Dealing with irregularities_ recoveries and financail corrections by hcj

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									            Communities & Local Government ERDF User Manual
                    DRAFT Chapter 15 Irregularities
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                           Chapter 15

                         Irregularities




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                                       Contents

Introduction                                                     page 4

Section 1
Summary Note (key points)                                        page 5

Section 2
What is an Irregularity?                                         page 8
When Should an Irregularity be Recorded                          page 9
Recording Irregularities                                         page 10
Flat-rate financial corrections (non-financial irregularities)   page 10
Closing Irregularities in Advance of Programme Closure           page 11
Managing Expenditure Declared to the EC                          page 11
Irregularities Arising from Inspections/Audits                   page 12
Revising the Grant Offer Letter                                  page 12
Repayment of ERDF - by the Project (grant recipient)             page 12
Re-Cycling ERDF grant                                            page 13
'Departmental' Error                                             page 13


Section 3
Reporting and Managing Irregularities                            page 15
Initial Reporting                                                page 16
Follow-up Reports (quarterly updates)                            page 18
Using NIFF to Track Financial Corrections                        page 19
End of December Quarterly Report                                 page 19
Bankruptcy/Liquidation                                           page 20
Special (Write-off) Report to the Commission                     page 20
Suspected Fraud                                                  page 21
Contacts at CLG                                                  page 22




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  Annex A     SFIR reporting form
  Annex B    SFIR guidance
  Annex C    NIFF (form for tracking financial corrections)
  Annex D    NIFF guidance
  Annex E    Exemptions from reporting
  Annex F    Methods of detection & types of irregularity
  Annex G     GO record of irregularity cases - minimum details
  Annex H     Flat-rate financial corrections (non-financial irregularities)
  Annex I     Flat rate corrections for non compliance with procurement rules




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Introduction

1.        This chapter explains how to manage, record and report irregularities for the
          2007-2013 round of programmes so as to comply with EC regulations1 and
          CLG policy. It does not apply to the current round of programmes 2000-
          2006 for which Regulation 2035/05 and 1681/94 are still extant.

2.        The chapter also explains the irregularities action to be taken in preparation
          for programme closure.

3.        Failure to comply with the regulations could result in England as a whole
          incurring serious financial penalties.

4.        Queries on ERDF irregularities should be addressed to Earl Hines at CLG -
          earl.hines@communities.gsi.gov.uk




1
    Articles 27 – 36 of Regulation 1828/2006

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Section 1 - Summary note (key points)


5.    This chapter is to be used only for the 2007-2013 ERDF programmes and not
      for earlier rounds of structural fund programmes.

6.    All RDAs must have a dedicated irregularity co-ordinator. This person will
      oversee the management and closure of irregularities and will be CLG's initial
      point of contact.

7.    RDAs should ensure that Article 42 bodies are made aware of this Chapter.

8.    It is the responsibility of the RDA to ensure that all irregularities are resolved
      in a timely manner and all irregularities must be concluded by programme
      closure. Action must be taken to follow-up and correct all recorded
      irregularities quickly, recovering grant where appropriate and taking steps to
      ensure the irregularity is not repeated.

9.    An irregularity is any administrative or financial mismanagement that comes
      about either by act or by omission and includes errors identified and
      corrected before grant is paid.

10.   Where grant is recovered from a project either via a repayment or clawback
      from a subsequent grant claim the amount of the ineligible expenditure
      involved must be deducted from the value of the project as set out in the offer
      letter. The offer letter should be amended to reflect the change. If there are
      circumstances that point to this action not being taken RDAs must discuss
      with CLG before proceeding.

11.   An irregularity should be recorded (and when appropriate, reported to CLG)
      once it has been identified and a formal written assessment has been made
      based on facts indicating that an irregularity has occurred. This is without
      prejudice to the possibility that the eventual outcome may be a revision to or
      cancellation of the case.

12.   RDAs must maintain an audit trail for all irregularities which makes clear what
      action has been taken and why in each case. To this end RDAs should
      maintain a single database or spreadsheet to record details of all ERDF
      irregularities using the template given in Annex G.

13.   Non-financial irregularities - the EC guidance at Annex H should be used to
      consider cases where a flat-rate correction may be required. The guidance
      describes how the EC would apply financial corrections to the member state
      but the RDA should apply the same principles to all non-financial
      irregularities.

14.   Concluded cases - this is where the ineligible amount has been excluded
      from the declaration of expenditure made to the EC. However, the irregularity
      remains a RDA/CLG liability and cannot be completely 'closed' until all the

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     issues have been resolved, including any write off or repayment of grant.

15.   Un-concluded cases - this is where the irregular amount has been left in the
      declaration of expenditure (still impacting on the EC budget), pending further
      investigation by the RDA or, exceptionally, because a decision has been
      made by the RDA to request the EC to accept the loss (write-off).
16.   Once the amount of an irregularity is confirmed a Notification of Irregular
      Funding Form (NIFF) - see Annex C - should be prepared and used to track
      recovery.

17.   All irregularities with an ERDF grant value of €10,000 (the reporting
      threshold) or more, must be reported to CLG by the RDA, using the
      Structural Funds Irregularities form (SFIR).

18.   The SFIR form is at Annex A. Instructions on the completion of the SFIR are
      at Annex B. For Article 42 bodies irregularities above the €10,000 threshold
      should be reported to the RDA using the SFIR or similar document (format to
      be agreed between the RDA and Article 42 body).

19.   Completed SFIRs from RDAs (for all reportable cases) should be sent by
      email to:     earl.hines@communities.gsi.gov.uk. A copy must be retained by
      the RDA. DBERR (formerly DTI) coordinates and submits all returns on
      irregularities to the EC's anti fraud unit - OLAF. But RDAs should not send
      SFIRs directly to DBERR. Any queries on irregularities should also be
      addressed to Earl Hines in CLG.

20.   If the incorrect SFIR form is used or if the details are incomplete when
      received in CLG it will be returned to the RDA for correction.

21.   Suspected Fraud is where an irregularity is thought to be intentional. CLG
      Internal Audit Service (Branch 3) should be contacted for further advice (Jim
      Phillips 020 7944 6556: GTN 3533 6556 or by email -
      Jim.phillips@communities.gsi.gov.uk).

22.   The following annexes are attached.

      Annex A Structural Funds Irregularities Report form - SFIR.

      Annex B Instructions for the completion of the SFIR.

      Annex C is the Notification of Irregular Funding Form (NIFF) which should
       be used to confirm the financial correction and track it from the point it is fully
       quantified to the point of full recovery; providing a clear audit trail.

      Annex D is NIFF guidance.

      Annex E lists instances where irregularities above the threshold (€10,000)
       do not have to be reported to OLAF (not to CLG in the first instance, using
       SFIR).


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     Annex F is about the method of detection and the types of irregularity. This
      information is captured by Section 3.1 of the SFIR.

      Annex G gives the headings to be used by all RDAs in their single
       database/ spreadsheet for the recording of irregularities.

      Annex H is guidance on how to apply flat-rate financial corrections to non-
       financial irregularities.

      Annex I is guidance issued by the Commission on procurement and flat
       rate corrections




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                                       Section 2

                              What is an irregularity?
23.     The EC definition of an irregularity given in EC Regulation 1083/20062 is

            “any infringement of a provision of Community Law resulting from an act
            or omission by an economic operator, which has, or would have, the effect
            of prejudicing the general budget of the Communities by charging an
            unjustified item of expenditure to the general budget”.

24.     However, the content of EC Regulation 1083/2006 and 1828/20063 and
        documents produced by the EC for the 2000-2006 round of programmes
        make it clear that any failure to comply with the regulations and any
        breakdown of management and/or control systems may be treated as an
        irregularity whether or not the irregularity itself involves any loss or potential
        loss of funds.

25.     In applying this to the management of ERDF projects and considering the
        wide definition of the requirements (which includes both administrative and/or
        financial mismanagement) we must take irregularity as meaning any breach
        of the conditions of grant set out in the terms of the ERDF grant offer letter.
        Such breaches will include action on the part of those receiving grant or
        failure by them to take action where third parties are involved. It is also an
        irregularity if the managing/certifying authority fails to comply with any of the
        EC regulations.

26.     This means an irregularity could arise from any of the following (not an
        exhaustive list) -

        a       an incorrectly calculated grant claim received by the RDA which is not
                corrected before payment is made;

        b       an incorrectly calculated grant claim received by the RDA, detected
                and corrected by the RDA before payment is made. This would be
                recorded but not reported, even where it is over €10k 4;

        c       evidence gathered at an inspection/audit/monitoring visit (including
                those carried out by EC/ECA and others) indicates that items of
                ineligible expenditure have been included in the calculation of a grant
                previously claimed and paid;

        d       evidence that a project has failed to implement the EC‟s requirements
                on publicity or procurement;

        e       lack of supporting documentation, no evidence of, or inappropriate
                evidence;
2
  Article 2
3
  Articles 27 - 36
4
  Article 28(2)(c)

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       f       match funding and the grant awarded not being used for the purposes
               intended;

        g      evidence that an Article 42 body has not set up adequate systems to
               control and monitor the grant awarded to their projects;

        h      qualified auditor/accountant statement of grant expenditure received
               for a project.

27.     Normal management of ERDF business provides plenty of mechanisms for
        identifying and reporting irregularities including:

        a Article 135 monitoring visits carried out by the RDA;

        b Article 166 inspections carried out by the Audit Authority;

        c   Detailed checking of claims, transaction check lists and progress reports
            where previously paid claims are found to include ineligible expenditure;

        d Referrals to CLG for potential Internal Audit Service involvement/
          investigation arising from local knowledge (press, members of the public,
          whistleblowers, etc);

        e Audit reports from EC/ECA, external auditors such as NAO, and other
          sources.

When Should an Irregularity be Recorded?
28.     The regulation requires the recording of all irregularities (and the reporting of
        those where the ineligible grant is above €10,000 or where for the same
        project smaller irregularities accumulate to this figure or above) when 7,

            "..a first written assessment by a competent authority, either administrative
            or judicial, concluding on the basis pf specific facts that an irregularity has
            been committed, without prejudice to the possibility that this conclusion
            may subsequently have to be revised or withdrawn as a result of
            developments in the course of the administrative or judicial process."

29.     An irregularity exists from the point a written statement has been issued
        reporting the fact that an irregularity has been identified. This is irrespective
        of whether the outcome may change once action on it via inspection, follow
        up and the response from the grant recipient etc have been completed.
        Examples of a written statement could be a RDA internal report (e.g. from the
        monitoring team to the Secretariat), or a letter to the grant recipient.

30.     However there may be circumstances where RDAs will wish to use discretion
5
  Article 13 of Regulation 1828/2006
6
  Article 16 of Regulation 1828/2006
7
  Articles 27 and 28 of Regulation 1828/2006

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     about when to record an irregularity. An example would be where a grant
     recipient confirmed the existence of, but was unable to provide, the
     appropriate documentary evidence to support expenditure during an initial
     visit. In such circumstances it will be for the RDA to judge whether to give the
     grant recipient time to supply the necessary documentation before recording
     an irregularity. If the RDA takes this action, a strict deadline must be set for
     the grant recipient to comply after which the irregularity should be recorded
     and appropriate action taken. In all but the most exceptional cases it is
     inadvisable to allow the grant recipient more than a couple of weeks to
     supply documentation in these circumstances.

Recording Irregularities
31.   Once confirmed by written statement, all irregularities must be recorded. This
      should be done on a single database or spreadsheet containing at least the
      information set out in Annex G.

32.   This comprises - separately for concluded cases and un-concluded cases -
      the name of the applicant organisation, the name of the project, project
      reference number and priority axis, value of ineligible expenditure - showing
      separately the ERDF grant, public and private match - all shown in both
      sterling and Euros, how the irregularity was discovered, the type of
      irregularity, date of discovery/when recorded, details of action taken and
      dates and for concluded cases - details of how the case was closed, the
      amount of grant recovered, if any (sterling and Euro), and whether recycled
      or repaid to the EC.

33.   The information about the type of irregularity should be expanded to include
      comments as to whether the irregularity is of a systemic nature and noting
      the action taken to deal with this.

34.   In recording the value of irregularities (total expenditure and ERDF grant) in
      sterling and Euro, the Commission's monthly conversion rate at the time the
      expenditure identified as irregular was paid to the project should be used. If
      amounts have not yet been paid then the Commission's monthly conversion
      rate at the time the irregularity is recorded should be used.


Flat-rate financial corrections (non-financial irregularities)
35.   Flat-rate corrections should be considered when the RDA finds a failure to
      adequately effect any control which is explicitly required by a regulation or
      where there is failure to observe any of the terms and conditions of the grant
      offer letter ie on publicity, equality of opportunity and public procurement
      (there are many others). In determining whether a flat-rate correction should
      be applied and if so at what rate, the general consideration should be the
      assessment of the degree of risks to the ERDF funding and /or the
      seriousness of the non-compliance.            These deficiencies will vary
      considerably and therefore cases should be assessed on an individual basis.
36.   The Commission issued guidance to member states (Brussels, 2.3.2001

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     C(2001) 476) on how it would apply financial corrections on the activities of a
     Member State (see Annex H) A further Commission document
     (COCOF/07/0037/00), based on procurement, was circulated on 27 July
     2007. This is at Annex I. RDAs should apply the same principles to all non-
     financial irregularities.


Closing Irregularities in Advance of Programme Closure
37.   An irregularity is considered 'closed' when all the issues related to the
      irregularity have been resolved and action taken to prevent re-use of the
      irregular funds by the project, by reducing the value of the offer of grant made
      to the project concerned; (refer to the section on 'Revising the Grant Offer
      Letter').

38.   To ensure the efficient closure of the 2007-13 programmes, RDAs are
      expected to take appropriate action to ensure that all irregularities are closed
      in advance of programme closure. To assist this, all necessary action should
      be taken within three months of cases being first recorded. Cases which go
      to formal legal process will of course take longer than this. In all other cases,
      action should be taken to meet the three month clearance period.


Managing Expenditure Declared to the EC
39.   RDAs will need to consider the value and treatment of irregularities when
      supplying the Certifying Authority with claims for reimbursement of
      expenditure.

40.   This is particularly important when the Certifying Authority has to make a
      declaration of expenditure to the Commission. In short, where an irregularity
      has been confirmed, the RDA will remove the total amount of ineligible
      expenditure identified from the financial tables contained within the claim for
      reimbursement of expenditure submitted to the CA, (i.e. ERDF grant amount
      plus the appropriate amount of match funding).

41.   If an irregularity is still under investigation and it is not yet certain that an
      irregularity has in fact been committed, the expenditure may be included in a
      declaration. A future declaration may be amended as necessary depending
      on the outcome of that investigation.

