European Commission Budget Expenditure Lifecycle Manual 2023 PDF

EUROPEAN COMMISSION BUDGET Knowledge Management Expenditure Lifecycle Course manual V 2023 TABLE OF CONTENTS 1 INTRODUCTION................................................................................................... 6 2 LEGAL BASIS....................................................................................................... 8 2.1 What does a basic act contain?........................................................................ 9 2.2 Spending without a basic act?........................................................................ 10 2.3 Hierarchy of norms....................................................................................... 11 3 MANAGEMENT MODES........................................................................................ 12 3.1 Direct management...................................................................................... 12 3.2 Indirect management................................................................................... 13 3.3 Shared management.................................................................................... 14 4 BUDGET............................................................................................................ 14 4.1 Multiannual financial framework..................................................................... 14 4.2 Budgetary principles..................................................................................... 15 4.3 Where does the money come from?................................................................ 16 4.4 How is the budget adopted?.......................................................................... 17 4.4.1 Internal phase – establishing the draft budget........................................... 17 4.4.2 Interinstitutional phase........................................................................... 17 4.5 How is the budget structured?....................................................................... 18 4.6 What are commitment and payment appropriations?........................................ 18 4.7 What are differentiated and non-differentiated appropriations?.......................... 19 4.8 How to make changes to the budget?............................................................. 19 4.8.1 Letters of amendment............................................................................. 19 4.8.2 Amending budgets................................................................................. 19 4.8.3 Transfers............................................................................................... 20 5 FINANCING DECISIONS...................................................................................... 20 6 METHODS OF IMPLEMENTATION.......................................................................... 21 6.1 Procurement................................................................................................ 21 6.1.1 How to buy and which procedure to follow?............................................... 22 6.1.2 Negotiated procedure:< EUR 140,000....................................................... 22 6.1.3 Call for tenders...................................................................................... 23 6.1.4 Opening committee and evaluation committee........................................... 25 6.2 Grants........................................................................................................ 26 6.2.1 Work programme (WP) and financing decision........................................... 27 6.2.2 Call for proposals................................................................................... 28 6.3 Direct payments........................................................................................... 28 2 6.4 Financial instruments.................................................................................... 28 6.5 Trust funds.................................................................................................. 28 6.6 Prizes......................................................................................................... 29 7 ROLES AND RESPONSIBILITES............................................................................ 29 8 FINANCIAL CIRCUITS......................................................................................... 30 8.1 The "4 eyes principle"................................................................................... 31 8.2 Initiator (or initiating agent) - FIA or OIA........................................................ 31 8.3 Verifier (verifying agent) - FVA or OVA............................................................ 32 8.4 Authorising officer responsible (AOR).............................................................. 32 9 INTERNAL CONTROL.......................................................................................... 32 10 ACCOUNTING SYSTEM AND REPORTING............................................................... 35 10.1 Legal Entity File and Bank Account File (LEF/BAF)............................................ 37 11 EARLY DETECTION AND EXCLUSION SYSTEM (EDES)............................................. 38 12 COMMITMENTS (Art. 111-112 FR - Internal rules/guidelines).................................. 38 12.1 Budgetary commitment................................................................................. 39 12.2 Legal commitment........................................................................................ 43 13 PAYMENTS (Art. 111-116 FR - Internal rules/guidelines)......................................... 43 13.1 Prefinancing................................................................................................. 44 13.2 Interim payments......................................................................................... 44 13.3 Payment of the balance due........................................................................... 45 13.4 How much time do we have? - Art. 116 FR...................................................... 46 13.5 When do those payment periods start?........................................................... 47 13.6 VAT............................................................................................................ 47 13.7 The Accounting Officer.................................................................................. 48 14 RECOVERIES - Art. 97-101 FR - Internal rules/guidelines........................................ 48 14.1 Recovering money – a 4–step procedure......................................................... 49 12.2 How do we recover money?........................................................................... 49 13 DE-COMMITMENTS - Art 14 + 114.2 FR................................................................ 50 13.1 When to decommit....................................................................................... 50 13.2 How to decommit......................................................................................... 51 14 REPORT TO THE BUDGETARY AUTHORITY............................................................. 51 14.1 Annual activity report (AAR).......................................................................... 52 14.2 Statement of assurance (DAS)....................................................................... 53 14.3 Discharge.................................................................................................... 53 15 EVALUATION..................................................................................................... 54 16 FINAL RECOMMENDATIONS................................................................................. 55 3 16.1 Keep track of important dates........................................................................ 55 16.2 Filing and handing over................................................................................. 55 16.3 Where to go for more information.................................................................. 55 4 ABBREVIATIONS ABAC Accrual-based accounting AOR Authorising Officer Responsible COM European Commission DAB Draft amending budget DB Draft budget ELC Expenditure lifecycle EP European Parliament EU European Union FI (FIA) Financial Initiator (Financial Initiating Agent) FR Financial Regulation FV (FVA) Financial Verifier (Financial Verifying Agent) OI (OIA) Operational Initiator (Operational Initiating Agent) OJ Official Journal OV(OVA) Operational Verifier (Operational Verifying Agent) RAL Reste à liquider (the amount remaining on each budgetary commitment) TEU Treaty of the European Union TFEU Treaty on the Functioning of the European Union 5 1 INTRODUCTION European institutions develop programmes and projects to improve the life of European citizens. These initiatives have grown and changed over time as our societies, economies and environment evolve. The European Commission is accountable for the use of EU taxpayers' money – and responsibility for correctly managing this money lies in everyone's hands at every stage in the expenditure lifecycle. Therefore, money spent to execute the EU budget is managed through a series of procedures and rules ensuring maximum impact and minimising the risks of wrongdoing. When we implement the EU budget, we need to have a global view and understanding of what we need to do before (preparation phase), during (implementation phase) and after (closure and reporting phase) spending EU money. This is the expenditure lifecycle. We must also be aware of the management framework, our responsibilities, limits, obligations, and the various financial circuits to follow. The purpose of this manual is to explain in detail all the key elements of the expenditure lifecycle: a) Types of expenditure There are 2 types of expenditure: Operational expenditure to implement policies decided by the legislators - the Council and the European Parliament - through a law and transposed in the form of programmes or projects. Administrative expenditure to cover the costs related to the functioning of the European institutions (at headquarters in Brussels/Luxembourg, as well as in delegations and representations). This means the salaries of staff and costs for offices and buildings, IT, and various other equipment, etc. b) Legal basis To make any type of expenditure, we need a legal basis that entitles us to carry out an operation under the EU budget. The legal basis can take different forms, depending on the type of expenditure (administrative or operational), or the area of expenditure. 