Project level irregularities and deductions

Teema: FW: Irregularities From: [email protected] <mailto:[email protected]> [mailto:[email protected] <mailto:[email protected]> ] Sent: Tuesday, June 26, 2018 12:06 PM To: Zanda Mangule <[email protected] <mailto:[email protected]> > Cc: Līga Lāce <[email protected] <mailto:[email protected]> >; Sandra Vilciņa <[email protected] <mailto:[email protected]> >; [email protected] <mailto:[email protected]> Subject: RE: About irregularities Dear Zanda, As promised I have accelerated the process for legal interpretation of your question below. Please apologise this long lasting procedure. Hereby please find the provided interpretation: (a) The notion of 'irregularity' as defined in Article 2(36) CPR An irregularity in the meaning of Article 2(36) CPR requires three cumulative conditions to be met: It must: - be a breach of EU or of national law relating to its application, - done by an economic operator involved in the implementation of ESI funds, - have or would have the effect of prejudicing the budget of the Union by charging an unjustified item of expenditure to the budget of the Union. Irregularities in the meaning of Article 2(36) of the CPR may be corrected at the following stages: * When the breach of the rules is detected before any payment is made to the beneficiary and before the corresponding expenditure is declared to the Commission. * When the breach is detected after a payment was made to the beneficiary (with national funds), but before the corresponding expenditure is declared to the Commission. * When the breach is detected after the expenditure is declared to the Commission but before it is reimbursed by the EU budget. * When the breach is detected after the payment is made to the beneficiary and after the corresponding expenditure is declared to the Commission and reimbursed by the budget of the EU. * When the breach is detected after the certified accounts in which the corresponding expenditure is included are sent to the Commission, (b) Consequences: On the basis of Article 125(4)(a) CPR the MA shall verify that the co-financed products and services have been delivered and that expenditure declared by the beneficiaries has been paid and that it complies with applicable law, the operational programme and the conditions for support of the operation. Therefore, as soon as an irregularity is detected, the Member States must investigate it and apply financial corrections and recoveries required. The consequences to be drawn from irregularities, within the meaning of Article 2(36) of the CPR are defined in both Articles 122 and 143(2) CPR: - In accordance with Article 122(2) first subparagraph CPR Member States shall prevent, detect and correct irregularities and shall recover amounts unduly paid (together with any interest on late payments) and notify the Commission of irregularities that exceed EUR 10 000 in contribution from the Funds. The second subparagraph enumerates the cases where notification to the Commission is not required. - In accordance with Article 143(2) CPR Member States must make the financial corrections required in connection with individual or systemic irregularities. It also lays down that "financial corrections shall consist of cancelling all or part of the public contribution to an operation or an OP". It further indicates that Member States shall take into account the nature and gravity of the irregularities and the financial loss to the Funds or the EMFF and shall apply a proportionate correction. Article 143(2) CPR requires furthermore that "financial corrections shall be recorded in the accounts for the accounting year in which the cancellation is decided". The above mean that Article 143(2) CPR only refers to expenditure which has already been included in payment applications submitted to the Commission. Therefore, corrections that Member States undertake before declaring the related expenditure to the Commission are not financial corrections within the meaning of Article 143(2). (c) Conclusion: The reuse of resources Any corrections made by the managing authority before including expenditure in a payment application to the Commission is not a financial correction within the meaning of Article 143(2) CPR and the resources can therefore be reused for the same operation. If there is a financial correction within the meaning of Article 143 (2) CPR, i.e. a cancellation of part or the entire public contribution to an operation, the reuse of funds in the same operation is not possible. I am available for your possible questions and stay With kind regards, Beate Grajnert Programme Manager European Commission DG REGIO Unit D.2 'Interreg / Cross-Border Cooperation / Internal Borders' BU1 02/122 Brussels Tel. +32 2 29 98279 Any views or opinions presented in this email are solely those of the author and do not necessarily represent those of the Commission. From: Sandra Vilciņa [mailto:[email protected] <mailto:[email protected]> ] Sent: Wednesday, May 23, 2018 3:40 PM To: GRAJNERT Beate (REGIO) Cc: Zanda Mangule; Līga Lāce Subject: FW: About irregularities Dear Beate, As agreed during phone conversation, I am sending handbook on irregularities and also our e-mail to the EC with question about “irregularity” definition. Kind regards, Sandra Vilciņa Senior Expert Ministry of Environmental Protection and Regional Development Development Instruments Department Latvia – Lithuania Programme Division Doma laukums 8a, 5th floor, Riga LV-1050, Latvia Phone: +371 67026482 E-mail: [email protected] <mailto:[email protected]> From: Sandra Vilciņa Sent: Tuesday, August 8, 2017 10:26 AM To: '[email protected]' <[email protected] <mailto:[email protected]> > Cc: Zanda Mangule <[email protected] <mailto:[email protected]> >; Līga Lāce <[email protected] <mailto:[email protected]> > Subject: About irregularities Dear Karen, We are formulating Programme’s procedure on detecting and reporting irregular expenditure and would like to clarify the definition of irregularity, namely when ineligible expenditure can be classified as irregularity and therefore also Article 143 of CPR should be applied. In 2016 INTERACT provided explanation that only those ineligible expenditure which have been declared to the European Commission are considered as irregularities and thus only in these cases Article 143 of CPR should be applied. But we got confused after getting acquainted with OLAF’s draft handbook where it is indicated “An irregularity does not need to have resulted in ineligible expenditure being declared by the Member State to the Commission as eligible. Even if it is detected before related expenditure is declared to the Commission as eligible, it is an