COMMISSION DECISION. of

Transcription

1 EUROPEAN COMMISSION Brussels, C(2016) 1921 final COMMISSION DECISION of concerning the suspension of the interim payments from the European Regional Development Fund for the operational Programme "Social Infrastructure" under the convergence objective in Hungary CCI 2007HU161PO008 (ONLY THE HUNGARIAN TEXT IS AUTHENTIC) EN EN

2 COMMISSION DECISION of concerning the suspension of the interim payments from the European Regional Development Fund for the operational Programme "Social Infrastructure" under the convergence objective in Hungary CCI 2007HU161PO008 (ONLY THE HUNGARIAN TEXT IS AUTHENTIC) THE EUROPEAN COMMISSION, Having regard to the Treaty on the Functioning of the European Union, Having regard to Regulation (EC) No 1083/2006 of the Council of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999 1, and in particular Article 92, paragraph 2 thereof, Whereas: I. DESCRIPTION OF THE ASSISTANCE (1) On 30 July 2007, the Commission adopted Decision C(2007) 3742, last amended by Decision C(2012) 2274 of 13 April 2012, for the operational Programme "Social Infrastructure" for Community structural assistance from the European Regional Development Fund under the convergence objective in Hungary (2007HU161PO008, hereinafter 'the Programme'). The maximum eligible expenditure is set at EUR and the maximum contribution from the European Regional Development Fund (ERDF) is set at EUR (2) To-date an amount of EUR ,38 has been paid by the ERDF as prefinancing and interim payments within the framework of the Programme. (3) The managing authority is the managing authority for Human Resources programmes (Deputy State Secretariat responsible for the implementation of EU developments within the Ministry of Human Resources). Until 15 April 2014, the managing authority had delegated tasks, including management verification tasks, to the intermediate body (ESZA Nonprofit Kft.). After 15 April 2014, the intermediate body was integrated into the managing authority. (4) The certifying authority is the Hungarian State Treasury. (5) The audit authority is Directorate General for Audit of European Funds (EUTAF). II. PROCEDURE AND EXCHANGES WITH THE PROGRAMME AUTHORITIES (6) On 30 July and 15 September 2015, the Hungarian authorities submitted applications for interim payments for the Programme. 1 OJ L 210, , p.25. EN 2 EN

3 (7) On 18 September 2015, the Hungarian audit authority, pursuant to Article 62(1)(a) of Regulation (EC) No 1083/2006, submitted to the Commission a systems audit report, for the Programme (hereinafter 'the national audit report'). In this national audit report, the audit authority identified serious deficiencies in the management and control systems of the Programme and subsequently concluded that its system "works partially, with substantial improvements needed" 2. (8) On 29 September 2015, the Commission informed the Hungarian authorities that the analysis of the national system audit report revealed evidence to suggest deficiencies in the management and control system of the Programme and that, pursuant Article 91(1)(a) of Regulation (EC) No 1083/2006, the payment deadline for the applications for interim payment from the ERDF submitted on 30 July and 15 September 2015 were interrupted. (9) On 30 September 2015, the Hungarian authorities submitted an application for interim payment for the Programme. (10) On 12 October 2015, the Commission informed the Hungarian authorities that, pursuant Article 91(1)(a) of Regulation (EC) No 1083/2006, the payment deadline for the application for interim payment from the ERDF submitted on 30 September 2015 was interrupted on the same grounds as those explained in the letter of the Commission of 29 September (11) From 28 September to 2 October 2015, the Commission services carried out an audit on the Programme (2015/HU/REGIO/C2/1489/1). (12) On 2 December 2015, the Hungarian authorities requested that the deadline to reply to the Commission letter of 29 September 2015 was extended until 15 December (13) On 22 December 2015, the Commission issued the draft audit report for the audit carried out from 28 September to 2 October The Hungarian version was issued on 2 March (14) On 23 December 2015, the Commission informed the Hungarian authorities that it had concluded, pursuant to Article 92(1) of Regulation (EC) No 1083/2006, that all interim payments related to the Programme may have to be suspended. Pursuant to Article 92(2) of Regulation (EC) No 1083/2006, the Hungarian authorities were requested to take corrective measures and to submit, within two months, their observations as well as to report on the implementation of those corrective measures. This letter in the national language followed the English version sent to the Hungarian authorities as prior information, on 10 December (15) On 31 December 2015, the audit authority submitted to the Commission in accordance with Article 62(1)(d)(i) and (ii) of Regulation (EC) No 1083/2006 the annual control report and opinion for the year 2015 (hereinafter "the 2015 ACR"). The audit authority issued a qualified opinion and a projected error rate of 1.93%. The audit authority also stated that it had changed its assessment as to the functioning of the system of the Programme and had concluded that its system "works, but some improvements are needed" Category 3 of the Guidance document on a Common Methodology for the assessment of management and control systems in the Member States (COCOF 08/0019/01 of 6 June 2008). Category 2 of the Guidance document on a Common Methodology for the assessment of management and control systems in the Member States. EN 3 EN

