Select Committee on European Scrutiny Eleventh Report


COM(01) 602

COM(01) 24

COM(01) 539

COM(01) 378


Annual Report on the Cohesion Fund (2000).

Second Commission report on Economic and Social Cohesion.

Twelfth annual report from the Commission on the Structural Funds (2000).

Communication from the Commission to the Council, the European
Parliament, the Economic and Social Committee and the Committee of the
Regions on the results of the programming of the Structural Funds for
2000­2006 (Objective 1).

Special Report 10/2001 produced by the European Court of Auditors
concerning the Financial Control of the Structural Funds.

Legal base:
Document originated:(a) 22 October 2001
(b) 31 January 2001
(c) 3 October 2001
(d) 5 July 2001
(e) —
Forwarded to the Council: (a) 24 October 2001
(b) 7 February 2001
(c) 3 October 2001
(d) 6 July 2001
(e) 20 September 2001
Deposited in Parliament: (a) 26 November 2001
(b) 26 February 2001
(c) 13 November 2001
(d) 3 August 2001
(e) 15 October 2001
Department:Trade and Industry
Basis of consideration: (a) EM of 6 December 2001
(b) EM of 8 March 2001
(c) EM of 21 November 2001
(d) EM of16 October 2001
(e) EM of 14 November 2001
Previous Committee Report: None
To be discussed in Council: None planned
Committee's assessment:Politically important
Committee's decision:(All) Cleared


  12.1  The declared aim of the Community's regional policy is to stimulate economic activity in the less­favoured regions so that all regions and their citizens can take full advantage of the single market and economic and monetary union.[17] The European Union uses four Structural Funds through which it channels financial assistance to address structural economic and social problems in order to reduce inequalities between different regions and social groups: the European Regional Development Fund (ERDF); the European Social Fund (ESF); the European Agricultural Guidance and Guarantee Fund (EAGGF); and the Financial Instrument for Fisheries Guidance (FIFG). In addition to the four Structural Funds, the Cohesion Fund provides structural assistance to the four least-developed Member States (Portugal, Spain, Greece and Ireland) by financing projects concerning the environment or transport infrastructure.

  12.2  Resources under the Structural Funds are allocated on the basis of programming periods: the previous programming period ran from 1994 to 1999; the present period is 2000­06. Financial assistance, which is provided in the form of non­refundable grants, is channelled in three ways: Objective Programmes (94%); Community Initiative Programmes (5.35%); and Innovative Measures (0.65%). Programmes are managed by designated authorities in the Member States, whereas innovative measures are managed by the Commission itself. The Cohesion Fund was established in 1994 to support large-scale transport and environment projects in Member States with GNP of less than 90% of the Community average. In the first programming period (1993-1999), the Cohesion Fund provided 15.15 billion ecu (at 1992 prices) over the period.[18] The Cohesion Fund helped these countries to meet the requirements of Community Environmental Directives and develop transport projects of common European interest, the latter forming part of, or connecting with, Trans-European Networks (TENs). The new programming period covers 2000-06.[19]

The documents

  12.3  Document (a) provides details of the allocation of funding from the Cohesion Fund to the four recipient Member States for 2000, the first year of operation of the Fund under the 2000-2006 programme. The budget available to the Cohesion Fund for 2000 was _2,659 million, of which the transport sector accounted for 53.8% and the environment for 46.2% of commitments. The allocation of commitment appropriations to Member States was as follows: Spain _1,601 million (60.3%); Portugal _451 million (17%); Greece _436 million (16.4%); and Ireland _170 million (6.4%). The total payment appropriations for 2000 were _1,685 million, of which transport accounted for 48.1% and the environment 51.9%. The allocation of payment appropriations to Member States was as follows: Spain _1,137 million (67.5%); Portugal _116 million (6.9%); Greece _302 million (18 %); and Ireland _127 million (7.6%). As regards fraud and irregularities, the Anti-Fraud Office carried out no investigations concerning the Cohesion Fund during the year. However, the Spanish authorities notified two cases of irregularities during the year, bringing the total to seven notifications since 1994.

  12.4  In order to benefit from continued assistance from the Cohesion Fund, Member States must avoid excessive deficits in accordance with the requirement of Article 104 of the Treaty.[20] According to the Commission's assessment, none of the Member States concerned was in an excessive deficit position in 2000. The eligibility of Member States will be re-examined before the end of 2003 in the light of updated GNP levels.

  12.5  Document (b) is the Commission's second report on Economic and Social Cohesion. The Commission is required under Article 159 of the Treaty to submit such a report every three years on the progress made towards achieving economic and social cohesion and on the manner in which the various means (including different Community policies) provided for in that Article have contributed to it.