42.   Once an irregularity has been confirmed and the appropriate amount of
      ERDF grant has been deducted from a declaration to the CA, the RDA may
      re-cycle the ERDF grant.

43.   Concluded cases (an EC term) - this is where the irregular amount has
      been excluded from the declaration of expenditure by the CA. However, the
      irregularity is still a CLG liability and therefore cannot be completely 'closed'
      until all the issues have been resolved, including any write off or repayment
      of grant.

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44.  Un-concluded cases - this is where the irregular amount is left in the
     declaration of expenditure (still impacting on the EC budget). This is
     appropriate where the 'irregularity' is still under investigation and there is real
     prospect of the 'irregularity' being found to be eligible or because a decision
     has been made to submit a special report to the EC asking them to accept
     the loss (write off); the irregularity must first have been reported to the EC for
     them to consider the special report. For more details, refer to the sections on
     reporting and write-off.


Irregularities arising from inspections/audits (including those
carried out by EC/ECA and others)
45.    Upon completion of an inspection/audit, RDAs must consider any systemic
       issues and any mitigating evidence presented by the project in deciding the
       extent of the irregularity and how much or if any grant should be re-paid.
       Once the amount of an irregularity is confirmed, a NIFF should be completed
       and used to track recovery action. For irregularities above the €10,000
       threshold, an SFIR must be completed and sent to CLG. Swift action must be
       taken to seek the necessary repayment and on receipt, the irregularity should
       be recorded as closed and noted in the quarterly updates to CLG.

Revising the Grant Offer letter

46.    In cases where ineligible grant has been recovered by clawback or
       repayment, the RDA must ensure that the project does not re-use the
       ineligible amounts (refer to the section on 'Re-cycling ERDF grant'). The
       irregular amount should be deducted from the allocated grant and the offer
       letter amended accordingly.

Repayment of ERDF - by the project (grant recipient)
47.    All irregularities should be brought to the attention of the grant recipient (by
       the RDA) as soon as possible, except where fraud is suspected. In which
       case it should be referred to CLG IAS for investigation. In the majority of
       cases the issues can be quickly agreed and action taken to resolve and to
       implement procedures to prevent a recurrence.

48.    If a repayment of grant is necessary then it should normally be agreed that
       the amount should be deducted from the next grant claim. RDAs have the
       discretion of seeking a repayment before the next grant becomes due, this
       will depend on timing, risks, etc. If the final claim has already been paid then
       a letter seeking the repayment should be sent by the RDA to the grant
       recipient.

49.    It is the responsibility of the RDA to secure repayment of the irregular
       amount. If recovery is not forthcoming or the organisation has failed to
       communicate within 30 working days (if the RDA wishes, this period may be
       reduced as we approach 'closure'), RDAs must initiate further action


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     including seeking advice from their own legal advisors or from CLG Legal
     (always copying to EPP - Earl Hines) on the steps to be taken. This could
     include the suspension of payments to other projects being managed by the
     same organisation.

50.   Depending on the seriousness of the irregularity the RDA may consider
      suspending further payments to the project pending the successful
      conclusion of an irregularity. This should not normally be necessary and in
      most cases irregular amounts may be deducted from the next grant claim.

51.   It is however also essential that RDAs consider carefully the impact of
      recovery action on grant recipients. CLG may be consulted for advice in
      those cases where recovery could cause hardship or have an impact on
      wider policy. For example, for smaller organisations with cash flow issues, it
      might be appropriate to consider a staged and reasonable repayment plan.

52.   When amounts are re-paid to the RDA, the conversion rate (Sterling to
      Euros) to be used to record the details for that repayment is the monthly rate
      for when the Certifying Authority made the adjustment.

 Re-Cycling ERDF grant
53.   Where irregularities are detected by RDA action or through CLG audits,
      RDAs may re-cycle the recovered grant (including amounts excluded from
      declarations to the CA and by the CA to the EC) to other eligible projects
      within the programme area. Note that the project that has been responsible
      for the irregularity is not permitted to retain the irregular amount in its ERDF
      grant award. Refer also to the section on 'Revising the Grant Offer Letter'.

54.   Article 42 bodies must also take action to recover irregular amounts. They
      may also re-cycle the ERDF recovered funds to other eligible projects within
      their global grant approval. Should the A42 body not wish to recycle
      recovered funds within their plan/programme they must notify the RDA of the
      amount and reasons for not recycling the funds. The RDA will issue the A42
      body with a suitably revised agreement and recycle the funding elsewhere,
      as appropriate.

Departmental error
55.   A departmental error arises when the RDA/CLG is responsible for an
      incorrect claim being submitted to the EC for payment. An example could be
      where an incorrectly calculated grant claim received by the RDA is not
      corrected before payment is made. Another could be a project that was
      incorrectly appraised and approved for ERDF assistance. There could be
      others.

56.   These cases must be dealt with under the same procedures/arrangements
      as for all other irregularity cases. They must be recorded and reported as
      appropriate and if the error is identified, as part of an audit authority
      inspection, will count towards the programme error rate.

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57.  The irregularity must also be brought to the attention of the grant recipient
     and action taken to recover the irregular expenditure even though the
     applicant may have acted in good faith on advice received from the RDA or
     CLG. It is also especially important that the case is considered carefully as
     to whether it reveals any systemic weaknesses in RDA/CLG
     procedures/advice.




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                                          Section 3

                     Reporting and Managing Irregularities
Reporting and Updating Irregularity and Recovery Information8

58.    Member States are required9 to report on a quarterly basis to OLAF all new
       irregularities identified with a quantified ERDF value of €10,000 or more.
       [OLAF is the EC anti fraud office.]

59.    At the end of each December quarter, member states are required to report
       the total value of irregularities discovered during that year, including those
       irregularities falling below the reporting threshold of €10k, and the total
       amount that has been recovered.

60.    The financial details for all irregularities must be split between EU, National
       Public and Private Match Funding.

61.    The Regulation10 also requires member states to inform OLAF on a quarterly
       basis, of important changes to irregularities previously reported (action taken
       or being taken to resolve), including:

          the amounts which have been, or are expected to be, recovered;
          the interim measures taken by member states to safeguard the recovery
          of sums wrongly paid;
          the reasons for abandonment of recovery procedures;
          any abandonment of criminal prosecution.

62.    An irregularity can only be properly closed once the issues related to it have
       been resolved and all necessary accounting action has been taken. For
       reported irregularities it is not sufficient to inform the EC that an irregularity
       has been closed, it is a requirement to explain 'how' the irregularity has been
       closed, for example

            the irregular amount has been repaid in full by the applicant;
            amount is to be fully recovered from the next claim for grant;
            documentary evidence has been provided to support the expenditure

63.    Each RDA as an Intermediate Body will be responsible for supplying the
       Certifying Authority with the following information in relation to their own
       programme, to comply with EC Regulations and ensure the national reporting
       requirements stated above are complied with –

          each irregularity of €10k or more is reported on the appropriate form

8
  Article 70 and 98 of EC Regulation 1083/2006 and Articles 27 to 36 of Regulation 1828/2006
9
  Article 28 of Regulation 1828/2006
10
   Article 30 of Regulation 1828/2006

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         [unless it falls within a derogation];
       at the end of each year, the total amount of ERDF irregularities recorded
         during that year;
       the total amount of ERDF and match funding [National Public and/or
         Private Sector] recovered, offset or withdrawn as a result of irregularity;
       the amounts still outstanding from recorded ERDF irregularities; and
       on a quarterly basis, notification of all irregularities closed/concluded and
         updates for those still open.

64.       Regulations11 require member states to keep an account of amounts
          recoverable from payments of community assistance; ensure the amounts
          are recovered without unjustified delay; repay the irregular payments to the
          Commission; and inform the Commission on an annual basis of amounts still
          awaiting recovery. This relates only to debts arising from irregularities that
          are recoverable to the EC.

65.       From the information supplied by the RDAs, the CA will provide reports to the
          EC covering:

          a at the end of each calendar year, the euro values of the ERDF and
            Public/Private Funding which has been recovered or withdrawn from EC
            Claims (declarations) as a result of irregularities;
          b that are quantified and concluded;
          c   at the end of each calendar year, the euro value of the ERDF and Public
              Funding pending recovery back to the start of the programme for
              irregularities which are quantified but still included in EC Claims
              (declarations); and
          d recovery annexes for each programme to accompany EC Claims
            (declarations) listing the euro value of the ERDF amounts recovered by
            priority axis during the period covered by the claim.

Initial reporting of irregularities
66.       All irregularities identified (below and above the reporting threshold) must be
          recorded at a central point. The information recorded should be detailed
          enough to ensure sound management, the identification of systemic
          weaknesses and capture the actions taken. This information collected will be
          managed by a dedicated “irregularity coordinator” who will be responsible for
          ensuring the management and closure of all recorded irregularities by the
          RDAs and be a contact point for CLG.

67.       To ensure there is a consistent approach to irregularity recording across
          RDAs and compliance with the regulations, it is recommended each RDA
          should use the template at Annex G as the basis for the for their system to
          record and update all irregularities identified.


11
     Regulations 1083/2006 and 1828/2006

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68.  RDAs are required to report to CLG CA all irregularities involving ERDF
     funds valued at €10,000 or more using the Structural Funds Irregularity
     Report [SFIR] form. A form should be submitted as soon as possible
     following issue of the first formal written statement, with the understanding
     that the details may be revised during the quarterly update exercise. Reports
     must not be delayed until an irregularity has been resolved.

69.   An irregularity should also be reported earlier than the first formal written
      statement where:

      a an inspection has been ongoing for more than 6 months and the amount
        of the irregularity has not been confirmed – at this point a report is
        required showing an „accurate‟ estimate of the error and funds at risk ;

      b other projects being managed by the grant recipient are deemed to be
        affected because of systemic issues, once an error has been fully
        quantified; there will be a need to extrapolate across the population and
        provide a single irregularity report (SFIR) but a separate financial
        breakdown for each irregularity.

      c   systemic errors are identified resulting in payment blocks on future claims;

      d there are doubts about eligibility of entire projects; or

      e there are other indications that risk to funds is high.

70.   Although the reporting threshold refers to the ERDF element only, it does not
      refer to just the actual irregular ERDF expenditure – if the total ERDF that
      WOULD have been paid if the irregularity was NOT detected was €10,000 or
      above, then it is NOT de minimis and must be reported.

71.   Where a grant recipient is managing more than one project and irregularities
      are discovered in more than one project, the irregularities should be
      aggregated and reported as a single case (SFIR) but giving the financial
      details for each project. Likewise, if there were several irregularities in a
      single project then these should be aggregated and reported as a single
      case. In all circumstances, the aggregated amount must be considered in line
      with the reporting threshold - to be reported if €10,000 or more. Irregularities
      should not be split simply to avoid reporting.

72.   The SFIR is at Annex A. Guidance on completing the SFIR is at Annex B.
      For global grants, it is recommended the RDAs instruct Article 42 bodies to
      use the SFIR, or a similar pro-forma, to capture the details that will be used in
      the RDA's report to EPP/CLG.

73.   Completed SFIRs from RDAs (for all reportable cases) should be sent by
      email to:        earl.hines@communities.gsi.gov.uk and must never be sent
      directly to BERR, who act as the UK co-ordinator for all structural funds in the
      UK. The RDA should keep a copy of the SFIR on a central file. Any queries
      on irregularities should also be addressed to Earl Hines.

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ERDF Manual           Chapter 15.3 Page 17            November 2007
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                    DRAFT Chapter 15 Irregularities
___________________________________________________________________

74.   On receipt, EPP/CLG will consider the SFIR to ensure that sufficient details
      have been provided. The case will be given a CLG reference number and the
      details entered onto the EPP irregularity spreadsheet. The SFIR is copied to
      DBERR from where colleagues will communicate with others in OLAF.
      DBERR will allocate a unique EC reference (ie UK/75/075/FD/O) to each
      case reported to OLAF; this reference is confirmation that the case has been
      forwarded to OLAF. Any communication between DBERR and the RDAs,
      and vice versa, must be through CLG.


Follow-up Reports: (Quarterly updates to irregularities previously
reported)
75.   It is the responsibility of the RDAs to ensure that all irregularities are resolved
      in a timely manner.

76.   RDAs must take action to follow-up and correct all recorded irregularities as
      quickly as possible, recovering grant where appropriate and taking steps to
      ensure the irregularity is not repeated. Details of follow-up and clearance
      action should be included in the RDAs' quarterly reports to EPP.

77.   Where irregularities have been reported prior to confirmation of the amount of
      funds at risk, RDAs are required to notify EPP of any developments and
      changes to amounts at risk by updating the SFIR already submitted. The
      follow-up reports should only include the progress made in closing the
      irregularity since the previous report to EPP and will be required even if, at
      some stage during the investigation, the RDA concluded that the issue is no
      longer an irregularity. Updates can report: that -

      a an inspection has been completed and confirming the amount of funds to
        be recovered; or

      b an inspection has been completed and confirming that all irregular
        amounts have been recovered and therefore the irregularity can be
        closed; or

      c   an inspection has been completed and confirming that all supporting
          documentation (confirming the expenditure) have been provided by the
          grant recipient and the irregularity has been withdrawn and therefore the
          irregularity can be closed; or

      d progress on an inspection resulting in changes to the amount at risk but
        where the inspection is still ongoing; or

      e where there are changes to the amounts initially reported at risk on non-
        inspection cases.

78.   If amounts have been recovered, the RDA must record how the recovery will
      be re-used, i.e. that the amounts recovered will be reallocated to other

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ERDF Manual           Chapter 15.3 Page 18            November 2007
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                         DRAFT Chapter 15 Irregularities
___________________________________________________________________
     eligible projects within the programme or to be re-paid to the Commission or
     CLG, depending on the circumstances. Please note that the irregular
     amount cannot be re-cycled by the project that has been responsible for the
     irregularity.

79.   EPP require updates to previously reported cases on a quarterly basis and
      will send its spreadsheet of cases to the RDA for appropriate action. All
      updates should be submitted by the required deadline to EPP so that the
      irregularity can be monitored towards a 'complete closure'; that is, all the
      issues have been resolved.

Using NIFF to track financial corrections arising from irregularities
80.   It is recommended the Notification of Irregular Funding Form (NIFF) (see
      Annex C) or some similar procedure should be used to
         confirm the financial correction; and
         track it from the point it is fully quantified to the point of full recovery or
           write off.

81.   If adopted, the NIFF can be used to track all financial corrections arising from
      irregularities (above and below the reporting threshold) following the
      guidance at Annex D.

