Scottish Public Finance Manual

EU funding

Scope

1. This section gives guidance on funding from the European Union (EU) and related expenditure. The guidance is aimed primarily at the constituent parts of the Scottish Administration (the core Scottish Government (SG), the Crown Office and Procurator Fiscal Service, SG Executive Agencies and non-ministerial departments) and bodies sponsored by the SG but will also be of interest to other organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable.

Key points

2. EU related funding is paid to delivery agents and then claimed from the European Commission (EC). Where funds cannot be claimed from the EC, for example due to audit failure, in which case, they remain on the SG accounts. In certain circumstances, they are recoverable from the delivery agent, however, the risk lies with the SG.
3. The relevant core SG Finance Business Partner (or equivalent) must always be consulted over any proposal by constituent parts of the Scottish Administration to seek EU funding.
4. It is imperative that full account is taken of the relevant EU Regulations in developing expenditure proposals and that compliance with those Regulations is monitored effectively, for instance through an agreed Management and Control system.
5. EU-Funding is available to a wide range of proposals, through many different funds. Whilst the core European Structural and Investment Funds (ESF, ERDF, EAFRD and EMFF) are managed within the SG, others Funds are available. Different divisions across the SG should make sure that their division is made aware of relevant potential EU funding.

Background

6. Various programmes of EU funding are available to Member States. Structural Funds are the EU's principal mechanism to reduce the level of economic disparity between regions. There are two Structural Funds which benefit Scotland: the European Regional Development Fund (ERDF) and the European Social Fund (ESF). CAP Pillar II is paid via the European Agricultural Fund for Rural Development (EARFD), whilst the European Maritime and Fisheries Fund (EMFF) provides grants for the sustainable development of the fisheries sector. Collectively these are referred to as European Structural Investment Funds (ESIF).
7. The SG is the Managing Authority and the Paying Authority for ESIF in Scotland. As such it is responsible for drawing down EU funds and paying claims submitted in respect of approved projects. Funds are drawn down from the European Commission in line with EU Regulations. For EMFF, this is via UKG, whilst for the remainder it is directly from the EC.
8. Support in Scotland under the Common Agricultural Policy (CAP) and wider EU Rural Development policies is provided by the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD) respectively. The SG is the formally accredited EU Paying Agency for spending in Scotland and is responsible for all aspects of the administration of the measures. Funding is drawn down from the EC via the Rural Payments Agency of the Department of Environment, Food and Rural Affairs, the UK Funding Body for the measures involved.
9. In addition to the Structural Funds, the European Fisheries Fund, and CAP related funding there are EU programmes of funding which come under the heading "internal policies" that can be claimed direct from the EC by qualifying individuals / organisations, including the constituent parts of the Scottish Administration and SG sponsored bodies. There is a wide range of such programmes including Research and Development and Trans-European Networks.
10. Recognising the impact of EU exit: full account must be taken of the closure of funds to UK participants, and of transitional arrangements including the effect of any UK Government guarantees.

Additionality / added value

11. European regulations require EU funding to be additional to Member State budget provision in a given area and that it should not simply displace such resources. The EC monitors compliance and has to date pronounced itself satisfied that the UK, at the level of the Member State, meets the requirements to maintain expenditure at appropriate levels in the relevant public expenditure programmes. Individual projects must be able to demonstrate added value i.e. that they would not be able to go ahead - or only in a reduced form - without EU funding. These issues are generally agreed with the EC in the context of discussions over the seven year multi-annual programmes for Structural Funds and Rural Development measures.

Scottish budget

12. The Budget Act recognises that EU-funding is paid by the SG, and claimed from the EC, by showing it as a net nil effect. Therefore individual divisions administering EU-funding must make every effort to ensure claims paid within the budget periods are reclaimed and paid by the EC to maintain this net nil impact. While there is an assumption of net nil resource consumption, costs can arise, as noted previously, should failures in scheme administration lead to decommitment or disallowance penalties.

Consultation with finance

13. The relevant core SG Finance Business Partner (or equivalent) must always be consulted over any proposal by constituent parts of the Scottish Administration to seek EU funding. In addition, SG business areas, before being party to any discussions with the EC on the range or scale of any EU funding initiative must, in consultation with the relevant core SG Finance Business Partner (or equivalent), have secured ministerial clearance of the line to be taken in negotiations. Usually, such negotiations will be coordinated by a lead Whitehall Department and the first step for the SG will be to discuss with that Department what the UK line should be.

Annual accounts

14. The accounts of the SG are prepared in accordance with the Government Financial Reporting Manual which requires receipts from the EC to be shown separately on a gross basis in the operating cost statement. Expenditure is recognised as closely as possible to the time of the underlying activity giving rise to the liability and in practice this normally results in expenditure exactly matching amounts received from the EC. Spending under the EAGF and EAFRD is subject to an additional statutory account - on a cash basis for the year 16 October to 15 October. This account is audited by the UK Certifying Body (i.e. the National Audit Office, which sub contracts to Audit Scotland the audit of the SG Paying Agency account)

Management and control

15. It is imperative that full account is taken of the relevant EU regulations in developing expenditure proposals and that compliance with those requirements is monitored effectively.
16. The SG's management of ESIF is subject to specific EU financial reporting and audit arrangements. This includes the preparation of Annual Accounts at the end of each year. The EU financial year end differs from the SG year end and care must be taken to ensure the relevant accounts are maintained correctly. In addition the use by the SG or any other body of EU funding is subject to audit by their own external auditors, the EC's internal auditors and the EC's external auditors - the European Court of Auditors.

Sponsored bodies

17. Bodies sponsored by the SG seeking EU funding should ensure that the sponsoring unit within the SG is informed of this intention. The SG will take appropriate account of all EU funding, whether claimed via the SG or direct from the EC, in determining the budgets of sponsored bodies to be supported by grant in aid - bearing in mind the need for individual projects to satisfy the added value requirement.

Page reviewed: April 2019