6 c) EU budget The Council and the European Parliament - the Budgetary Authority - adopt the EU budget every year. It covers all expenditure, reflecting the differences between administrative and operational expenditure. It is not possible to have expenditure that is not covered by the budget. d) Financing decisions and work programmes Initial authorisation for all types of operational expenditure comes from the College of Commissioners (the overall Authorising Officer for the Commission) in the form of financing decisions and work programmes. These give policy guidelines and authorise expenditure in the particular policy areas. No operational expenditure is possible without this. e) Calls for tender and calls for proposals Before spending, we announce our projects through "calls", to manage taxpayers' money transparently and allow access to EU funds to those who are entitled. Calls for tender are used in procurement Calls for proposals are used for grants f) Award decision This is the final step in the call procedure. The Authorising Officer Responsible (AOR – a person authorised by management for this purpose) decides who to award a contract or a grant to. g) Financial circuits To be approved, all financial transactions have to be checked by at least 2 people ("4 eyes principle"). Circuits set out which roles in the budget system need to be involved in these checks and approvals. They are clearly defined and set up by management for each type of transaction. 7 h) Budgetary and legal commitments No payment can be made without 2 crucial steps first being made: a budgetary commitment, reserving the necessary funds in the budget afterwards a legal commitment, i.e., the signing of a contract or grant agreement. i) Payments Once all contractual conditions have been fulfilled the beneficiaries of the EU funding or the contractors can be paid. The Commission must also comply with the deadlines for payment. j) Closure and report to the Budgetary Authority At the end of each budget year, we must report to the Budgetary Authority - the European Parliament and the Council - on how the budget and resources have been used. 2 LEGAL BASIS In this section, we will answer questions such as: who entitles us to spend the European budget? What form does this authorisation to spend take? Or which documents specify what the budget will be used for and how we will spend it? For all operational expenditure, the first legal reference is a basic act (Art. 58 FR), a law adopted by the Council and the European Parliament (the legislative authority). The basic act can take the form of a regulation, directive or decision, and contains the instructions on implementing EU policies. Recommendations and opinions are not considered basic acts in this context (Art. 2(4) FR). Indeed, since the entry into force of the Lisbon Treaty on 1st December 2009, the European Parliament is on equal foot with the Council regarding the adoption of legislative acts. Both institutions adopt these acts through the ordinary legislative procedure, according to Art. 289 of the TEU. The timing and process for each institution (European Parliament and Council) to read, amend and/or approve the legislative act proposed by the Commission is set by Art. 294 of the TEU. The whole procedure can take between 6 and 18 months. 8 2.1 What does a basic act contain? For each EU programme, the basic act provides information on the objectives to be achieved, the planning of action to take under the programme and the measures to take to achieve the objectives. Most basic acts have expiry dates, which must be known by the services implementing the programme. Why? To ensure that the procedure for drafting a new one is launched on time and that expenditure is only incurred in the time covered by the basic act. Draft basic acts are submitted by the Commission to the Council and the European Parliament for adoption, together with: a) A legislative financial statement (Art. 35 FR) A legislative financial statement must accompany any proposal or communication that may have budgetary consequences, including changes in the number of posts. This document provides an analysis of: the impact of the programme on the EU budget the objectives to be reached the expected results and impact a schedule of payments and information on how sound financial management and cost-effectiveness of controls will be ensured financial and economic data (for multiple years and also year by year) consistency with other financial EU instruments and possible synergies (e.g., for human and financial resources for the duration of the programme and for the evaluation of the financial impact on the medium term) measures planned to prevent fraud When the draft budget is drawn up, a budgetary financial statement must be presented for each budget item (this takes the form of an update for programmes/projects already underway). b) Ex ante evaluation (Art. 34 FR) The purpose of this evaluation is to gather information and carry out analysis that helps to ensure that the policy objectives will be delivered successfully, the instruments used are cost- 9 effective and reliable ex post evaluation will be possible after the project has finished. Therefore, it is a specific kind of feasibility study. It answers questions such as "What is the added value of such a programme?", "Is the proposed EU action consistent with reality on the ground?", "Will the EU action have a sustainable impact?" etc. 2.2 Spending without a basic act? While the general rule is that expenditure must be covered by a basic act, in some areas expenses are covered by a different legal basis: a) Pilot projects - Art. 58(2)(a) FR Before writing a basic act and submitting it to the Council and Parliament, you might want to test your new ideas. Pilot projects are made for this purpose. If the idea is considered viable, it will lead to the drafting and adopting of a basic act. The duration of pilot projects is a maximum of 2 successive budgetary years, with an overall ceiling – for the whole of the Commission – of EUR 40 million per year. b) Preparatory actions - Art. 58(2)(b) FR While a basic act is being drafted and until it is adopted, preparatory actions may be launched to prepare its implementation. The maximum duration of these projects is 3 successive years with a maximum ceiling of appropriations of EUR 50 million per year. The total amount of appropriations actually committed by the Commission for preparatory actions per year cannot exceed EUR 100 million, of which EUR 50 million for new preparatory actions. c) Preparatory measures under Common Foreign Security Policy (CFSP) - Article 58(2)(c) FR These are limited to a short period of time and designed to establish the conditions for EU action to meet the objectives of the CFSP and for adopting the necessary legal instruments (e.g., financing of measures for the preparation of EU crisis management operation). d) Institutional prerogatives and specific powers - Art. 58(2)(d) FR Treaty prerogatives: these are policy areas for which no additional legislation is needed for their implementation, as they are covered by specific articles in the Treaties. For example, communicating the activities carried out by the EU. Specific powers: in contrast to Treaty prerogatives, these derive from a series of articles of 10 the Treaties. Examples include powers to conduct social dialogue or lead initiatives to promote coordination on health protection matters. e) Administrative expenditure - Art.58(2)(e) FR All expenses incurred for the functioning of the institutions need no legal basis other than the Financial Regulation. 2.3 Hierarchy of norms If basic acts are one of the legislative norms needed before we can execute the budget, what about the other norms? What are they? Must we follow them? In fact, there are several legal norms, which have a hierarchy of importance: At the top of the hierarchy of norms are the Treaties establishing the European Union. All their provisions are binding on us, in everything we do, including in the finance area. The Treaties are the primary law. Basic acts, the Financial Regulation and other sectoral rules are secondary legislation. Internal rules on budget implementation, as well as Commission decisions, and any other documents adopted by the College of Commissioners, are not laws. However, they must be followed by all Commission departments. Manuals, notes, circulars, internal procedures are defined by each DG, and must be followed by that DG's staff. 11 3 MANAGEMENT MODES The European Commission monitors every day the efficient execution of the EU policies and supervises how EU funds are spent. But does the Commission work alone or with partners? The steady expansion in the tasks carried out by the Commission, the successive enlargements of the European Union and the growing volume of funds to be managed have led to the use of a variety of management methods. Over time, we have seen a decline in the proportion of tasks carried out by Commission itself and the funds whose management is entrusted to other bodies have grown steadily. The Financial Regulation lays down 3 management methods and fixes the limits for these arrangements and the conditions for their implementation: Direct management – funding is implemented by Commission departments and EU executive agencies (set up especially for this task). Indirect management – budget implementation tasks are delegated to international organisations, non-EU countries, EU bodies, national agencies in EU countries or private bodies that have a public service mission or are responsible for implementing public- private partnerships. Shared management – the budget is implemented by EU Member States Shared Direct Indirect 3rd countries, Member States EU institutions International Organisations, etc. 3.1 Direct management Direct management means that the budget implementation tasks are performed either by Commission departments or by EU executive agencies, set up specifically for this task. The Commission departments perform the operations required to carry out their budget implementation activities without any involvement by other bodies. In performing their duties under direct management, Commission staff must comply with the terms laid down in the Financial Regulation. 12 Executive agencies are EU bodies created by the Commission and entrusted with powers to implement all or part of an EU programme or project on behalf of the Commission, and under its responsibility, in accordance with Council Regulation (EC) 58/2003. They have legal personality and are located in Brussels or Luxembourg. 3.2 Indirect management The Commission delegates budget implementation tasks to: Decentralised agencies – spread across the territory of the EU, these are EU bodies with an important role in implementing EU policies, especially tasks of a technical, scientific, operational and/or regulatory nature. They are either created by the Council on the basis of Article 352 of the TFEU or on the basis of a specific sectoral legal basis. They have legal personality, and their links with the Commission vary considerably given their respective roles and objectives. National agencies – a network of bodies with a public service mission that are designated by the Member States. Specialised EU bodies – the Commission can delegate certain tasks of implementation to specialised bodies such as the European Investment Bank (EIB) or the European Investment Fund (EIF), and to other private or public international bodies or also private bodies with a public service mission. Non-EU countries – in the external actions field (i.e., EU activities involving non-- Member States), the budget may be managed by a beneficiary country that is outside the EU. International organisations All bodies implementing the budget under indirect management are required to: − follow some ground rules such as ensuring there are no conflicts of interest, having an effective internal control system and being fully transparent in implementing the EU budget. − provide an annual management declaration, implementation reports and annual accounts, accompanied by an audit opinion. 