.

The Commission provides a wide range of technical assistance and advisory services (for instance JASPERS meetings with Member States, Peer2Peer exchange of good practices and expertise under REGIO TAIEX) in several topics (action plan in public procurement, seminars on anti-fraud/corruption measures, integrity pacts, State aid action plan). It has undertaken several actions to support successful implementation across EU

In addition, the roll-out of the Catching-Up Regions Initiative is supporting the identification and implementation of concrete measures to tackle key bottlenecks in pilot regions (see reply to question 25 above). It is also intended to launch a few targeted pilot projects on administrative capacity building, offering support to key bodies for their timely preparation to the new programming period. This notably includes the continued support to the ongoing lagging regions initiative (targeting low-growth and underdeveloped regions) and the implementation of a new initiative targeting regions in industrial transition. Other initiatives are currently ongoing and will continue

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to be implemented in other areas, in close partnership with other Commission services (e.g. deployment of Broadband Competence Offices' Network, support for coal and carbon-intensive regions in transition, Clean Energy for EU Islands).

The Omnibus Regulation introduced further important simplifications in a variety of areas that should help implementation, in particular in the areas of simplified cost options and financial instruments. The objective of the proposed amendments in the Omnibus was to reduce administrative burden for beneficiaries, improve synergies with other EU instruments, streamline financial instruments and increase flexibility for investments in Member States. The Member States are now responsible to take these opportunities and make them reality on the ground.

As regards the ECA’s Special Report No. 17/2018, the Commission has accepted all four recommendations of the Court and takes the measures to follow-up these recommendations, within the given deadlines. All measures indicated above contribute to a timely alert on implementation problems and pro-active response at the European Commission and Member State level. This should allow avoiding the shortcomings identified regarding the previous period.

b. What is the share from the resources for technical assistance at its own initiative, which the Commission use for assisting Member States to improve absorption and achievement of results?

An overview of the different amounts (implemented in 2017 and planned to be implemented in 2018, state of play of 12/11/2018) related to the Technical Assistance at the initiative of the Commission is shown in the table below:

(million EUR current prices)2017 % 2018 %

Voted budget incl. Assigned Revenue (1)          113,807  100%             114,338  100%Implemented (2017)/planned to implement (2018) (2)          113,290 99%             113,811 99%Actions to improve absorption and achievement of results (3)            73,351  65%                67,876  60%Other actions (4)            39,939  35%                45,935 40%

(1) shows the amounts voted in the budget and (2) shows the amounts implemented / planned to implement. Out of these actions the amounts dedicated to actions assisting the Member States to improve the absorption and achievement of results are shown in (3) and represent 65% in 2017 and 60% in 2018 of the implemented budget. The remaining part (4) of this Technical Assistance at the initiative of the Commission is mainly used for preparing the post 2020 period and communication and evaluation activities.

29. How does DG REGIO cooperate and coordinate its activities for assisting Member States to use better and achieve better results from ESIF with the activities of the Structural Reforms Support Service related to the implementation of the similar objective concerning the use of ESIF in the Structural Reforms Support Programme?

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Cooperation and coordination also takes place in the context of the High Level Steering Group and the Technical Support Working Group that involve members from all relevant Commission services.

Another means of coordination are bilateral contacts between the country desks in REGIO and the Structural Reform Support Service. The Structural Reforms Support Service consults REGIO and other Commission services on the requests submitted by Member States under the Structural Reform Support Programme. REGIO reviews all the requests to identify if there are any actual overlaps which may lead to double funding with projects under cohesion policy or if the requests could also be funded by the ESI Funds. Any synergies of the requests with actions/projects under cohesion policy are also identified and communicated to the Structural Reforms Support Service.

Performance related questions

30. ECA Special report 21/2018 on project selection and monitoring concluded that ERDF projects in the 2014-2020 do not systematically require the definition of quantified result indicators at project level. Even when such indicators exist they do not necessarily correspond to OP indicators. Can this be considered a well-designed intervention logic? Why would you distinguish between direct results at the level of projects and results to be achieved at OP level?

