ESIF Programme Monitoring Committee minutes: May 2023

Attendees and apologies

• Hilary Pearce (HP) - Scottish Government (Chair)
• Cathy Cacace (CC) - Scottish Government
• Susan Tamburrini (ST) - Scottish Government
• Ryan Gunn (RG) - Scottish Government
• Robert Buntin (RB) - Scottish Government
• Euan Barclay (EB) - Scottish Government
• Anthony Carrick (AC) - Scottish Government
• Andrew Lightfoot (AL) - Scottish Government
• Eilidh Steele (ES) - Scottish Government
• Tracey Gillon (TG) - Scottish Government    
• Anna Fowlie (AF) - SCVO
• Jackie Thomson (JT) - Orkney Island Council
• Angus Murray (AM) - Comhairle Nan Eilean Siar
• John Mundell (JM) - Orkney Council
• Christine Mulligan (CM) - Skills Development Scotland (SDS)
• Sharon Thomson (ST) - Glasgow City Council
• Francesca Giannini (FG) - Scottish Enterprise (SE)
• Robin Clark (RC) - Highlands and Islands Enterprise (HIE)
• Rebecca Fairgrieve-Stewart (RFS) - Scottish Funding Council (SFC)
• Malcolm Leitch (ML) - Scottish Local Authorities Economic Development (SLAED)
• Dave Roberts (DR) - Highland Council; Highlands and Islands Territorial Committee (HITC)
• Peter Matthjs (PM) - European Commission (EC)
• Gregorio De Castro (GDC) - European Commission
• Kris Magnus (KM) - European Commission DG Regio

Apologies

• Damien Yeates (DY) - SDS
• Douglas Colquhoun (DC) - SE
• Andy McCann (AMc) - Highland Council

Items and actions

Agenda

• welcome and apologies
• conflict of interest
• minute of previous PMC meeting on 26 October 2022 including action log
• financial/operational performance update
• claims summary update
• communication update
• evaluation strategy update
• programme closure update
• liabilities
• risk register
• any other business

Welcome and apologies

HP welcomed all to the meeting and noted the timetable up to programme closure is moving quickly and that the need to improve claims performance becomes increasingly acute. The pace of claims has risen significantly recently as a result of a team effort, both by Lead Partners (LPs) in submitting verifiable claims and the MA (Managing Authority) by introducing streamlined processes.

HP stated that today is Europe day, the theme of which is collaboration and cooperation, which is essential as we approach closure. The central message hoped to come from this meeting is for LPs and colleagues to submit claims fully compliant, on time and if there is a reason claims will be late, then to re-forecast and inform RG’s team.

HP asked for the apologies, which are noted above.

DR noted AMc sends apologies, but was not originally sent an invite to the meeting.

Conflict of interest

HP asked members if there are any conflicts of interest to be highlighted. No conflicts of interest were reported.

Minute of previous PMC meeting on 26 October 2022 including action log

ML noted that in the previous minute under item 9, the final sentence did not capture the importance of the closure date.

RG stated that in context there was a letter to be circulated in regards to closure, therefore an administrative task.

TG responded the final letter is complete and only the retention date needs to be updated on the website, which will be done in the next couple of weeks.

HP noted the action log has been completed and the minutes can be recorded as an accurate record, with one adjustment to be made.

Financial/operational performance update

HP stated that in all the work of the MA, three significant changes have occurred. The European Social Fund (ESF) suspension was formally lifted, two declarations were submitted in December and May and a LP event was held on 1 December 2022. There has also been a Ministerial reshuffle, the new minister for European Structural and Investment Funds (ESIF) is Neil Gray. The European Structural Funds and Subsidy Control (ESFSC) division of SG also has a new Director General, Gregor Irwin.

Referring members to the financial and operational performance paper, HP noted all information is correct as of 17 April 2023, however the claims position is moving swiftly. The claims figures, for example, changes on an almost daily basis due to claims continuously being submitted, verified and paid.

