Social Market Economy in Member States I : ESF. ESF Legislation and Policy, Financial Engineering

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1 EUROPEAN COMMISSION Employment, Social Affairs and Inclusion Social Market Economy in Member States I : ESF ESF Legislation and Policy, Financial Engineering Brussels, 27 September 2011 EMPL/E/1 D (2011) ESF Informal Technical Working Group meeting 14 June 2011, Crowne Plaza 'Le Palace' Hotel - Ballroom, Brussels DRAFT Chairperson's conclusions 0. Adoption of the draft agenda The draft agenda was adopted. The Commission announced that 5.1 'Standard costs' based on ESF and LMP data will be a short point as the study is not sufficiently advanced yet. 1. Conclusions of the previous TWG The Conclusions of the TWG on 11 May 2011 In Brussels were approved. 2. Future of the ESF 2.1 Debriefing from the informal ministerial meeting in Gödöllö under the Hungarian Presidency The Presidency conclusions are relatively short and deal with two main issues: the results orientation of cohesion policy and the future linkage between cohesion and the Europe 2020 strategy. The Conclusions were prepared by an expert meeting that took place in April in Budapest. The Commission noted that in the conclusions there is no reference to the importance of employment in cohesion policy. Regarding results orientation the conclusions reported that the MS representatives were more or less in favour of the introduction of ex-ante conditionalities into the management system of the Funds. Not surprisingly Ministers were more in favour of a system of incentives than sanctions. There was great resistance against structural reform conditionalities. It was acknowledged that reforms were necessary and should be implemented through the use of the Structural Funds, but MS rejected the notion of a linkage between SF and the recommendations issued during the European Semester and the use of sanctions. The Commission said that this position should be seen in the light of mostly positive MS's reactions on the work the Commission had done during the first European Semester, the country specific recommendations and the underlying staff working document.. The use of the Structural Funds towards the objectives of the Europe 2020 Strategy seemed to be generally accepted. Ministers underlined that even in the current programming period the Operational Programmes can be considered as contributing to smart, sustainable and inclusive growth and also future OP's should contribute thereto, notwithstanding the specific Treaty basis of cohesion. The Chairperson concluded that the Commission would take into account the conclusions of this informal ministerial meeting in the proposal for the future Regulations which were to be expected by the end of September The Commission proposal for the MFF was to be expected by 29 June For the ESF the Commission envisaged three thematic objectives linked to the Europe 2020 Strategy: employment, education and social inclusion and poverty reduction, plus one on administrative capacity building. The Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2)

2 investment priorities for the ESF would be defined in the ESF Regulation. The Chairperson was aware of the disappointment provoked by the delay of the adoption of the draft Regulations by the Commission, but reminded the TWG that no proposal by the Commission could have been forthcoming before the MFF proposal. He suggested that programming for the next period could be accelerated by bilateral meetings between Commission and MS on the future programming, in parallel with the negotiations in EP and Council. Apart from the negotiations on the draft Regulations the TWG was reminded of the still ongoing negotiations on the new Financial Regulation which would also have an impact on the final text of the next regulations for the programming period. 2.2 Presentation of the Ecorys study 'Setting and adjusting performance targets for European Social Fund operational programmes' Ecorys made a presentation of the results of the study that would be made public during the summer. A question was asked regarding whether data on social inclusion were included and whether conclusions on social inclusion were possible. Ecorys acknowledged that conclusions based on social inclusion were not as robust as the conclusions based on labour market interventions in the study. Ecorys had worked on a set of data regarding social inclusion but these needed further refining. Ecorys also studied literature where the trend was that business cycle effects related to social inclusion where not different from business cycle effects related to labour market policy. EU SILK data set was not used by Ecorys because it would have taken them 9 months to get access to these data. The Chairperson wanted to know whether the study was able to draw conclusions on the performance of active labour market policies as such. Ecorys answered that they had performed another study for DG EMPL regarding the performance of labour market policies. In the study Ecorys used the same data set for Flanders to look at the effects of human capital investment: what was the effectiveness of training programmes on labour market integration.. The Chairperson concluded that the report of this study would be made available to the public. 3. ESF management 3.1 ESF and revenue generating projects Commission had received comments by 6 MS. The paper has been restructured. Commission explained that documents were sent late because the last contribution was received on 8 June General questions were: Do we need a note on revenue generating operations and when will this note be applicable? The answer is yes and the rule, which is a minimum rule, has to be applied since the beginning of the programming period. It is a simple rule as defined in paragraph 4 of this note. The rule can be used in case of difficulties regarding revenue generating projects following audits. This is what auditors are going to apply. The annex of this note is there to help you by giving examples. 2 v1

