A review of cohesion’s basic governance structure is necessary to identify the structure problems. Cohesion is in essence governed on the basis of a vast number of bilateral relations between the member states and the Commission. The general idea is that the Commission is responsible for the EU budget and ECA reports on the quality of the auditing of the EU Commission to the Council and EP. The ruling belief system is that this requires centralised auditing systems.[15]

The Commission

Cohesion funds are based on ‘shared management’ which implies that the EU Commission and national institutions (ministries and other public institutions) are both responsible for the running of the programs (Article 4 TFEU). As a corollary, the Commission has a vast range of developments to monitor together with the 27 member states and to cover a wide variety of regions each with specific situations and idiosyncratic institutions. Moreover, the funds involve a large number of (interconnected) indicators. In monitoring and assessing the development of indicators, the Commission has to allow for adjustments in objectives and indicators due to all kinds of developments during the implementation of the programs and projects. Although management is shared, the Treaties define that the Commission remains responsible for the success and legality of the EU budget (Article 317 TFEU).

The central role of the Commission is clear from the 548 page “Common Provisions Regulation”[16] that defines in detail the distribution of responsibilities between the levels of governance and the bilateral arrangements between Commission and member states. The Common Provisions are the basis for the ‘partnership arrangements’ between the Commission and the individual member states.[17]

The Commission’s roles include offering guidance and support to the managing authorities in the member states during the writing of the approximately 400[18] Operation Programs (OPs) in the member states for the funds as well as for large projects financed by the funds. Moreover, it approves these OPs and the large projects, and it is co-responsible for the implementation. Finally, based on a sample[19] of projects it monitors the reporting on the legality and the results of the programs, and it presents the findings to EP and Council. These responsibilities imply a hands-on involvement, for example if member states need to retarget projects or objectives, if national institutions need to be modified or strengthened along the way, or if governance procedures need to be refocused.

DGs EMPL and REGIO are responsible for ensuring that the funds are spent. They monitor the progress of programs and gather the payment requests from the National Authorities. At the end of the year, EMP and Region present the progress in their Annual Activity Reports. These Reports tend to offer rosy pictures on the developments of the outcomes (as discussed above) so that it is important to also take the overall evaluation of the performance of the cohesion funds from the Commission as well as of the ECA into account.

Cohesion policy is not designed as a subsidiarity-based network as it concerns in essence a vast number of bilateral relations between the member states and the Commission during the execution of the cohesion funds.[20] This offers the Commission considerable room for maneuver and hampers transparency on what is discussed with the member states, reported, changed in terms of objectives during the implementation, and accepted as satisfactory results. As discussed below, here lies a key difference with other EU policy areas centered around a European network of national authorities operating at arms lengths of governments under the guidance of an independent European agency.

In the Commission, DG EMPL and DG REGIO have a shared Joint Auditing Directorate for Cohesion (with the French acronym ‘DAC’). DAC audits the quality of the national auditors, performs the risks assessments and, if necessary, signals to the DGs to suspend payments until a member state has made the necessary corrections in its auditing system. DAC finally produces the assurance package of cohesion for the annual report of the EU Commission. ECA ultimately audits the report of the Commission (i.e. DAC) and reports to EP and Council (and which, as discussed, ECA corrected upward in 2022 to the 6.6% error margin).

At face value, the system is logical: member states audit themselves, the Commission in its role as shared manager and responsible for the EU budget audits the member states, and ECA offers its findings on the reliability of the Commission’s reporting to EP and Council.

In our audit of the governance system, some points deserve to be highlighted (see also EP 2022):

European Court of Auditors (ECA)

Similar to the Commission, also ECA has a centralised role in auditing cohesion in the sense that does not work in a network of national auditing bodies. ECA is the EU’s independent external auditor providing its annual assurance to the European Parliament, Council and the public. ECA controls the Commission by checking the quality of the ways in which the Commission monitors national reporting. The annual report of ECA indicates whether the EU’s budget – for which the Commission is responsible – is spent according to the rules. ECA’s annual reports are the end of the stream of national and EU audits. The Managing Authorities are the first in line to ensure that payments are correct, and the national Audit Authorities provide assurance that payments have been made correctly. Using ECA’s Annual Report, the EP questions the Commissioners and grants or postpones discharge in their discharge reports.[21]

Like the Commission, it audits the national authorities for cohesion spending based on a sample of projects (using a wider sample than the Commission uses), analyses annual activity reports of the DGs (in the case of cohesion policy: DG REGIO and DG EMPL) and produces its Annual Report on the EU budget as a whole. In addition, ECA produces Special Reports in which it studies the effectiveness of programs and program management. Having increased its attention for Special Reports, they now amount to about 50% of the work of ECA.

Important to note for our purposes is that ECA functions as a stand-alone organisation. It does the auditing of the work of the national institutions, as well as the production of the Special Reports, on its own as an independent supreme audit institution.

