Auditing EU cohesion policy — aiming for tangible change in the daily life of EU citizens

Iliana Ivanova.

Cohesion funds constitute a substantial part of the EU budget. They are spent through ‘shared management’, meaning that both the European Commission and authorities in the Member States are jointly in charge of running a particular programme. Around 70% of EU programmes are funded this way, including most of the cohesion programmes. This is all the more reason for the ECA to have an audit chamber dedicated to auditing cohesion funds. Iliana Ivanova has chaired this audit chamber, ‘Investment for cohesion, growth and inclusion’, since 2016 and hence has wide experience in auditing cohesion expenditure and its peculiarities. We interviewed her on how a range of factors, including the war in Ukraine and the pandemic, as well as disparities between regions, influence ECA audit activities in this policy area.

By Gaston Moonen

Cohesion — a concept with impact

Having audited cohesion policy programmes for almost ten years now, Iliana Ivanova is very familiar with the challenges and opportunities this key EU policy presents. ‘Obviously the main aim of Cohesion is to reduce disparities between EU regions. It is also the policy which is the closest to EU citizens, even though they may not often realise how projects supported by its funds are actually improving their lives — through, for example, better roads, better drinking water, improved waste treatment facilities, digitalisation and even vocational training and support for our youth. On the surface cohesion policy can come across as something very technical and distant, but its results are definitely not !’. She explains that cohesion projects can lead to very tangible results. ‘I always insist that we report not only on weaknesses but also on good practices when we come across them. After all, it is these successful outcomes that actually matter for the citizens. Those managing cohesion funds can learn lessons from both failures and successes; it is important that as auditors, we give due prominence to good examples, as sometimes these can be more inspiring than the bad practices we find’.

The relevance of cohesion for achieving the EU’s long term objectives was one of the topics discussed during the 8th Cohesion forum held on 17 and 18 March 2022. Iliana Ivanova explains that this was a timely event with a good range of interesting speakers, including Commissioners Ferreira and Schmit. ‘I think in these particular times we need cohesion more than ever. It is not always easy to measure success in cohesion policy. But that is exactly why we need these sorts of discussions where we can exchange experiences on what we’ve achieved and the factors that can contribute to securing good results from cohesion programmes’. She notes that another reason contributing to the success of the event was that it was again finally possible to meet in person. ‘We were there with three ECA representatives — Annemie Turtelboom, Lazaros Lazarou and myself — and I think I speak for all of us when I say that that we found it an extremely interesting and valuable event’.

The 8th Report on Economic, Social and Territorial Cohesion points to the many variables involved in cohesion policy, making it difficult to determine the exact impact of cohesion when it comes to economic growth. The ECA Member agrees: ‘A number of studies have tried to quantify the benefits of cohesion policy, not only for the less developed regions but also for the EU as a whole, arguing that more developed regions also benefit in macro‑economic terms. The quantifications of these estimates may vary. But they tend to show that cohesion policy actions certainly have an added value for the EU; this is an undeniable fact’. She points out that historically the EU focused on making sure that its budget spending complied with relevant rules. ‘But in recent years we have seen in the EU as whole an increased performance‑orientation and a willingness to identify where EU funds have led to positive changes for citizens’.

Identifying what works well and what not

For Iliana Ivanova it is clear that the ECA has contributed significantly to this increased focus on results and impact through its various special reports examining different aspect of cohesion policy. ‘Our role as auditors is to look at the past, identify weaknesses and recommend improvements in financial management in the future. Obviously, this may lead to relatively negative reports, sometimes with critical titles. However, I personally — and I am not alone within the ECA — strive for balanced reports, as it is rare to find a black or white situation’. She underlines that as the external auditor the ECA needs to maintain and present an objective and independent view of the facts. ‘Of course, we see success stories and we see failures. As I said, it is important to be objective and balanced and we do not shy away of reporting on good examples when we see them’.

Iliana Ivanova has a number of examples of this in ECA reports. ‘For instance, I have seen investments in transport which helped to improve connectivity and accessibility. In 2020 we published an audit report on support for the core road network, special report 9/2020, in which we concluded that the EU programmes definitely contribute to the EU’s network development. For these roads we analysed core travel times, the kilometres driven on motorways, the improved safety, and overall improved quality of travel’.