4 (16) On 28 January 2016, the Hungarian authorities informed the Commission that they expected to provide a reply to the letter of 23 December by 23 February III. DEFICIENCIES FOUND BY THE COMMISSION (17) Following an in-depth analysis of the national audit report and of the findings of the audit carried out between 28 September and 2 October 2015 on the Programme, the Commission concluded in its letter of 23 December 2015 that there were serious deficiencies in the management and control system of the Programme which affected the reliability of the procedure for certification of payments and for which corrective measures had not been taken. (18) These deficiencies related to: the management verifications (Article 58(c), 60(a) and (b) of Regulation (EC) No 1083/2006; Article 13(2)-(4) of Regulation (EC) No 1828/ ) and the organisation of the management and control bodies (Articles 58(c), 58(e) and 59(2) of Regulation (EC) No 1083/2006; Article 12 of Regulation (EC) No 1828/2006). On the serious deficiencies affecting the management verifications (19) In the national system audit report, the audit authority detected serious deficiencies for nine operations out of the twenty operations audited for the Programme. (20) Specifically, the audit authority detected irregularities linked to public procurement procedures falling under the national procedures which had not been detected or investigated by the management verifications. In one case 5 the audit authority concluded that a disproportionate selection criterion was used in breach of Article 14(2) of Government Decree 310/2011, namely in relation to the requirement to demonstrate the financial ability of the potential tenderers as the net sales revenue required was disproportionately set as compared to the value of the procurement (twice the estimated value of the contract for the previous 3 years, whereas, for recently established companies, the Government Decree 310/2011 stipulates that only the estimated value of the contract shall be requested). In another case 6, the audit authority identified a potential conflict of interest as the winning bidder was partially owned by the contracting authority which was not investigated during the management verifications. The Hungarian Public Procurement Act stipulates that the contracting authority must ensure that all situations of conflict of interest should be avoided, therefore, the management verifications should have investigated any potential cases. For two operations 7, the service provider failed to provide three comparative offers for accommodation and two for airplane tickets as stipulated by the conditions set in the framework contract. The management verifications did not identify that the conditions of the framework contract had not been met. (21) Further, the audit authority identified irregularities in relation to lack of supporting documents, incorrect calculation of the exchange rate, and invoices that were dated OJ L 371, , p. 1. TIOP / TIOP / TAMOP-412A/1-11/ and TAMOP 421B-11/2/KMR EN 4 EN