13 3.3 Shared management This management mode accounts for the lion's share of the EU budget - around 70% of EU funds are implemented in this way. Under shared management, the Commission relies on the Member States to implement certain policies. For example, agricultural expenditure in the Member States is the task of authorised national bodies, working in accordance with rules established at EU level. For the Structural Funds, the European institutions decide on the total amounts to be paid and the conditions of implementation. Member State administrations (at national, regional and local level) choose which projects to finance and take responsibility for day-to-day management. Working together with the Member States, the Commission ensures that the projects are seen through to a successful conclusion and that the money is well spent. It is important to remember that, while the Member States are responsible for implementing most of the EU budget, the Commission bears the ultimate responsibility: Article 317 of the TFEU states that "the Commission shall implement the budget (...) on its own responsibility", although it adds that "Member States shall cooperate with the Commission to ensure that the appropriations are used in accordance with the principles of sound financial management". It is therefore essential that the Commission puts in place strong and efficient EU controls on how EU money is spent. 4 BUDGET 4.1 Multiannual financial framework Since 1988, the EU budget has been subject to long-term planning, starting with 5-year periods and expanding in 2007 to 7-year periods, called a ‘multiannual financial framework’. This framework lays down maximum amounts ("ceilings") by broad category of expenditure ("headings") over the 7-year period. The budget that is adopted each year must comply with the ceilings set in the multiannual financial framework. 14 4.2 Budgetary principles The implementation of the budget is subject to a number of principles, set out in the Financial Regulation. Exceptions may be made to these principles in very specific circumstances, but these are kept to the minimum and are subject to strict conditions. Principle What it means All EU revenue and expenditure must be incorporated into a single Unity and budget document, which is the vehicle for every item of expenditure budget and revenue. accuracy The main exception is the EDF - European Development Fund. Appropriations cover the requirements of a specific financial year and may be used only during that year (from 1 January to 31 December). Annuality However, under certain circumstances, commitments continue to be valid after the closure of the financial year and appropriations may be carried over. To be followed mathematically when the budget is drawn up. Equilibrium However: between the revenue outturn can be higher or lower than the forecast. revenue and expenditure because appropriations impose an upper limit, expenditure may be only equal to or lower than the forecast. The budget must be drawn up and implemented in euro, and the accounts must be presented in euro. Unit of account However, for operational reasons certain transactions may be executed in other currencies. Total revenue covers total expenditure, without any specific link Universality between a given item of revenue and a given item of expenditure. However, the Financial Regulation allows for specific exceptions to this 15 rule, whereby some revenue can be assigned to a specific purpose (supplementary research programmes, contributions by third parties, gifts and bequests, etc.). Appropriations may be used only for the purpose for which they have been provided. This requirement is basically followed by dividing the budget into Titles Specification for policy areas and Chapters dedicated to programmes. However, transfers of appropriations or even amending budgets may be required for management purposes. Budget appropriations must be used in accordance with the principles of economy, efficiency, and effectiveness. Specific, measurable, achievable, relevant, and time-bound Sound financial objectives must be set for all expenses covered by the budget. management The achievement of those objectives must be monitored by performance indicators. Ex ante and/or ex post evaluations must be carried out. This takes the form of a requirement to publish at least the budget and Transparency the accounts, as well as information on recipients of EU funding. 4.3 Where does the money come from? The EU budget is financed mostly by what is known as ‘own resources’, with a small share of ‘other revenue’. Own resources This is revenue that accrues automatically to the EU to finance its budget, without the need for any subsequent decision by national authorities: a share of national customs duties a small share of national VAT revenues a contribution based on national amounts of non-recycled plastic packaging waste 16 revenue based on each Member State’s GNI Other revenue This includes e.g., tax and other deductions from staff remunerations, bank interest, contributions from non-member countries to certain EU programmes, etc. When the Council and European Parliament approve the annual budget, total revenue must equal total expenditure. However, since outturns of revenue and expenditure usually differ from the budgeted estimates, when the budget is implemented, it leaves a balance. Normally, this is a surplus, which reduces Member States' own resources payments in the subsequent year. 4.4 How is the budget adopted? Art. 313 and 322 of the TEU and TFEU In practice, preparing the budget for a financial year takes up the whole of the previous year, through 2 distinct phases: 4.4.1 Internal phase – establishing the draft budget DG Budget requests and collects the necessary information from other DGs about their needs, taking into account political priorities set by the College of Commissioners and the multiannual financial framework. Once DG Budget has the information from the DGs, it examines all the requests received and organises "hearings". On this basis, a draft statement of estimates is drawn up and adopted by the Commission. The documents corresponding to this proposal, together with the proposals from all the other institutions, are sent to the Council and Parliament for approval in April or early May. Both the Council and the European Parliament (the budgetary authority) adopt all budget expenditure on an equal footing. Both have only one reading (the Council in July, the European Parliament in October), where they amend and decide on the expenditure, followed by a 21- day negotiation period, called conciliation. 4.4.2 Interinstitutional phase If an agreement is reached during conciliation, the Council and afterwards the European 17 Parliament adopt the budget, and implementation can start. Between the different phases of the budgetary procedure, there are meetings between the Commission, the Council and the European Parliament, which are called Trilogue. Both the Parliament and the Council have a budgetary committee to examine the budget and make proposals for amendments. The Commission follows the work of these committees, to explain its proposals. 4.5 How is the budget structured? Section: breakdown of the budget per institution and for the revenue part. Title: indicates the policy area, usually the same as the DG. For example: Title 07 is ‘Investing in people, social cohesion and values’ Chapter: indicates the general purpose for the use of the money. Chapter 01 of each Title is always administrative expenditure. All other chapters concern operational expenditure. For example: Chapter 0702 is the European Social Fund Plus (ESF+) Article: indicates the specific purpose for the use of the money. For example: Article 07 02 02 - ESF+ shared management strand — Operational technical assistance Item: Detailed sub-division, not always used. 4.6 What are commitment and payment appropriations? Commitment appropriations They correspond to the maximum value of legal commitments to pay (contracts, grant agreements) that can be signed during one budgetary year. The duration of these legal obligations might extend over more than one budgetary year. Payment appropriations They correspond to the maximum value of payments to be made during the budgetary year. They cover expenditure arising from legal commitments entered in the current year and/or earlier years and due in the current year. 18 4.7 What are differentiated and non-differentiated appropriations? Differentiated appropriations They are used for policy implementation (operational expenditure). When working with differentiated appropriations, commitments made in one year (n) can be followed by payments occurring during several years (n, n+1, n+2, etc.) – that is to say, during the lifetime of the project or contract. Non-differentiated appropriations They are used to cover the Commission’s running costs. The commitments made for administrative expenditure in one year (n) can only be followed by payments in the same year (n) or following one (n+1). In the multi-annual financial framework: For commitment appropriations ceilings are set for each heading For payment appropriations there is an overall ceiling 4.8 How to make changes to the budget? 4.8.1 Letters of amendment To make any changes to its section of the draft budget, the Commission may submit to the Council and Parliament a letter of amendment based on new information that was not available at the time the draft budget was established. If requested by the other institutions to make changes to their sections of the budget, the Commission will use the same procedure. The Commission can do this at any time until conciliation starts. 