In the shared management context, the reinforced intervention logic for 2014-2020 is designed at programme and specific objective level (and not at level of individual operations). Moreover, Article 125(3)(a) of the Common Provision Regulation (EU) No 1303/2013 (CPR) requires managing authorities to draw up appropriate selection procedures and criteria that ensure the contribution of operations to the achievements of the specific objectives and results of the relevant programme priority. This is given effect through the definition of selection criteria which are proposed and endorsed by the programme monitoring committee.

The CPR and the Commission guidance on concepts and recommendations on monitoring and evaluation for the ERDF and Cohesion Fund make clear that the programme shall establish two types of indicators – outputs indicators measuring direct deliverables of the operations financed under the programmes and result indicators capturing policy changes beyond the programmes at the territory level (impact indicators in the term of the Commission Better Regulation Guidelines 2015). Direct result indicators (outcomes) capture change at the beneficiary level and not at the level of the overall population or policy level (the results of which are affected by different external factors outside the control of the managing authorities).

A well designed intervention logic shall ensure that the outputs and direct results of the selected projects contribute to achieving the expected results of the programme.

31. The ECA states in its 2017 AR that the existing performance framework and reserve is unlikely to trigger reallocations of cohesion spending during the 2014-2020 period to better performing programmes within cohesion. ECA drew the

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same conclusion in its special report No 15/2017. Commission argues that the very design of the performance framework and reserve does not facilitate reallocations very efficiently. How should the performance framework and reserve then be designed in order for it to allow for reallocations in the spirit of performance-based budget?

The Commission does not share this analysis and considers that its reply to the ECA Special Report No 15/2017 is not factually reflected in the question.

The performance reserve is not designed to ensure reallocation of resources between programmes or within programmes, but to incentivise and reward good performance in the implementation of programmes and their priorities in line with the programmes’ objectives.

The performance review of the programmes and allocation of the 6% performance reserve is foreseen in 2019. The Commission will apply the review in accordance with the requirements of the relevant framework, i.e. achievement of at least 85% of the expected targets and milestones.

The reallocation of the reserve is intended for those cases where the milestones set in the performance framework are not achieved. It allows redirecting resources from underperforming priorities to performing ones (in first instance within programmes) to make sure that EU funds deliver added value where they can better do so. Reallocation of spending between programmes should be the exception and not the rule.

Country related question:

Bridge over the Adriatic to the the Pelješac peninsula/Croatia

32. In June 2017, the Commission decided the allocation of 357 Mio. EUR of Cohesion Policy funds to build a bridge that will connect the southernmost part of the country and Dubrovnik to the rest of mainland Croatia.a. What were the reasons for the Commission agreeing to pay a major part of this

project?b. What is the state of play in the Commission’s investigation whether Croatia

awarded the contract in line with European Union procurement rules?c. How does the Commission and Croatian authorities ensure that the state-

owned Chinese construction firm, who won the tender, respects the European high levels of employment and social protection?

a. The Croatian territory is discontinued in Dubrovnik - Neretva county (southern Dalmatia). The current "Neum corridor”, a 9km long route through Bosnia and Hercegovina, connects Croatia on both ends, by leaving and re-entering EU territory. In the mid- term, problems are likely to increase due to the increase in road traffic as well as the entry of Croatia in the Schengen area (the controls could cause several kilometres of traffic jam on both border crossings and in the whole Neum corridor). Based on the traffic model analysis, the need for a road

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connection of the discontinued Croatian territory in South Dalmatia was recognized in the National Transport Strategy of the Republic of Croatia 2014 – 2030, as well as in the Operational programme Competitiveness and Cohesion2014 -2020.

A feasibility study was prepared by Croatia to analyse the possible alternatives to connect the two parts of the country. The study concluded that building a bridge would be the most favourable option as it scored highest in the multi-criteria (including safety and the impact on traffic and on the environment) and cost-benefit analysis, compared to the other options – a highway corridor, a ferry connection or the construction of tunnels.