She indicates there are also several examples in the social area, where performance measurement can be even more difficult. ‘The social area is very interesting and I have been following that for quite some years now’. She explains that for its legality and regularity audits the ECA used to report two separate most likely error rates for cohesion expenditure: one relating to social policy and one for regional development. ‘The most likely error rate for the social area was always lower and closer to the 2% materiality threshold. In terms of legality and regularity the social area performed better throughout the years, but in terms of performance it is more difficult to measure because the results are more intangible’. She points out that EU money often funds qualifications and training. ‘It is about courses that people undertake, but it is often difficult to measure the real improvement in employability, for instance. But this is where the real added value of a good special report can be seen. Because our work is not done through a generic sample of questions that you can use for any kind of area, for any kind of portfolio. Our questions need to be specifically targeted and tailor made for the relevant policy area so that you can assess whether EU funding has actually contributed or not to improving the situation’. She reiterates that improvements can manifest themselves in various ways. ‘Of course, we have also examples of failures, but that is how it is’.

She observes that some audit topics get more media attention than others. ‘An example is our special report 5/2021 on the infrastructure of recharging electric vehicles, or our special report 3/2022 on the 5G roll‑out in the EU’. She says that the easiest examples for her to give relate to the reports on cohesion for which she was the reporting Member. ‘One that comes immediately to my mind is the series of reports we did on the design of the youth guarantee, an EU policy aiming to improve the employment prospects of young people. For instance, we recommended that the Commission promote a set of qualitative attributes, defining what is ‘a good quality offer,’ because at the time this element was missing. Shortly after the publication of our report, action was taken to change the definition — a clear indication where the recommendation added value’. She explains that, following the series of reports the ECA issued on this topic, ‘we still receive questions from the European Parliament Committee on Employment and Social Affairs on this issue’.

Different players, diverging interests, various orientations

Cohesion is an explicit example of a policy area with a shared management set‑up and in which various stakeholders can have different perspectives on the priorities to be addressed. For Iliana Ivanova what matters is that ultimately a compromise is reached and a solution is found. ‘Starting with the European Parliament, particularly the Committee on Regional Development, they have a crucial role in the design of cohesion policy framework . They are working with Commission and the Council, shaping the rules in that policy area. I personally really support the active role of MEPs as they often have different perspectives that can contribute to a more effective and efficient EU policy design’. She highlights the constructive relations the ECA has with the European Parliament, taking into account their suggestions when the ECA formulates its work programme and presents its reports. ‘Here I have to say that I’m really grateful and happy about the excellent relation that we have with the REGI committee. This is thanks to the chair, his team, and of course all the MEPs that actively participate. They always express their appreciation for our work’.

She points out that the national and regional authorities also have an important role to play when it comes to the design and implementation of programmes. ‘At the end of the day, we should not lose the perspective that we all work for the benefit of the European citizens; it is incumbent on all of us to work together and achieve the most that we can with the EU’s scarce resources. Our interests may not be exactly the same, but, especially in these difficult times, it is important that we reach agreement. The Ukrainian crisis has showed that when it wants to the EU can agree and find solutions in a very short time’!

Sometimes EU‑level solutions run into problems at Member State level in terms of their ability to implement programmes properly. The ECA Member identifies this as a problem that the ECA has raised for many years now, across a number of Member States. ‘We’ve been seeing this for years and years, and in 2019 we published a review on the reste à liquider issue called Rising budget backlog could impact future EU‑funded project, in which we provided a number of recommendations’. She explains that this problem happens in every programme period. ‘You can ask me why. And I can tell you that we have made all kinds of recommendations. And over time of course, there is some improvement. But there is always something that exacerbates the problem’.

She points out that recent decades have seen one crisis after another, often overlapping. ‘That is not helping at all, on the contrary. And I would expect that it is quite likely, given the recent developments, we will have a bigger problem with absorption in the future’. She concludes that absorption is one of a number of challenges in the cohesion policy area that the EU, including the ECA, has been seeking to address. ‘And there has been improvement, of course. But there is a lot more work to be done’.

Triggering changes going beyond publishing error rates

One of the improvements relates to cohesion policy spending complying more with the regulatory framework. ‘I often refer to the situation that in the first decade of this century the most likely error rate we found in cohesion expenditure was at double digit level. Each year, we present an objective and comparative figure and cohesion is one of the most error prone areas in terms of compliance. As the ECA, we also report on deficiencies in performance, such as delays in implementation, the underutilisation of infrastructure, cost overruns, and poor monitoring. But that is separate from the legality and regularity issue’. She highlights that cohesion expenditure has gone a significant way to improving both these compliance and performance aspects. ‘From my perspective for each programme period I see that the rules are being improved and simplified; things are getting better. But despite these improvements, we should not forget that the cohesion policy error rate is still above the materiality level of 2%: for 2020 it was 3,5%’.