5 earlier than the respective certificates of completion of the services/works in breach of the contract conditions, which had not been detected or investigated by the management verifications. (22) Lastly, the audit authority detected delays in the completion of management verifications: A significant delay in the on-the-spot visits carried out by the responsible intermediate body was detected by the audit authority. This intermediate body failed to carry out on-the-spot visits in 2014 for three operations with project value exceeding HUF 250 million (c. EUR ) while the applicable national rules (Government Decree 4/2011 on the frequency of on-the-spot visits) require that such operations should be verified via on-the-spot visits annually. Delays were also noted by the audit authority in the administrative verifications of project progress reports as four out of the eight reports tested were assessed by the relevant managing authority and intermediate body with a considerable delay. The Commission concluded that the delays in performing the on-the-spot and administrative verifications have implications for the ability of the managing authority to ensure the correctness and regularity of expenditure declared to the Commission because the verifications are carried out after the expenditure has already been declared to the Commission. (23) In its audit of the Programme (2015/HU/REGIO/C2/1489/1), the Commission services have identified additional public procurement irregularities, related to artificial splitting of contracts in five projects out of fourteen audited, which have not been identified during the management verifications. In three projects 8, the contracting authorities split services relating to the same subject matter into several low-value service contracts that should have been procured together and advertised in the OJEU. i. In the first, the advisory services for "preparing and supporting the public procurement of the e-health IT system" was split into 9 contracts below the threshold for advertising in OJEC or nationally for the 9 modules of the one unified e-health IT system. The 9 modules of the "e-health IT system" need to be inter-connected as it is an integrated IT system. Eight out of the nine contracts were signed on 30 May 2014 and the ninth was signed on 3 June The combined value of the nine services contracts was EUR which is significantly above the threshold for advertising in OJEC. The nine modules should have been published in the OJEU, in Lots or as a single purchase, to ensure more competition. However, as advisory services were split in to nine contracts below the threshold for advertising nationally, they were awarded without publication whereby three potential bidders were invited to submit offers for each of the nine contracts. ii. In the second, the consultancy services for the "e-health IT consultancy and development" services were split into twelve separate contracts. The consultancy services were for the development of one unified e-health IT system and the different contracts were inter-connected as they related to 8 TIOP / , TIOP / , TIOP / EN 5 EN

6 different stages of the software development of the e-health IT system. The different contracts should have been published in the OJEU in Lots or as a single purchase, to ensure more competition. However, as the consultancy services were split only one was advertised nationally, three were the reopening of competition under an existing framework agreement and eight were awarded without publication whereby three potential bidders were invited to submit offers. The combined value of the eight contracts awarded without publication was EUR The majority of the contracts were awarded between August 2014 and August iii. In the third, the consultancy services for "Public procurement consultancy for IT development in public education" was split into two service contracts below the threshold for advertising in OJEU. The combined value of the contracts was EUR which is above the threshold for advertising in the OJEC. The two identical service contracts were signed on 1 February and 21 June 2013 and the same services were provided under both contracts. The consultancy services should have been published in the OJEU, in Lots or as a single purchase, to ensure more competition. However, as the consultancy services were split in to two contracts below the threshold for advertising nationally, they were awarded without publication whereby three potential bidders were invited to submit offers for each of the two contracts. The Commission concluded that the splitting of services with the same subject matter is in breach of Article 9(3) of Directive 2004/18/EC which stipulates that "No [ ] purchase of services may be subdivided to prevent its coming within the scope of this Directive." In two projects 9, the beneficiaries of the projects split linked activities (construction works) of the same subject matter but in different geographical locations, into numerous contracts with a value just below the national threshold of publication. However, the combined value of these contracts should have warranted an EU-level public procurement according to Directive 2004/18/EC. In the first project concerning the "Construction and renovation of community centres" the contracting authority split the construction works for the seventeen geographical implementation locations into seventeen separate contracts. The combined value of the seventeen contracts for the different locations was EUR 11.6 million. In the second project concerning the "Construction and renovation of local employment centres", the contracting authority split the construction works for the fifty-six geographical implementation locations into fifty-six separate contracts. The combined value of the fifty-six contracts for the different locations was EUR 10.2 million. The Commission concluded that the splitting the works with the same subject matter according to their geographical implementation location is in breach of Article 9(3) of Directive 2004/18/EC which stipulates that "No works project [ ] may be subdivided to prevent its coming within the scope of this Directive." (24) The management verifications had not identified the mentioned public procurement irregularities. As a consequence, the management verifications of the managing authority and of the intermediate body (up until 15 April 2014), could not be considered to be effective and reliable and thus do not fulfil the requirements of 9 TIOP / , TIOP / EN 6 EN