82.   Details of tracking and completing irregularity action should be retained by
      the RDA as evidence of compliance with the regulations for audit purposes;
      maintaining the audit trail for recoveries. If a RDA implements its own system
      for tracking ERDF financial corrections, it must ensure requirements of the
      Commission are fully met.

83.   Recovery information collected and reported to CLG is then used by EPP to
      notify the EC (through DBERR) of amounts recovered, when full recovery
      has been made and an irregularity closed.

84.   Any problems affecting recovery, particularly where this may lead to
      abandonment of recovery procedures; or any legal action taken to effect
      recovery; or any other developments which might impact on the success of
      recovery activity should be reported via the SFIR form.

End of December quarterly report (additional information required
from the RDA's single database on irregularities)
85.   As required by the Commission, during the December quarterly update
      exercise, EPP will be asking RDAs to provide, from the local irregularities
      database and for the calendar year, details of:

      a for recorded cases below the threshold of €10,000 (ERDF) and
        exemptions, the total ineligible expenditure and the amount of ERDF
        grant by priority axis and


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ERDF Manual           Chapter 15.3 Page 19            November 2007
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                     DRAFT Chapter 15 Irregularities
___________________________________________________________________
     b from the above, the total funding (that is ERDF and match funding) and
        the ERDF amount recovered (again by priority axis).

86.       The information provided from the local irregularities database will also be
          used in the preparation of the UK's annual report (on management and
          financial control systems) to the Commission.

 Bankruptcy/Liquidation

87.       Irregularities arising solely from projects going into bankruptcy/liquidation are
          now exempt from reporting. However, where an irregularity is identified before
          the bankruptcy/liquidation is notified or if fraud is suspected, the irregularity
          must be reported on the SFIR. All liquidations must be recorded on the
          irregularity single database. Any already reported (preceding liquidation)
          irregular funds should be removed from EC Claims (declarations). There is
          nothing in the regulation that 'exempt from reporting' cases should be
          removed from claims to the EC. However, any included liquidations should be
          properly explained. The regulations13 define bankruptcy as insolvency
          proceedings.

88.       In cases where there has been a previous irregularity but this has been
          concluded (removed from the declarations), any subsequent liquidation of the
          organisation should be treated as a separate occurrence and need only be
          recorded, but not reported as an irregularity.


Special (write-off) report to the Commission (Regulation 30(2) of
Regulation1828/2006)
89.       All efforts must be made to recover any amounts deemed irregular. RDAs
          must communicate with the person/organisation responsible for the
          repayment, stressing the seriousness of the issue and urging conclusion.
          CLG and the Commission will not consider duplicated requests/reminders for
          repayment on their own as sufficient effort. There will be some instances
          where the person/organisation will not be able to re-pay the irregular amount.

90.       Where the RDA has concluded for an irregularity of €10k or more, that an
          amount cannot or is not expected to be recovered, it must prepare a special
          report to the Director of OLAF (but submitted through DBERR and copied to
          EPP), explaining and requesting that the ERDF liability should, in the RDA's
          view, be borne by the Commission. The report should be sufficiently detailed
          to allow OLAF/the Commission to make a decision. CLG do not have a
          format for the report but it should contain at least the following:-

          a a copy of the grant offer letter;

          b the date when the RDA made the last payment to the project;

13
     Article 27 of Regulation 1828/2006

___________________________________________________________________
ERDF Manual           Chapter 15.3 Page 20            November 2007
            Communities & Local Government ERDF User Manual
                    DRAFT Chapter 15 Irregularities
___________________________________________________________________

      c   a copy of the recovery order;

      d in the case of bankruptcies subject to reporting under Article 28(2) of
        Regulation 1828/2006, a copy of the document attesting the insolvency of
        the beneficiary; and

      e an outline description of the measures taken by the RDA, with indication
        of dates, to recover the irregular amount.

91.   If a request for write off has been refused by OLAF/the EC, then the matter
      should be discussed with EPP to decide on the best way forward, including a
      write off by CLG.

92.   There is no requirement to submit a report to the Commission seeking
      permission to write off ERDF funding where the amount is less than the €10k
      threshold.

93.   In the event of an irregularity below the threshold, where the funds are
      unrecoverable, or a simple bankruptcy/liquidation below the threshold, the
      Commission will, under the provisions of Article 36 of 1828/2006,
      automatically share the burden of the loss at the contribution rate agreed for
      the project concerned, as shown in the offer letter.

Process for requesting a write off

94.   The following outlines procedures for dealing with write offs of losses arising
      from irregularities, and on registering requests for write off by CLG. Map(s) in
      Chapter 1, illustrate the process to be followed. For further information on
      losses and write offs, RDAs should also refer to the Treasury‟s Managing
      Public Money, Chapter 4, and Annex 4.10.

95.    Write offs normally arise where an irregularity leads to an irrecoverable loss
      of funds. Through the regular reporting requirements outlined earlier in this
      chapter, OLAF/the Commission will be advised of all irregularities above and
      below the €10,000 threshold, and the certifying Authority of all those above
      €10,000, and so should have prior awareness of any that lead to irrecoverable
      losses. In addition, RDAs are required to advise the CA annually of any
      accumulated losses arising from systemic irregularities below the €10,000
      (see paragraph 104).

Who will write off what?

96.   As explained in paragraphs 89 to 91 above, for an irregularity of €10,000 or
      more, the RDA will submit a special report to OLAF on an annual basis
      requesting the Commission cover, or part cover, the loss of ERDF grant. If
      the Commission refuse such a request, the RDA will need to consider how to
      proceed, including applying to CLG to cover the loss.



___________________________________________________________________
ERDF Manual           Chapter 15.3 Page 21            November 2007
                    Communities & Local Government ERDF User Manual
                             DRAFT Chapter 15 Irregularities
      ___________________________________________________________________
      97.  As regards projects where the grant recipient is a third party, losses may
           include both ERDF and match-funding. Where these are established as being
           irrecoverable, and the Commission has refused to cover the loss of ERDF
           grant, both elements may be covered from CLG‟s budget. For RDAs‟ own
           projects CLG would not expect to write off against its budget the RDA-funded
           element of any loss.

      98.    Inevitably, some elements of losses arising from irregularities will not be
             recoverable from any other source and will end up counting against CLG‟s
             budget. This is limited and RDAs are, therefore, expected to ensure that all
             reasonable efforts have been made to recover amounts deemed to be
             irregular from the grant recipient. This should be the first resort in dealing with
             irregularities, so that write off action should be exceptional.

      Steps to follow in pursuing a write off with CLG

      99.    Potential write offs may be identified in more than one way, mainly through
             audit or through the RDAs‟ day to day work on projects. All potential write offs
             will be co-ordinated at a central point in the RDA who will be responsible for
             reporting to the Certifying Authority (CA). Where it is concluded write off is
             appropriate the RDA focal point will submit all requests for write off of
             amounts over the €10,000 threshold to the focal point in the CA. This can be
             done as and when the write off arises. In making the request, the RDA should
             submit information to the CA including:-

                   The amount and date
                   How it occurred and how it was discovered, and where responsibility
                    lies for the loss
                   Whether any amount can be recovered and what action has been
                    taken to do so
                   Whether there is any suspicion of irregularity and impropriety and, if so,
                    whether prosecution is proposed and, if not, why not.
                   The existing security or control arrangements and the steps necessary
                    to prevent recurrence of the loss.
                   Any additional matters which are relevant (including, for programme
                    expenditure, the outputs that would have been gained from the
                    project/grant but have now been lost).

      100.   If in doubt the RDA should always get in touch with th          their contact in
the CA.

      101.   When received, the CA will consider the request for write off and ask the RDA
             for any further information to help with their consideration. If/when satisfied
             that write off is unavoidable, the CA will make a formal request to CLG
             Finance/LMAT on form SP1/MCIS facility [DN:- need to discuss this with Alex]
             for the amount to be written off.

      102. CLG Finance/LMAT will review the request and may seek further information.
      If/when satisfied that recovery of grant is not an option, CLG Finance/LMAT will

      ___________________________________________________________________
      ERDF Manual           Chapter 15.3 Page 22            November 2007
                    Communities & Local Government ERDF User Manual
                               DRAFT Chapter 15 Irregularities
      ___________________________________________________________________
      approve the write off in writing to the CA. Accounting for write offs is covered at
      paragraphs xxx in this Chapter.

      103. The CA will submit to CLG FASD a request for payment. FASD will process
      the payment to the RDA, which the RDA can then re-cycle within the programme
      area.

      Dealing with cumulative losses over €10,000

      104. Procedures for irregularities below the €10,000 threshold are outlined in
      paragraphs 92 and 93 above. However, where irregularities are identified as being
      systemic and amount to more than €10,000 these must be totalled up and reported
      as one single figure to the CA [at year end?]. [DN:- How? Using MCIS?]

       105.   CLG Finance/LMAT will consider how these a a            amounts      should    be
dealt with.

      Note that only the EC or CLG can decide if an amount may be written off.

      Note that for a special report to be considered by OLAF/the Commission, the
      irregularity must have first been reported to them through the SFIR arrangements.


      Suspected Fraud
      94.     If the RDA has evidence that an irregularity involves fraud, theft or corruption
              or there is a suspicion that it has, then the issue should be discussed with
              CLG Internal Audit Service (IAS) without delay. IAS will offer advice and if
              necessary will undertake further investigation. Contact details:

                     CLG Internal Audit Service (Branch 3)
                     Jim Phillips 020 7944 6556: GTN 3533 6556
                     Jim.phillips@communities.gsi.gov.uk

      95.     The details surrounding the evidence or suspicion of fraud should be
              included in the description of the irregularity given in the text box on the SFIR
              at question 6.0, „Additional Information‟.

                              ~~~~~~~~~~~~~~~~~~~~~~




      ___________________________________________________________________
      ERDF Manual           Chapter 15.3 Page 23            November 2007
            Communities & Local Government ERDF User Manual
                    DRAFT Chapter 15 Irregularities
___________________________________________________________________


CONTACTS AT CLG

Earl Hines                          or   Eve Martin
Tel: 020 7944 3838                       Tel 020 7944 3834
GTN: 3533 3838                           GTN: 3533 3834
earl.hines@communities.gsi.gov.uk        eve.martin@communities.gsi.gov.uk



Address:    EPP/CLG
            Zone 1/A1
            Eland House
            Bressenden Place
            LONDON SW1E 5DU




___________________________________________________________________
ERDF Manual           Chapter 15.3 Page 24            November 2007
STRUCTURAL FUNDS IRREGUKARITY REPORT (SFIR)                                                    Annex A


IDENTIFICATION OF COMMUNICATION                                                     Chapter 15 Annex A

Section A: to be completed by DBERR (formerly DTI)
Member State      UNITED KINGDOM                 Date Sent
Case No:                                         Quarter
Administrative department in Member State        Regional        CLG
                                                 National        DBERR

Section B: to be completed by the Regional Development Association
                                             (using mouse, left double click on 'blank' will give selection)
Name of Reporting Officer
For updates: CLG
                                                   Position Within RDA:
Irregularity Report No
Date Reported to CLG                               RDA:                       (blank)
Is this Irreg report                               NEW                AN UPDATE
Does this Irreg report CLOSE the irregularity
                                                   YES                NO
(ie are all irregular funds recovered)

DETAILS OF IRREGULARITY

1        Description of operation
                                              (using mouse, left double click on 'blank' will give selection)
1.1 Community Support Framework
                                                       Not applicable
      (not for ERDF…ignore this line)
1.2   Name of Programme                                (blank)
1.3   EC decision No and Date
1.4   Member State‟s ref No
1.5   CCI No: (MUST BE COMPLETED)                      (blank)


Organisation Name
Type of organisation (CFE, VS, LA, etc)
Title of Project
Project reference number
Priority Axis (e.g. 3.2.2)

2        Provision infringed

2.1 Community Regulation                              1083/2006
2.2 National Regulation                               the terms and conditions of the offer letter

3        Date of first information leading to suspicion of irregularity (dd/mm/yyyy):

3.1 Source of first information leading to suspicion of irregularity (tick box)
Inspection:                                      Other Audit Visit:
Article 13 Monitoring:                           Informant:
Article 16 Inspection
Contract                                         More… (select from drop down list;
Management:                                      using mouse, left double click on
Audit Certification:                             'blank' will give selection):
                                                 (blank)



___________________________________________________________________
ERDF Manual       Chapter 15 Annex A Page 1 of 6      November 2007
STRUCTURAL FUNDS IRREGUKARITY REPORT (SFIR)                                                      Annex A



Other (give brief details):


4          Manner in which the irregularity was confirmed

If the irregularity was confirmed in a manner different to how it was first suspected (as described in
Section 3) then give brief details below
Details:



5          Type of irregularity (tick all that apply)

False Claim:                                 False Supporting Documents:

Inadequate match funding:                    Poor management/financial control:

Inadequate beneficiary                       No publicity:
records:
                                             No added value:
Ineligible expenditure:
                                             Systemic issues (in one of above categories)
Project not delivered in line
with its contract:
                                             More… (select from drop down list; using mouse,
                                             left double click on 'blank' will give selection)
                                             (blank)

Other (please specify)



5.1 Practices employed in committing the irregularity
Provide a brief description of the practices employed in committing the irregularity




5.2 Are these practices considered new?                      Yes:             No:

5.3 If Yes, has notification been sent under                 Yes:             No:           Not Known:
    Article 29 of EC Regulation 1828/2006?
                                                             If yes, date & references:

5.4 Is fraud suspected?                                      Yes:             No:

6          Are other Member States involved?                  Yes:              No:

6.1 If Yes, has notification been sent under                 No:      Not known:                   Yes:
    Article 29 of EC Regulation 1828/2006?
                                                         If yes, date & references:

7          Period of the irregularity (dd/mm/yyyy)

7.1 Date or dates between which the irregularity took place                           to


8          Authorities or bodies

___________________________________________________________________
ERDF Manual       Chapter 15 Annex A Page 2 of 6      November 2007
STRUCTURAL FUNDS IRREGUKARITY REPORT (SFIR)                                                  Annex A



8.1 Authorities or bodies which drew up the official report on the              (RDA)---- (see section B,
                                                                                 st
irregularity                                                                    1 page)
8.2 Authorities or bodies responsible for administrative or judicial follow
                                                                                (RDA)----/CLG
up


9        Date on which the irregularity report was drawn up (dd/mm/yyyy)




10       Name and address of natural and legal persons involved

10.1     The name and official address of person representing the organisation (only complete if essential
to reporting of the irregularity)