Before being adopted by the Commission, the project has been carefully assessed by independent experts in the framework of the Joint Assistance to Support Projects in European Regions (JASPERS) as regards its feasibility and economic viability. The co-financing rate of 85% is justified by the non-commercial and non-revenue generating nature of the project.

b. Given the value of the project and the high visibility and controversy generated around the selected contractor (Chinese company), REGIO requested the Croatian authorities to be kept informed about the different steps of the procurement. The Ministry of EU Funds regularly informed Commission services about the state of play: selection of contractor, several appeals from non-selected bidders and their outcome (all appeals have been dismissed) and signature of the contract. One of the bidders (Strabag) addressed a complaint to the European Commission considering that the price of certain items of the winning bidder were abnormally low. The specialised Directorate general (DG GROW) carefully assessed the complaint and the Commission services concluded that the arguments presented in the complaint were not sufficient to conclude that the contracting authority would have breached EU public procurement rules in signing the construction contract.

c. It is the responsibility of Member States, in the case at stake of the Croatian authorities, to ensure that labour and social protection standards and laws are fully respected by all employers in their territory, using the national established mechanisms.

Suvorov, Bulgaria

33. How many projects were realised in the Bulgarian Village Suvorovo in the funding periods 2007-2013 and 2014-2020 with the support of structural funds? What was the purpose of these projects? What are the corresponding funding amounts of these projects?

Please find enclosed an overview of the projects funded in Suvorovo with EU structural funds in 2007-2013 and 2014-2020. The list for 2014-2020 is not final.

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34. Is the Commission aware of irregularities, defects or deficiencies in the construction with regard to these projects? If the answer is positive, what was the follow-up of the Bulgarian authorities or the Commission to protect the European financial interests?

There have been regular spot checks and other controls of the projects carried out by the programme authorities. In four projects, minor financial corrections were made (between 10 and 25%). In none of these cases were there suspicions of intentional irregularities.

Attached is an overview of the controls carried out by programme authorities and findings for the regional development programmes' investments in Suvorovo, which includes most of the projects carried out:

For the Operational Programme environment and the ESF investments, no irregularities have been signalled by the programme authorities.

No project implemented in the Bulgarian Village of Suvorov was in Commission audit samples for the 2007-2013 and 2014-2020 programming periods.

Czech Republic

35. How has DG REGIO reacted to the information received by the Transparency International CZ?a. What phase is the investigation at the moment?b. How do the CZ authorities cooperate on the issue?c. When will you be able to present the report on the case to the European

Parliament?d. How was it possible that the Commission reacted only after the official letter

by the Transparency International? Did your internal controls fail to recognise any potential risk of Conflict of Interests? Were there any doubts expressed by the CZ Paying Agency?

a. The AGROFERT group involvement in EU co-funded programmes has been commented in the past years due to different debates around companies linked to the Prime Minister. The Commission has registered a complaint from Transparency International with respect to alleged conflicts of interest of the Czech Prime Minister. This complaint is being handled in the Commission following the procedure for examining formal complaints. There is no investigation such as referred to in the question.

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At this stage, the Commission is seeking to clarify the facts, in order to have a better overview of the situation and taking account of the fact that Member States have the primary responsibility, through their management and control systems, for the implementation of their programmes in shared management.

Under shared management the Commission does not possess all detailed information on individual projects for co-funded programmes. The Commission services have therefore asked the national authority responsible for the coordination of EU Funds (Ministry of Regional Development) to provide the following information with respect to funding to enterprises being part of the Agrofert Group: • list of all projects financed by the ERDF, Cohesion Fund, ESF, EAFRD which relate to the AGROFERT group since 2012 when the current Prime Minister entered as Minister of Finance the government, and whether the projects are still ongoing or have been completed;• the amounts granted, already paid and still to be paid (as well as the Fund concerned) to these companies or to other companies of the AGROFERT group to allow us i) to confirm the amounts mentioned in the complaint and ii) possibly identify other funding, if any;• periods when such amounts were granted and paid;• whether the projects were subject to verifications (administrative and/or on-the-spot) with respect to such funding and the outcome of such verifications.

The Czech Ministry of Regional Development has collected the requested information from the different concerned managing authorities and has forwarded it to the Commission.

b. The Czech authorities are cooperating loyally on this request and have provided the requested information in the timeframe necessary to coordinate all concerned programmes, taking also into account the number and scope of enterprises linked to the Agrofert group. c. The Commission is currently assessing the detailed data provided and the elements of the complaint and whether payments to companies belonging to the Agrofert group have been made in full compliance with all relevant rules, including those on conflict of interest.