According to the ECA Member, there remains scope for improving also the performance — efficiency, effectiveness issues — besides legality and regularity elements. ‘You know, several years ago, we introduced a new approach for our Statement of Assurance work in cohesion policy. A key part of this new approach is that we also review the work of Member State audit authorities. By doing so we help them to improve the quality of their checks on the spot, which, obviously, has an impact on the error rate detected by the Commission and ourselves’. It is in this context that she also sees an important role for the ECA as external auditor of the EU budget. ‘Proactively we also participate in different technical meetings organised by the Commission, and by the audit authorities of the Member States. These meetings give us the chance to we exchange good practices and lessons learned at every level. I heard from audit authorities themselves that they really appreciate some early guidance on what should be done and what should not be done. They say ‘If we knew that earlier that would have helped us to avoid some future mistakes. We want to keep doing that because it is obviously giving results. It must continue’!

Another topic to which the ECA has been paying increasing attention is avoiding fraud in the cohesion area. In 2019 the ECA issued its special report 6/2019 Tackling fraud in EU cohesion spending: managing authorities need to strengthen detection, response and coordination, in which the ECA was particularly critical regarding fraud detection actions. Since then, according to Iliana Ivanova, the issue has remained high on the ECA’s agenda. ‘It is very important, also for us. Of course, fraud prevention is not the primary responsibility of the external auditor. But we take it very, very seriously in our work and we try actively to contribute to the fight against fraud in the EU budget. We do this by reporting on what we find — any suspicion of fraud, corruption or any other illegal activity affecting the EU financial interests — through a cooperation agreement, to OLAF, the European Anti‑Fraud Office. Obviously OLAF is responsible for further investigating such cases’. She also refers to the latest working arrangements signed between the ECA and the EPPO, the European Public Prosecutor’s Office. ‘We submit to EPPO any evidence where we consider that criminal conduct may exist and we think they could exercise their competence. Our attention to fraud and corruption also features in our 2021‑2025 strategy, which states our firm intention to contribute to combating fraud against the EU budget. In our selected audits we will help prevent fraud by examining at all levels whether the EU financed programs are affected by weaknesses, making them fraud‑prone, taking into account our experience from our Statement of the Assurance audit work’. Iliana Ivanova also explains that the ECA wants to intensify its audit work with bodies in charge of fraud detection. ‘We regularly assess their activities. In fact, we recently discussed internally our strategic approach to the topic. It is now a multi‑annual approach, in my view a very good step to ensure a more holistic, coordinated approach for our audits. It is definitely an across the board issue, a horizontal topic, receiving attention and resources throughout the ECA’.

Cohesion as flexible policy instrument to address crises

Another topic that received a lot of attention and resources within the ECA has been the impact of the pandemic. Iliana Ivanova indicates they have triggered new EU initiatives, as has the war situation in Ukraine. ‘Regarding the COVID‑19 crisis and related action I think we managed quite well to deliver timely and relevant products. But the world is moving very fast and a new crisis emerged. Until the end of last year, we were mostly worried about COVID‑19 and its effect on the economy, with economic recovery at the centre of the political debate’. She says that the start of the pandemic seriously slowed down the absorption of cohesion funds and that cohesion actions had to be very quickly adapted by allowing extra flexibility. ‘This meant extending the scope of the eligible operations of the old period rules through a number of amendments to the existing legislation such as the Coronavirus Response Investment Initiative, called CRII, the Coronavirus Response Investment Initiative Plus, and additional funds for the Cohesion policy, REACT-EU, the Recovery Assistance for Cohesion and the Territories of Europe. This actually helped absorption for the 2014‑2020 period’.

The ECA Member points out that the legislators have done something similar for the Ukraine crisis. ‘Responding to the war in Ukraine by providing additional flexibility through the Cohesion’s Actions for Refugees in Europe, known as CARE. For example, this change allows 100 % EU co‑financing for the 2014‑2020 policy funding and simplifies procedures for reporting and modifying programmes. However, since the attention of the relative authorities was focused on the implementation of the CRII of the REACT-EU and now CARE, there have been delays for the start of the new programme period, 2021‑2027'.

She explains how the ECA contributed to these crisis modifications of rules. ‘We provided three urgent opinions on the modifications proposed by the Commission on the Common Provisions Regulations, the CPR. I remember we did the first one in three weeks. I’m really grateful to the team, which managed to deliver a very high quality opinion in extremely challenging circumstances. Of course, the others on the CPR and REACT-EU followed. We recognise well when we have to move quickly. The Commission came up with these urgent proposals; our response had to be just as fast’.

As to the audit work, Iliana Ivanova explains that across the ECA different audit chambers are involved in delivering performance assessments on the overall action taken regarding the pandemic. ‘As to the audit chamber I am in, Investment for cohesion, growth and inclusion, our audit work is focused on the implementation of CRII and REACT-EU modifications, examining whether the Commission effectively adapted its 2014‑2020 policy to respond to the COVID‑19 pandemic’. She thinks this kind of work will continue since it remains to be seen what the effects of these urgent measures were. ‘We warned in the very first opinion that we delivered, that this urgency also comes at a cost, in terms of a relaxation in the control arrangements and the guarantee that the funds have been spent properly, within the legality and regularity rules’.