Name
Organisation (official)
Address
(inc postcode)
Function/position


10.2    Legal person representing the organisation (complete with details of organisation)

Organisation Name
Organisation Address
(inc postcode)




FINANCIAL ASPECTS

11       Funding details
This is the agreed total level of funding for the project from the offer letter. Latest monthly EC conversion
rate to be used…converting from Sterling to Euros

11.1 Total Amount of Operation
                                                          €
     (must equal 11.2 + 11.3)
11.2 ERDF Element                                         €
11.3 Match Funding Element (total of 11.3.1+11.3.2)       €
       11.3.1 Public Match Funding                        €
        11.3.2 Private Match Funding                      €


12        Nature and amount of IRREGULAR expenditure
Of the funding actually paid to the project, this is the breakdown of the irregular amounts and relates to
sections 16 & 17 (about recovery) of this form. Conversion from Sterling to Euros must be the monthly
rate in force when the Paying Authority made the payment ie when the grant was paid to the project

12.1 Nature of irregular expenditure
    (ie staff costs, other costs, match funding)


___________________________________________________________________
ERDF Manual       Chapter 15 Annex A Page 3 of 6      November 2007
STRUCTURAL FUNDS IRREGUKARITY REPORT (SFIR)                                              Annex A

12.2 Irregular Total Expenditure
                                                        €
     (this must equal 12.3 + 12.4)
12.3 Irregular ERDF                                     €
12.4 Irregular Match Funding (total of 12.4.1+12.4.2)
                                                        €
        12.4.1 Irregular Public Match Funding           €
        12.4.2 Irregular Private Match Funding          €

Are the entries in section 12 ESTIMATES?                YES:                  NO:


13     Amount of funding which would have been wrongly paid had the irregularity not been
discovered

13.1 Total Expenditure (13.2 +13.3)                              €
13.2 ERDF Element                                                €
13.3 Match Funding (total of 13.3.1+13.3.2)                      €
       13.3.1 Public Match Funding                               €
       13.3.2 Private Match Funding                              €


14      Financial consequences

14.1 Amount of irregular expenditure (TDE) not yet paid
                                                                 €
    (13.1 – 12.2)
14.2 Has further payment been suspended.                         YES:              NO:
If YES, continue below. If NO, why not?
14.3 Amount of ERDF not yet paid (13.2 – 12.3)                   €
14.4 Amount of Match Funding not yet paid (13.3 – 12.4)
                                                                 €
       (total of 14.4.1+14.4.2)
       14.4.1 Public Match Funding not yet paid                  €
       14.4.2 Private Match Funding not yet paid                 €


15      Possibility of recovery

Potential for recovery of ERDF funds reported at 12.3     Good          Possible           Unlikely
Reasoning:

16      Irregular amount recovered (cumulative)

16.1 Total Declared Expenditure (total recovered)           €
16.2 ERDF amount:                                           €
16.3 Match Funding amount: (total of 16.3.1+16.3.2)         €
        16.3.1 Public Match Funding                         €
        16.3.2 Private Match Funding                        €




___________________________________________________________________
ERDF Manual       Chapter 15 Annex A Page 4 of 6      November 2007
STRUCTURAL FUNDS IRREGUKARITY REPORT (SFIR)                                                  Annex A

17      Irregular amount remaining to be recovered

17.1 Total Declared Expenditure                            €
17.2 ERDF Amount                                           €
17.3 Match Funding amount (total of 17.3.1+17.3.2)         €
        17.3.1 Public Match Funding                        €
        17.3.2 Private Match Funding                       €


18      Date of special report in accordance with Article 30(2) of Regulation1828/2006


STAGE OF PROCEDURES

19       Action by Member State
This is any action taken under National Legislation to safeguard the recovery of irregular payments




20      Administrative proceedings
Please indicate any action taken concerning the irregularity

Refund of irregular funds being pursued:                Other action taken:
Off-setting against other payments:
Case forwarded to other authorities:

If fraud is suspected, has the case been referred to:
        the Police:
        CLG:

21       Judicial proceedings
If the case has become the subject of criminal proceedings then give details here.




22      Abandonment of recovery proceedings

Have recovery proceedings been abandoned? Yes            No

If Yes then select a reason why: (blank)    (using mouse, left double click on 'blank' will give selection)

22.1 Was the Commission notified before the decision to abandon the recovery procedure was taken?
        No:     Yes:             If yes, then please give reference numbers:

23      Have criminal procedures been abandoned?

There have been no criminal proceedings:                  No:                 Not known:             Yes:




___________________________________________________________________
ERDF Manual       Chapter 15 Annex A Page 5 of 6      November 2007
STRUCTURAL FUNDS IRREGUKARITY REPORT (SFIR)                                              Annex A

24      Termination of procedures

24.1     Has the Commission been notified of administrative or judicial decisions or the main points
thereof, concerning termination of proceedings in accordance with Article 5(1) of Regulation 1681/94 or
with Regulation 1831/94:
No:     Yes:     If yes, then please give reference numbers:




25      Penalties imposed (administrative and/or judicial)




26      If Article 28(5)of Regulation 1828/2006 applies

26.1 to which of the above questions does it apply?
26.2 has authorisation of the competent court or tribunal been applied for?


27      Any additional observations




NB. The officer notifying the irregularity should now also complete Part 1 of the Notification of
Irregular Funding Form (NIFF)




___________________________________________________________________
ERDF Manual       Chapter 15 Annex A Page 6 of 6      November 2007
Guidance for completion of structural funds irregularity report (SFIR)          Annex B


                                                                         Chapter 15 ANNEX B

Reporting Irregularities
Guidance for completing the Structural Funds Irregularity Report Form (SFIR)

In this annex we go through the SFIR form (Annex A) for reporting irregularity cases to
OLAF (the EC anti fraud office) – please note that once a value can be placed on an
irregularity, the form should be completed and be sent to EPP/CLG (preferably by
email).

All the appropriate sections of the SFIR should be completed, giving as much
information as possible. If an irregularity has been reported on any other form other than
the one at Annex A, then the form will be returned to the RDA for correction.

Irregularities identified under the European territorial cooperation objective should be
reported by the Member State in which the irregular expenditure took place (Article 28
of 1828/2006)

Section A: (DBERR to complete)

No action for the RDA.

Section B:
Name of Reporting Officer - this is the person completing the report
RDA: (blank) - double click on '(blank)' will give you the list of RDAs from which to
select.
The other lines are self explanatory.

DETAILS OF IRREGULARITY

1. Description of operation
   1.1     Community Support Framework - Ignore for ERDF 2007-2013 (this line
       refers only to Northern Ireland Obj1 Transitional and UK Obj3.

   1.2     Name of programme - double click on '(blank)' will give you the list of
           programmes from which to select.

   1.3     EC decision N° and date (dd/mm/yyyy) of OP approval.

   1.4     Member State’s reference N°) - enter details if known.

   1.5     CCI N° - this is the programme number. Double click on '(blank)' will give you
           the list of numbers from which to select. (The drop down list will not be
           available until all the OPs have been approved). If missing, the CCI number
           can be got from the programme/ decision document (underneath the title).
           This section MUST be completed.

The other lines under "1" are self explanatory (type of organisation is referring to 'further
education', 'voluntary sector', 'local authority' etc.

2. Provision infringed

___________________________________________________________________
ERDF Manual       Chapter 15 Annex B Page 1 of 8      November 2007
Guidance for completion of structural funds irregularity report (SFIR)        Annex B

   2.1     Community Regulation -
           This is the Regulation breached by the irregularity – the main regulation for
           ERDF is 1083/2006 and 1828/2006. If you are aware of the case being in
           breach of another regulation, then put the appropriate regulation/ directive
           number here.

   2.2     National Regulation -
          This is usually “the terms and conditions of the offer letter”, so that statement
          is adequate. Again, however, if you are aware of a specific legal infringement
          under UK law you can put the details here. This could include the National
          ERDF eligibility rules.

3. Date of first information leading to suspicion of irregularity -
         Date when irregularity was discovered. The format is dd/mm/yyyy.

   3.1     Source of first information leading to suspicion of irregularity -
           Tick the appropriate box ie Article 16 inspection, Article 13 monitoring, audit
           report, etc. For more sources, double click on '(blank)' and select. If unable to
           locate the appropriate source then give brief details in the space provided.
           See also Annex F.

4. The manner in which the irregularity was discovered -
        This is the manner in which the irregularity was confirmed – audit visit,
        monitoring visit, etc. This can be the same as the above entry in some cases.
        See Annex F for guidance on codes/definition to use.

5. Type of irregularity -
         This is what it says – what sort of irregularity – false claim, ineligible items
         claimed for, lack of evidence of project existence – Annex F provides a non-
         exhaustive list of the types of irregularity possible and its code – simply put
         the code in this section. If no code is there for your particular irregularity case,
         enter 999 and give details.

   5.1     Practices employed in committing the irregularity -
           This is text – a short statement of the irregularity, for instance if it code 325
           above, ineligible expenditure, and then here you would detail that ineligible
           expenditure.

   5.2     Are these practices considered new? -
           Here the answer is usually “No” – unless the aspects of the case are so novel
           that OLAF should be informed in a special report to alert them so that they
           could let other Member States know in order to prevent such occurrences
           across the EU.

   5.3     If yes, has notification been sent under Article 29 of 1828/2006

        Tick the appropriate box. If “Yes” to 5.2, a special report must be sent to
        OLAF, through the usual channels. If a report has been sent, give the
        references, date etc and attach a copy. This report can be in the form of a
        letter, stating the facts. If you tick "No" or "Not Known" then action should
        be taken and if necessary, ensure that such a report is submitted as soon
        as possible.
___________________________________________________________________
ERDF Manual           Chapter 15 Annex B Page 2 of 8              November 2007
Guidance for completion of structural funds irregularity report (SFIR)         Annex B


   5.4     Is fraud suspected? -
            The new regulation requires member states to indicate specifically if fraud is
            suspected. If the answer is yes then the RDA‟s or CLG's internal auditors
            should be consulted immediately for advice.

6. Are other member states involved? –
          This is usually “No”, unless the case involves another Member State ie cross
          border projects.

   6.1     If yes, has notification been sent under Article 29 of Regulation 1828/2006

           Tick the appropriate box. If “Yes” a special report must be sent to OLAF,
           through the usual channels. If a report has been sent, give the references,
           date etc and attach a copy. This report can be in the form of a letter, stating
           the facts. If you tick "Not Known", then clarify the position before sending this
           report to OLAF (through the usual channels), or ensure a follow-up clarifies
           the position as soon as possible.


7. Period of the irregularity -
   7.1   Date, or dates between which, the irregularity took place. The format is
         dd/mm/yyyy.

           This is the period of time covered by the irregular expenditure – although in
           the case of liquidation, it could be the day on which the company went into
           liquidation/receivership.

8. Authorities or bodies -
   8.1   Authorities or bodies which drew up the official report on the irregularity.

           For ERDF in England, this will be the RDA as mentioned at Section B on the
           first page of the SFIR.

   8.2     Authorities or bodies responsible for administrative or judicial follow-up:

           Usually the same body as at 8.1 above, but CLG should also be shown
           (as the responsible department) as legal advice and other decisions may
           become necessary.

9. Date on which the irregularity report was drawn up -
         Date this form was completed – this could be but not necessarily the same
         as when reported to CLG, Section B on 1st page). The format is dd/mm/yyyy.

10. Name and address of natural and legal persons involved -
   10.1 Natural persons: This is the person representing the organisation involved
        in the irregularity. For Data Protection Act purposes, the address of the
        organisation should be entered and not the home address of an individual.
        There can be more than one natural person involved, simply copy the format
        and enter the other person‟s details as appropriate
            - Name        :
            - Address     :
___________________________________________________________________
ERDF Manual       Chapter 15 Annex B Page 3 of 8      November 2007
Guidance for completion of structural funds irregularity report (SFIR)       Annex B

              - City      :
              - Post Code :
              - Function  :
NOTE: Natural Persons need not be given unless it is essential to the reporting of
the irregularity - See Regulation 1828/2006, Article 28(1)(k).

   10.2     Legal persons: This is the organisation or organisations involved in the
            irregularity. Their full address including postcode is required. There can be
            more than one legal entity involved so simply copy the format and add the
            appropriate details
               - Name                 :
               - Registered Office :
               - City                 :
               - Post Code            :

NOTE: See Regulation 1828/2006, Article 28(1)(k) - names of Legal Persons need
not be given, but the organisation or organisations names should be given in all
cases.


FINANCIAL ASPECTS - all financial data must be given in €Euro
11. Foreseen - total amount and distribution between sources of financing -
   11.1 Total amount of operation (the total value of the eligible expenditure – national
        [public & private sectors] and EU contribution).
            Example - €1,000

   11.2    ERDF Element (EU contribution).
             Example (assuming contribution rate is 50%) - €500

   11.3    Match Funding Element (this is the Member State's contribution)
           11.3.1   Public Match Funding - Example - €400
           11.3.2   Private Match Funding - Example - €100

NOTE: 11.2, 11.3.1 and 11.3.2 must add up to 11.1

12. Nature and amount of irregular expenditure -
          If it is all the project or programme expenditure, then simply state “See
          Section 11”-

   12.1    Nature of irregular expenditure -
           Give a brief description of the type of expenditure that is being reported as
           irregular - ie “salaries”, “overheads”, “capital equipment”.

   12.2    Irregular Total Expenditure: The total value of the irregular expenditure
           (that is public and private sectors match funding and the EU contribution).
                      Example - €100

   12.3    Irregular ERDF -
           This is the EU share of the irregular expenditure -
                       Example (assuming contribution rate is 50%)- €50


___________________________________________________________________
ERDF Manual       Chapter 15 Annex B Page 4 of 8      November 2007
Guidance for completion of structural funds irregularity report (SFIR)    Annex B

   12.4    Irregular Match Funding Element (this is the Member State's share)
           12.4.1     Irregular Public Match Funding - Example - €40
           12.4.2     Irregular Private Match Funding - Example - €10

NOTE – 12.3, 12.4.1 and 12.4.2 must add up to 12.2.

13. Amount of funding which would have been wrongly paid had the irregularity
not been discovered -

     This section applies to all the funds in Section 12, that have been paid and funds
     that have either been suspended as a result of the discovery of the irregularity or
     not yet claimed. The required details should be the amount that WOULD have
     been paid had the irregularity NOT been identified, even if NO funds have been
     paid to the grant applicant. Take note that - although actual irregular expenditure
     may be de minimis [the EU element], if the EU amount would have been above
     the threshold had the irregularity NOT been identified, then it should be reported.
     This is covered by the requirement in Article 28(1)(n) of Regulation 1828/2006.
     Should the amount of EU funding here be de minimis then the case need not be
     reported.