4.8.2 Amending budgets In unavoidable, exceptional or unforeseen circumstances, the Commission may, during the budget year, have cause to propose amendments to the voted budget. It does so in the form of a draft amending budget. This is required if: The total amount of appropriations for commitments and/or payments is increased 19 New projects are financed without any overall increase in the appropriations A technical or financial change is requested which does not increase appropriations or involve new action 4.8.3 Transfers Transfers within the same chapter (between articles or items) can be decided by the Commission. Transfers between chapters can be decided by the Commission within specific limits and ceilings. Except for Funds under Shared Management, transfers between titles have to be decided by the European Parliament and the Council (budgetary authority). The global transfer is part of the global budget review exercise taking place once a year: in July, DG Budget asks the DGs & Services if spending is proceeding as planned or if some are underspending or other have additional needs in particular areas. in September, taking into consideration the needs and surplus of all the DGs & Services, DG Budget coordinates the redeployment to ensure the most effective use of all available appropriations. It proposes to the budgetary authority a global transfer of payment appropriations. in mid-November, these appropriations are available. The end of the year transfer is also a particular type of transfer which offers the possibility for the Structural Funds to benefit from unused payment appropriations at year end. 5 FINANCING DECISIONS By taking financing decisions, the College of Commissioners authorises Directorates-General to implement the budget. They are part of the decision-making process by which the Commission exercises its powers to implement EU policies (Article 271 of the TFEU). Financing decisions are annual or multiannual and contain the annual or multiannual work programme. They should not be confused with individual decisions awarding grants, contracts, or any other financial contribution funded by the EU budget. Financing decisions are taken by the College under its rules of procedure and are designed to provide a management framework for Commission departments. They 20 specify the activities which will be undertaken to implement the budget in a given year. To be implemented, they must be followed by award decisions. Award decisions are separate implementation decisions taken by the authorising officer responsible, based on a financing decision already adopted by the College. An award decision specifies who contracts or grants are going to be signed with. Financing decisions are required for all operational expenditure (implementing EU policies) covering either grants, procurement, or other financial contributions. They are obligatory, regardless of whether expenditure is justified by a basic act, pilot projects, preparatory actions, treaty prerogatives or specific powers. Administrative expenditure covering the running costs of the institution itself may be committed without a financing decision, under the principle of administrative autonomy. 6 METHODS OF IMPLEMENTATION Procurement and grants are 2 ways to spend the EU budget: As a rule, the difference between procurement and grants is fairly clear. Briefly, with procurement, the Commission obtains a product or service it needs, in return for a payment. Grants offered by the Commission contribute either to a project carried out by an external organisation or to the functioning of that organisation because its activities contribute to EU policy aims. 6.1 Procurement More than 98% of procurement contracts signed by the Commission cover the following areas: Services = buy intellectual and non-intellectual services. For example: statistical or audit reports, consultancy work, analyses, translation, or interpreting services, etc. Material = buy a product. For example: office stationery, IT equipment, books, building work, etc. All procurement procedures follow these principles: Transparency – this means that we have to publish all relevant information concerning our 21 purchases. This public information will keep taxpayers informed on how and with who we spend their money and keep economic operators abreast of business opportunities. Equal treatment and non-discrimination – all interested parties will be treated in the same way. Any advantage given to one tenderer – e.g., additional information – must be given to all the others in the same situation. Widest competition – the objective of public procurement is to increase public bodies’ choice of potential suppliers, thereby achieving better value for public money. At the same time, this increases market opportunities for companies. Proportionality – the choice of tender procedure used for the call, and how it is organised, must be proportionate to what is being purchased and how much it costs. The administrative burden related to a low-value purchase should be as low as possible, whereas purchases for high amounts should make sure that the financial risks are covered as far as necessary. 6.1.1 How to buy and which procedure to follow? The choice of procedure is related to the estimated value of the purchase (excluding VAT): Reimbursement against invoice < EUR 1,000 Negotiated procedure - min. 1 supplier invited < EUR 15,000 Negotiated procedure - min. 3 suppliers invited < EUR 60,000 Negotiated procedure - min. 5 suppliers invited < EUR 140,000 Call for expression of interest in OJ < EUR 140,000 Open, restricted (OJ publication) > EUR 140,0001 6.1.2 Negotiated procedure:< EUR 140,000 Contracts below EUR 140,000 are considered "low-value contracts (very low value, low value or middle value)”, and rules are more flexible, to avoid unnecessary red tape and administrative costs. The underlying principle is that the effort for purchasing the goods or services needed should be proportionate to their value. Between EUR 1,000 and EUR 140,000, the different amounts for the negotiated procedure 1New amounts came into force under Directive 2014/24/EU on 01/01/2022: Works contracts = EUR 5,382,000; Supply and services = EUR 140,000 22 require a different number of candidates to be invited. The Authorising Officer Responsible will set the "rules of the game” always applying the principles of transparency, proportionality, equal treatment, and non-discrimination. Regardless of the number of candidates invited, having just one valid offer is always sufficient for awarding a contract. Up to and including EUR 1,000, no contract is required. An invoice is sufficient and should be issued by the contractor in the name of the Commission. 6.1.3 Call for tenders There are 2 main procedures: 1) Call for expression of interest (CEI) – a type of restricted procedure 2) Call for tenders - can be an open or restricted procedure 1) Call for expression of interest (CEI) The call for expression of interest (appel à manifestation d'intérêt - AMI - in French) is a procedure that guarantees transparency and competition for purchases below the amount of the Public Procurement Directive’s threshold (EUR 140,000). Any company or person interested in competing for Commission contracts below EUR 140,000 may apply to be included in the CEI list. The companies on the list will then be invited to present their offers. Before launching such a procedure, check if your DG has already a CEI list, or if one that suits your need exists in another DG. There are 2 types of CEI: (a) CEI for establishing a list of pre-selected candidates 1. Publish a CEI notice in the S series of the Official Journal (OJ) 2. Request and receive the applications 3. Select candidates and include them in a list or sub-list (e.g., subject) 4. Inform by letter those candidates who have been rejected, telling them why. The list is valid for 4 years and used, as per your need, through contracts below EUR 23 140,000 per year and per field/sub-list. The CEI list is dynamic, it requires regular evaluations of incoming applications and updates. Hence, its use is recommended only if you have a minimum number of contracts per year, otherwise the necessary effort to manage it would not be justified. (b) CEI for collecting a list of vendors All companies expressing their interest are registered on the list: 1. Publish a CEI notice in the S series of the Official Journal (OJ) 2. Request and receive the applications 3. Include them in a list or sub-list without any pre-check or selection - no preselection required 4. When you need to buy, invite all or a selection of vendors on the list or sub-list. Only at this stage will the invited vendors be checked. The list is valid for 4 years. The maximum amount of EUR 140,000 is per contract, as the procedure starts when the list or sub-list is used. Artificially splitting contracts is forbidden. 2) Call for tenders: open call with publication in the Official Journal The procedures to be followed for contracts above the EUR 140,000 threshold set in the Public Procurement Directive are binding not only for the Commission and the Member States but also for all countries that have signed the Government Procurement Agreement managed by the World Trade Organisation (WTO). What is it good for? A maximum of competition among tenderers and offers. The open procedure is the most commonly used for contracts worth EUR 140 000 or over, as it is the procedure which allows the highest rate of participation. How does it work? 1. Publish the call notice in the Official Journal (OJ) 2. Publish the procurement documents in Tenders Electronic Daily (eTendering - TED) 3. Receive the offers from all tenderers without any distinction 4. Committee opens all offers at the same time and evaluates them. The opening of offers 24 is done in public, enabling tenderers to be present and check that their offer has not been opened before 5. Choose the best offer based on the selection and award criteria 6. Award contract and inform (ex post information) In compliance with Art 147 of the Financial Regulation, the Commission provides a Single Electronic Data Interchange Area (SEDIA) for EU grants and procurement procedures. E-submission using SEDIA must be used for all open calls above the amounts set in the Public Procurement Directive. This allows companies to upload and submit their tenders in electronic form. It also allows contracting authorities to manage the receipt of tenders and the opening session electronically. Other types of procedure that apply for amounts above those set in the directive, as well as the steps for evaluating, awarding, and providing information on tenders, will be added to the SEDIA system gradually. The whole system ensures the confidentiality, integrity, and traceability of all communication around tenders. A golden rule in public procurement forbids from artificially splitting a contract (“saucissonnage” in Commission jargon): in this practice, only the purchase of the "slice" is published for tender, although it is already clear that the whole sausage will be bought. In other words, we are not allowed to conclude several minor contracts for the same services or supplies just to avoid the procedure that would apply to the total amount of the purchase. We must group those similar purchases into a single procedure. However, a contract can be divided into several lots, to allow for slightly different needs within a same domain. (e.g., A purchase of evaluation services may be divided into several lots covering different fields to be assessed. A contract for training to be given can be divided into lots covering different types of training). 6.1.4 Opening committee and evaluation committee The members of the committees have to be appointed in writing by the AOR. The evaluation committee must be composed of at least 3 people, of which at least one does not work for the AOR. The opening committee has at least 2 members who may work for the AOR. Members can come from other institutions and agencies. 25 Opening committee Having an opening committee is mandatory for calls above EUR 140,000. This committee is responsible for checking whether the tenders comply with the announced submission rules. They will check if the offer has been sent in time, as well as all the other formal requirements. They will write a report listing all admissible and (if applicable) inadmissible offers. This report will be signed by all members and then sent to the AOR, who will take the final decision. Evaluation committee The evaluation committee needs to have expertise in the field or subject matter of the purchase. The members of the committee will apply the evaluation criteria exactly as announced in the call and write and sign a report including the evaluation sheets for each tenderer, the ratings according to evaluation criteria and the proposed winner. This report will be the basis for the AOR's final decision. 