HP summarised key issues from the paper, the first issue concerns N+3 targets for 2022 which was fully met in the ESF programme with no decommitment, and for European Regional Development Fund (ERDF) there was a decommitment of £8 million after adjustments. The intention is to ensure there is no further decommitment in 2023.

The paper also details the methodology used previously to absorb any de-commitment. The MA will utilise this methodology to absorb the de-commitment of the ERDF programme by allocating the ERDF reductions across priority axes 1 and 3.

Section 3 shows that the level of committed operations continues to fall. When the paper was drafted, the total operational commitments stood at £577 million, this has now reduced to £573 million. It is likely to continue to fall after Managing Authority Approval Panel (MAAP) meetings in May and June due to change requests from LPs.

Claims performance is set out in section 4. The information shows that past claims performance is not as robust as the MA would have liked. This is because the number of claims submitted has not been in line with the forecasts provided by LPs in many cases. This has resulted in a backlog from 2022 and the beginning of 2023 which has also been time-consuming for the MA to chase up.

ML stated that the key problem with both programmes is missing, for example in table 1 only £550 million has been committed which is approximately 60% of the total original allocation. ML noted it is disappointing that there were missed opportunities when the Scottish economy is facing challenges from external factors and the Scottish programmes are lagging behind the rest of the UK, particularly in the financial absorption of the programmes. ML added an evaluation is required to identify the causes of this.

ML further added that there is no column on the turnaround of processing claims, which is an important detail.

HP agreed that it is disappointing that Scotland will reach the end of the programme with around £550 to £570 million in financial absorption. There are 6 main reasons for this: overambition at the start of the programme; labour market changes in the past 3 years impacting the number participants in ESF employability operations; COVID-19; accessibility of alternative domestic funding; lack of match-funding for some LPs; lack of popularity of ESIF programmes due to their complexity.

HP noted colleagues have spent a significant amount of time trying to extend or find new projects that funds could be spent on and the MA is still looking into the new flexibilities offered by the EC. Regarding Fast-Care, there was a risk of double claiming. 

Regarding the challenges in the delivery of the programme, RG stated the post-programme evaluation will address the key findings and learning from the 2014-2020 programme.

Regarding the turnaround of claims, HP stated that it was discussed with colleagues in the MA that the average turnaround time has decreased considerably in last few months, but an average is still not useful as claims vary in size and structure. This information will be reported in future meetings if considered helpful by members.

PM stated that it is desirable that this aspect of financial performance is covered together with the claims and asked if this can be done, as both are linked.

HP responded that the claims paper is next, but agreed claims and financial performance are integral. This would just result in a large paper, however.

Echoing ML’s comments, KM noted that the EC has sent a letter from both DG Emploi and DG Regio to the DG Economy in SG noting continuing concern that there is a feeling of resignation within the MA. The EC still believes there are opportunities available to utilise uncommitted ERDF funds. They were surprised in January to hear that there was a significant drop in committed figures and a clearer picture was required.

KM continued that there are still opportunities available to utilise ERDF funds, such as infrastructure projects, including those which are on-going which could potentially be financed and fit into the structure of the programme. While there have been reasons for the underperformance of the programme, in his view there have been ample opportunities to correct certain points, which has never happened.

ST noted there have been numerous attempts to utilise funds in infrastructure, particularly in Transport Scotland, but these were unable to meet the criteria to support transport infrastructure. Possible projects had finance already committed, so this could not be applied retrospectively.

In addition, a number of discussions were held to allocate uncommitted ERDF funding but due to the restrictions associated with EC funding, eligibility and short timescale remaining, funds were not able to be used.

ST added the MA is still open to potential projects, but the focus must be on maximising spend through claims. HP added that any new ideas on potential projects are welcome.

Citing the SME fund, ML noted it is at a late stage with a large amount of de-commitment. Finding a way to use these de-committed funds has proven very difficult. ML added granular detail would be welcome on how this level of de-commitment took place and a specific paper on this would be informative.