   13.1    Total expenditure: the total expenditure that would have been wrongly
           paid.

   13.2    ERDF Element: the EU share of the total expenditure that would have
           been wrongly paid.

   13.3    Match Funding:
           13.3.1   the match funding that would have been wrongly paid - Public
                    Sector.
           13.3.2   the match funding that would have been wrongly paid - Private
                    Sector.

14. Suspended - Financial consequences –
   14.1 This is referring to the amount of expenditure under Section 13 not yet
        paid. If the answer here is 'Nil', then ignore the rest of this section.
        Otherwise, give the breakdown between the elements at 14.3 to 14.5.
        This will be Section 13-Section 12, and remember that Section 13 =
        Section 12+Section 14.

   14.2    Has further payment been suspended? Tick as appropriate 'Yes' or 'No'.

           If 'Yes' continue below.

   14.3    Amount of ERDF not yet paid.
   14.4    Amount of Match Funding not yet paid (total). This is then broken down
           into:
           14.4.1   Amount of Match Funding not yet paid - Public sector.
           14.4.2   Amount of Match Funding not yet paid - Private sector.

           If the answer to 14.2 is 'No', please explain why the amount at Section 14.1
           has not been suspended.

___________________________________________________________________
ERDF Manual       Chapter 15 Annex B Page 5 of 8      November 2007
Guidance for completion of structural funds irregularity report (SFIR)        Annex B

15. Possibility of recovery:
         A view should be given as to the likely recovery of the funds wrongly paid -
         good, possible or unlikely. This will give an understanding on risks etc.

16. Irregular amount recovered:
          This is the cumulative amount of irregular expenditure recovered. The
          figures here should match the amounts quoted in Section 12, unless the
          funds are being recovered in part payments or instalments. If the funds
          have already been recovered, how this was achieved ie by adjustment of a
          future claim or by repayment? Refer to 'Administrative proceedings',
          Section 20 on dealing with recoveries.

      16.1   Total Declared Expenditure (the total amount recovered).

      16.2   ERDF amount (the ERDF share of the amount recovered).

      16.3   Match Funding amount (this is the matching funding part of the amount
             recovered - further broken down by;
             16.3.1   The amount of Match Funding recovered - Public sector.
             16.3.2   The amount of Match Funding recovered - Private sector.

17. Irregular amount remaining to be recovered:
          Urgent actions must be in place to recover outstanding amounts. The
          figures here should match the amounts quoted in Section 12, unless
          the funds are being recovered in part payment or instalments. In which
          case, the amount here could be the Section 12 amount less the amount
          recovered in Section 16.

      17.1   Total Declared Expenditure (the total amount yet to be recovered).

      17.2   ERDF amount (the ERDF share of the amount yet to be recovered).

      17.3   Match Funding amount (this is the matching funding part of the amount
             that is yet to be recovered - further broken down by;
             17.3.1      The amount of Match Funding to be recovered - Public sector.
             17.3.2      The amount of Match Funding to be recovered - Private sector.

18.     Date of special report in accordance with Article 30(2) of Regulation
         1828/2006
        If the RDA is of the opinion that recovery of grant is unlikely or not possible, then
        an Article 30(2) special report is required. This report goes in the form of a letter
        addressed to the Director of OLAF and is basically asking the EC to accept the
        loss. Article 30(2) stipulates what information is required in the special report.
        OLAF will comment as necessary and forward the report to DG Regio for a final
        decision.

STAGE OF PROCEDURES
19. Action by Member State
      Interim measures - following discovery of the irregularity, list any action taken to
     safeguard the recovery of any irregular payment.

20. Administrative proceedings:
___________________________________________________________________
ERDF Manual          Chapter 15 Annex B Page 6 of 8   November 2007
Guidance for completion of structural funds irregularity report (SFIR)       Annex B

        Indicate the action taken to close the irregularity and to prevent its recurrence -
       decision to recover funds, setting-off against other payments made        to     the
       beneficiary, case forwarded to any other authorities for proceedings etc. In the
       case of suspected fraud, the case may have been handed over to the Police or
       Serious Fraud Office. Refer back to Section 16 - where funds have been
       recovered/clawed back from a project, state what you have done to re-use them
       ie reallocated to other projects in the programme and state that the amount
       recovered has been deducted from subsequent payment request or requests
       (declarations of expenditure) to the Commission.

21. Judicial proceedings:
      If the case has become the subject of criminal proceedings, then give the full
      details here, including dates.

22. Abandonment of recovery proceedings:
      Confirm if abandonment of recovery procedures has taken place and give the
      reasons for the decision. You will need to consider the details at Section 18.

   22.1    Was the Commission notified before the decision to abandon the
           Recovery procedure was taken?
           Confirm by ticking the appropriate 'Yes'/'No' box. If yes, give the date and
           reference(s) of the Special report submitted under Section 18. If 'No',
           explain why the Commission was not notified before the decision to
           abandon was made.

23. Have criminal procedures been abandoned?
         Simply tick the appropriate box.

24. Termination of procedures
   24.1 Has the Commission been notified of administrative or judicial
        decisions or the main points thereof, concerning termination of
        proceedings in accordance with Article 30(1) of Regulation 1828/2006
        This applies when criminal or administrative proceedings have been
        completed. Article 30(1) requires the member state to notify OLAF if the
        findings are such that fraud is suspected.

           Confirm by ticking the appropriate 'Yes'/'No' box. If yes, give the date and
           reference(s).

25. Penalties imposed (administrative and/or judicial):
         Detail the penalties imposed as a result of the procedures completed in
         Section 24.

26. If Article 28(5)) of Regulation 1828/2006 applies:
         - To which of the above questions does it apply?
         - Has authorisation of the competent court or tribunal been applied for?

        This is the requirement that if national provisions provide for the
        confidentiality of investigations, communication of the information
        regarding the irregularity is subject to the agreement of the courts or
        tribunal. 'Above questions' here is referring to the sections in this report.
___________________________________________________________________
ERDF Manual           Chapter 15 Annex B Page 7 of 8                 November 2007
Guidance for completion of structural funds irregularity report (SFIR)   Annex B


27. Additional observations:
         Please give any further information you feel is relevant




___________________________________________________________________
ERDF Manual       Chapter 15 Annex B Page 8 of 8      November 2007
Notification of ineligible funding form (NIFF)                                               Annex C



                                  NOTIFICATION OF INELIGIBLE SPEND

    1. For Completion by Officer notifying ineligible spend
1.1 Applicant:
1.2 Project Number:
1.3 Priority axis:
1.4 Amount of Ineligible Spend (TDE):              £
1.5 Amount of Grant Recoverable (ERDF):            £
1.6 Amount Contract to be reduced by:              £
Name:

Signature:

Date:

                 Pass To Irregularity Co-ordinator for recording and tracking purposes
        Irreg Coordinator please pass to RDA European Secretariat Contract Management Team

                      AGREEMENT/CONFIRMATION OF ACCOUNTING ACTIVITY


    2. For completion by European Secretariat Contract Management Team
2.1 I agree/disagree the recommended action for recovery of the grant specified in Section 1.


2.2 AGREEMENT CONFIRMED (** delete as appropriate)

** Interim Claim - I confirm that the irregular funding at 1.4 of £        should be refunded/offset
against future claims until full recovery has been effected. The contract value has been reduced by the
amount at 1.6.

** Final Claim - I confirm that on          accounting action has been taken to remove the irregular
funding at 1.4 of £              from the ERDF computer system. The contract value at 1.6 has been
reduced and recovery of the amount (at 1.4) should now be progressed.


2.3 AGREEMENT NOT CONFIRMED

If not confirmed please provide comments and return to Inspection Team/originator of form.




Name:

Signature:

Date:


If 2.2 pass for recovery action and copy to RDA Irregularity Co-ordinator for updating of the ERDF
computer system.
If 2.3 return to originator of form as in section 1

___________________________________________________________________
ERDF Manual       Chapter 15 Annex C Page 1 of 2      November 2007
                                                                                                                                                                          Annex C
                                                                                  RECOVERY FORM

    3. For completion by European Secretariat Payment Team

Project Information                                                                              Recovery Position to Date

1.1 Applicant:                                                                                   3.1 Cumulative amount recovered to date:     £

1.2 Project Number:                                                                              3.2 Indicate whether recovery action completed (YES) or still ongoing (NO) (circle relevant
                                                                                                 entry)
1.3 Project Measure:
                                                                                                                                 YES                        NO
1.4 Amount of Ineligible Spend (TDE):                £
                                                                                                 3.3 Date full recovery made
1.5 Amount of Grant Recoverable (ERDF):              £


Recovery 1                                                                                       Recovery 2

3.4 Amount recovered:     £                                                                      3.4 Amount recovered:       £

3.5 Date of Recovery:                                                                            3.5 Date of Recovery:

3.6 Method of recovery: offset against subsequent claims/repayment /other (explain) (delete as   3.6 Method of recovery: offset against subsequent claims/repayment /other (explain) (delete
applicable)                                                                                      as applicable)

3.7 Amount remaining to be recovered                                                             3.7 Amount remaining to be recovered


Recovery 3                                                                                       Recovery 4

3.4 Amount recovered:     £                                                                      3.4 Amount recovered:       £

3.5 Date of Recovery:                                                                            3.5 Date of Recovery:

3.6 Method of recovery: offset against subsequent claims/repayment /other (explain) (delete as   3.6 Method of recovery: offset against subsequent claims/repayment /other (explain) (delete
applicable)                                                                                      as applicable)

3.7 Amount remaining to be recovered                                                             3.7 Amount remaining to be recovered

Name:                                                                                             Note
                                                     Date:                                       Update, print, and sign form until full recovery made. After each recovery transaction send
Signature:                                                                                       the signed form to RDA Irreg Co-ordinator.




  _____________________________________________________________________________________________________________
  ERDF Manual                              Chapter 15 Annex C Page 2 of 2                        November 2007
 Notification of irregular funding form (NIFF) guidance                  Annex D
_________________________________________________________________________________

Notification Irregular Funding Form (NIFF) Guidance

SECTION 1 - NOTIFICATION OF INELIGIBLE SPEND

This section give details of the funding that is ineligible and is to be recovered either via repayment in
the case of final claims, or offset from future claims in the case of interim claims. This should be
completed in conjunction with the SFIR report confirming the final amount at risk.

This will normally be completed by the person notifying the irregularity and requesting accounting
action/recovery of ineligible funds.

These instructions are applicable to all financial corrections arising from irregularities irrespective of the
source of the irregularity, including withdrawals.

    1. For Completion by Officer notifying ineligible spend
1.1 Applicant:
1.2 Project Number:
1.3 Priority axis:

1.4 Amount of Ineligible Spend (TDE):         £
1.5 Amount of Grant Recoverable (ERDF):       £
1.6 Amount Contract to be reduced by:         £
Name:

Signature:

Date:

1.1 Applicant                           As section 1.0 on SFIR report
1.2 Project Number                      As section 1.0 on SFIR report
1.3 Priority Axis                       Necessary as Regulation 1828/2006 asks for summary of funds
                                        recovered by priority axis.
1.4 Amount of Ineligible Spend          As section 12.2 on SFIR report
(TDE)
1.5 Amount of Grant                     As section 12.3 on SFIR report
Recoverable (ERDF)
1.6 Amount contract to be               As section 13.1 on SFIR report. (Note this will be the same as 12.2
reduced by                              except in cases of systemic error. See Scenario 3 in Annex B)

 Note – to ensure this form is acceptable to audit, electronic signatures should be avoided.
 Send to - this form should now be forwarded to the RDA EU Secretariat Contract Management
Team along with relevant paperwork relating to the claim revisions.




_________________________________________________________________________________
ERDF Manual                Chapter 15 Annex D Page 1 of 2           November 2007
 Notification of irregular funding form (NIFF) guidance                  Annex D
_________________________________________________________________________________

SECTION 2 – AGREEMENT /CONFIRMATION OF ACCOUNTING ACTIVITY

This section provides contract managers/programme delivery teams with the option to consider the
information enclosed with the form, agree/disagree the findings/ recommendations and, if in
agreement, give authority for recovery action to proceed.

For irregularity monitoring and reporting purposes it confirms when recovery action has commenced.

To be completed and signed by the person authorising/instigating the recovery action.
      2. For completion by European Secretariat Contract Management Team
2.1 I agree/disagree the recommended action for recovery of the grant specified in Section 1.


2.2 AGREEMENT CONFIRMED (** delete as appropriate)

** Interim Claim - I confirm that the irregular funding at 1.4 of £     should be refunded/offset against future claims
until full recovery has been effected. The grant offered has been reduced by the amount at 1.6.

** Final Claim - I confirm that on      accounting action has been taken to remove the irregular funding at 1.4 of £
from the ERDF computer system. The grant offered at 1.6 has been reduced and recovery of the amount (at 1.4) should
now be progressed.

2.3 AGREEMENT NOT CONFIRMED

If not confirmed please provide comments and return to Inspection Team/originator of form.



Name:

Signature:

Date:

2.1       Self-explanatory
2.2       Self-explanatory. Inspection teams – but note that in the case of interim claims
          the column should remain blank until the recovery amount has been fully offset
          against future claims. Only then can accounting action be regarded as completed.
2.3       Self explanatory

 Note – where confirmation is given for recovery action to commence on interim claims it will be
necessary to access the impact on profiles and contracts over the remainder of the project lifespan,
particularly where systemic error is the causal factor for the irregularity.
 Note – It is important that accounting action on the ERDF computer system is not delayed as this
can have implications for the debtors control account balance as well as the accuracy of claims to the
Commission.
 Send to – if 2.2 completed this form should now be forwarded to the team responsible for
progressing recovery action; if 2.3 return to form originator.




_________________________________________________________________________________
ERDF Manual                Chapter 15 Annex D Page 2 of 2           November 2007
 Irregularities                                                      Annex E
 ________________________________________________________________________________

ERDF Irregularities: Exemptions from Reporting

The exemptions are: -

1.     Cases where the irregularity consists solely of the failure of the project to proceed owing to the
       bankruptcy of the grant recipient. However, irregularities preceding a bankruptcy and cases
       of suspected fraud must be reported.

2.     Cases brought to the attention of the RDA by the grant recipient voluntarily or before detection by
       the RDA, whether before or after the grant has been paid.
       Should there be any problem recovering the funds wrongly paid here, then the case must
       be reported.

3.     Cases where the RDA finds a mistake regarding the eligibility of the ERDF-assisted project and
       corrects the mistake prior to payment of the grant. However, if the grant has been paid then
       the case must be reported as usual.