On the basis of the result of its analysis, the Commission will decide on the best course of action to follow up on this complaint and will inform the European Parliament in a timely manner. In line with the regulatory framework, the Commission may take appropriate measures to protect the EU budget at any point in time, should the examination of the information obtained and of the complaint reveal a breach of applicable law.

d. The prevention of conflicts of interest is an integral part of any management and control system. The methodology and procedures for verification of the absence of conflict of interest are set up at the national level and are applied by the managing authorities. They are, like for other procedures under management and control systems, subject to audit procedures in place under Article 127 of the Common Provisions Regulation, system audits and audits of

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operations by audit authorities. Such procedures are also checked during Commission risk-based audits on systems or on operations.

As regards the 2014-2020 period, in line with its Single Audit Strategy for ESI Funds and the Directorate general's risk assessment, the Commission has carried out so far in Czechia two early preventive system audits at the level of managing authorities/intermediate bodies for two programmes and one compliance audit to conclude on the reliance to be placed on the work of the audit authority. All Commission audits included, as part of the normal audit questionnaire in use, the verification of the absence of conflict of interest, in particular at the stage of selection of operations. The conclusions from these audits at that time were that the audited management and control systems work, with some improvements needed (category 2 assessment). The Commission has also obtained evidence during its re-performance of the work of the audit authority that regular Czech audits appropriately cover the issue of prevention of conflict of interest.

It has also to be noted that the Czech Republic is active in the integration and effective use of the Commission-developed IT tool ARACHNE in its management and control system, a useful tool to conduct risk analyses and combat fraud, conflict of interest and irregularities.

Finally, following the modified provisions of Article 61 in force for shared management since August this year, the Commission is also assessing whether further requirements and adjustments to measures already in place have to be asked from Member States. It will exchange views with the programme authorities on the basis of the results of this assessment before the end of the year.

Priority Projects in Greece

36. What is the state of play on the priority projects in Greece?

The 181 projects in the Priority Project List (166 ERDF + 15 ESF) had a co-financed budget of EUR 11.5 billion, equivalent to about 55% of the total 2007-2013 ERDF/CF/ESF allocation to Greece.

On the basis of the information provided by end September 2018, it results that:- 119 projects with expenditure of EUR 7.1 billion are reported as completed; - 17 projects with expenditure of EUR 0.5 billion are to be completed by March 2019

with national funds (additional EUR 0.53 billion estimated to be needed); - 24 projects (EUR 0.8 billion) are phased into 2014-2020 where they are estimated to

require another EUR 1.1 billion funding;- 21 items with an estimated budget of EUR 1.1 billion were cancelled.

This list alerted and pressured the Greek Government, local and regional authorities, to take ownership and action with projects that were not moving ahead as they should. It also generated publicity and served as a project monitoring tool.

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At the same time the exercise showed that a list with 181 items, of which some covered a multitude of projects rather than single projects, resulted in a dispersal of attention. This led to a decision to adopt a more targeted approach for the 2014-2020 period; hence the agreement with the Greek authorities on a list of 18 very large projects which are emblematic for the reorientation of Cohesion policy in Greece.

Slovakia

37. In June 2018, CONT received information about allegedly fraudulent practices and blackmail in Slovakia, which the committee forwarded to the Commissioner. Which preventive actions took DG REGIO? Has the Commission an efficient action plan to prevent such situation in all Member States at risk?

As stated in an e-mail sent by Ms Creţu to the CONT Chair Ms Grässle on 12/10/2018, one case is not related to EU funding and the other one has been transmitted to OLAF which eventually decided not to open an investigation due to the lack of evidence and facts to support the suspicion. It appeared also surprising that the complainant took so many years to transmit his allegations.

The Honourable Member is also referred to the reply to question 40 below.

La Réunion

38. According to a public website (http://www.nouvelleroutedulittoral.re/financement/article/les-grands-chantiers-re%CC%81gionaux ) the EFRD will support the construction of “Une nouvelle Route du Littorale” on the island of La Réunion with EUR 331 million. Could the Commission provide the committee with a state-of-play of this project?

