TRAINING ON IRREGULARITIES EEA and Norway Grants Irregularities: Regulatory Framework

What constitutes an irregularity? Broad definition of irregularities (Article 11.2 of the Regulation): “An infringement of: (a) the legal framework of the EEA/Norwegian FM referred to in Article 1.4; (b) any provision of European Union Law; or (c) any provision of the national law of the Beneficiary State, which affects or prejudices any stage of the implementation of the EEA/Norwegian Financial Mechanism in the Beneficiary State, in particular, but not limited to, the implementation and/or the budget of any programme, projects or other activities financed by the EEA/Norwegian Financial Mechanism , for instance by unjustified or disproportionate expenditure, or by reducing or losing revenue under the programme and/or the project.” Donors apply a zero-tolerance policy towards corruption 2

What constitutes an irregularity? Types of irregularities:  Fraud, corruption, bribery, embezzlement  Other types of irregularities: breach of public procurement rules errors in payment claims breach of Programme Agreement / project contract breach of the Regulation etc.  Where the irregularity is the result of a deliberate act or omission, it is a fraud  Most irregularities are a result of mistakes 3

What constitutes an irregularity? Examples of irregularities: Example of irregularity 1: The Programme Operator has claimed staff costs for a period of time during which the staff member was not working for the Programme.  Breach of Article of the Regulation: “The following categories of expenditure are eligible as management costs, provided that the expenditure is proportionate and necessary: (…)”  Affects or prejudices the implementation and the budget of the programme financed by the EEA/Norwegian Financial Mechanism

What constitutes an irregularity? Example of irregularity 2: The Programme Operator paid by mistake and reported a higher amount than the one stated in the signed procurement contract for the provision of services.  Breach of Article of the Regulation: “The following categories of expenditure are eligible as management costs, provided that the expenditure is proportionate and necessary: (…)”  Affects or prejudices the implementation and the budget of the programme financed by the EEA/Norwegian Financial Mechanism

What constitutes an irregularity? Example of irregularity 3: The Project Promoter reports deliberately expenditure that has already been reimbursed within another project implemented by the same Project Promoter under an EU/international programme.  Fraud  Breach of Article of the Regulation: “The following costs shall not be considered eligible: (…) (f) costs that are covered by other sources; (…)”  Affects or prejudices the implementation and the budget of the programme/project financed by the EEA/Norwegian Financial Mechanism

What constitutes an irregularity? Example of irregularity 4: The Project Promoter reports amounts for supplies/services/works which have never existed/been delivered/carried out.  Suspected fraud  Breach of Article of the Regulation: “Expenditures are considered to have been incurred when the cost has been invoiced, paid and the subject matter delivered (in case of goods) or performed (in case of services and works). (…)”  Affects or prejudices the implementation and the budget of the programme/project financed by the EEA/Norwegian Financial Mechanism

What constitutes an irregularity? Example of irregularity 5: Bidders collude in order to ensure that the preferred bidder wins the contract to carry out the work at a pre-arranged price.  Fraud (collusion)  Affects or prejudices the implementation and the budget of the programme/project financed by the EEA/Norwegian Financial Mechanism

What constitutes an irregularity? Example of irregularity 6: The Project Promoter submits a falsified proof of expenditure to the Programme Operator.  Fraud (intentional act or omission practiced in order to secure unfair or unlawful gain)  Affects or prejudices the implementation and the budget of the programme/project financed by the EEA/Norwegian Financial Mechanism

What constitutes an irregularity? Infringements which do not constitute an irregularity according to Art of the Regulation = Infringements which do not affect or prejudice any stage of the implementation of the EEA/Norwegian Financial Mechanism in the Beneficiary State Examples -Missing information during the submission of a payment claim submitted by the Project Promoter; clarifications are requested from the Programme Operator before payment is made -The Programme Operator submits a programme modification proposal without provisional approval by the National Focal Point 10

Red flags  Indicators of potential issues regarding governance failure, collusion or corruption  Different categories  How to recognize these common indicators of possible fraud and corruption 11

Red flags Examples – Implementation  Essential documents missing, problems in project progress, lack of sufficient separation of functions (embezzlement)  Objectives are not achieved, too many payments in cash, involvement in many other projects (false activity reports, false financial reports, forged invoices, false time sheets, false audit certifications)  Incoherencies in financial documents, accounting, originals are not available (double claims, project recycling) 12

Red flags Examples – Public procurement  Very detailed or vague technical specifications, very short deadlines, restricted publication (favoritism)  Only one or a few tenderers respond to the call, similarity between specifications and winning tenderer’s services, complaints from other tenderers, unreasonable specifications (rigged specifications)  Low number of tenders, very similar prices, unusual price distribution, persistent high prices by all tenderers, losing tenderers hired as subcontractors, apparent connections between tenderers (collusion) 13