7 Article 58(c) of Regulation (EC) No 1083/2006 (procedures for ensuring the correctness and regularity of expenditure declared under the programme), Article 60(a) of Regulation (EC) No 1083/2006 (ensuring that operations comply with applicable Union and national rules for the whole of their implementation period), Article 60(b) of Regulation (EC) No 1083/2006 (verification that the co-financed products and services are delivered and that the expenditure declared by the beneficiary for operations has actually been incurred and complies with Union and national rules), and Article 13(2), (3) and (4) of Regulation (EC) No 1828/2006 (verifications which cover administrative, financial technical and physical aspects of the operations must ensure that the operations and expenditure comply with EU and national rules). On the serious deficiency affecting the organisation of the management and control bodies (25) The serious deficiencies detected both by the audit authority in the national system audit report and by the Commission services demonstrate deficiencies in the overall management and control system of the Programme. (26) The audit authority identified that the managing authority and the department within the managing authority now responsible for the intermediate body tasks, including management verifications, currently have insufficient staff resources to properly perform their tasks (15 and 83 vacant posts respectively). The audit authority concluded that the delays in performing the on-the-spot and administrative verifications are a result of the insufficient staff resources. The audit authority also identified that some of the existing staff do not have adequate experience to implement the tasks assigned to them, in particular, to carry out adequate management verifications. (27) As a consequence, the organisation of the management and control bodies could not be considered to be appropriate and effective and thus does not fulfil the requirements of Articles 58(c), 58(e) and, 59(2) of Regulation (EC) No 1083/2006 and Article 12 of Regulation (EC) No 1828/2006 because Hungary had not provided for an adequate system to ensure the correctness and regularity of expenditure declared and for reporting and monitoring where the managing authority entrusts the execution of tasks to an intermediate body under the responsibility of the managing authority. Furthermore, the managing authority had insufficient staff resources to carry out its functions properly. Corrective measures requested by the Commission (28) In light of the above, in its letter of 23 December 2015, the Commission requested the Hungarian authorities to take the following corrective measures and to present observations, within two months following receipt of that letter: (1) In view of the irregularities identified by the audit authority and the Commission services, the managing authority should either re-verify a representative sample of projects and draw appropriate conclusions from this re-verification exercise including financial corrections if applicable or, alternatively, the national authorities should apply appropriate flat-rate financial corrections to address the deficiencies identified in the management and control system. In case the Hungarian authorities opt for a verification of a sample its representative nature should be validated by the audit authority. (2) The managing authority should identify all projects with multiple implementation locations which could be at risk of artificial splitting by geographical location and check if contracts were artificially split. If artificial EN 7 EN

8 splitting is identified, appropriate corrections should be applied. The managing authority should report the results of this verification work. (3) For the delays in the on-the-spot and administrative verifications, the national authorities should take measures to eliminate the accumulated delay in these checks and present a plan to carry out all on-the-spot visits required under the national provisions in a reasonable timeframe, i.e. well before the closure of the programme. (4) The national authorities should demonstrate to the audit authority that the vacant posts will be filled in a reasonable timeframe and that the staff with inadequate experience will participate in the necessary training. This latter requirement should be supported by a training plan. The audit authority should follow up and report on the implementation of the recommendations to the Commission. (5) The audit authority is requested to assess the adequacy of the measures taken and whether they are sufficient to address the deficiencies identified and prevent occurrence of similar irregularities. IV. MEMBER STATE'S REACTION ON THE REQUIRED CORRECTIVE MEASURES (29) In the 2015 ACR, the audit authority concluded that the system "works, but some improvements are needed". (30) In the 2015 ACR, the audit authority addressed the delays in the on-the-spot and administrative verifications and indicated that at the end of 2015, 41% of the on-thespot visits scheduled for that year were carried out and that the managing authority modified its rules of procedures and extended the scope of the closure on-the-spot verifications so that it covers all expenditure claimed for a given operation. (31) As regards corrective measures set out in recitals (28)3 and (28)4, the audit authority noted a series of improvements. Namely, the number of staff in the managing authority has been increased by 10% to 536; relevant training courses were provided to the new and existing staff to improve the quality of their work; the tasks which lacked resources due to vacant positions are being executed via replacements or overtime; the managing authority made resources available internally and also relies on external consultants for the verifications of the final payment claims for the operation; and the checklist used for the management verifications was also improved as recommended by the audit authority. (32) In the reply of 28 January 2016, the Hungarian managing authority informed the Commission that they expected to provide a reply to the letter of 23 December by 23 February V. COMMISSION'S ASSESSMENT (33) The Commission has examined the reply from the Hungarian authorities of 28 January 2016 as well as the information provided in the 2015 ACR. (34) The Commission notes that the programme authorities have not contested the deficiencies set out in the letter of 23 December Furthermore, the Commission notes that no further reply was submitted to the Commission within the two-month regulatory deadline. EN 8 EN