3 This note is not applicable to operations falling under State Aid. There the specific State Aid rules have to be applied. Specific problems can still be discussed on a bilateral basis with the Commission. CZ appreciated that examples were moved to the annex. The note was improved, but some examples as e.g. ' profit from selling cheese made during an operation' still raised questions. Answers could differ regarding the nature of the operation. Also definitions should be reviewed. Commission agreed that revenues should always be looked at by income at one side and expenses at the other side. Secondly regarding the operation on cheese making one should look at how the operation had been set up. For the example of cheese making there are the production costs, the training and the purchase of raw materials to make cheese. If the operation consisted of how to learn to make cheese than the production costs are covered by the training. If the cheese was sold at a prize that just covered the raw material to make the cheese than the conclusion was that there are no revenues generated to be deducted. So it depended on the prize at which the cheese was sold whether revenue was generated or not. It was also important to verify what was in the agreement for the grant. CZ was satisfied with this answer as it was clearer to demonstrate that all depended on how the operation was financed. It requested the addition of a sentence stating this. LT asked about cross-financing for an ESF operation of actions falling under the scope ERDF, where the operation was generating revenue and the amount of the operation was below 1 million euro. The Commission replied that the ESF rule should apply taking into account all revenues directly generated regardless of the amount of the operation as the ESF had no threshold. LT asked to clarify whether there was another rule for the ERDF actions under crossfinancing? The Commission replied that for the ERDF actions you apply the ERDF rules. So rules should be applied for revenue generating actions according to the Fund depending on the nature of the actions. FI was also happy with the new draft. FI had a comment on p.3 below the headline sound financial management principle. FI asked whether the terms 'of course' and 'in particular' were necessary. FI requested that Q&A should be in a separate document. Commission replied that it was willing to take the requests and comments into account. Chairperson concluded that the Commission would adapt the note taking into account the comments received and hoped that the note would serve its purpose until the end of the programming period. The ultimate objective of this note was that audits would not detect problems regarding this issue. 3.2 Joint action plans The Commission made a presentation on the future JAPs. The Chairperson said that the High Level Group on the future of cohesion and the ad hoc Group on the future of ESF had suggested organising pilot projects for JAP's. The Commission wanted to see whether there were 3 to 4 candidates to test JAP's in this programming period within the remit of the current regulations. 3 v1

4 The framework for the test cases would be the following: o Commission was open for themes of topics for JAP's. o There would be no extra money for these test cases: so the OP should still have money available. o Human resources should be available. o External support could be envisaged. o Simplified costs for the JAP would be validated by the Commission in a letter. SK was interested in a JAP for the employment OP, where still some money was available. PL had some doubts regarding the JAP in current OP's as the Commission had a rather subjective approach. Therefore first a common position should be found without recurring to the submission of numerous documents and also had some concrete questions: JAP can be introduced after the adoption of an OP? Would JAP be excluded from the N+2(3) decommitment rule. Would the JAP be approved by a formal decision as for a major project or by a simple letter? If a JAP would foresee an element that couldn't be directly influenced by the Managing Authority: as e.g. a change of national law; what would be the consequences if the national parliament would not adopt or amend the draft law? A question regarding the slide on BU example specific actions have specific outcomes but you don't achieve the targets what happens with the eligible expenditure: could it be partially certified? What's is the timeframe for this test case? CZ found the JAP interesting, challenging and would consider to be a volunteer for a test case depending on the CZ Ministry of Finance opinion on the employability of parents. FI welcomed the initiative but was not going to volunteer. FI had additional questions: Timetable for the examination with Commission and MS (annual report?) Slide 8 influence on administrative burden in terms of audit verification of the quantity aspect notwithstanding the current audit rules? BU welcomed the JAP had the following questions: What will be the audit approach? Achievements of targets (need for an independent evaluation to verify the achievement of targets?) Expenditure based on achieved targets on annual basis or after completion of the JAP? Ex-ante evaluation of a JAP? The Commission thanked the volunteers and answered the following: The current tendency was to reinforce indicators and to define them. Advantage of the JAP was that a great part of the work had already been done. So indicators will be used to make payments. The Commission concluded that this approach would not lead to more papers, but to different papers as there would be a change of culture on how we do things. The Commission said that the common approach, the acceptation of common definitions would be the subject of the negotiations on the JAP and would be settled during this negotiation. As the discussion would be more detailed the Commission expected the discussion on the definition of goals to be easier. The Commission believed 4 v1