The New Coastal Road (in French, Nouvelle Route du Littoral or NRL), is a motorway under construction on the island of Reunion. This 12-kilometer long road over the sea has two times three lanes, including two lanes reserved for public transport.This major project consists of two dykes (1 km and 5.7 km) and a 5.4 km viaduct for an updated total cost of EUR 2.02 billion (the initial cost in 2011 was EUR 1.6 billion). The ERDF contribution is EUR 230 million, including EUR 80 million for the preliminary works (2007-2013 period) and EUR 150 million for the co-financing of the 5.4 km viaduct (2014-2020 period). The bulk of the work will be delivered at the earliest in 2021. To date, the total work done amounts to EUR 1.3 billion, and concerns in particular the installation of 42 pillars out of 48 (approximately 4 km of the complete foreseen viaduct over the sea).

Miscellaneous

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39. Could the Commission provide country-by-country data on how regional funds had been spent to improve security of public buildings? Which ex-ante and ex-post evaluations have been carried out in 2017 to check the accuracy of that spending?

The monitoring system for the ERDF does not allow the Commission to identify expenditure made specifically on the security of public buildings. Such investment was not identified as a specific EU priority for programme period 2014-2020.

For new public buildings supported (research centres, hospitals, schools, etc.,) it is likely that such costs are included in the overall building costs based on regional or national building guidelines. Collecting precise information on such a specific action (a marginal cost in a wider budget) would be a challenge, not least because of the administrative monitoring and reporting burden it would create on beneficiaries and public authorities.

40. The problem of fraud and corruption is highly relevant in some Member States. What action has the Commission carried out at regional level to fight these phenomena?

Under shared management the prevention, detection and investigation of fraud is primarily a responsibility of the national authorities. The Commission applies a ‘zero tolerance to fraud’ policy, as defined in its Joint Anti-Fraud Strategy for Cohesion Policy. Any suspicion of fraud or corruption detrimental to the EU financial interests is directly transmitted to OLAF for evaluation and independent decision to open an investigation.

OLAF investigative findings are formalised in a report addressed to the responsible authorising officer and can be accompanied by a recommendation to recover amounts unduly spent. REGIO has a clear procedure to immediately follow-up these recommendations, to hear the Member State's observations in a contradictory procedure and to decide on the appropriate action to take, including applications of the required financial corrections, thereafter.

Moreover, various actions and tools are put in place to support fraud prevention and detection in the Member States, under our Joint Anti-Fraud Strategy for Cohesion Policy.

The introduction of a regulatory requirement for managing authorities to conduct a fraud risk assessment and put in place proportionate and effective anti-fraud measures at the level of each operational programme is an additional obligation in the management and control systems for 2014-2020. To help Member States implement these new obligations, the Commission has published a guidance at the start of the programming period. The Commission has also proposed a risk scoring tool for free to the Member States. It can help prevent and detect over 100 types of risks when efficiently fed and used. The Commission promoted the guidance and the tool and has continuously raised awareness on anti-fraud / anti-corruption measures at the start of the 2014-2020 period by organising 12 seminars covering 14 Member States in 2014-2015 , led by the REGIO senior management in many cases to set the tone at the top on "zero tolerance for fraud and corruption". The Directorate General also participates in various seminars

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regularly organised in the Member States on anti-fraud policy where it continues promoting its specific guidance and tool on fraud risk assessment and moto for "zero tolerance".

A recent study ordered by the Commission covered a sample of 50 programmes co-financed by ESI funds to assess the effectiveness of these anti-fraud measures, It concluded that the measures put in place by Member States are overall proportionate to the risks identified, but also concluded on additional measures to be taken. According to the study, "Member States should develop their administrative capacities to prevent and detect fraud and corruption affecting cohesion funding, systematically and timely submitting and updating data in Arachne. The opportunities of existing and available data mining tools such as Arachne should be fully exploited using it as a risk scoring and detection tool to check in the award and grant process potential beneficiary companies, their beneficial owners and   business partners,  assess potential conflicts of interest and risks of double funding, identify red flags, and increase the  effectiveness and efficiency of management verifications."

In the context of the European semester of economic governance, all Member States are subject to ongoing assessments of their anti-corruption policy landscape and efforts. The Commission analyses the key challenges in annual country reports, where there are significant risks and gaps that act as obstacles for investment, efficient resource allocation, economic performance and growth. These assessments may also include issues identified at the regional level. The Cooperation and Verification Mechanisms in Romania and Bulgaria also allow the Commission to carefully monitor the overall governance in these Member States, with respect to preventing and countering corruption.