irregularity, since it ‘would have’ prejudiced the EU budget if it had not been detected” (page 15) because it changes understanding in core (especially in light of Article 143 (2) of the CPR as it would lead to more often reduction of ERDF subsidy granted to projects). Thus, in order to avoid confusion and incorrect application of the CPR requirements we would be grateful to receive European Commission’s explanation when ineligible expenditure should be classified as irregularity: 1. after they are included in the statement of expenditure that is submitted to the European Commission; 2. all ineligible expenditure are irregularities irrespectively at which stage they are detected and corrected (even before inclusion of the ineligible expenditure in a statement of expenditure submitted to the European Commission – when financial controllers, MA or CA during progress report checking in 100% excludes some incorrectly reported costs or in the result of applied financial correction excludes some % of reported costs). According to understanding of term “irregularity” so far, ineligible expenditure deducted before declaring them to the European Commission are not considered as irregularity and therefore are not registered at MA level and also Article 143 is not applied. Sandra ________________________________ Käesolev e-kiri võib sisaldada asutusesiseseks kasutamiseks tunnistatud teavet. Kui te ei ole selle kirja adressaat, palun võtke ühendust saatjaga ning kustutage e-kiri arvutist. This e-mail may contain information which is classified for internal use. If you are not the intended recipient of this message, please notify the sender immediately and delete the message. ________________________________ Käesolev e-kiri võib sisaldada asutusesiseseks kasutamiseks tunnistatud teavet. Kui te ei ole selle kirja adressaat, palun võtke ühendust saatjaga ning kustutage e-kiri arvutist. This e-mail may contain information which is classified for internal use. If you are not the intended recipient of this message, please notify the sender immediately and delete the message. Simona Pohlova Directorate-General Regional and Urban Policy European Commission [email protected] Ours 13.09.2023 no 11.1-13/23/2998-1 Project level irregularities and deductions Dear Ms Pohlova, The Managing Authority of Interreg VI-A Estonia-Latvia Programme (the Programme) turns to you with a question regarding the legal certainty on the approach of public procurement related irregularities that are discovered before certification and deductions of project budget. When Control Body (controller) discovers a breach of public procurement rules during management verification, the costs of public procurement contract are considered proportionally ineligible by the rules of the Common Provisions Regulation (EU) No 2021/1060 and the Programme. These costs must be deducted from eligible costs of a project. In case these ineligible costs of a project are not certified neither in the Programme level nor to the European Commission: 1. can the beneficiary reuse the amount of ineligible costs of this specific procurement to reuse the support for other activities in the same project? or 2. considering that the breach is related to the procurement as an irregularity and therefore cannot be remedied retrospectively – should the Managing Authority deduct the support (e.g., in a form of financial correction), decrease the project budget and ensure that the support cannot be re-used for the same project? The funds would become available for other projects on the Programme level. The Procedure for making financial corrections in the Estonia-Latvia Programme 2021-2027 states that: Not following legal acts about procurement is always irregularity because it cannot be remedied retrospectively. This is practice that is used in Estonia entirely for all structural funds including the Programme. According to the understanding of Estonian authorities the abovementioned option 2 is supported by the practice of European Court of Justice – cases C545/21 and C743/18. The summary of these decisions is that any violation from the point of view of the principles and conditions of the use of EU funding, including on the basis of the rules of the grant programme, is such a violation that may be accompanied by withdrawal or reduction of the Lõkke 4 / 10122 Tallinn / 663 8200 / [email protected] / www.rtk.ee / Registrikood 70007340 grant, i.e. financial correction. From here on, however, the Common Provisions Regulation applies, which clearly stipulates that in case of a financial correction, the funds cannot be used in the same project. A reduction or withdrawal of costs by controllers is nothing more than a financial correction within the meaning of the Common Provisions Regulation and shall be followed by the managing authority’s financial correction decision with reduction of the budget of the project. The practice in Latvia differs, they use option 1 that is described above, meaning that the practice varies by Member States where the Programme is implemented. Latvian practice is based on consultation with the European Commission that took place in 2017/2018, where the European Commission explained that Article 143(2) of the Common Provisions Regulation (EU) No 1303/2013 only refers to expenditure which has already been included in payment applications submitted to the Commission. Therefore, corrections that Member States undertake before declaring the related expenditure to the Commission are not financial corrections within the meaning of Article 143(2). The European Commission concluded that any corrections made by the managing authority before including expenditure in a payment application to the Commission is not a financial correction within the meaning of Article 143(2) of the Common Provisions Regulation (EU) No 1303/2013 and the resources can therefore be reused for the same operation. If there is a financial correction within the meaning of Article 143 (2) of the Common Provisions Regulation (EU) No 1303/2013, i.e., a cancellation of part or the entire public contribution to an operation, the reuse of funds in the same operation is not possible. The exchange of e-mails is annexed to the letter. We kindly ask the European Commission the official position as the legislator on the use of both option 1 and option 2. Yours sincerely, (signed digitally) Ege Ello Head of the Managing Authority Interreg VI-A Estonia-Latvia Grants Development Department Annex: E-mail of Irregularities Additional recipients: Ministry of Environmental Protection and Regional Development of the Republic of Latvia Ministry of Regional Affairs and Agriculture of the Republic of Estonia Külli Kaare [email protected]