5 that the test cases would be very useful for this as it would bring to the surface difficulties in definitions and interpretation of them between Commission and MS, but also within MS, in the definition of indicators, that could currently be different between operators. Regarding the exemptions the Commission said that a JAP would be treated in the same way as a major project. However for the future the Commission wanted to get rid of exemptions on the automatic decommitment rule. It would depend on the Commission proposal for the future and the following negotiation in Council whether there would be exemptions from the automatic decommitment rule for the future. The difference between major projects and JAP was that the JAP could be implemented within an OP and that the JAP was an option for a MA. While the negotiations on the JAP would be ongoing the normal implementation of the OP through more traditional pathways could continue. Regarding the adoption of the JAP by the Commission there was still a discussion ongoing in the Commission whether a simple letter would be enough or whether there was a need for a Commission decision. Whatever the outcome of that discussion the Commission stated that it was its intention to make the JAP flexible enough to be updated or adapted if necessary for example regarding refining definitions or indicators. The Commission illustrated its answer on what would happen when the results of the JAP were not achieved. The payment would be proportional to the number of agreed milestones achieved. This would be a flexible modular paying system. The Commission said on the audit that this would be in line with simplified costs audit. Real costs would not be audited, but the outcomes/achievements would be audited. According to the Commission this would probably lead to less administrative burden. The timetable of the Commission was to have the first JAP's (test cases) signed in 2012 and to have the guidance documents and feedbacks on JAP's by April So there would be 9 months to a year left for the implementation of the JAP. This would enable to have a feedback on the test cases of the JAP by the beginning of Depending on the outcome of these test cases the Commission could envisage either to be more flexible or on the other hand to withdraw its proposal when it had been proofed to be useless. The Commission answered regarding the request about an exemption for evaluation that a JAP would require a thorough analysis and a logical framework to demonstrate why certain actions lead to certain outcomes. An evaluation was maybe too demanding, however the Commission was of the opinion that there was a necessity for a detailed exante analysis. Chairperson requested Members of the TWG to confirm by the interest to set up a test JAP in the following 10 days. Good pilots in the current programming period failing, the Commission could turn to a more paper based exercise that would prepare the JAP for the next programming period. 4. State of Play 4.1 State of play ESF financial execution The Commission made a presentation compared to the presentation made in May State of play Closure The Commission made a presentation compared to the presentation made in May IE had a question on the clarification and reporting of irregularities in the format required by the Commission. The Commission had reported back to IE that OLAF had difficulties to reconcile this report with their new data system. IE complained that the Commission 5 v1

6 was adding administrative burden if they asked to report again in an OLAF compatible manner. The Commission acknowledged that regarding irregularities there was a difficulty on reconciling data in different systems. The Commission promised to do its internal homework first by sorting data out on irregularities. Only in the case that it would proof impossible for the Commission to reconcile data it would refer back to the MS. If a MS has declared more expenditure than required this overdue could be used to diminish irregularities. IE thanked the Commission for its commitment and was willing to cooperate with the Commission as best as possible. However the current practice was that no intern homework had been done before asking complementary information. CZ wanted to know the procedure for the calculation of final payment regarding the irregularities below and above the threshold. Commission answered that after the reconciliation of the irregularities the Commission would look at the overbooking. If the overbooking of expenditure was enough to cover the amount of irregularities, the Commission would make the final payment not taking into account the irregularities, leaving it to the MS to follow up the irregularities on their own budget. If the irregularities can not be covered by overbooking then the Commission would go for a partial closure. The Chairperson appreciated the increase of financial flows, but some MS are still lagging behind. The chairperson hoped that by the end of the year there would not be automatic decommitments as this would give a bad signal. The Commission would propose a substantial presentation on closure for this autumn. The Chairperson reminded that there would be bilateral contacts for the spending forecasts and hoped for the collaboration of the MS. 5. AOB 5.1 'Standard costs' based on ESF and LMP data The Commission gave an oral update on the state of play of the study for standard costs which was performed in house on data from 2008 submitted by MS through SFC2007. The Commission has expanded this study firstly by the years covered which were now extended to the years and 2009 and secondly by adding also data from the LMP database from Eurostat. The delay in the progress of the study was due to a late reception of the 2009 data from Eurostat (only in the week preceding the TWG). The purpose of this study is to link data on the number of persons sorted by certain characteristics with the costs of certain operations. The study would try to establish an EU average for this combinations followed by a deviation from the average by MS. The Commission didn't think it feasible to cover all types of categories of target groups and all types of activities. However the Commission hoped to establish this for certain groups and activities which could possibly lead to standard costs that could further enhance the use of simplified costs in the future. 5.2 Transnational cooperation A working group on transnational cooperation has been established for the future programming period. The core of the members would come from the transnational learning network. However if other TWG members were interested the group, they were invited to let this be known. On 27 June 2011 there would be a first meeting in Prague. 6 v1

7 On September there would be a Seminar on transnational cooperation in DE. There would be discussions on the transnational cooperation in the current but also in the future programming period. The Members of the TWG that were interested were kindly invited to participate in this seminar. Invitations for these events would be circulated shortly. 7 v1