Finally the Directorate General has launched a detailed study on single bidding in public tenders in 10 Member States, an area that can be subject to fraud and corruption (see on this the replies to questions 14 and 15).

Other anti-fraud instruments to fight fraud and corruption include the Integrity Pacts to involve civil society in public procurement procedures and to increase transparency, Peer-to-Peer exchanges for sharing of experiences between Member States and programme authorities, and a guide for practitioners on how to avoid the most common errors in public procurement, an area subject to fraud risks.

41. Taking into account the results of 2017, how does the Commission intend to strengthen output and result indicators for the programming period post-2020?

The Commission proposal for the period post-2020 includes the following elements to adapt and strengthen the monitoring system:

- The setting of output and direct result indictors at the level of the specific objectives;

- Direct result indicators will relate to changes for the beneficiaries (outcomes) rather than policy result indicators (impacts);

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- The wider use of common indicators in order to cover gaps in the coverage by common indictors and to cover a greater volume of EU investment with common indicators;

- More frequent reporting of implementation and progress towards indicator targets;

- Clarify and improve the definitions of common indicators.

42. Will the Commission, for the programming period post-2020 make proposals to measure the “impact” of European financial assistance?

The Commission has, as part of the MFF package for post 2020, made proposals for the Commission to conduct a mid-term evaluation in 2024 and a retrospective evaluation in 2031. The Member States will also evaluate, based on evaluation plans, and produce an impact evaluation by June 2029.

The five evaluation criteria will be applied in the evaluations; effectiveness, efficiency, relevance, coherence and EU added value.

43. How will the Commission entice Member States’ investments in the areas of broadband, waste and renewable energy?

Broadband

Cohesion policy provides trough ERDF around EUR 5 billion for broadband investments. Additional support is provided by the European Fund for Strategic Investments (EFSI), the EAFRD and a new Connecting Europe Broadband Fund.

The Commission provided guidance to the managing authorities in the form of guides on broadband investments and related state aid issues, and setup in 2016 a network of Broadband Competence Offices (BCO) to provide legal, technical and financial guidance to project promoters and policy makers to support broadband deployment. The BCO network is supported by a Commission support facility (BCO SF), a dedicated office for support and facilitation between all the BCOs. The BCO support facility gives advice on EU rules and foster mutual learning among the BCOs, supports the network of BCOs by generating and sharing knowledge in the areas of funding, regulatory issues, good practices and training (State aid, technology neutrality and Finance). Finally, the Commission is currently carrying out a Rural Broadband Action Plan helping to address some of the challenges in bringing more broadband to the less populated areas of the EU.

Waste

For waste management, cohesion policy provides around EUR 5.5 billion of support through the ERDF and CF. In accordance with the Circular Economy Action Plan, the Commission has undertaken targeted outreach activities to assist Member States and regions in the uptake of cohesion policy funds.

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Renewable energy

As regards renewable energy, the current Directive on the promotion of the use of energy from renewable sources (Directive 2009/28/EC) establishes a legally binding national target for the share of renewable energy in gross final consumption of energy in 2020. The Commission monitors the progress towards the achievement of EU policy objectives through two main instruments: an indicative trajectory and a biennial progress reports. If the indicative trajectory is not met, the relevant Member State has to submit a revised NREAP.

For the future, the political agreement reached in June 2018 between the Parliament and the Council concerning the recast Renewables Directive will secure in a more comprehensive way investments in the sector of renewable energy in the European Union. Indeed, Member States will have to present an integrated national energy and climate plans. To reach the binding overall Union target of 32% share of energy from renewable sources in the Union's gross final consumption of energy in 2030, the Commission supports Member States through the establishment of an enabling framework comprising the enhanced use of Union funds including additional funds.

The policy objective is to ensure that market failures are addressed so that viable markets are created. Private funding sources should cover the bulk of investment in this area, complemented by public sources in cases of remaining funding gap. Member States and regions need to ensure that public funding does not replace but complements and leverages private investment.