HP replied stating that the SME holding fund was an Strategic Intervention (SI) which was possibly overestimated at the start and take up has been low. It also suffered in particular from competition in other sources of funding, notably the new Scottish National Investment Bank (SNIB). The MA sought detail from policy colleagues to explain why the funding had not been utilised.

RG responded stating that when this was discussed with Scottish Enterprise, the discussion concerned audit risk and compliance. These proved to be overly restrictive and impacted on delivery of the fund.

However, overestimation has been the principle reason for the reduction in funding and there was dialogue with the programme managers of the SME holding fund in which it was found there were issues with staffing.

Lastly, the timescale of the 2014-2020 programme also impacted on the uptake of funding. Many SMEs seeking funding support argued the timescale of seven years was not long enough to fully realise the benefits of funding and a minimum of 10 years is preferable. As a consequence, many SMEs who may have sought funding support did not do so.

PM stated that a large claim from SDS has been received, which is a positive. In terms of available EU budget, the MA is at almost 50% of expenditure, so there has been improvement. Secondly, around £38 million has been paid out in 2023 so far which is greater than the entire of 2022 which shows an acceleration. There is still a prolonged delay on claims, however.

PM continued that reporting on claims between the MA and the EC is also important as this will show the amount that will be received from the EC and in turn the amounts that can be paid to LPs. This is a crucial component that is not covered in the monitoring and a forecasting of unit cost claims would be useful. According to table 1, as committed values continue to drop, this would leave 8% of ESF funding unused. In addition, the shortfall of expenditure at closure will be estimated £49 million.

In regards to Fast-Care, PM added that the risk of double claim was not evident.

HP responded stating that details of unit cost claims can be provided and 6 unit cost claims have been submitted to date of varying amounts. The 7th unit cost claim is currently being compiled and there will be an 8th claim as well as possibly a 9th.

The MA will take forward an analysis of unit cost claims to compare the amounts claimed from the EC against what we are checking and paying out to LPs in expenditure claims.

HP added this analysis is done continuously and can be provided where helpful to the EC. In terms of forecasting, it is difficult to do accurate unit cost forecasting as the level of claims entirely depends on the level of documentation and co-operation that is received from LPs whose projects are ‘converting’. With regards to the Fast-Care regime and double claiming, it would be worth discussing this between members of the EC and ST.

Claims summary update

HP stated that there is already a backlog in 2023 of around 40 claims that were not submitted between January and April, which had been forecast. There is also a backlog of 14 claims from 2022. When contacted, LPs state that claims are either blocked due to a claim already being on the system or the claims forecasted are being combined into a later claim. It is critical to have the claims forecast from now until January 2024 to be received on time and to be supplied with reasons from the LP why claims cannot be submitted on time.

HP added that claims submitted on time should be given top priority, followed by those claims submitted late, and last on the priority list those claims submitted without being forecast. Despite multiple requests there are a few LPs who have not submitted a claims forecast.

ML noted the upcoming deadline for the penultimate claim (30 June 2023) and asked how many claims are still live as this would show accurately how big the task ahead is. It would be helpful to have a parallel to the situation with unit costs.

Responding to ML’s comment on the penultimate claim, HP stated that this will be included in the e-bulletin about to be issued. The dashboard shows there were 254 live operations and 16 have been fully paid. The biggest operations with the largest claims have had significant claims currently being checked or expected in the next month.

RG stated that part of the re-forecasting exercise, when contacting LPs for a revised forecast, was to ask whether it was the final claim, this additional detail is still being collated.

CM noted on the previous paper, there are LPs that are not providing updated forecasts and it is not understood why LPs would not respond to these requests. Following from HP’s comment that claims submitted on time will be prioritised, CM added that if there is a last message required for LPs that ignore these requests, because some may assume that 2022 claims will simply be processed without consequence.