  12.6  The first part of the report analyses changes in economic and social differences between Member States, regions and social groups, and the factors underlying regional performance. The second part describes how Community policies other than structural policies have contributed to cohesion, and the third part describes how the EU budget contributes to cohesion. The report concludes by identifying priorities for cohesion and discussing suggestions for changes to the current mechanisms. The priorities identified are:

    "—  the least developed regions;

    —  the urban question;

    —  diversification of rural areas;

    —  cross­border, transnational and interregional co­operation;

    —  areas undergoing industrial restructuring;

    —  areas with severe geographical or natural handicaps;

    —  more and better jobs;

    —  supporting the 'New Economy and the 'Knowledge Society ;

    —  promoting social inclusion; and

    —  equality of opportunity."

  12.7  The Commission will set out proposals for a new cohesion policy to take effect from 1 January 2007.

  12.8  Document (c) describes how the Structural Fund Regulations, particularly in relation to Objectives 1, 2, 3 and the Community Initiatives, were implemented during 2000. The report also describes developments in the current programming period, 2000­2006, in particular the adoption of the programming documents and the start of the programming period. It includes chapters on:

    —  the major events of 2000;

    —  implementation of programming in the Member States;

    —  evaluation and financial control; and

    —  dialogue and information.

  12.9  The report indicates how many Community Support Frameworks, Single Programming Documents and Operational Programmes were adopted during 2000 for each of the three Objectives. It also describes the guidelines adopted by the Commission for four Community Initiatives.

  12.10  Document (d) gives the Commission's assessment of the progress made and the difficulties that remain in the Objective 1 portion of the current Structural Funds programme (2000-06). The Commission considers that the 2000-06 programming period offers fresh challenges and opportunities for the objective 1 regions. The Report concludes that:

    —  significant progress in convergence is expected, particularly in the least developed regions;

    —  better-quality plans with some important strategic adjustments were developed as a result of the negotiations with the Commission; and

    —  improvements to the system of implementation should be consolidated.

  12.11  The report also outlines certain difficulties, including:

    —  the period for negotiating programming documents proved to be too short; and

    —  some detail, especially on the new system for management, surveillance and monitoring, remains to be specified.

  12.12  Overall, the Commission concludes that the mid-term evaluation of the programmes will show the quality of the programming and will help the Commission draw up lessons for new Member States and for the next generation of structural funds programmes after 2006.

  12.13  Document (e) is a special report produced by the European Court of Auditors (ECA) and concerns the implementation of two Regulations, both of which aim to improve financial control of the Structural Funds. The first, (EC) No 2064/97, sets out a system of checks by Member States on expenditure incurred on projects co-financed by the EU; the second, (EC) No 168 1/94, introduced a system of communicating information on detected irregularities by the Member States to the Commission. The special report also includes the Commission's replies. In his Explanatory Memorandum of 14 November the Minister for Employment Relations and the Regions (Mr Alan Johnson) outlines several of the criticisms of the Commission and Member States contained in the Report. The Minister says:

    "The Commission was criticised for not carrying out a detailed review of the implementation of these Regulations by Member States (Para 30), and for not providing them with adequate guidance (Para 35). The Commission was advised to issue urgent advice to Member States on the adequacy of checks and outputs (Para 61).

    "The Commission was also criticised for not grading types of risks and for not clarifying the position of the 5% checks on expenditure required by Regulation 2064/97 for that part of the financing period, 1994-1999, preceding the introduction of the regulation. The UK, like other Member States, introduced the 5% checks in 1998 (Para 79). Only at a Commission presentation at the Homologues Group for Financial Control Organisations (Berlin 10/10/2000) did they state that the regulation 'does not apply retroactively'.

    "The Commission was further criticised for incomplete data on irregularities reported between 1998 and 2000 under Regulation 168 1/94 when a new computer system was being installed (Para 91).

    "The ECA went on to say that the Commission should examine the operation of systems for detection and communication of irregularities and monitor them; that they should provide effective and cohesive control and reporting systems (Para 131), and should have sufficient resources to fully assess compliance with the Regulations (Para 30) (and see also Summary Para III).

    "In its response, the Commission recognised many of these problems. They were in part addressed in the new Structural Funds General Regulation (EC) 1260/99 which applies to the new financing period 2000­2006. This regulation has been supplemented by new subsidiary regulations which cover Management and Control Systems for Assistance granted under the Funds (EC) No 438/2001, which replaces Regulation 2064/97, and procedures for making financial corrections (EC) No. 448/2001. The UK is fully supportive of these new measures, which are aimed at increasing openness and transparency whilst retaining a necessary measure of control of EU funds."