6.2 Grants Grants represent a big share of the expenditure under the EU budget. Those grants can be divided into 2 types: Action grants that finance projects intended to help achieve an objective that forms part of an EU policy. Operating grants that finance the operating expenditure of a body pursuing an aim of general European interest or an objective that forms part of an EU policy. With grants, the Commission does not receive goods or services in exchange for its payments, as in public procurement. The results of the funded project remain the property of the beneficiaries. The Financial Regulation states that grants must be awarded through a call for proposals. There are only a few exceptions – for example when the bodies or people who will receive EU funding are already identified in the basic act. Whenever the Commission prepares a call for proposals, and throughout the lifecycle of a grant, all its departments must comply with the following principles: Transparency – this means that we have to publish all relevant information, including our work programme, the call for proposals and the awarded grants. This public information will 26 keep taxpayers informed on how and with who we spend their money and keep beneficiaries abreast of the possibilities of applying for a grant. Equal treatment – no preferential treatment! Any advantage given to an applicant or beneficiary must be given to all others in the same situation. Non-cumulative – no beneficiary may get more than 1 grant per project, or not more than 1 operating grant per financial year. Non-retroactive – projects that are already completed are excluded from EU funding. Projects that have already begun may be considered for EU funding, if the applicant can demonstrate the need to have started the project before the agreement is signed. Co-financing – the Commission and the beneficiary will share the costs. We never cover 100% of the costs, except in the field of external aid. Non-profit – beneficiaries may not generate profit with the EU grant they receive. At the end of the grant, if a profit is made, the surplus will be recovered by the Commission. There can be exceptions to this principle, however, if indicated in the basic act(s). 6.2.1 Work programme (WP) and financing decision The work programme can be annual or multiannual and is included in the financing decision. It must always precede the launch of the call for proposals. It has to be adopted by the College, at the latest by 31 March of the budget year concerned. However, if possible, it should be adopted and published already in the year preceding budget implementation. What should be included in the work programme? The reference to the basic act and the budget line that will be used The priorities, the objectives to be fulfilled and the expected results with the appropriations authorised for the financial year The amount of available appropriations The indicative timetable and amount of the calls for proposals The essential eligibility, selection, and award criteria to be used to select the proposals The maximum possible rate of co-financing, and whether different rates are envisaged (fixed amounts and flat rates). 27 6.2.2 Call for proposals 1. Publish the call for proposals The call must be published on the EU website (Europa) and anywhere else deemed appropriate. It is translated into all official EU languages, to be effective and to respect citizens' rights. The call should contain all the information needed by applicants to submit a successful application. 2. Evaluate proposals received The only difference to public procurement is that there is no obligation to have an opening committee. However, the AOR may wish to have one. For the rest, the composition and tasks of the evaluation committee are identical. 3. Award and sign the agreements or send the award decisions to beneficiaries. 4. Inform all applicants - those who were not selected must also be informed of the reason for their rejection. Linked to the principle of transparency, a list of beneficiaries must be published on the Europa site at the latest by 30 June of the year following the signature of the grants. 6.3 Direct payments Other than common agricultural policy payments, direct payments are salaries, reimbursement of travel costs, medical claims, etc. 6.4 Financial instruments This is EU assistance in the form of a loan, a financial guarantee or other temporary financial support. It is meant to finance a project contributing to EU policy objectives. Financial instruments are managed indirectly, e.g., by the EIB, EIF or EBRD (European Bank for reconstruction and development), to provide funding for high-risk projects that banks would not finance. The beneficiaries are mostly businesses. Examples include the Juncker Plan, COSME. 6.5 Trust funds These are funds pooled by the Commission with multiple donors, to finance joint action. They are used to finance development projects and humanitarian aid via grants, and they are 28 managed centrally (by DG INTPA). The beneficiaries are mostly NGOs. The aim is to strengthen the visibility of EU external action and increase efficiency and implementation speed. E.g., the Trust fund in response to the Syrian crisis and the EU emergency trust fund for Africa. 6.6 Prizes These are rewards in money following a contest. The beneficiaries may be researchers, NGOs, individuals, foundations, businesses, private or public bodies, universities, etc. Their aim is to recognise outstanding work after it has been performed. Inducement prizes are a special kind: they spur investment in a given direction (e.g., DGs RTD & GROW). E.g., research prizes: Cleanest engine of the future (EUR 3.5 million), Low-carbon hospital (EUR 1 million); the EP's Sakharov Prize for Freedom of Thought (EUR 50.000). 7 ROLES AND RESPONSIBILITES The Financial Regulation provides for the three financial actors, the authorising officer, the accounting officer, and the imprest administrator. It provides for a clear separation of functions between authorising officer and accounting officer. The accounting officer is responsible for accounting rules and the supply of accounting information. The imprest administrator is responsible for payments from the imprest accounts. Who takes the political and/or budgetary decisions in the Commission? At which level are they taken? Who does what? As each institution decides for its own expenditure (how it will be executed, how the reporting will be done), what is the situation for the Commission? The Authorising Officer for the Commission as a whole is the College of 27 Commissioners, who take "financing decisions" describing the activities to be financed each year. Through the empowerment procedure, the College can give one Commissioner the right to take a decision on behalf of the whole College. This is done in areas where the margin of appreciation is small, and which present no political difficulties. It is usually done for clearly defined management decisions and may be limited by a financial ceiling. The Commissioners delegate the tasks of financial management to the Directors-General, who thus become the "Authorising Officers by Delegation" (AOD). They are responsible for the setting up of organisational structures (e.g., the financial circuits) and internal control systems 29 necessary to achieve the objectives set. Directors-General delegate further to their Directors, Heads of Units, and others, who thus become the "Authorising Officers by sub-delegation" (AOSD). Financial circuits involve initiating and verifying agents that should follow the Staff Regulations, the Financial Regulation, the Internal rules, and other guidance2. For daily work, when we talk about the "Authorising Officer" it usually means the "Authorising Officer by sub-delegation". We also talk about the "Authorising Officer Responsible " (AOR), a term which covers all three possibilities. The authorising officer responsible duties include making the award decision and signing agreements and contracts, as well as validating commitments, payments, recoveries, and de- commitments. Ensuring compliance with the principles of sound financial management, legality and regularity are also their responsibility. The authorising officer responsible has to contribute to the annual activity report for their DG, by explaining the decisions taken over the year. 8 FINANCIAL CIRCUITS Financial circuits set out the validation paths that transactions have to follow, by specifying which roles will act, and in which order. Obviously, the initiation has to be done before the verification, but each DG can decide on the order for the operational and financial aspects, and which units and/or roles have to carry out the initiation, verification and validation. Each DG chooses its own circuits within a framework provided by DG Budget. The 3 practical models in use are: 2'Statutory staff' (officials, temporary agents, auxiliary agents, contractual agents, special advisors, and where necessary local staff, but these are not subject to Article 22 Staff Regulations 30 1. Fully centralised – the Authorising officer is in the Finance unit. 2. Fully decentralised – the validation (financial circuit) is carried out entirely within an operational unit or directorate. 3. Partially decentralised (with counterweight) – in this model the Finance unit has a systematic intervention for financial aspects, by executing either: a. the entire financial part of the transaction (financial initiation and verification), or b. only the financial verification 8.1 The "4 eyes principle" Each financial transaction is divided into 2 steps: initiation on the one hand, and verification/validation on the other hand. These 2 steps must be performed by 2 different people. Moreover, the verifier cannot have a subordinate position to the initiator. Nevertheless, there are often more financial agents involved, as the initiation and verification will be divided into financial and operational aspects, with a final validation by AOR. Hence, for most of you, the financial circuit might look like this: 8.2 Initiator (or initiating agent) - FIA or OIA The role of this person can be divided into 2 parts, the "operational" and the "financial". The initiator works under the responsibility of AOR. Operational initiating agents (OIA) are often project or desk officers managing particular programmes or projects. Their role includes managing the calls for tenders/proposals and/or managing contracts or grant agreements. Financial initiating agents (FIA) typically prepare the budgetary commitments, examine the financial aspects of a transaction, and select the general ledger accounts to be used. 31 8.3 Verifier (verifying agent) - FVA or OVA This person checks the work of the initiator to ensure compliance with internal procedures and offers them support with particularly complex operations. As with initiators, their role can be divided into 2 types (operational/financial, so FVA or OVA). They verify transactions on behalf of the AOR. The verifier's tasks can be carried out by the AOR. 8.4 Authorising officer responsible (AOR) The AOR takes the final responsibility for each decision that has a financial impact. They are responsible for organising and supervising the work of the initiators and verifiers who work for them. They also contribute to the DG’s annual activity report. After the award decision taken by the AOR, the Commission departments monitor the implementation of contracts and grant agreements. We now enter the world of financial transactions: commitments, payments, decommitments and recoveries. Any transaction approved by the AOR must be recorded in a system, to ensure efficient reporting on the accounts by the accounting officer. 