RG responded that when the forecasting exercise was introduced, there was a reluctance for some LPs to provide forecasts as some thought they would be held to that particular date. However, there would also be an opportunity for LPs to revise their claims forecast.

CM responded that it was a best guess, but there are a number of issues that might occur. CM added that there are discussions with growth teams and these claims should not be appearing out of the blue.

LS noted that when LPs have a change request on the system, it is difficult for a LP to suggest when the next claim will be submitted, this as a direct consequence of the complexity of the change request process.

This is why some LPs may not provide an up-to-date forecast until the change request is through. Regarding table 10, because this is based on the financial forecast, it paints a negative picture on ESF. In fact, with the exception of 2 operations, all other operations now have claims on the system.

It was noted that Table 10 provides a snapshot of the claims forecast (not received) at a particular point in time.

GDC stated that the monitoring system and the follow-up of claims does not seem to be completely accurate or reflective in what happens in terms of the timeliness of submission. In order to ensure the largest amount of funds are absorbed and claims are duly submitted it is important to tighten the monitoring system.

GDC further stated that it is necessary it is to handle claims in the most efficient and reliable manner, but it is also important to note that this is inseparable from delayed operations on the ground and the level of under commitment, which from the EC's perspective is the most serious concern. The monitoring ought to be intensified and is connected to the delayed performance of operations.

HP outlined the ways in which the claim position is continuously scrutinised, as within the MA, each growth team processes claims as quickly as possible while looking at claims due to come in, liaising with LPs on expected claims and also missing claims. There are weekly Programme Operating Meetings (POM), which look at common issues across the growth teams. There are also quarterly workshops that assess the position of claims.

HP stressed the attention given to the importance of staffing, particularly being flexible in lending staff to complex pieces of work and areas maintaining resources.

JIJ stated that older operations that finished years ago pose a concern as when they reach the declaration, it is at that point where they can be selected for an audit sample. As they are historic, there may be a greater risk of a high error rate. In terms of sampling, a statistic example is around about 30 claims. As these claims become compressed and there are larger declarations, this will push the AA into another method of sampling, which could multiply the amount of work the AA has to do.

HP noted there is an awareness of the increasing amount of work for the AA. At the end of the programme, all colleagues must be aware of the post-programme obligations, around document retention as well as responding to questions and queries after closure.

Communication update

HP noted the summary paper distributed by the governance team summarises the LP event which was well attended and happened in 30 November 2022. DG Emploi colleagues are meeting on 6 July 2023 for the annual review meeting with a site visit.

HP asked if there any comments or questions.

KM noted this ties with previous questions regarding the LP event. In terms of the sense of urgency, KM questioned the sense of urgency and why the concerns of the MA do not land with LPs.

HP responded that, while the event was well attended, the most notable absences were those which are less engaged that tend do not submit claims or forecasts.

CC stated that the MA is not adverse with having difficult conversations with LPs, but getting engagement is the challenge.

KM replied that if it is difficult, we ought to reflect on the messenger, which could be changed.

HP responded that a message from the Minister for ESIF was sent last year, which yielded little response.

CM noted that contact from the new Minister may spark discussion. HP agreed, and will push this forward.

Regarding the LP event, PM stated that there had been a gap of 3 years in in-person LP events until the event in November 2022.

HP replied there was online meetings as well as specific programme meetings for LPs, so these messages have been distributed to LPs for a long time. Liabilities information have been sent to LPs on 2 February 2023 which set out that if final claims are not submitted by the deadline they would be liable.

PM responded that in-person meetings are not to be underestimated. Lastly, it is recommended that a wrap-up event occur regarding what has been achieved by these programmes.

HP responded this will be held and the timing was already being discussed, but did not want to hold this currently at the expense of staff resource. HP further noted it is important to highlight the successes at a later date.

Evaluation strategy update

HP noted members may be familiar with the evaluations provided by EKOS, with many available on the website. The current report is the low carbon thematic evaluation which completes the 2022 evaluation schedule and the final evaluation will be the ex-post evaluation, which will be launched in Autumn 2023.