National level; MAs, AAs, and SAIs

Moving to member states, the key national actors are the Managing Authorities (MAs) designation for each fund (ERDF, ESF and CF[22]). The MAs can be a ministry or a dedicated agency. A Managing Authority is responsible for the implementation of a fund, ensures that principles of sound financial management are respected, checks whether projects match the criteria, and writes the national evaluation of the program. The MAs are the ‘first line of defense’ in ensuring that EU funds are spent effectively, efficiently, and according to the rules. They support the identification, formulation, and management of the projects so that the allocated resources are absorbed and that the error rate in spending remains below 2%. The MAs report five times per year to the EU Commission on progress and outputs. This auditing of the results is mostly presented in the form of input and output indicators (outputs instead of outcomes).

As regards the network of Mas, there are different forms of (bilateral) contacts between the MAs and exchanges on bests practices. It is important to note that the network of MAs is in light network for information exchange (there are no organised network tasks for MAs).

Each MA has a supervisory Monitoring Committee in which a variety of stakeholders is represented (Com 2023/1060). They help to identify the projects and tailor them to regional or local needs, and they play a role in supervision of progress. Their diverse composition is also intended to prevent programs from being captured by a limited number of stake holders.

The second line of defense are the 116 national Audit Authorities (AAs) in the 27 member states. They audit the actual expenditures on cohesion projects. Roughly, MAs ensure a useful selection and the profession management of projects, while the AAs write the assurances packages (approving the legality of spending). The Commission (DAC) assesses the quality of the national audit offices and monitors their work based on samples.

As regards their quality, ECA has repeatedly warned that national audits do not meet the required standards (e.g. ECA 2014, 2021a, p. 55). As the primary sources of information on program management and on the legality of spending, it is essential that AAs are independent. One of several EP reports on cohesion states that “independent audit bodies and other bodies managing funds in the Member States are a key requirement for the reliability and quality of the audit results” and makes numerous suggestions for improvements in the ways of working (e.g. EP 2023, emphasis added; see also EP 2022). Similarly, transparency is an issue. Each member state has to submit an ‘annual summary’ of the audit findings for each fund to the European Commission. These summaries are not made public and do not qualify as formal documents produced on behalf of a minister or government.

Although Supreme Auditing Institutions are not officially linked to the management of the EU budget, in democratic countries courts of auditors scrutinise the national governments, their policies and the budget. SAIs vary in terms of size, auditing traditions (legality versus effectiveness, established reputations, or relatively recently created and hence still fighting for recognition), ways of working, and position in the national administration (OECD 2016, Pierre and De Fine Licht 2019). The position of SAIs in auditing EU activities is limited. SAIs audit national governments while EU programs have their own audit and assessment structures. Moreover, SAIs are independent also when it comes to the definition of their work programs and they do not take instructions on what to examine lightly.

The OECD already stressed the importance of SAIs in examining effectiveness and efficiency of programs, and in making strategic trade-offs. It concluded that the SAIs have “untapped potential” to help governments in offering value for money (OECD 2016). Given that it is the tasks of SAIs to assess budgetary planning, execution, and internal control systems, it is remarkable that they have no role in assessing the impact of EU funds in their own member states even more so since most of the EU funds such as cohesion funds are based on co-financing. If SAIs have untapped potential national, it might be equally relevant to raise the question whether they also have untapped potential when it comes to the effectiveness and legality of EU funds and co-financing in the national administrations.

There are annual meetings between SAIs (the Contact Committee). Yet, these meetings are mainly an occasion for information exchange, for example on the functioning of the RRF (it depends on a SAI itself whether it wants to examine the RRF in their country).[23] The Contact Committee is a light network, hosted by ECA, and it presents itself as a “platform” of auditors and experts.[24] Some national courts of auditors studied the EU budget or programs under the MFF on their own initiative, but such studies have remained limited in number.[25] The Supreme Auditors from Finland, France, Italy, the Netherlands, Portugal, Slovakia and Sweden initiated a discussion on common national budget rules.[26] The need for such informal initiatives point to a possible untapped potential of SAIs as a formal network.

With a view to strengthening national ownership for the legitimacy of EU funds, the Dutch government pushed for a permanent role of SAIs in the accountability of the EU budget. It aimed at a National Declaration as part of shared management responsibility for the spending of EU funds and the Declaration would be presented to the national parliaments underlining the importance of ownership for the quality of the use of EU funds. However, this initiative was not followed by the other member states and the annual Declarations were discontinued. On the role of other SAIs, the Netherlands Court of Audit remarked regrettably in 2023 that it is “far less”[27] transparent whether EU funds are spent legitimately in other member states.[28] Yet, there is little appetite throughout the multilevel system – including in the SAIs and in the EU institutions – to involve them in the monitoring of effectiveness and correctness of EU funds. Moreover, redefining the roles of SAIs and incorporating them in the work of ECA or DAC would probably require (depending on their involvement) Treaty change as well as changes in national (constitutional) law.