9 INTERNAL CONTROL Internal control is broadly defined as a process intended to provide reasonable assurance that the DG’s objectives have been achieved. More specifically, internal control includes all the measures management and staff take (for example organisational structures, policies, procedures, checks, verifications, training, etc.) to ensure that: Operational activities are effective and efficient Legal and regulatory requirements are met Financial and other management reporting is reliable Assets and information are safeguarded. 32 Internal control relies on all financial agents, who should be vigilant when implementing the EU budget. The internal control framework provides generic guidance and sets out the minimum requirements for DGs’ internal control activities. In 2017, the Commission moved to a principle-based system with the aim of ensuring robust internal control through consistent assessment by the Commission, while providing the necessary flexibility to allow departments to adapt to their specific characteristics and circumstances. The new internal control framework consists of 5 internal control components and 17 principles based on the COSO 2013 Internal Control-Integrated Framework. 33 Design of the Commission's internal control framework Risk management is part of effective internal control. It can generate important information for planning the DGs’ activities and objectives, and helps management focus the internal control activities on the areas that represent the highest risks. Evaluation and audit 1. Evaluation of activities: evaluations of expenditure programmes, legislation and other non-spending activities are performed to assess the results, impacts, and needs that these activities aim to achieve and satisfy. 2. Assessment of internal control systems: management assess the effectiveness of the DGs' key internal control systems at least once a year, including the processes carried out by implementing bodies. 3. Internal Audit Service: it provides assurance on the management of finance and resources in the Commission, decentralised and executive agencies and other EU bodies receiving contributions from the EU budget. The Commission's auditors carry out audits (about 150 per year) of the management and control systems that exist within the Commission, agencies, and other bodies. This is to assess their effectiveness and efficiency and to promote continuous improvement. Internal control compared to internal audit If internal control is a system of checks, internal audit is a function which checks if the control system is working properly. It provides independent assessment and advice and helps us be more effective. 34 10 ACCOUNTING SYSTEM AND REPORTING Accrual-based accounting system (ABAC) Since 2005, financial information is prepared on the basis of "accrual-based accounting" (expenditure registered when incurred), as opposed to "cash-based accounting" (expenditure registered when paid). Accrual-based accounting increases financial transparency and accountability towards users, audit bodies and citizens, and gives a clearer view of the Commission’s assets and liabilities. Examples: Accounts reflect real obligations, not just payments made:  invoices are recorded as debt before the payment is made  pre-financing is recorded as the property of the Commission until it is cleared ABAC is an integrated transactional information system. It allows the Commission, its agencies and the other institutions to execute and monitor all budgetary and accounting operations. The system has been developed by the Commission and includes a comprehensive set of features to ensure compliance with the Financial Regulation. ABAC offers functionalities covering various areas. In ABAC Workflow: Management of legal entities and bank accounts, including the Early Detection and Exclusion System (EDES) Legal commitments (for contracts and grants) Budgetary structure, appropriations, and commitment management Management of expenses: invoices, payments, pre-financing Management of guarantees Management of income (recovery orders). In ABAC Assets: Assets management In the central “SAP” accounting system: 35 Treasury management Direct posting to the general ledger accounts of all transactions Information exchange on payments with the outside world via the SWIFT network Reporting on budgetary execution (in Data Warehouse) and support for sound financial management. ABAC structure Most ABAC users work directly in the ABAC application, but some DGs/agencies have developed their own information systems, tailored to specific operational needs. Documents prepared in the local systems can be sent to ABAC Workflow via a "local interface". Note that, for security reasons, the AOR always authorises financial transactions directly in ABAC Workflow. To ensure that all information contained in local systems is transferred to ABAC, the development of local systems requires prior approval by the Commission’s Accounting Officer. ABAC Workflow is the front office module used for daily financial/budgetary management by most users. Each user has specific responsibilities in line with the Financial Regulation. ABAC Assets is a set of modules offering the functionalities required for the daily operational management of goods and services (office equipment, IT material, furniture, buildings, etc.). This covers the complete lifecycle: from ordering until material retrieval, including delivery and inventory management. ABAC Accounting – often referred to as "SAP” – is the back-office application. It is mostly used by staff in DG Budget and the accounting correspondents in the DGs. Though the accountant does not intervene in most transactions, they play a key role in a number of important processes such as: financial year transition, opening of the new budget, opening of appropriations, recovery orders, treasury, validation of legal entities and bank accounts, etc. 36 ABAC Data Warehouse is a reporting environment, accessible to all users. It enables reporting and analysis of financial operations. Data from the operational databases is received at night. The reports therefore have a one-day delay. Obviously, the quality of the reports is dependent on the quality of the data entered into ABAC and validated by users. 10.1 Legal Entity File and Bank Account File (LEF/BAF) LEF - What is it? Why do we need a LEF? The LEF (Legal Entity File) comprises all third parties with whom the Commission has contractual or financial relations. A legal entity (LE) can be either a body under public or private law (public administration, private company, charity, etc.) or an individual (staff member, expert, interpreter, etc.). The same legal entity can appear in the accounts both as a supplier (beneficiary of a grant for example) and as a client (debtor of a recovery order). No budget transaction can be accounted for if it does not carry the reference of a legal entity, registered in the LEF. This is required so we can always define the accounting/financial position of a given entity regarding the Commission. Bank Account File (BAF) For each legal entity (LE) in our system, we must have a clearly identified bank account (BA) to receive and manage EU funding. The bank account (BAF) file lists all of these accounts. This means that we cannot register a new bank account without it being linked to a legal entity. A legal entity can have links to several bank accounts and a bank account can also be used by different legal entities. The holder (title) of the bank account linked to a LEF is normally the legal entity registered in the accounts, but there can be some exceptions (this is the case, for instance, with bank accounts opened by factoring companies). 37 11 EARLY DETECTION AND EXCLUSION SYSTEM (EDES) The Early Detection and Exclusion System (EDES) is an alert tool containing information on third parties likely to represent a threat for the EU’s financial interests or reputation. Information on these operators is centralised in the EDES database (EDES-DB). EDES cases are divided into 2 categories: "Early detection" – enabling the Authorising Officer Responsible (AOR) to make verifications "Exclusion case" – where a third party is excluded in accordance with the grounds stated in Article 136 of the Financial Regulation. The warnings are inserted in the Legal Entity File (LEF) visible in ABAC. All the parties involved in managing EU funds (EU institutions, agencies and bodies, Member states, international organisations, national agencies, etc.) have access to EDES. The contracting authority is required to consult the EDES database when checking the exclusion criteria, before taking an award decision and before signing a contract. More information on EDES is available on BUDGpedia. 12 COMMITMENTS (Art. 111-112 FR - Internal rules/guidelines) There are 2 types of commitments: budgetary and legal. The budgetary commitment is an act by which the Authorising Officer Responsible reserves in ABAC the budget they need for payments to be made in future, in accordance with a legal commitment. There are 3 types of budgetary commitments: provisional, individual, and global. The legal commitment is the legal document signed by the Authorising Officer Responsible for a contract or grant agreement with a third party. The budgetary commitment must ALWAYS precede the legal commitment – we cannot sign an obligation to a third party without having reserved the necessary funds. Except in certain well-defined cases, the budgetary and legal commitments have to be signed 38 by the same person. For budgetary commitment, the usual workflow is: initiation + verification + visa (authorisation) in ABAC by the AOR. For legal commitment: DG Budget recommends that the Authorising Officer sends the legal documents unsigned (they can initial each page) and asks the contractor/beneficiary to sign first. When the legal document comes back, the department checks that no changes have been made to it by the contractor/beneficiary. If the text has not been changed, the Authorising Officer can sign. 12.1 Budgetary commitment Budgetary commitments earmark funds for contracts or grant agreements that we will sign. There are 3 types of budgetary commitments: Individual commitments are a reservation of funds for a known amount and a known third party (organisation or person) Provisional commitment are for routine administrative expenditure (items regarded as routine administrative expenditure detailed