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.
2. Any failure by the SG to properly administer those EU funding related payments for which it has responsibility may result in disallowance or decommitment, the costs of which may have to be met by the SG.
3. Eligible bodies, including constituent parts of the Scottish Administration, should seek EU funding as appropriate. EU related receipts can however only be used to offset the corresponding EU related expenditure
4. The relevant core SG Finance Business Partner (or eqivalent) must always be consulted over any proposal by constituent parts of the Scottish Administration to seek EU funding.
5. It is imperative that full account is taken of the relevant EU/EC regulations in developing expenditure proposals and that compliance with those requirements is monitored effectively.
6. Management arrangements for sponsored bodies should ensure that the sponsoring unit within the SG is made aware of all potential EU funding
7. 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). In addition the European Fisheries Fund (EFF) provides grants for the sustainable development of the fisheries sector.
8. The SG is the Managing Authority and the Paying Authority for Structural Funds and the EFF 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 (EC) via the UK Departments responsible for co-ordination of all UK claims to the Funds.
9. 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.
10. Any failure by the SG to properly administer those EU funding related payments for which it has responsibility may result in substantial disallowance or decommitment, the costs of which may have to be met by the SG.
11. 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 are a wide range of such programmes including Research and Development and Trans-European Networks.
12. 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.
13. The Budget Act makes matching provision for funds drawn down or claimed direct from the EC by the SG and related expenditure. Eligible bodies, including constituent parts of the Scottish Administration, should therefore seek EU funding as appropriate. EU related receipts can however only be used to offset the corresponding EU related expenditure. 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
14. The relevant core SG Finance Business Partner (or eqivalent) 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 eqivalent), have secured ministerial clearance of the line to be taken in negotiations. Usually, such negotiations will be co-ordinated 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.
15. 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
16. It is imperative that full account is taken of the relevant EU/EC regulations in developing expenditure proposals and that compliance with those requirements is monitored effectively.
17. The SG's management of Structural Funds payments is subject to specific financial reporting and audit arrangements. The SG is bound by EC financial control regulations to prepare detailed Closure Statements at the end of each multi-annual Programme. 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.
18. Bodies sponsored by the SG, together with all eligible bodies, should seek EU funding as appropriate. However, management arrangements for SG sponsored bodies should ensure that the sponsoring unit within the SG is made aware of all potential EU funding. The SG will take appropriate account of all EU funding, whether claimed via the SS 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.
Updated: September 2007