4.     Where the irregularity consists of less than €10,000 ERDF (the reporting threshold), the RDA
       must complete an SFIR form if expressly requested by the Commission.


Note

Although the reporting threshold refers to the EU element only, it does not refer to just the actual
irregular expenditure – if the total that WOULD have been paid if the irregularity was NOT detected
was €10,000 or above, then it is NOT de minimis and must be reported.

It should also be noted that if a grant recipient has more than one ERDF-assisted project and each
project has a de minimis level irregularity, you must aggregate the amounts concerned to see if the de
minimis threshold still applies.

All irregularities must be recorded on a single database and dealt with regardless of whether they are
exempt from reporting to OLAF. Through the December quarterly updates, EPP will require all de
minimis and other exempt cases to be reported to them so the database must be up to date and
reliable. The requested details of these previously unreported cases will include total value of the
irregularities (ERDF plus match funding), the ERDF amount, priority axis and the amount (total and
ERDF) that has been recovered.

Details must be recorded in both Euros (€) and Sterling (£)




_________________________________________________________________________________
ERDF Manual                Chapter 15 Annex E Page 1 of 1           November 2007
 Irregularities                                                      Annex F
 ________________________________________________________________________________
Methods of Detection and Types of Irregularity


METHOD OF DETECTION

The list of codes and methods below is OLAF‟s (the EC anti fraud office), but recent audit visits in
England suggest that the Commission Auditors want us to state more clearly whether the irregularity
was detected by Article 13 monitoring visit, Article 16 (AA) inspection, ECA Audit, DG Audit, etc. In
these cases there is no code. You can use one of the codes below as well as stating the type of
visit/audit/inspection.

104            Fiscal Control

107            Initial Enquiry

110            Community Initiative
114            Regulations relating to the Fund – such as 1828/2006
121            Management of the Programme
206            A posterior documentary check

207            Correction of accounts

211            On the spot check
302            Denunciation
303            Grievance or complaint
312            Situation of operator
314            Preventive of control
316            Press /Media Information
317            Parliamentary statement
319            Situation of the Beneficiary
710            National ex-post controls
716            Request for documentary check made to a Member State
717            Request for documentary checks made to the issuing country




TYPES OF IRREGULARITY

Non-exhaustive list – if you cannot identify a code put in 999 and give the details.

101           Absence of accounts
102           Incorrect forms
103           Falsified Accounts
104           Accounts not present [same as 101]
199           Other cases of irregular accounts
207           Request for aid incomplete or incorrect
208           Request for aid falsified
209           Request for aid false
210           Supporting documents missing or incomplete
211           Incorrect supporting documents
212           False supporting documents

_________________________________________________________________________________
ERDF Manual                Chapter 15 Annex F Page 1 of 2           November 2007
 Irregularities                                                                Annex F
 ________________________________________________________________________________
213           Falsified supporting documents
299           Other cases of irregular documents
324           Measure not eligible for aid
325           Ineligible expenditure
401           Incorrect identity
402           Non-existent operation
403           Misdescription of use
405           Irregular sales or reduction, including liquidation
407           Failure to respect quotas, thresholds
408           Operator/Beneficiary not of the required quality
491           Other irregularities by the beneficiary
499           Other irregularities by the Operator, Inc poor financial control
601           Failure to respect deadlines
602           Operation prohibited during the measure
605           Absence of declaration or late return

606        Incompatible cumulation of aid

607        Absence of evidence required
608        Refusal of control
609        Refusal of Payment
611        Several request for the same subject [information]
612        Failure to respect other regulations/contract conditions
614        Infringement of rules concerning public works – [Public Procurement Directive, for
           instance]
699        Other irregularities concerning the right to aid
810        Action not carried out
811        Action not completed
812        Action not carried out in accordance with the rules
822        Expenditure not related to period in which action was carried out
823        Expenditure not legitimate/ Cost benefit not credible
831        Over-financing [including double counting]
832        Insufficient match funding – public or private sector
840        Revenue not declared
998        Not indicated

999        Other irregularities – to be indicated on the form




_________________________________________________________________________________
ERDF Manual                Chapter 15 Annex F Page 2 of 2           November 2007
  Irregularities                                                                                     Annex G
  ____________________________________________________________________________________________________________________
MANAGING ERDF IRREGULARITIES AND FINANCIAL CORRECTIONS: 2007-2013 PROGRAMMES

XRDA - RECORD OF IRREGULARITY CASES                                                                   UNCONCLUDED CASES (open and not removed from declaration to EC)


            col 1                         col 2                 col 3     col 4    col 5     col 6      col 7    col 8     col 9     col 10            col 11             col 12           col 13
   Organisation (Name of     Project Name (Title of Project),   Total Ineligible   Ineligible Grant    Ineligible Public   Ineligible Private    How Discovered &           Date     Action
        Applicant)           Reference No. and Priority Axis     Expenditure         - ERDF only         Sector match        Sector match       Type of Irregularity ie   recorded   Taken/Comments
                                                                                                            funding             funding          Art13/Art16//Claim           or     with dates
                                                                                                                                                 Check and whether        reported
                                                                                                                                                      Publicity/           to CLG
                                                                                                                                                Procurement/Missing
                                                                                                                                                  Docs etc. State if
                                                                                                                                                      systemic
                                                                 (£)       (€)      (£)       (€)       (£)       (€)       (£)        (€)
Objective 1 (EXAMPLE)

     Victoria City Council         Stockley AC System                                                                                           Article 16 Inspection:    00.13.07   00.14.07, Amount
                                      Ref:EEP0.009              50,000   75,000    20,000   30,000     15,000    22,500    15,000    22,500     missing documentation                to be recovered
                                          PA:1.2                                                                                                and building being too               from claim 3,
                                                                                                                                                cold.                                excluded from EC
                                                                                                                                                                                     declaration and to
                                                                                                                                                                                     be re-cycled within
                                                                                                                                                                                     the programme.




_____________________________________________________________________________________________________________________
ERDF Manual                                     Chapter 15 Annex G Page 1 of 4                          November 2007
 Irregularities                                                                                     Annex G
 ____________________________________________________________________________________________________________________

Objective 2 (EXAMPLE)




_____________________________________________________________________________________________________________________
ERDF Manual                                     Chapter 15 Annex G Page 2 of 4                          November 2007
    Irregularities                                                                                     Annex G
    ____________________________________________________________________________________________________________________

MANAGING ERDF IRREGULARITIES AND FINANCIAL CORRECTIONS: 2000-06 PROGRAMMES
                                                                            CONCLUDED CASES (taken from declaration to EC but not
XRDA - RECORD OF IRREGULARITY CASES
                                                                            necessarily 'closed')


         col 1                  col 2           col 3     col 4    col 5      col 6     col 7      col 8    col 9      col 10        col 11          col 12          col 13        col 14      col 15
 Organisation (Name of      Project Name        Total Ineligible   Ineligible Grant -   Ineligible Public   Ineligible Private         How            Date           Action        Amount of ERDF grant
      Applicant)          (Title of Project),    Expenditure          ERDF only           Sector match        Sector match        Discovered &     recorded or   Taken/Comme           recovered
                           Reference No.                                                     funding             funding             Type of       reported to   nts with dates.
                          and Priority Axis                                                                                      Irregularity ie      CLG         Record how
                                                                                                                                 Art13/Art16/Cl                     case was
                                                                                                                                 aim Check and                     closed and
                                                                                                                                     whether                     how recovered
                                                                                                                                    Publicity/                   grant has been
                                                                                                                                  Procurement/                      dealt with
                                                                                                                                  Missing Docs
                                                                                                                                   etc. State if
                                                                                                                                    systemic
                                                 (£)      (€)       (£)       (€)        (£)        (€)      (£)        (€)                                                         (£)          (€)
Objective 1 (EXAMPLE)

  Victoria City Council     Stockley AC                                                                                          Article 10        00.13.07      00.14.07,          20,000       30,000
                              System            50,00     75,00    20,000    30,000     15,000     22,500   15,000     22,500    Inspection:                     Amount
                           Ref:EEP0.009         0           0                                                                    missing                         recovered from
                              PA:1.2                                                                                             documentation                   claim 3,
                                                                                                                                 and building                    excluded from
                                                                                                                                 being too cold.                 EC declaration
                                                                                                                                                                 and to be re-
                                                                                                                                                                 cycled.




  _____________________________________________________________________________________________________________________
  ERDF Manual                                     Chapter 15 Annex G Page 3 of 4                          November 2007
    Irregularities                                                                                     Annex G
    ____________________________________________________________________________________________________________________

Objective 2
(EXAMPLE)




  _____________________________________________________________________________________________________________________
  ERDF Manual                                     Chapter 15 Annex G Page 4 of 4                          November 2007
 Irregularities                                          Annex H
 __________________________________________________________________




COMMISSION OF THE EUROPEAN COMMUNITIES



Brussels, 2.3.2001 C(2001) 476

Guidelines on the principles, criteria and indicative scales to be applied by Commission
departments in determining financial corrections under Article 39{3) of Regulation (EC) No
1260/1999

EN




___________________________________________________________________
ERDF Manual         Chapter 15 Annex H Page 1 of 7    November 2007
  Irregularities                                          Annex H
  __________________________________________________________________
1. PRINCIPLES

The purpose of financial corrections is to restore a situation where 100% of the expenditure
declared for co-financing from the Structural Funds is in line with the applicable national and
EU rules and regulations. This allows the establishment of a number of key principles for the
Commission services to apply in determining financial corrections:

(a) Irregularity is defined in Article 1(2) of Regulation 2988/95. Irregularities can be one-off
    or systemic.

(b) A systemic irregularity is a recurrent error due to serious failings in management and
    control systems designed to ensure correct accounting and compliance with rules and
    regulations.

              If the applicable rules and regulations are respected, and all reasonable
               measures are taken to prevent, detect and correct fraud and irregularity, no
               financial corrections will be required.

              If the applicable rules and regulations are respected, but the management and
               control systems need to be improved, there should be pertinent
               recommendations, but no financial corrections need be envisaged.

              Where only errors relating to sums of less than €4,000 €10,000 (amd by Earl
               Hines, CLG,Aug 07) (the threshold for reporting irregularities under
               Regulation (EC) No 1681/94) are found, the Member State should be urged to
               correct the errors without the opening of financial correction proceedings
               under Article 39(2).

              If there are serious failings in the management or control systems which could
               lead to systemic irregularities, in particular failures to respect the applicable
               rules and regulations, financial corrections should always be made.

(c) The amount of the financial correction will be assessed wherever possible on the basis of
    individual files and be equal to the amount of expenditure wrongly charged to the Funds
    in the cases concerned. Specifically quantified corrections on each individual operation
    concerned are not always possible or practicable, however, or it may be disproportionate
    to cancel the entire expenditure in question. In such cases, the Commission has to
    determine corrections on the basis of extrapolation or at flat rates.

(d) Where there is evidence that individual quantifiable irregularities of the same type have
    occurred in a great number of other operations, or throughout a measure, priority/sub-
    programme or programme, but it is not cost-effective to determine the irregular
    expenditure for each operation individually, the financial correction may be based on
    extrapolation.

              Extrapolation can only be used where a homogeneous population or subset of
               operations sharing similar characteristics can be identified and shown to have
               been affected by the deficiency. In this case, the results of a thorough
               examination of a representative sample of the individual files concerned
               selected at random are extrapolated to all the files making up the population
               identified, in accordance with generally accepted auditing standards.



___________________________________________________________________
ERDF Manual         Chapter 15 Annex H Page 2 of 7    November 2007
  Irregularities                                                                   Annex H
  __________________________________________________________________
(e) In the case of individual breaches or systemic irregularities whose financial impact is not
     precisely quantifiable because it is subject to too many variables or is diffuse in its
     effects, such as those resulting from a failure to undertake checks effectively to prevent
     or detect the irregularity or to comply with a condition of the assistance or a Community
     rule, where it would nevertheless be disproportionate to refuse all the assistance
     concerned, flat rates should be applied.

              Flat rate corrections are determined in accordance with the seriousness of the
               deficiency in the management and control system or the individual breach and
               the financial implications of the irregularity. A list of what the Commission
               considers to be key and ancillary elements of systems for the purpose of
               assessing the seriousness of deficiencies is given in section 2.2 and an
               indicative scale of flat rates for corrections in section 2.3. Flat rate corrections
               are applied to all expenditure under the measure or measures concerned unless
               the deficiencies were limited to certain areas of expenditure (individual
               operations or types of operation), in which case they are applied to those areas
               of expenditure only. The same expenditure will not normally be subject to
               more than one correction.

(f) In areas where there is a margin for discretion in evaluating the gravity of the
    infringement, as in cases of disregard of environmental conditions, corrections shall be
    subject to the following conditions: a significant failure to respect the rules and a clearly
    identifiable link with the action receiving EU co-finance.

(g) Irrespective of the kind of corrections proposed by the Commission, the Member State is
    always given the opportunity to demonstrate that the real loss or risk to the Funds and the
    extent or gravity of the irregularity was less than that assessed by the Commission
    services. The Court of Justice has held that the burden of such proof is on the Member
    State.l The procedure and time limits are set out in Article 5 of Regulation (EC) No
    448/2001.

(h) Unlike the case with corrections made by the Member State under Article 39(1), financial
    corrections decided by the Commission under Article 39(3) always involve a net
    reduction to the EU funding committed to the assistance.

(i) Where the Member State's audit system -Court of Auditors, internal or external audits -
    has detected the irregularities and the Member State (takes appropriate corrective action
    under Article 39(1) of Regulation (EC) No 1260/1999 within a reasonable period of time
    and observes the provisions of Article 3 of Commission Regulation (EC) No 1681/94, no
    financial corrections can be imposed by the Commission under Article 39(3) of
    Regulation 1260/1999 and the Member State is free to reuse the funds. In other cases the
    Commission may act on the findings of national audit bodies, as it can where an EU
    audit body establishes the irregularity. When the Commission bases its position on the
    facts established and fully documented by other EU audit bodies, it will form its own
    conclusions regarding their financial consequences, after examining any replies from the
    Member State.

(j) In all cases of corrections by extrapolation or on a flat-rate basis, the proposed correction
     is submitted to an ad hoc inter-service advisory panel, which will consider the arguments
     presented by the Commission auditor for applying the correction and assess whether the
     level is appropriate. .