  12.14  As regards ECA criticisms of the UK, the Minister notes that:

    "The report was critical of the way Regulation 2064/97 was implemented in Scotland and by the former Department of Education and Employment, as the ECA found that the checks on expenditure were on the operation of systems rather than substantive checks of individual project expenditure (Para 66). Corrective action has been taken to address this criticism. The ECA also thought the practice of correcting irregularities by reducing grant without referral to the Commission led to an imbalance of information under Regulation 168 1/94.

    "There were other criticisms of the UK set out in Annex 2 of the Report:

      "—  There was a lack of national monitoring and definition as to how bodies, Departments and the Devolved Administrations interpret 'irregularities'. Response — Since the audit the DTI has produced a definition of 'irregularities'.

      "—  There were no completeness checks or analysis by DTI as the co­ordinating body regarding which Departments and regions are submitting irregularities. Response — This is not correct. DTI maintains a database of all irregularities submitted to the Commission by region, Department and Devolved Administration. It follows these up to ensure that a complete history of each irregularity has been notified. There is also regular advice to Departments and the Devolved Administrations concerning the requirements of the Regulation.

      "—  Irregularities were restricted to grants paid only and some had been corrected without communicating. Response — There are reported cases of irregularities which do not relate to grants paid. The advice provided by the DTI on the definition of irregularities should ensure that in appropriate cases corrected irregularities are reported.

      "—  The authority responsible for ERDF in England was unable to provide a full list of irregularity cases '... it deleted closed cases ... once they were resolved.' Response — This is not correct. The UK does not delete closed cases and can provide the information required.

      "—  Absence of important details on the irregularity forms submitted to OLAF[21] made any meaningful analysis of the information difficult. Response — All notifications submitted to OLAF are on their standard pro­forma. However due to the complexity of the pro­forma and the lengthy guidance on its completion which gave rise to errors, data is collected on a simpler nonstandard UK pro­forma and transposed to the OLAF pro­forma by DTI. We are not aware of any lack of important details and OLAF have not reported this.

    "Overall the report highlights areas of weakness both within the Commission and in individual Member States. The UK accepts some of the criticisms directed towards it were valid at the time of the audit, but steps have been taken to correct weaknesses in our systems. The UK believes that the higher number of irregularities now being reported is not an indication that the system is failing but rather an indication that we are now detecting more irregularities and taking remedial action.

    "A new OLAF electronic communication and information database has been designed to take account of the information needs of the Commission and Member States (Para 93). It is due to come on­line by the end of 2001 and will provide electronic communication and access. This will go a long way towards improving the reporting and analysis of irregularities."

The Government's view

  12.15  In the Government's view, none of the documents have any direct policy implications. As regards document (a), the Minister says "the final evaluation of the 94-99 programming period should be available in 2002, when all the money committed has been spent."

  12.16  In respect of the Second Report (document b), the Minister says that:

    "EU enlargement will obviously have substantial consequences for the SCF after 2006. The Government sees some of the ideas for reform set out in the conclusions of the report and in particular the questions for debate as a useful basis for discussion about the role of EU regional policy in the future, though it is disappointing that the report does not address some fundamental questions about the role and effectiveness of the SCF which are raised by the forthcoming enlargement."

  12.17  As regards document (c), the Minister says that the Government welcomes the report's emphasis on evaluation and value for money and will continue its efforts to secure improved effectiveness and value for money from the Structural Funds throughout the EU. On document (d), the Minister says that it

    "contains much with which the Government agrees. In particular, the document recognises that reform places responsibilities on both the Commission and the Member States. The emphasis on monitoring, evaluation and financial control address UK concerns. All taxpayers in the Community need to be persuaded that Structural Funds represent value for money."

  12.18  In respect of document (e), the Minister says that the Government takes

    "the business of ensuring adequate financial controls for the Structural Funds very seriously. We are working with the Commission, particularly their anti­fraud unit OLAF, and other Member States to improve the detection and reporting of irregularities, and placing increasing emphasis on monitoring, evaluation and financial control."


  12.19  Taken together these documents provide a long and comprehensive account of various aspects of the Structural Funds and Cohesion Fund. While they contain no legislative proposals, they put into context the various activities related to these funds, which is especially helpful at the start of a new programming period and in the run-up to enlargement.

  12.20  The UK has an obvious interest in ensuring that the Structural Funds and Cohesion Fund are effective. The previous Committee called upon the Government to ensure that the eligibility criteria for the Cohesion Fund are applied strictly, especially when the mid-term review takes place by the end of 2003. We reaffirm that view. Meanwhile, we clear the documents.

17 Back

18   This is approximately £14 billion in 2001-02 prices.  Back

19   The Cohesion Fund regulations for 2000 to 2006, which are now in force, were debated on 23 March 1999 in European Standing Committee C. Back

20   Council Regulation (EC) No 1164/94.  Back

21  European Anti-Fraud Office. Back

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