The 2014-2020 cohesion policy funding accordingly complements national support frameworks, including a focus on investments in areas such as decentralised electricity production based on renewable energy and use of renewable energy sources in heating and cooling, strengthening the energy independence and contributing to growth in the regions. Around EUR 5 billion from the ERDF/CF have been allocated to renewable energy investments, and the Commission has undertaken targeted outreach activities to assist Member States and regions in the use of this funding.

44. Could the Commission please give the state-of-play of the 1999-2006 and 2007-2013 ERDF/CF closure?

2000-2006

All ERDF programmes are closed. Out of the 1 121 Cohesion Fund projects decided and implemented in the 2000-2006 period, there are 32 remaining projects to be closed. This has revealed not to be an easy task, due to different legal litigations with the Member State and disagreements on appropriate financial corrections to be implemented. In 2018, REGIO has already managed to close additional 10 projects compared to end of 2017 as reported in the 2017 AAR. REGIO expects decisive progress on closure based on the preparatory work undertaken so far. It aims to send all remaining closure letters for 2000-2006 Cohesion Fund projects this year, except for 6 projects blocked in national legal procedures. This should result in closure of between 4 to 16 projects by early 2019.

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2007-2013

In the 2007-2013 programming period, REGIO has supported 322 OPs in 28 Member States. The Directorate general has already closed/pre-closed two thirds of ERDF/Cohesion Fund programmes so far (220). This is the fastest closure ever from all previous programming periods.

From the remaining 102 programmes, around half (52) will receive either a pre-closure or closure letter with the corresponding EU final payment by the end of this year (2018).

For the remaining 50 programmes, the Directorate general's goal is to send all pre-closure/closure letters by the end of 2019, after having solved the open issues: requests for clarifications or for additional verifications; need to implement required or additional financial corrections; litigations on different irregularities. However these programmes will remain open and no final payment can be made, at least for the part at risk, until all open issues are solved.

45. In its replies to the ECA’s recommendations with regard to JASPERS (SR 1/2018) the Commission pointed to the necessity of involving the EIB in their implementation. What has the Commission done to ensure the implementation of these recommendations and to ensure the relevant involvement of the EIB in this implementation?

JASPERS Steering Committee (consisting of the Commission and the EIB) at its meeting of 1 June 2018 adopted the Action Plan to address all accepted recommendations of the ECA from Special Report no 1/2018. The plan is being implemented and specific deliverables will be reported at next Steering Committee meetings. The Commission has also launched mid-term evaluation of JASPERS that should be completed in 2019.

46. After the entry into force of the new Financial Regulation, can the Commission make a first evaluation of its implementation? What measures has the Commission taken to implement the Financial Regulation in the Member States and in the Regions?

The Financial Regulation has entered into force on 2 August 2018. While it is too early for the Commission to evaluate comprehensively the implementation of the new Financial Regulation, it is possible to refer to the following first elements. The Commission is giving priority to implementing the simplifications agreed for the beneficiaries (new forms of financing not linked to costs; increasing use of the lump-sums), for its implementing partners (updating the pillar assessment, start of the review of the FAFAs, implementation of the cross reliance on audits) as well as for the Member States (clarification of the Block exemption regulation on state aids in the case of unit costs). Staff has been trained on the new rules and contract models, and templates updated.

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Commission services will communicate relevant changes to the applicable provisions of the Financial Regulation for shared management to the programme authorities in the Member States at the occasion of the next technical meetings organised for them.

47. Can the Commission make a list of the ten success stories of the Centralized National Agencies and another with the ten success stories of the Decentralized Agencies?

Under shared management the set-up of the programmes' delivery systems is a decision taken by each Member State on the basis of several criteria, including the national institutional arrangements for the set-up of government, decentralised entities and respective administration, but also the geographical areas to be covered by the programmes and their specific needs, or the administrative costs entailed to fulfil all requirements. This is a Member State decision.

At this stage the Commission is not in a position to provide a detailed answer to the Honourable Member, as it is not clear if the question refers to the efficiency of the functioning of management and control systems put in place by the programme managing authorities, to overall performance or to successful projects co-funded at central or decentralised levels, and whether in a specific or in all Member States.

The Commission will be happy to provide a more detailed reply upon clarification of the points above.

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