----------------------------------------------
1
         See judgement of ECJ of 21.1.1999 in Case C-54/95, Germany v. Commission, para.
35, referring also         to Netherlands v. Commission, Case C-48/93.
___________________________________________________________________
ERDF Manual         Chapter 15 Annex H Page 3 of 7    November 2007
 Irregularities                                          Annex H
 __________________________________________________________________

2. CRITERIA AND SCALES FOR FLAT-RATE CORRECTIONS

2.1   Criteria

      As noted in para. 1 (c) above, flat-rate corrections may be envisaged when the
      information resulting from the enquiry does not permit the financial impact of an
      individual case or several cases of irregularities to be evaluated precisely by statistical
      means, or by reference to other verifiable data, but does lead to the conclusion that the
      Member State has failed to carry out adequate verification of the eligibility of claims
      paid.

      Flat-rate corrections should be considered when the Commission finds a failure to
      adequately effect any control which is explicitly required by a regulation, or implicitly
      required in order to respect an explicit rule (the limiting of aid to a certain type of
      operations, for example), and whose absence could lead to systemic irregularity. They
      should also be considered where the Commission finds serious deficiencies in
      management and control systems resulting in breaches of applicable rules and
      regulations on a wide scale or detects individual breaches. Flat-rate corrections can also
      be appropriate when the Member States' own control services discover such irregularities
      but the Member State fails to take appropriate corrective action within a reasonable
      period of time. .

      In determining whether a flat-rate financial correction should result and, if so, at what
      rate, the general consideration shall be the assessment of the degree of risk of loss to
      which Community funds were exposed as a consequence of the control deficiency. Thus
      the correction should be in compliance with the principle of proportionality. The specific
      elements to be taken into account should include the following:

      (1) whether the irregularity is related to an individual case, multiple cases or all cases;

      (2) whether the deficiency relates to the effectiveness of the management and control
          system generally, to the effectiveness of a particular element of the system, i.e. the
          operation of particular functions necessary to ensure the legality, regularity and
          eligibility of expenditure declared for co-financing from the Funds under the
          applicable national and EU rules (see section 2.2 below);

      (3) the importance of the deficiency within the totality of the administrative, physical
          and other controls foreseen;

      (4) the vulnerability to fraud of the measures, having regard particularly to the
          economic incentive.
2.2 Classification of elements of management and control systems for the purpose of applying
     flat rates of financial corrections for system deficiencies or individual breaches
      Management and control systems for the Structural Funds consist of various elements or
      functions of greater or lesser importance for ensuring the legality, regularity and
      eligibility of expenditure declared for co-financing. For the purpose of assessing flat rate
      corrections for deficiencies in such systems or individual cases of irregularity, it is useful
      to classify the functions of management and control systems into key and ancillary
      elements.

___________________________________________________________________
ERDF Manual       Chapter 15 Annex H Page 1 of 6      November 2007
 Irregularities                                          Annex H
 __________________________________________________________________

     Key elements are those designed and essential to ensure the legality and regularity and
     indeed the substance of operations supported by the Funds, ancillary elements those that
     contribute to the quality of a management and control system and help ensure that the
     system keeps performing well in relation to its key functions.
     The list below contains the majority of elements of good management and control
     systems and good audit practice. The seriousness of deficiencies and individual breaches
     varies considerably, and cases will therefore be assessed by the inter-service panel
     having regard, in particular, to section 2.4 below.

2.2.1 Key elements for ensuring eligibility for co-financing

     1. Provision and application of procedures for grant applications, appraisal of
         applications, selection for funding and selection of contractors/suppliers.

            a) proper advertisement of calls for applications in accordance with programme
               procedures
               - compliance, where applicable, with rules on publicity, equality of opportunity
                 and public procurement, and with Treaty rules and principles of transparency,
                 equality of treatment and non-discrimination where EC public procurement
                 directives are not applicable;

            b) appraisal of project applications in accordance with programme criteria and
               procedures, including compliance with rules on environmental impact
               assessment, equality of opportunity legislation and policies;

            c) selection for funding:
               - applications selected correspond to objectives and published criteria of
                  programme;
               - reasons for acceptance or rejection of applications are clearly set out;
               - observance of state aid rules;

               - observance of eligibility rules;
               - inclusion of terms and conditions of funding in approval decision;
            d) selection of contractors/suppliers in according with public procurement rules;

     2. Adequate verification of delivery of products and services and of eligibility of
        expenditure charged to programme

        -     on the part of the managing authority and intermediate bodies lying between the
             final beneficiary (or the body or firm carrying out the operation) and the managing
             authority:

        (a) verifying the reality of "deliverables" (services, works, supplies, etc.) against
            plans, invoices, acceptance documents, experts' reports, etc., and, where
            appropriate, on the spot;
        (b) verification of observance of conditions of grant approval;
        (c) verification of eligibility of amounts claimed;
        (d) adequate follow-up of all outstanding questions before acceptance of claim;
        (e) maintenance of an adequate and reliable accounting system;
___________________________________________________________________
ERDF Manual           Chapter 15 Annex H Page 2 of 6                    November 2007
 Irregularities                                          Annex H
 __________________________________________________________________

           (f) maintenance of the audit trail at all levels from final beneficiary or body or
               firm carrying out operation up through the system.

        - on the part of the paying authority :
           Taking reasonable measures to obtain assurance that the declarations of
           expenditure it certifies to the Commission are correct insofar as:

           (a) expenditure was effected within the eligible period in operations selected for
               co-financing for the specific assistance in accordance with normal procedures
               and all applicable terms and conditions;
           (b) under measures for which all state aid has been formally approved by the
               Commission;
           (c) the co-financed operations have actually been carried out.

      3. Sufficient quantity and quality of sample checks on operations and adequate follow-up
        a) carrying out sample checks on at least 5% of total eligible expenditure in
           accordance with the management and control systems regulation, supported by a
           report on the work done by the auditor;
        b) the sample is representative and the risk analysis adequate;
        c) adequate separation of functions vis-à-vis line management to ensure
          independence;
        d) follow-up to checks, ensuring
           (a) appropriate assessment of results and financial corrections where appropriate,
           (b) action at a general level to correct systemic irregularities.
        e) adequate examination underlying declaration on closure under Articles 15-17 and
           Annex III of Regulation (EC) No 438/2001.


2.2.2 Ancillary elements
       a) satisfactory administrative controls in the form of standard checklists or equivalent
          means and proper documentation of results, to ensure for instance:
          - that claims have not been paid before and transactions (contracts, receipts,
             invoices, payments) are separately identifiable;
          - reconciliation within the accounting system of declarations and expenditure
             recorded;
       b) proper supervision of payment processing and authorisation procedures;
       c) satisfactory procedures to ensure proper dissemination of information about EU
          rules;
       d) ensuring timely payment of Community funding to beneficiaries.

2.3   Indicative scales of flat-rate corrections

       100% correction

___________________________________________________________________
ERDF Manual       Chapter 15 Annex H Page 3 of 6      November 2007
 Irregularities                                          Annex H
 __________________________________________________________________

      The rate of correction may be fixed at 100% when the deficiencies in the Member
      State's management and control system are, or an individual breach is, so serious as to
      constitute a complete failure to comply with Community rules, so rendering all the
      payments irregular.

      25% correction

      When a Member State's application of its management and control system is gravely
      deficient, and there is evidence of widespread irregularity, and negligence in countering
      irregular or fraudulent practices, a correction of 25% is justified, as it can then
      reasonably be assumed that the freedom to submit irregular claims with impunity will
      occasion exceptionally high losses to the Fund. A correction at this rate is also
      appropriate for irregularities in an individual case which are serious but do not
      invalidate the whole operation.

      10% correction

      When one or more key elements of the system do not function or function so poorly or
      so infrequently that they are completely ineffective in determining the eligibility of the
      claim or preventing irregularity, a correction of 10% is justified, as it can reasonably be
      concluded that there was a high risk of widespread loss to the Fund. This rate of
      correction is also appropriate for individual irregularities of moderate seriousness in
      relation to key elements of the system.

      5% correction

      When all the key elements of the system function, but not with the consistency,
      frequency, or depth required by the regulations, then a correction of 5% is justified, as
      it can reasonably be concluded that they do not provide a sufficient level of assurance
      of the regularity of claims, and that the risk to the Funds was significant. A 5%
      correction can also be appropriate for less serious irregularities in individual operations
      in relation to key elements.

      The fact that the way in which a system operates is perfectible is not in itself sufficient
      grounds for a financial correction. There must be a serious deficiency of compliance
      with explicit Community rules or standards of good practice and the deficiency must
      expose the Structural Funds to a real risk of loss or irregularity.

      2% correction

      When performance is adequate in relation to the key elements of the system, but there
      is a complete failure to operate one or more ancillary elements, a correction of 2% is
      justified in view of the lower risk of loss to the Fund, and the lesser seriousness of the
      infringement.

      A 2% correction will be increased to 5% if the same deficiency is established in
      relation to expenditure after the date of the first correction imposed and the Member
      State has failed to take adequate corrective measures for the part of the system at fault
      after the first correction.

     A correction of 2% is also justified where the Commission has informed the Member
     State, without imposing any correction, of the need to make improvements to ancillary
     elements of the system that are in place but do not operate satisfactorily, but the
     Member State has not taken the necessary action. Corrections are only imposed for
___________________________________________________________________
ERDF Manual           Chapter 15 Annex H Page 4 of 6                  November 2007
 Irregularities                                          Annex H
 __________________________________________________________________

      deficiencies in ancillary elements of management and control systems where no
      deficiencies have been identified in key elements. If there are deficiencies in relation to
      ancillary elements as well as in key elements, corrections are only made at the rate
      applicable to the key elements.


2.4   Borderline cases

      Where the correction resulting from a strict application of these guidelines would be
      clearly disproportionate, a lower rate of correction may be proposed. The inter-service
      advisory panel referred to in para. 1 j) will give careful consideration to the
      proportionality of corrections.

      For example, where the deficiencies arose from difficulties in the interpretation of
      Community rules or requirements (except in cases where it should reasonably be
      expected that the Member State raise such difficulties with the Commission), and the
      national authorities took effective steps to remedy the deficiencies as soon as they were
      brought to light, this mitigating factor may be taken into account and a lower rate or no
      correction may be proposed. Similarly, due regard should be paid to claims of legal
      security when the deficiencies were not reported following earlier audits by the
      Commission's services, or, in the case of Community initiatives implemented in the
      form of global grants, where the procedures have been agreed between the Commission
      and the Member State in accordance with Article 27(2) of Regulation (EC) No
      1260/1999.

      In general, the fact that deficient management or control systems were improved
      immediately after the deficiencies were reported to the Member State is not considered
      as a mitigating factor when' assessing the financial impact of the systemic irregularities
      before the improvement was made.


2.5   Basis of assessment

      Whenever the situation in other Member States is known, there should be a comparison
      between them to ensure equal treatment in the assessment of the rates of correction.
      This is a prime objective of the inter-service advisory panel.

      The rate of correction should be applied to that part of the expenditure placed at risk.
      When the deficiency results from a failure by the Member State to adopt an appropriate
      control system, then the correction should be applied to the entire expenditure for
      which that control system was required. When there is reason to suppose that the
      deficiency is limited to that of a particular authority's or region's application of the
      control system adopted by the Member State, the correction should be limited to the
      expenditure controlled by that authority or region. When the deficiency relates for
      example to verification of the criteria for eligibility for a higher rate of aid, then the
      correction should be based on the difference between the higher and lower rate of aid.

      The correction should normally concern the expenditure of the measure over the period
      being examined, for example one financial year. However, when the irregularity results
      from systemic deficiencies, which are evidently long- standing and affecting several
      years' expenditure, then the correction should concern all the

___________________________________________________________________
ERDF Manual       Chapter 15 Annex H Page 5 of 6      November 2007
 Irregularities                                          Annex H
 __________________________________________________________________

     expenditure declared by the Member State while the system deficiency obtained until
     the month in which it was remedied.

     When several deficiencies are found in the same system, the flat rates of correction are
     not cumulated, the most serious deficiency being taken as an indication of the risks
     presented by the control system as a whole2. They are applied to the expenditure
     remaining after deduction of the amounts refused for individual files. In the case of the
     Member State's non-application of sanctions prescribed by national law, the financial
     correction should be the amount of the sanctions not applied, together with 2% of the
     remaining claims, as the non-application of sanctions increases the risk that irregular
     claims will be submitted.




3.   APPLICATION AND EFFECT OF NET FINANCIAL CORRECTIONS


     Where the Member State agrees to make the financial correction proposed in the
     procedure under Article 39(2) of Regulation 1260/1999, the Commission need not
     impose a net reduction in the funding to the programme but allow the Member State to
     re-programme the sums released. However, financial corrections imposed by
     Commission decision under Article 39(3) after completion of the procedure laid down
     by Article 39(2) will in all cases involve a net reduction in the Member State's
     indicative allocation of funding under Article 7(3) of the Regulation.


     A net correction should in any case be applied where the Commission judges that the
     Member State has failed to give a sufficient follow-up to the findings of irregularities
     detected by national or Community bodies, and/or if the irregularity is attributable to a
     serious failing in the management or control systems of the Member State, or the
     managing or paying authority.


     Interest on any sums to be reimbursed to the Commission following net corrections
     should be charged under Article 39(4) of Regulation 1260/1999 in accordance with
     Article 7 of Regulation 448/2001.




     ----------------------------------------------

     2
          See also section 2.3 (2% correction).




___________________________________________________________________
ERDF Manual       Chapter 15 Annex H Page 6 of 6      November 2007
Irregularities                                          Annex I
  _____________________________________________________________
               EUROPEAN C0MMISSION




GUIDELINES FOR DETERMINING FINANCIAL CORRECTIONS TO BE MADE TO EXPENDITURE
    CO-FINANCED BY THE STRUCTURAL FUNDS OR THE COHESION FUND FOR NON-
                COMPLIANCE WITH THE RULES ON PUBLIC PROCUREMENT




This document sets out guidelines for the financial corrections to be applied for
irregularities in the application of the Community regulations on public procurement to
contracts co-financed by the Structural Funds or the Cohesion Fund.

When the Commission services detect such irregularities during audits, they must
determine the amount of the financial correction applicable. If, when the Commission
proposes a correction, the Member State does not agree to make the correction itself in
accordance with Article 39(1) of Regulation (EC) No 1260/1999, the correction is made
by Commission decision under Article 39(3). These guidelines are intended to help the
Commission services to maintain a common approach in dealing with these cases of
irregularities.

The control authorities of the Member States may also detect irregularities of the same
type during their controls. In this case, they are required to make the necessary corrections
in accordance with Article 39(1) of the Regulation.

The competent authorities in the Member States are recommended to apply the same
criteria and rates when correcting irregularities detected by their own services, unless they
apply yet stricter standards.