RG stated that a separate briefing session among PMC members will organised in due course.

Programme closure update

HP noted that there is collective responsibility for programmes to close on time compliantly. Key dates are 31 May 2023 for changes requests, 30 June 2023 for penultimate claims, 31 July for claims where the end-date of the operation was before 1 January 2022, 30 September is the physical end-date of operations, 31 December is the financial end-date of operations, and 31 January 2024 is end-date for all final claims to be included in the declaration in July 2024.

AL stated that the main focus for the closure group has been drafting the documents essential for closure. The closure appeals process will be referring to an operation where some grant will need to be recovered by the MA or when the MA needs to make payment to LPs.

TG added that the deadlines within the closure best practice guide will be reiterated in e-bulletins and there’s now a tick box on EUMIS to indicate a final claim, although this seems to be missed. This will also be mentioned on the e-bulletin. The closure letters are confirmations to the LP that there is a balance to be paid or recovered.

Regarding the June deadline, ML requested an update to PMC members of how effective this deadline for penultimate claims has been. ML asked if a penultimate claim is not submitted by this date would this be compensated in the final claim.

TG responded there is a process in place, which is essentially a 3-strike scenario, which reviews what claims has come in and what have not, followed by a reason if a claim has not been submitted. From the first deadline in January, there were 30 claims due and 14 came in, 2 were not accepted, and 14 did not come in, 8 of which were awaiting a change request at MAAP. There was a deadline in April and there was only 8 claims submitted. The next deadline in June will be a good test of what may happen in January 2024.

KM noted there appears to be a request for more frequent and detailed closure reporting.

Liabilities

HP stated there are 4 different scenarios that may occur with claims toward closure, although there may be complications out-with these 4 scenarios.

ST added that although these scenarios were recognised, they are not exhaustive with more potentially being developed depending on circumstances. Those scenarios developed were to provide potential scenarios and information to LPs. Any questions from LPs regarding liabilities will published.

ML asked if there is a timetable for Q&As and if they will all be published.

TG noted Q&As are prohibited on the SG website, so it there is work to be done in order to answer queries without appearing as a formal Q&A on the website.

Risk register

HP stated that the PMC risk register is one of 6 different risk registers which are kept up to date in relation to ESIF, all of which cover the risks associated with claims, financial penalties, unit costs and resources. No further questions or comments were made.

Any other business

HP mentioned that document retention is still important at this stage and retaining knowledge within organisations as queries may come up even after programme closure.

PM noted the important of in-person meetings, but did not have the budget to come to this meeting in-person. The Annual Implementation Report (AIR) of 2021 required back and forth interchanges, which took a significant amount of time before additional explanations were provided. PM added the EC's position is not final as we not have not accepted last year’s AIR due to the gap between numbers of participants and participant output data. For example, the labour market situations for these participants presents a possibility that this might provoke financial correction at closure.

PM stated that the AIR of 2022 was expected to resolve these issues. This is still in preparation, and would like to ask when the 2022 data would be provided.

RG responded that the initial analysis is complete and some of the figures have improved since last year. In terms of timing, the aim is within next couple of weeks. It will certainly be submitted by SFC by the May deadline and at the annual review meeting it is proposed to go through the AIR in detail.

KM noted it also applies to ERDF reporting and it is a lost opportunity to not have at least a draft AIR today.

HP noted that in paragraph 2.1 of the financial performance paper, the paper will be circulated in line with the methodology used in previous years.

HP asked if there are any further questions but no further questions were forthcoming.

HP thanked all for attending the meeting. She recorded particular thanks to Malcolm Leitch who is retiring in the summer and whose contributions to the ESIF in Scotland and to the PMC have been considerable, knowledgeable and helpful throughout many decades. Hilary also noted Malcolm’s very significant role within Glasgow City Council and SLAED. The meeting ended at 13:00.