New kid on the block — NGEU

Besides adapting existing cohesion instruments, one of the main initiatives responding to the crisis has been the creation of the Recovery and Resilience Facility as part of the NextGenerationEu package of support. ‘Auditing this is one of the challenges we currently face as the ECA. Starting with NGEU, we know that this is a new temporary instrument, designed to help the economic recovery following the pandemic. Within the NGEU, the RRF, provides the bulk of the money and uses a new delivery mechanism’. Iliana Ivanova explains that for the RRF disbursements are not linked to costs but to the achievement of milestones and targets. ‘In essence, they are measured by performance indicators’.

She highlights that the 2021‑2025 ECA strategy includes for the NGEU and RRF comprehensive coverage in terms of financial compliance, together with a range of performance audits. ‘Auditing the RRF is really a cross-cutting challenge for our institution as it covers many different areas, EU policies, and EU spending. In that context, it will require a strategic and coordinated audit approach. For the part relating to our Statement of Assurance work on the NGEU, another ECA audit chamber — Financing and administering the Union — is doing a pilot audit developing the appropriate methodology’. She underlines that it still needs to be seen how best to approach the compliance elements related to this expenditure. ‘It might dramatically change the model and the way we look at our compliance task regarding this instrument. We are on top of the developments here, it will take some time, even the Commission itself is still in this enquiring phase’. She notes that for the upcoming ECA annual report regarding compliance the impact might be limited since very few payments were made in 2021. ‘The financial year 2021 will not be representative, but the subsequent year will be, for sure’.

Concerning performance audits, Iliana Ivanova cannot speak too much for the other ECA audit chambers but focuses on the link with the cohesion area. ‘My colleague Ladislav Balko is in charge of a review, also assessing the links and potential overlaps between the RRF and cohesion policy’. She considers this is a very important point, which will hopefully shed more light on any risks and challenges. ‘Overall, I think the RRF and Cohesion policy should be complementary, not overlapping each other through really good coordination, aiming for synergies that could be achieved between the two instruments, also regarding performance. With as goal, of course, to improve the life of the European citizens after this crisis’.

A full audit work programme, also addressing cross-cutting cohesion topics

For the current seven year multiannual financial framework period, the ECA Member observes that several themes are embedded in the implementation of cohesion policy, addressing key policy objectives such as the green transition, digitalisation, reforms, etc. ‘We consider these aspects and their interconnections as part of our analysis in our audit chamber’s knowledge nodes, where we prepare audit proposals for the new work programme. I’m very grateful to all colleagues who work very hard on keeping our corporate knowledge up to date with the result that they are able to make excellent proposals for audits each year in our audit chamber’. She proudly refers to the presentation of her chamber’s knowledge node project to other colleagues within the ECA. ‘It was accepted with great interest. I think other audit chambers are also interested in further developing these cross-cutting aspects of our thinking when we design the annual work programme’.

She finds that these cross-cutting topics surface more and more and need to be properly assessed. ‘For instance, look at the issue of natural gas infrastructure. Now we have at least three audit chambers within the ECA that for the new programme period would touch upon this very important subject one way or the other. Coordination and cooperation is extremely important. I see more and more willingness to work together constructively and I hope this will be the case, indeed, when we design our next annual work programme. Of course, I also welcome the new multi‑annual focus, which I think is an important good step forward, allowing for a more strategic approach’. She points out that another important aspect here is timing. ‘We should also consider that some important initiatives at the Commission might require time for some progress to be made before we start auditing. This is another reason why we should maintain good and constructive relations with our key stakeholders, so that we are aware of the best timing and can really maximise the impact of our work’.

As to the ECA’s future audits on cohesion, Iliana Ivanova refers to a full audit work programme. ‘But all the audit topics that have been included merit being there. Personally, I believe that we will have particular added value in the areas of digitalisation, energy, youth, economic recovery, security of course, and, last but not least infrastructure. These are just to name a few’.

A topic that she is currently involved with as reporting Member and which has received some attention from the European Parliament relates to EU actions to help people with disabilities. ‘I would not say it is a brand new topic. But it covers an important part of the social area. I’m grateful to the good team that we have and I am really hopeful we will deliver a good and timely quality product. Clearly the interest in it is there. It is not something that is a consequence from a recent crisis. But helping people with disabilities is a very, very important subject, touching upon some core values of the EU. And this is why we have such policies in the first place: addressing disparities to contribute to positive changes for citizens’.

This article was first published on the 1/2022 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.

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Articles from the European Court of Auditors, #EU's external auditor & independent guardian of the EU's finances.