The cases described in the table in the Annex are the types of situations found most
frequently. Other cases not shown in the table should be dealt with in accordance with the
same principles. The amounts and rates take account of the relevant Community
regulations and the guidance documents on financial corrections, in particular:

Community Directives relating to the coordination of procedures for the award of public
contracts:

   92/50/EEC – Public service contracts,

   93/36/EEC – Public supply contracts,93/37/EEC – Public works contracts,

   93/38/EEC – Public contracts in the water, energy, transport and communications
   sectors,

   2004/17/EEC – Public contracts in the water, energy, transport and postal services
   sectors,

   2004/18/EEC – Public works contracts, public supply contracts and public service
   contracts.

_______________________________________________________________
ERDF Manual     Chapter 15 Annex I Page 1 of 10  November 2007
Irregularities                                                 Annex I
  _____________________________________________________________
   2005/51/EC – amending Annex XX of Directive 2004/17/EC and Annex VIII of
   Directive 2004/18/EC

     Regulation (EC) No 1564/2005 establishing standard forms for the publication of
     notices in the framework of public procurement procedures pursuant to Directives
     2004/17/EC and 2004/18/EC

     Decision 2005/15/EC on the detailed rules for the application of the procedure provide
     for in Article 30 of Directive 2004/17/EC

Relevant provisions of the legislation on the Structural and Cohesion Funds:

     Under Article 12 of Regulation (EC) No 1260/1999, operations financed by the Funds
     must be in conformity with the provisions of the Treaty, with instruments adopted
     under it and with Community policies, including on the award of public contracts.

     Article 1(2) of Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on
     the protection of the European Communities financial interests states:
     “Irregularity14shall mean any infringement of a provision of Community law resulting
     from an act or omission by an economic operator, which has, or would have, the effect
     of prejudicing the general budget of the Communities or budgets managed by them,
     either by reducing or losing revenue accruing from own resources collected directly on
     behalf of the Communities, or by an unjustified item of expenditure.”

     Article 39(1) of Regulation (EC) No 1260/99 provides that “The Member State shall
     make the financial corrections required in connection with the individual or systemic
     irregularity. The corrections made shall consist in cancelling all or part of the
     Community contribution.” Pursuant to Article 39(3), if the Member State does not
     make the necessary financial corrections, the Commission may itself decide to make the
     financial corrections required by cancelling all or part of the contribution of the Funds
     to the assistance concerned. To determine the amount of a correction, the Commission
     takes account, in compliance with the principle of proportionality, of the type of
     irregularity or change and the extent and financial implications of the shortcomings
     found in the management or control systems of the Member States.




14
         It should be noted that a definition of „irregularity‟ taken from Article 1(2) of Regulation
(EC, Euratom) No 2988/95, but adapted, for reasons of legal clarity, to the structural policies field,
was introduced by Commission Regulation (EC) No 2035/2005 of 12 December 2005 amending
Regulation (EC) No 1681/94 concerning irregularities and the recovery of sums wrongly paid in
connection with the financing of the structural policies and the organisation of an information
system in this field.
_______________________________________________________________
ERDF Manual     Chapter 15 Annex I Page 2 of 10  November 2007
Irregularities                                          Annex I
  _____________________________________________________________
   Under Article 4 of Regulation (EC) No 448/2001,

  “1. The amount of financial corrections made by the Commission under Article 39(3) of
  Regulation (EC) No 1260/1999 for individual or systemic irregularities shall be
  assessed wherever possible and practicable on the basis of individual files and be equal
  to the amount of expenditure wrongly charged to the Funds, having regard to the
  principle of proportionality.

  2. When it is not possible or practicable to quantify the amount of irregular expenditure
  precisely, or when it would be disproportionate to cancel the expenditure in question
  entirely, and the Commission therefore bases its financial corrections on extrapolation
  or a flat rate, it shall proceed as follows:

  (a) in the case of extrapolation, it shall use a representative sample of transactions with
  like characteristics;

  (b) in the case of a flat rate, it shall assess the importance of the infringement of rules
  and the extent and financial implications of the irregularity established.”

  Identical provisions were adopted for the Cohesion Fund (see Article H(2) of Annex II
  to Regulation (EC) No 1164/94 and Regulation (EC) No 1386/2002).

  Guidelines on the principles, criteria and indicative scales to be applied by the
  Commission departments in determining financial corrections under Article 39(3) of
  Regulation (EC) No 1260/1999 were adopted by Commission Decision C/2001/476.

  The same principles were adopted for the Cohesion Fund by Commission Decision
  C/2002/2871.

  In accordance with these principles,

  "The purpose of financial corrections is to restore a situation where 100% of the
  expenditure declared for cofinancing from the Structural Funds is in line with the
  applicable national and EU rules and regulations."

  "The amount of the financial correction will be assessed wherever possible on the basis
  of individual files and be equal to the amount of expenditure wrongly charged to the
  Funds in the cases concerned. Specifically quantified corrections on each individual
  operation concerned are not always possible or practicable, however, or it may be
  disproportionate to cancel the entire expenditure in question. In such cases, the
  Commission has to determine corrections on the basis of extrapolation or at flat rates."

  In addition, in accordance with the guidelines:

  Where the financial correction “is not quantifiable because it is subject to too many
  variables or is diffuse in its effects, flat rates should be applied.”

  "Flat rate corrections are determined in accordance with the seriousness of the
  individual breach and the financial implications of the irregularity".

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   The amounts and rates of financial corrections set out in the table in the Annex are
   applied to individual cases of irregularities due to non-compliance with the rules on
   public procurement. Where systemic or repeated irregularities are detected in the
   application of the rules on public procurement, financial corrections at flat rates or by
   extrapolation (within the meaning of Article 4 of Regulation No 448/2001) can be made
   to all the operations and/or programmes affected by the irregularities. The amounts
   and rates of financial corrections set out in the table in the Annex may be increased
   where irregular applications for payment are presented to the Commission after the date
   on which the latter has explicitly informed the Member State, by reasoned opinion
   based on Article 226 of the Treaty, of an infringement of the public procurement
   regulations.




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1.   Contracts subject to the EC Public Procurement Directives



No    Irregularity                                                                                           Recommended
                                                                                                             correction
1     Non-compliance with      The contract was awarded without complying with the advertising               100% of the value of the
      the advertising          requirements laid down in the EC Public Procurement Directives, except        contract involved
      procedures               in the cases referred to in point 2 below. This is a flagrant disregard of
                               one of the conditions for Community co-financing.


2     Non-compliance with      The contract was awarded without complying with the advertising requirements 25% of the value of the
      the advertising          laid down in the EC Public Procurement Directives, but was advertised to some contract involved
      procedures               extent allowing economic operators located in another Member State access to
                               the contract.

3     Additional works,        The main contract was awarded in accordance with the EC Public Procurement 100% of the value of the
      supplies or services     Directives, but was followed by one or more supplementary contracts (whether or supplementary
      provided in the          not formalised in writing) awarded without complying with the provisions of the contract(s)
      absence of urgent        Public Procurement Directives.
      and/or unforeseeable
      circumstances

      (Note No 2)
4     Additional works or        The main contract was awarded in accordance with the provisions of the EC 100% of the amount
      services exceeding the     Directives, but was followed by one or more supplementary contracts exceeding 50% of the
      limit laid down by the     exceeding the value of the original contract by more than 50%.               value of the original
      Directives provided in                                                                                  contract
      unforeseen                 The additional works themselves do not constitute a separate work within the
                                 meaning of Article 1(c) of Directive 93/37 or Article 1(2)(a) and 2(b) of
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     circumstances                Directive 2004/18 or a separate service within the meaning of Article 1(a) of
                                  Directive 92/50 or Article 1(2)(a) and 2(d) of Directive 2004/18.
     (Note No 2)
                                  In cases where the additional works or services exceed the thresholds of the
                                  Directives and constitute a separate work or service, it is necessary to take
                                  account of the aggregate value of all the additional works (services) for the
                                  purposes of the application of the Public Procurement Directives. Where the
                                  additional works (services) constitute a separate work (service) but do not
                                  exceed the thresholds laid down by the Directives, point 22 below applies.

5    Failure to state all the   The contract was awarded in compliance with the advertising rules of the Public 25% of the value of the
     selection and contract     Procurement Directives, but the tender documents or tender notice failed to state contract
     award criteria in the      all the selection and/or award criteria or to describe them sufficiently.
     tender documents or
     tender notice

6    Application of             The contract was awarded applying unlawful contract award criteria (for                5%, 10% or 25% of the
     unlawful contract          example, use of a selection criterion for the award of the contract, non-              value of the contract,
     award criteria             compliance with the criteria stated by the contracting authority in the tender         depending on
                                notice or tender documents or incorrect and/or discriminatory application of           seriousness
                                contract award criteria).


7    Unlawful selection         Cases in which certain operators have been deterred from bidding on account of         25% of the value of the
     and/or contract award      unlawful restrictions laid down in the tender notice or tender documents (for          contract.
     criteria laid down in      example, the obligation to already have an establishment or representative in the
     the tender procedure       country or region, or setting technical standards that are too specific and favour a   (A financial correction of
                                single operator or the possession of experience in the region, etc.).                  100% of the value of the
                                                                                                                       contract may be applied
                                                                                                                       in the most serious cases
                                                                                                                       when there is a deliberate
                                                                                                                       intention to exclude
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                                                                                                                 certain bidders.)




8    Insufficient or          The description in the tender documents or tender notice is discriminatory or 25% of the value of the
     discriminatory           insufficient for bidders to determine the subject-matter of the contract or for the contract
     definition of the        contracting authorities to award the contract.
     subject-matter of the
     contract




9    Negotiation during the The contract was awarded by open or restricted procedure but the contracting 25% of the value of the
     award procedure        authorities negotiated with the bidders during the award procedure, except where contract
                            the discussions were solely intended to clarify or supplement the content of their
                            bids or specify the obligations of the contracting authorities.




10   Reduction in the         The contract was awarded in compliance with the Public Procurement Directives, Value of the reduction in
     physical object of the   but was followed by a reduction in the physical object of the contract without the physical object
     contract                 making a proportional reduction in the value of the contract. The reduction does
                              not alter the economic basis of the award by changing one of its essential
     (Note No 2)              conditions.

                              (This correction applies even in cases where the amount of the reduction is used
                              to carry out other works).

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11    Reduction in the         The contract was awarded in compliance with the Public Procurement Value of the reduction in
      physical object of the   Directives, but was followed by a reduction in the physical object of the contract the physical object
      contract                 without making a proportional reduction in the value of the contract. The
                               reduction alters the economic basis of the award by changing one of its essential Plus
       (Note No 2)             conditions.
                                                                                                                  25% of the value of the
                                (This correction applies even in cases where the amount of the reduction is used final physical scope
                               to carry out other works).

12    Reduction in the         The contract was awarded in compliance with the Public Procurement 25% of the value of the
      physical object of the   Directives, but was followed by a reduction in the physical object of the contract final physical object
      contract                 with a proportional reduction in the value of the contract already carried out.
                               The reduction alters the economic basis of the award by changing one of its
       (Note No 2)             essential conditions.

                                (This correction applies even in cases where the amount of the reduction is used
                               to carry out irregular supplementary contracts).

13    Incorrect application    The contract was awarded in compliance with the provisions of the Public 2%, 5% or 10% of the
      of certain ancillary     Procurement Directives, but without complying with certain ancillary elements, value of the contract,
      elements                 such as publication of the notice of award of the contract.                     according to the
                                                                                                               seriousness of the
                               Note: If this type of irregularity is only of a formal nature without potential irregularity and whether
                               financial impact, no correction will be made.                                   a repeat occurrence


2.   Contracts not or not fully subject to the Public Procurement Directives (public contracts below the thresholds for application of the
     Community Directives and public contracts for services listed in Annex I B to Directive 92/50/EEC, Annex XVI B to Directive
     93/38/EEC, Annex II B to Directive 2004/18/EC and Annex XVII B to Directive 2004/17/EC


No     Irregularity                                                                                                Recommended
                                                                                                                   correction
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21    Non-compliance with        Contract awarded without adequate competitive tendering, involving non- 25% of the value of the
      the requirement of an      compliance with the principle of transparency                           contract
      adequate degree of
      advertising and
      transparency
      (Note No 1)
22    Additional works,         The main contract was awarded after adequate competitive tendering, but was 25% of the value of the
      supplies or services      followed by one or more supplementary contracts (whether or not formalised in supplementary
      provided in the           writing) awarded without unforeseeable events justifying them.                contract(s)
      absence of urgent
      and/or unforeseeable
      circumstances

       (Note No 2)

23    Application of            Application of unlawful criteria which deter certain bidders on account of 10% of the value of the
      unlawful selection        unlawful restrictions laid down in the tender procedure (for example, the contract
      and/or contract award     obligation to have an establishment or representative in the country or region or
      criteria                  the setting of technical standards that are too specific and favour a single
                                operator).

24    Breach of the              Contracts awarded in accordance with the rules on advertising but where the 10% of the value of the
      principle of equal         contract award procedure breaches the principle of equal treatment of operators contract
      treatment                  (for example, when the contracting authorities have made an arbitrary choice of
                                 candidates with whom they negotiate or if they give preferential treatment to one
                                 of the candidates invited to negotiate).



Note No 1) The concept of “sufficient degree of advertising” must be interpreted in the light of Commission interpretative communication No
2006/C 179/02 on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives,
and in particular:

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Irregularities                                                                                  Annex I
  _________________________________________________________________________________________________________
When awarding public contracts falling within the EC Treaty, contracting entities from Member States have to comply with the rules and
principles of the Treaty, including free movement of goods (Article 28 of the EC Treaty), the right of establishment (Article 43), the freedom to
provide services (Article 49), non-discrimination and equal treatment, transparency, proportionality and mutual recognition.



According to the ECJ, the principles of equal treatment and non-discrimination imply an obligation of transparency which consists in ensuring, for
the benefit of any potential bidder, a degree of advertising sufficient to enable the contract to be subject to competition. The obligation of
transparency requires that an undertaking located in another Member State can have access to appropriate information regarding the
contract before it is awarded, so that, if it so wishes, it would be in a position to express its interest in obtaining the contract.



Note No 2) A limited degree of flexibility can be applied to additional works due to foreseeable circumstances provided that (1) the contracting
authority does not alter the general scheme of the invitation to tender or of the tender documents by amending an essential element for the award of
the contract, and (2) the additional works, had they been included in the notice of tender notice or tender documents, would not have had any impact
on the potential number of bidders or on the content of the offers received. Essential elements of the award of the contract normally relate to the
value of the contract, the nature of the works, the time of execution and the materials used, but there should always be a case by case analysis.




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ERDF Manual                           Chapter 15 Annex I Page 10 of 10                    November 2007

								
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