Red flags Examples – Public procurement  Tenders rejected for errors, a qualified tenderer disqualified for questionable reasons, complaints from tenderers, poor controls and inadequate tendering procedures, indications of changes to tenders after reception (manipulation of tenders)  Invoiced goods or services cannot be located in inventory or accounted for, invoice prices do not match contract prices, cash payments (false invoices)  Final contract substantially different from the winning tender, no negotiation meeting notes, major amendments to contract (conflict of interest, corruption) 14

Red flags  Identification of red flags is not enough  Substantial resources, specific tools and competences are needed to investigate  Importance of prevention (awareness raising, training, risk assessment, risk mitigation measures, functional complaint mechanism in place, ex ante and ex post controls, monitoring, evaluation, audits) 15

Handling of irregularities Responsibility of the Beneficiary State and Programme Operator Article 11.1 of the Regulation: “The Beneficiary State and the Programme Operator shall make every effort possible to prevent, detect, and nullify the effect of any cases of irregularities. Similarly, any suspected and actual cases of irregularities shall be investigated promptly and efficiently, and properly remedied, including making any financial corrections that may be appropriate.” Article 4.1 of the Regulation: “1. The Beneficiary State shall be responsible for the management and control of programmes (…). 2. The management and control systems shall provide for (…) (h) reporting and monitoring procedures for irregularities and for the recovery of amounts unduly paid”. Proportionality Case by case 16

Handling of irregularities Mechanisms to identify irregularities  Monitoring visits  Notifications by Project Promoters  Check of payment claims/progress reports  Verification visits  On the spot checks  Media/general public  Complaints  Audits 17

Handling of irregularities Quantifiable vs. non-quantifiable irregularities  Quantifiable: when possible to calculate the exact amount of expenditure wrongly declared  Non-quantifiable: Flat rate correction may be applied to the irregularity based upon the seriousness of the irregularity (e.g. COCOF Guidelines on non-compliance with PP rules Dec 2013 )  Extrapolated corrections 18

Handling of irregularities Financial corrections by the Donors: Article 12.2 of the Regulation: “In addition to financial corrections made by the Beneficiary State or the Programme Operator, the FMC / NMFA may make financial corrections based on the criteria in Article 12.3 consisting of cancelling all or part of the financial contribution of the EEA / Norwegian Financial Mechanism to the programme or the Beneficiary State in question.” 19

Use of cancelled funds Art. 6.9 of the Regulation: “1. Project grants that have upon project closure not been fully utilised, as well as project grants that have been cancelled due to irregularities or for other reasons, may subject to paragraph 2 of Article 12.2, be reallocated to future calls for proposals within the same programme or to additional activities of already approved projects, provided that these additional activities contribute to the objectives of the projects receiving the additional funds. 2. Any decision to reallocate project grants to already approved projects shall be based on recommendations by the Selection Committee. (…).”  Applicable to: i) project grants that upon project closure have not been fully utilised and ii) project grants that have been cancelled for any reason (inter alia, irregularities). Not applicable to uncommitted funds. 20

Use of cancelled funds Article of the Regulation: “Financial contributions cancelled [due to irregularities] may be reused under the programme for projects other than those that were the subject of the correction. When a financial correction is made for systemic irregularities or irregularities related to management or control systems within a programme, the financial contribution may not be reused for that programme.”  The financial correction amount is de-committed from the project grant (i.e. the cancelled contribution may not be reused under the same project)  The financial contribution cancelled may be reused for other projects under the same programme, in line with Article 6.9 (except for systemic irregularities / related to management or control systems)  Deadline for reallocation to other programme: 31 October

Use of cancelled funds What is a systemic irregularity or irregularity related to the management or control systems within a programme?  Systemic irregularities are irregularities, which may be of a recurring nature, that could be due to serious failings in the functioning of the MCS  Irregularities related to the MCS are those that are related to the MCS functioning itself  Systemic nature to be assessed by the national authorities 22

Reporting of irregularities Entities responsible for preparing and submitting irregularities reports: Designated entities: National public entity designated in the MoU Responsible for the preparation and the submission of irregularities reports on behalf of the Beneficiary State 23

Reporting of irregularities  Programme Operators shall report to the designated entities on all irregularities, their investigation and any remedies taken (Article 11.3)  Close cooperation between the Programme Operator and the designated entity to ensure rapid, accurate and full reporting of irregularities (Article 11.3) 24

Reporting of irregularities Immediate reporting in case of serious irregularities (Art. 11.4) Regular reporting on irregularities (Art. 11.5) Reporting on progress regarding already reported irregularities (Art. 11.6) Reporting on irregularities upon request (Art. 11.7) 25