in the Internal Rules) where either the amount or the final payees are not definitively known Global commitments are for cases where the beneficiary and/or the amount are not yet known. For individual commitments, both parties to the contract or grant agreement must sign the document at the latest on 31 December of the year the budgetary commitment is made. Example The call for tenders finished in September and the contract was awarded to Acme Consulting s.p.r.l. A commitment of EUR 50,000 for Acme Consulting s.p.r.l. is validated on 23 October. The contract will be signed at the end of November or – at the very latest – on 31 December that year. What should you do before validating an individual budgetary commitment? You should check in particular that: 39 an award decision has been made in favour of this organisation. the amount of the commitment is the same as the amount set out in the award decision. the organisation that appears in the commitment is exactly the same as that named in the award decision. the contractor's name and its bank account have been validated in the ABAC system, and that the correct budget line is used. Final date for implementation (FDI) Each budgetary commitment constitutes a record, in the accounts, of the Commission’s contractual obligations with respect to third parties. Therefore, the accounts must specify not only the organisation and the amount, but also the period during which the commitment remains valid: its ‘final date for implementation’ or FDI. If still legally possible, this date can be changed before its expiry. What is included in the duration of this FDI? The period has to be long enough to include: the period necessary for signing the contract or grant agreement. the period planned for the work to be done by the third party. the time planned for receiving, analysing, and paying the invoices or payment requests. Example On 1 February of year N, I enter an individual budgetary commitment in ABAC for a contract whose signature is scheduled for 27 February, with a duration of 12 months. The contract requires the final report and invoice to be sent to the Commission at the latest 3 months after the end of the duration of the performance. As from the date of my budgetary commitment (01/02), I add: 1) 1 month for the validation of the commitment, sending out and signing of the contract 2) 12 months for the duration of the performance of the contract 3) 3 months to receive the report and the final invoice 4) 3 months for the approval of both documents and the payment. We thus have a total of 19 months, and a FDI that would be 31 Aug N+1. 40 Global commitments are used to reserve funds for a group of organisations/entities before knowing the exact amounts and/or which organisations/entities will become beneficiaries. These commitments are not mandatory but are often used for grant procedures. They need to be validated after the financing decision but before the award decision. Global commitments involve a 2-step process: 1) The global commitment is validated before the award decision. 2) After the award decision, the individual commitments (one for each entity receiving an EU grant) are registered against the global commitment. The total amount of all the individual commitments cannot exceed the amount of the global commitment. The corresponding grant agreements need to be signed by both parties at the latest 31/12 N+1 (N being the year the global commitment is validated). Example In May of year N, a global commitment of EUR 40 million will be validated, ahead of a call for proposals in the field of judicial cooperation. The call will be published in the autumn of year N. In early N+1, when we have the award decision, we will register the individual budgetary commitments against the global commitment, each time with the names of the beneficiaries and the amounts granted to them. Before validating a global commitment, we should check at least that: the financing decision was taken. the committed amount is consistent with the amount in the financing decision. the correct budget line was used. Provisional commitments can be used only for administrative expenditure. They reserve funds for a number of beneficiaries, before the actual amounts are known. This can be done: In 1 step – when the provisional commitment is implemented directly as payments are made, without making individual commitments in between. Payments can be processed until the end of year N+1, except for expenditure on staff like salaries and pensions (which must be processed at the latest by 31/12-year N). 41 Example We make a provisional commitment of EUR 1 million for the reimbursement of mission costs during the year for one DG. Payments made for each mission will be booked against this commitment. In 2 steps – when first we validate the provisional commitment and then we validate individual commitments against it. The individual commitments have to be made before the end of the year. Payments can be processed until the end of year N+1. Example We make a provisional commitment of EUR 2 million to cover the purchase of furniture for Luxembourg. An individual commitment will be recorded for each purchase order issued before 31 December, up to the EUR 2 million limit. Before validating a provisional commitment, we should check at least that: the commitment amount does not exceed the appropriations available. the right budget line was used. RAL ("Reste A Liquider") This is the amount remaining on each budgetary commitment. Immediately after we have made the budgetary commitment, the full amount of the commitment is RAL. After the last payment and de-commitment has been made, then the RAL should be 0. The "abnormal RAL" is the DG Budget's estimate of the value of the outstanding commitments which have not been de-committed, but almost certainly should have been. The "abnormal RAL" is defined as: all outstanding commitments where the FDI expired more than 6 months ago. Legally these should all have been de-committed. all outstanding commitments where no payment has been made within 2 years of the legal commitment being signed (except where that amount relates to a case under litigation before judicial courts or arbitration bodies (sleeping commitments), even if the FDI is not yet over 6 months old). If no payment has been made for so long, it is very likely that one will ever be made. The amounts should be de-committed instead. 42 12.2 Legal commitment Before signing a contract or grant agreement, we should check that: A budgetary commitment corresponding to this contract or grant agreement has already been validated by the same Authorising Officer who will sign the contract or grant agreement (possible exception for global or provisional commitments). If the Authorising Officer is absent, their substitute can sign for them. The corresponding budgetary commitment is still valid: for individual and provisional commitments, the budgetary commitment has to be from the current year; for global commitments, the commitment can be from the current or previous year. The correct budget line was used. The details in the contract or grant agreement are exactly the same as those in the budgetary commitment. The contract or grant agreement to be signed is the same proposed in the call for tender or call for proposals. The contract or grant agreement received by the Commission has not been changed by the contractor or the beneficiary, and the signatory is an authorised person. Example For a provisional or individual budgetary commitment, on 1 December of year N we sent a procurement contract for the third party to sign. The contract should be returned and signed by the two parties before 31/12/year N. 13 PAYMENTS (Art. 111-116 FR - Internal rules/guidelines) A payment is the transfer of money to the bank account of the contractor or beneficiary. For procurement, a payment is made for a purchase on the basis of invoices. For grants, a payment is made to reimburse a share of the costs incurred by the beneficiary to implement a project. The reimbursement is made against a request for payment. There are 2 types of payments: 43 1. payment of the total due (a single payment which releases the Commission from the totality of its obligations towards the creditor) 2. payment in instalments. The pace of the payments is defined in the contract or grant agreement. If you pay in several instalments, you can do the following: 13.1 Prefinancing This is a payment to provide the contractor or beneficiary with a cash float to implement the project. It is a payment that is therefore done before the work has been done by the contractor or beneficiary. Since the payment was done without the work being done, the money paid is considered to be property of the Commission. When it is confirmed that the work has been done, we can "clear the pre-financing". This is an accounting action which confirms that the contractor or beneficiary can keep the pre-financing, which is no longer the property (an asset) of the Commission – instead it becomes a cost for the Commission. If the work is not done by the contractor or beneficiary, we have to recover the pre-financing. Pre-financing can be split into several payments. It is paid on the basis of the contract (invoice required) or the grant agreement. In grants, for each instalment paid after the first pre-financing payment, the beneficiary must prove that they have consumed at least 70% of the pre-financing paid. If this condition is not met, the following pre-financing will be reduced accordingly. 13.2 Interim payments These are payments for an intermediate product/result. At this stage we must avoid paying more than what the product/result is really worth to the Commission. 44 Example In the case of a study, an interim report that describes the preliminary work carried out does not have much value for the Commission and should not be used to justify an interim payment. However, an interim report that already describes part of the final results can justify an interim payment. In a grant agreement, making interim payments means that we reimburse a percentage of the costs that are considered eligible. This payment can clear the pre-financing totally or partially, depending on the conditions of the contract/grant agreement. If the contract or grant agreement makes provision for it, several interim payments are possible. 