9 (35) As regards the corrective measure set out in recital 28(1), Hungary has not provided information in relation to the implementation of this measure. Therefore, the Commission concludes that this corrective measure is not implemented. (36) As regards the corrective measure set out in recital 28(2), Hungary has not provided information in relation to the implementation of this measure. Therefore, the Commission concludes that this corrective measure is not implemented. (37) As regards the corrective measures set out in recitals 28(3) and 28(4), the Commission acknowledges the measures taken to improve the availability of staff and the quality of the management verifications, the actions to address the delays in the management verifications as well as the reassessment of the system as "works, but some improvements are needed" given by the audit authority in the 2015 ACR. Therefore, the Commission concludes that these corrective measures are implemented. (38) As regards the corrective measure set out in recital 28(5), the Commission notes that pending the full implementation of the corrective measures set out in recital 28(1) and 28(2), this corrective measure cannot be implemented by the audit authority. Therefore, the Commission concludes that this corrective measure is not implemented. (39) Overall, the Commission concludes that the replies do not provide assurance that the Hungarian authorities have taken the necessary measures to address the serious deficiencies identified both by the Commission and by the audit authority. VI. CONCLUSIONS (40) In light of the above, the Commission considers that the conditions for the application of Article 92 of Regulation (EC) No 1083/2006 are fulfilled. There are serious deficiencies in the management and control system of the Programme, which affect the reliability of the procedure for certification of payments and for which corrective measures have not been taken. (41) Therefore, the Commission considers that the interim payments for the Programme should be suspended. (42) In accordance with Article 92(3) of Regulation (EC) No 1083/2006, the Commission will end the suspension if the Member State has taken the necessary measures to enable the suspension to be ended. If the required measures are not taken by the Hungarian authorities, the Commission may, in accordance with Article 92(3) of Regulation (EC) No 1083/2006, decide to cancel all or part of the ERDF contribution to the Programme, under the provisions of Articles 99 and 100 of that Regulation, HAS ADOPTED THIS DECISION: Article 1 The interim payments from the European Regional Development Fund for the Programme "Social Infrastructure" for Community assistance under the convergence objective in Hungary (CCI No: 2007HU161PO008) are suspended. Article 2 Hungary shall report to the Commission on the implementation of corrective measures to improve the functioning of the management and control systems, within two months from the date of notification of the present decision, namely: EN 9 EN

10 1. In view of the irregularities identified by the audit authority and the Commission services, the managing authority shall either re-verify a representative sample of projects and draw appropriate conclusions from this re-verification exercise including financial corrections if applicable or, alternatively, the national authorities shall apply appropriate flat-rate financial corrections to address the deficiencies identified in the management and control system. In case the Hungarian authorities opt for a verification of a sample, its representative nature shall be validated by the audit authority. 2. The managing authority shall identify all projects with multiple implementation locations which could be at risk of artificial splitting by geographical location and check if contracts were artificially split. If artificial splitting is identified, appropriate corrections shall be applied. The managing authority shall report the results of this verification work. 3. The audit authority shall assess the adequacy of the measures taken and whether they are sufficient to address the deficiencies identified and prevent occurrence of similar irregularities. Article 3 Hungary shall take the appropriate measures to inform beneficiaries and all third parties of the present Decision. Article 4 This Decision is addressed to Hungary. Done at Brussels, For the Commission Corina Creţu Member of the Commission EN 10 EN