Reporting of irregularities Immediate reporting in case of serious irregularities (Art. 11.4) “The designated entity shall, regardless of the amounts involved, immediately report to the FMC/NMFA all suspected and actual cases of irregularities when any of the following applies: (a)they involve allegations of an act or omission which constitutes a criminal offence under the national legislation of the Beneficiary State, such as corruption, fraud, bribery or embezzlement; (b)they indicate the presence of serious mismanagement affecting the use of the financial contribution from the EEA/Norwegian Financial Mechanism ; or (c)they pose an immediate threat to the successful completion of the project, due to the amounts in proportion to the total project cost, their gravity or any other reason.” 26

Reporting of irregularities Regular reporting on irregularities (Art. 11.5) “ 1. For irregularities other than those referred to in Article 11.4 or paragraph 1 of Article 11.7, the designated entity shall within two months of the end of each quarter, submit to the FMC/NMFA a report, describing any suspected and actual cases of irregularities discovered during that quarter and which have been the subject of a primary administrative or judicial finding. 2. Should there be no irregularities to report on during the quarter, the designated entity shall inform the FMC/NMFA of this fact within the time limit set in paragraph For the purpose of this article “primary administrative or judicial finding” means a first written assessment by a competent authority, either administrative or judicial, concluding on the basis of 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 procedure.” 27

Reporting of irregularities No threshold value for reporting! 28

Reporting of irregularities Reporting on progress regarding already reported irregularities (Art. 11.6) “1. Together with each report on new irregularities referred to in paragraph 1 of Article 11.5, the designated entity shall report to the FMC/NMFA on the progress made in the investigation and remedy of previously reported irregularities. 2. Should there be no progress to report on under this article, the designated entity shall inform the FMC of this fact within the time limit set in paragraph 1 of Article 11.5.”  Follow-up reports to be submitted as long as an irregularities case is open in DoRIS. 29

Reporting of irregularities Reporting on irregularities upon request (Art. 11.7) “1. Unless requested by the FMC/NMFA, the following cases of irregularities in projects need not be reported: (a) cases where the irregularity consists solely in the failure to implement a project, in whole or in part, owing to the bankruptcy of the Project Promoter; (b) cases brought to the attention of the Programme Operator, National Focal Point or Certifying Authority by the Project Promoter voluntarily and before detection by any of them, whether before or after the payment of the project grant related to that irregularity; (c) cases which are detected and corrected by the Programme Operator, National Focal Point or Certifying Authority before inclusion of the expenditure concerned in the statement of actual expenditure incurred in an interim financial report or in the final programme report. 30

Reporting of irregularities 2. Paragraph 1 does not apply to irregularities that shall be reported immediately according to Article 11.4 or irregularities preceding a bankruptcy. 3. The designated entity shall, upon request from the FMC/NMFA, provide information on irregularities referred to in paragraph 1 within one month. 4. The designated entity shall keep a registry of irregularities that do not need to be reported to the FMC/NMFA.” Article 11.7 only applies to irregularities in projects. Irregularities at country level (technical assistance, fund for bilateral relations at national level, etc.) and in programmes (i.e relating to the programme preparation costs, programme management costs, fund for bilateral relations at programme level, complementary action, etc.) must always be reported. 31

Templates for reporting on irregularities (Annex 5 to Regulation)

Reporting of irregularities 33

Reporting of irregularities How to fill in irregularities reports? Points of attention: Sufficient information regarding the nature and the financial consequences of the irregularity Basis for the suggested correction (national provisions; COCOF Guidelines; provision in the project contract etc.) Amounts in euros Grant part – co-financing Use standard terms as much as possible 34

Reporting of irregularities  No reaction deadline on the part of the Donors  Decision lays with the Beneficiary States (Article 11.1)  Articles 12.2 and 12.4: Financial corrections by the FMC/NMFA in addition to the financial corrections made by the Beneficiary State or the Programme Operator. 35

Complaint mechanism Article 11.8 of the Regulation: “1. The Beneficiary State shall establish a complaint mechanism which shall be capable of effectively processing and deciding on complaints about suspected non-compliance with the principles of good governance in relation to the implementation of the EEA/Norwegian Financial Mechanism in the respective Beneficiary State. 2. Information on how to submit a complaint shall be prominently placed on the website of the National Focal Point referred to in paragraph 4(c) of Article The Beneficiary State shall without delay report to the FMC/NMFA on any complaints involving suspected irregularities referred to in Article Complaints involving suspicion of other irregularities shall be reported to the FMC/NMFA in the reports referred to in Articles 11.5 and The FMC/NMFA shall, when relevant, be consulted on the appropriate response.” 36

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