ESIF Programme Monitoring Committee financial performance paper: May 2023

Purpose

The purpose of this paper is to provide members with an update on the finalised de-commitment figures for 2022 and a summary of the financial performance of the programmes between January and April 2023.

In addition, this paper also informs members of the principle being utilised by the Managing Authority (MA) to revise the European Regional Development Fund (ERDF) Operational Programme (OP) and reflect the confirmed de-commitment for 2022.

De-commitment

On 16 December 2022, the MA provided an email update to members noting that as a result of the estimated declarations due to be submitted to the European Commission (EC) there would be no de-commitment on the ERDF programme and any European Social Fund (ESF) de-commitment would likely be minimal.

Following adjustments made to the declarations, due to ineligible expenditure and over-booking in some priority axis, the finalised de-commitment figures for 2022 are:

• ERDF: £8,006,027 (€9,367,051)
• ESF: £nil

As with previous years, the MA will be revising the ERDF OP to reflect de-commitment. The confirmed ERDF split will be €2,891,592.49 for transition and €6,475,458.52 for more developed regions. Although there will be a further paper detailing the revisions to the OP, in principle the MA is proposing to reflect this by reducing the allocation for Priority Axis (PA) 1 and 3 by equal amounts within both transition and more developed regions.

All outputs and results associated with the revised PAs will be revised to reflect a consistent percentage of change, this approach has been endorsed by members in previous exercises. All outputs and results will continue to be monitored through the completion of the Annual Implementation Reports (AIRs). It should be noted that EC colleagues have commented on the poor implementation of the ESF and ERDF programmes against agreed financial and operational targets and inconsistencies in the reporting of data. The MA will liaise with EC colleagues to address any potential inconsistencies in data that may arise during completion of the 2022 AIR exercise.

Spend to date

The table below details the spend to date for the ESF and ERDF programmes and the current levels of committed operations up to the closure of the 2014-2020 programme. The £577.3m currently committed operations value is a reduction of £53.1m from £630.4m committed in November 2022.

Programme	Committed operations	Spend	Pending on EUMIS	Forecast claims	Shortfall
ESF	£298,079,745	£174,719,623	£16,361,014	£58,068,966	£48,930,142
ERDF	£279,170,043	£192,127,760	£11,643,490	£41,030,071	£34,368,722

Total shortfall: £83,298,864.

In order to reduce any financial risk to Lead Partners (LP), recipients and Scottish Ministers, it is essential that LPs continue to submit eligible and evidenced expenditure claims as soon as reasonably possible. In addition, any identified underspends should be notified to the MA as soon as possible.

To support LPs in this process, the MA have been holding monthly MA Approval Panel meetings throughout 2023 with the final meeting scheduled for 22 June 2023. We request that LPs notify their relevant growth teams of their plans to submit change requests to formalise any potential saving.

In addition, there has been are a significant number of forecast claims that have not been submitted to the MA in accordance with the forecast nor reforecast. In April, for example, eight claims, from a total of 18 claims, were not submitted. These eight claims had no blocks preventing submission of the claim.

Finally, we ask that LPs continue to provide updated forecasts to the MA to ensure the highest level of accuracy possible when sighting Ministers on any potential shortfall.

Claims performance: January to April

Between January to April, a total of 64 claims were forecast to be submitted by LPs (ESF: 41, ERDF: 23) totalling £72.5m (ESF: £47.4m, ERDF: £25.1m).

Of those 64 claims, the MA received 15 ESF claims valued at £8.5m and 7 ERDF claims valued at £6.6m.

The figures demonstrate we are significantly lagging when it comes to claims being submitted as per forecast. We acknowledge in some instances there are mitigating factors such as claims currently on EUMIS. However, it is important claims are submitted as per forecast where possible to allow claims to be verified and paid on time avoiding an over-loading towards the last quarter of the programme. This will put unnecessary pressure on both the MA and LPs in verifying claims as the 2014-2020 programme moves towards closure.

Performance towards N+3 (2023)

In the context of achieving our collective and cumulative N+3 target of £480,531,476 for 2023, we still require a significant number of verified claims required to achieve the N+3 2023 target (ESF: £42.6m, ERDF: £71.1m).

There are various work streams ongoing within the MA to accelerate progress towards achieving N+3 for 2023 (e.g. re-introduction exercise, claims prioritisation, etc.) but it is also important that claims are submitted as per forecasts, where there are no blocks, to minimise any de-commitment this year. As detailed in the earlier tables, a significant number of claims have not been submitted in accordance with claims forecast.

The MA will prioritise and allocate appropriate resource to the verification of claims and maintain regular contact with LPs on the submission, payment and progress of their claims.

Risks

The financial implications of not achieving N+3 will lead to further de-commitment of the programme and the potential reduction or loss of funding to support vital services and project activity.

There is also significant financial risk to the Scottish Government (SG) of approximately £83m, detailed in the table above, which would come as a direct consequence of LPs failing to submit fully evidenced and verifiable claims. Scottish Ministers, Programme Board members and senior colleagues within the SG are aware of this risk and the mitigation being developed to minimise this risk.

Finally, the reputational risk of poor performance has the potential to impact on future funding applications for LPs. The reputational risk for the Scottish Ministers and the SG is also significant in light of the current challenging political landscape.