13.3 Payment of the balance due This is the last payment which certifies that all necessary work in the contract or grant agreement has been done, and that all the contractual obligations were fulfilled. If only part of the obligations were fulfilled, we must pay less than initially scheduled in the contract or grant agreement. The payment of the balance needs to clear any outstanding open pre-financing. What should you do before making this payment? Maybe your DG has a checklist to help you with this. But you should check at least that: the contractual/grant obligations were fulfilled. To certify that this is the case, the project manager (generally the operational initiator) writes "certified correct" on the invoice or request for payment. the amount of the invoice or payment request corresponds to the amount due. To certify that this is the case, the authorising officer, or a person appointed for this purpose, can write "passed for payment" on the invoice or request for payment. The endorsements "certified correct” and "passed for payment" are not obligatory – validation by the authorising officer in the ABAC system has the same value. In the case of procurement, the amount of the invoice shall be correct (in line with the contract conditions). If not, you must ask for a credit note. 45 The payment is registered against the correct commitment, and to the correct legal entity and bank account. For requests for payment under grants, it is possible to pay less than what the beneficiary asked for, without receiving a correction of the payment request. Once validated by the authorising officer in ABAC, the payment is made automatically and the Commission’s bank account is debited within 3 working days. It can, however, take longer than 3 days for the beneficiary/contractor to receive the funds in its bank account. The time taken depends on the conditions negotiated between the contractor/beneficiary and its bank. If the contractor/beneficiary has a debt towards the Commission, an "offsetting" between the payment and the debt will be made. The Accounting Officer will deduct the amount of the debt from the amount transferred to the contractor/beneficiary. The payment is considered as having been carried out and the debt considered as recovered. 13.4 How much time do we have? - Art. 116 FR The Financial Regulation sets the payment time limits, for both procurement and grants, at 30, 60 or 90 calendar days. The choice between those 3 periods is set by the Authorising Officer according to the type of payment and the complexity of the contract or grant to be implemented. Within the payment deadline we need to carry out 2 different processes: approve a technical report (if any) validate the payment. The above time limits are used to calculate any interest due on late payments. The payment of interest on late payment is obligatory and not linked to any request by the creditor if the amount of interest is above EUR 200. To accelerate budget implementation, to help economic recovery3, Commission departments and DGs are requested to pay initial pre-financing payments within 20 calendar days, i.e., faster than contractually required. This target does not trigger the payment of interest on 3 Commission communication on "Streamlining financial rules and accelerating budget implementation to help economic recovery" - SEC (2009)477 46 late payment. 13.5 When do those payment periods start? When we receive an invoice or payment request, we must ensure that it clearly indicates 4 things: the name of the payee the date of the invoice or payment requests the amount due the currency used If all 4 things are present and correct, the payment period starts. Payment periods can be suspended if the reasons are attributable to the creditor. In such case, we send written information to the creditor asking them to correct the documents or provide more information on the work carried out. Example The payment period for an invoice is 60 days. An invoice for this contract containing the 4 mandatory pieces of information was registered in ABAC. 21 days later, we informed the contractor that some supporting documents required by the contract are missing, so we cannot approve the report. The payment period is suspended until the contractor sends us these documents. The documents arrive 18 days later: the clock starts again as if it were the 22nd day, and we continue to process the payment. 13.6 VAT Under the Protocol on privileges and immunities of the Communities, the Commission is exempt from VAT on all substantial purchases for its official use. The conditions for this exemption vary from one Member State to another. For example, in the case of direct exemption, all invoices are issued by contractors without VAT. In other cases, the Commission first pays the VAT, and only afterwards can we make a claim to have it 47 reimbursed. How does this work? For "local purchases", in Belgium, the VAT exemption is stated in the contracts and invoices. For "intra-community" purchases – meaning that the product has to pass at least from one EU country to another – a specific VAT exemption certificate must accompany the invoice. However, there are limits under which the Commission will not be exempted from paying the VAT: for example, purchases below EUR 124 in Belgium or below EUR 240 in Luxemburg. The complexity of exemption systems has made it necessary to develop a specific VAT manual for Commission staff. 13.7 The Accounting Officer The accounting officer of the Commission is the Deputy Director-General of DG Budget and is helped in the tasks required by this role by more than 150 people. The accounting officer is responsible for implementing the payments and recoveries decided by the authorising officer. They are also responsible for the accounts of the Commission. If you are an initiator or verifier, you will know your responsible authorising officer. But because the work of the Accounting Officer is much more technical, you will likely never meet this person. 14 RECOVERIES - Art. 97-101 FR - Internal rules/guidelines We need to record debts owed to the Commission and recover this money. The authorising officer validates the existence of a debt, and the Accounting Officer recovers the amounts due. Example For a grant of maximum EUR 100 000, EUR 80 000 of prefinancing was paid. However, the project was not completely carried out and the amount due is only EUR 70 000. As we have already paid EUR 80 000, we must recover the difference of EUR 10 000. 48 14.1 Recovering money – a 4–step procedure 1) Establish the debt We must check if there really is money to be recovered. For this, 3 conditions must be met: Certain – the amount is due according to the contractual conditions. This is a fact, a certainty. Fixed amount – we know exactly how much is due to the Commission. Due – the reimbursement of the debt is not subject to a deadline – the payment due date is now. 2) Send a pre-information letter The relevant authorising officer informs the debtor of the amount, and the reason(s) for the debt. They give the debtor a reasonable period to react if they want to. 3) Validate the recovery order If: the debtor did not answer the pre-information letter; or the debtor agreed with our reasoning; or the debtor's counter arguments are not acceptable the AOR authorises a recovery order in ABAC, thus recording the debt in the Commission accounts. 4) Send the debit note The AOR signs and sends a request for payment to the debtor. They indicate a deadline for payment, after which late payment interest will be payable by the debtor to the Commission. 12.2 How do we recover money? The effective recovery of the amounts due to the Commission varies: it can be a voluntary payment by the debtor (after receiving a debit note), it can be an offsetting (deduction from an amount owed to the debtor), an available financial guarantee can be used 49 the recovery can be enforced, either directly (for grants, by means of a Commission Decision under Article 299 TFEU) or by means of an order obtained from the competent national court (for public contracts). 13 DE-COMMITMENTS - Art 14 + 114.2 FR De-committing is the act of cancelling the reservation of appropriations that had previously been committed (i.e., earmarked for certain expenditure). An Authorising officer can de- commit all or part of the original commitments. De-commitment ensures that the Commission accounts reflect the actual level of future payments, to cover existing legal obligations. If some money was not spent, the amount that remains unused must be decommitted. Example A commitment of EUR 100 000 was made for a contract for which the payments totalled exactly EUR 100 000 => no decommitment needed, the balance of the commitment is 0. A commitment of EUR 200 000 was made for a grant for which the final costs at the end of the project were EUR 190 000 => an amount of EUR 10 000 must be de-committed. A commitment of EUR 500 000 was made for a grant where pre-financing worth EUR 400 000 was paid, but the final costs were EUR 350 000 => EUR 50 000 must be recovered and EUR 100 000 must be de-committed. 13.1 When to decommit There are several scenarios: 1) You made an individual budgetary commitment in year N. However, you realise that the corresponding contract or grant agreement will not be signed before the end of year. You must decommit the amount concerned before the end of year N if you wish to re-use your commitment appropriations and sign other contracts or grant agreements in the same year. 2) You made an individual budgetary commitment and signed the contract or grant agreement in the same year. All the payments scheduled in the contract or grant agreement have been 50 made, but an unused amount remains on the commitment. You must decommit it. 3) In any case, an amount which remains unused 6 months after the final date for implementation (FDI) set in the budgetary commitment must be decommitted. 4) For global commitments, you must sign your contracts or grant agreements at the latest before 31 of December of the following year. The amount remaining to be used after that must be decommitted. 13.2 How to decommit The Authorising officer validates the decommitment in ABAC. Before this validation, the transaction has to be initiated and verified under the 4-eyes principle. 14 REPORT TO THE BUDGETARY AUTHORITY At the end of each budget year, we must report to the budgetary authority (the European Parliament and the Council), on the use of the budget and resources. We must demonstrate that we have sufficient guarantees, that the funds were used for the purposes intended, that we achieved the objectives set, and that we monitored and processed all transactions whilst respecting all relevant laws and rules. The Commission provides an integrated financial and accountability report by 31.07 n+1. This consists of: The consolidated annual accounts of the European Union The Annual Management and Performance Report (AMPR) The follow-up report to the discharge for the previous financial year The Commission's annual report to the discharge authority on internal audits The long-term forecast of future inflows and outflows of the EU budget provides the payments and revenue forecast covering the next 5 years, based on the applicable multiannual financial frameworks (MFFs). In short, to report on the budget of year N, we go through a 3-step process: 51 March N+1 June N+1 Nov. N+1 May N+2 Discharge procedure (EP and Writing of the Annual Activity Reports sent to the Court of Statement of Assurance by CoA Council) + EP votes on the Reports Auditors (CoA) discharge Between January and March in year N+1 – all directors general and directors of executive agencies write their annual activity report (AAR) June N+1 – the comprehensive version of all AARs and other documents on the implementation of a specific budget year, together with the financial data, are sent by the Commission to the Court of Auditors November N+1 – the Court of Auditors issues the annual report, together with the replies of the institutions under audit and the Statement of Assurance (DAS)

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