Procedures for Reporting Regarding Irregularities Detected in the Implementation of the European Union Structural Funds and Cohesion Fund, Taking Decisions on Utilisation of the Financing Granted, and Recovering Irregular Expenditure

Issued pursuant to
Section 18, Clause 3 of the Law On Management
of the European Union Structural Funds
and Cohesion Fund

I. General Provisions

1. This Regulation prescribes the procedures for reporting regarding irregularities detected in the implementation of the European Union Structural Funds and Cohesion Fund (hereinafter - European Union fund) projects (hereinafter - project), taking decisions on utilisation of the financing granted, and recovering irregular expenditure.

2. Irregularity within the meaning of this Regulation shall be:

2.1. any infringement of a legal act of the Republic of Latvia or the European Union, which conforms to Article 2(7) of Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999;

2.2. if a European Union fund project applicant or a final beneficiary has committed the administrative violation referred to in Section 189.², Paragraph three of the Latvian Administrative Violations Code and the respective decision of the competent authority has entered into effect and cannot be appealed or the respective court judgment has entered into effect (applicable, if the European Union fund project applicant or final beneficiary is not a State direct administration authority);

2.3. if a European Union fund project applicant or a final beneficiary has been found guilty of committing the criminal offence referred to in Section 280, Paragraph two of the Criminal Law and the respective court judgment or penal order of the public prosecutor has entered into effect (applicable, if the European Union fund project applicant or final beneficiary is a natural person);

2.4. if coercive measures have been applied to a European Union fund project applicant or a final beneficiary for committing the criminal offence referred to in Section 280, Paragraph two of the Criminal Law and the respective court judgment has entered into effect (applicable, if the European Union fund project applicant or final beneficiary is a legal person).

[9 August 2011]

II. Assessment of Irregularity

3. The managing authority, audit authority, certifying authority, paying authority, responsible institution and co-operation institution shall assess each possible irregularity detected thereby.

4. If the managing authority, audit authority, certifying authority, paying authority, responsible institution or co-operation institution (if it is not a contracting party) detects a possible irregularity in a project, it shall inform the responsible institution or co-operation institution, which has entered into a civil contract or agreement on project implementation with the final beneficiary (hereinafter - contracting party), within 10 working days after detecting the irregularity, using its official e-mail address.

5. In providing the information referred to in Paragraph 4 of this Regulation, the institution, which has detected a possible irregularity, shall indicate the following (applicable, if it has appropriate information at its disposal):

5.1. the final beneficiary, in the project implemented by which the possible irregularity has been detected;

5.2. the number and title of the project, in which the possible irregularity has been detected;

5.3. the amount of irregular expenditure (if possible);

5.4. the nature of the possible irregularity (including item of costs);

5.5. the way how the possible irregularity has been detected.

5.¹ Responsible institutions and co-operation institutions have the right to receive information from the Punishment Register regarding European Union fund project applicants or final beneficiaries punished for committing the administrative violation referred to in Section 189.², Paragraph three of the Latvian Administrative Violations Code or committing the criminal offence referred to in Section 280, Paragraph two of the Criminal Law, or coercive measures have been applied thereto (if the European Union fund project applicant or final beneficiary is a legal person governed by private law) for committing the abovementioned criminal offence, in order to be able to:

5.¹ 1. assess the conformity of a European Union fund project applicant to the project application assessment criteria regarding the criminal record of the project applicant in relation to the administrative violation and criminal offence referred to in Sub-paragraphs 2.2, 2.3 and 2.4 of this Regulation;

5.¹ 2. detect the irregularity referred to in Sub-paragraphs 2.2., 2.3 and 2.4 of this Regulation and calculate the amount of irregular expenditure, which must be recovered from the respective final beneficiary of the European Union fund.

[9 August 2011]

6. The contracting party, taking into account the information at the disposal thereof, as well as the information provided by the managing authority, audit authority, certifying authority, paying authority or responsible institution regarding the possible irregularity detected in the project, shall take a decision regarding the irregularity. If the contracting party, in taking the decision referred to in this Paragraph, detects that the amount of irregular expenditure cannot be precisely determined or it would be incommensurate to reduce the amount of eligible costs of the project for the entire amount of expenditure, which does not conform to the conditions of laws and regulations and the civil contract or agreement on project implementation, the contracting party, according to the guidelines developed by the managing authority on the application of financial corrections, shall apply proportional financial correction.

[3 January 2013]

6.¹ If the contracting party, co-operation institution, responsible institution or managing authority does not agree with the financial corrections suggested by the audit authority, the certifying authority shall withhold expenditure, which have been recognised as irregular by the audit authority, from the expenditure to be declared to the European Commission.

[12 June 2012]

6.² The certifying authority shall declare the expenditure withheld in accordance with Paragraph 6.¹ of this Regulation to the European Commission only if the audit authority has recognised the withheld expenditure as conforming.

[12 June 2012]

7. The contracting party shall enter information regarding the detected irregularity in the European Union Structural Funds and Cohesion Fund Management Information System (hereinafter - Management Information System) in conformity with the terms determined in the agreement on the procedures for using the Management Information System. If the abovementioned agreement does not determine the term for entering information regarding the detected irregularity, the contracting party shall enter it within five working days after the first date of the next month after the decision is taken to detect the respective irregularity.

[12 June 2012]

8. Once in a quarter, the managing authority shall aggregate information regarding all the irregularities entered in the Management Information System in the respective quarter.

9. The managing authority shall aggregate the information referred to in Paragraph 8 of this Regulation within the following terms:

9.1. for the first quarter of the current year - by 1 May of the current year;

9.2. for the second quarter of the current year - by 1 August of the current year;

9.3. for the third quarter of the current year - by 1 November of the current year;

9.4. for the fourth quarter of the current year - by 1 February of the next year.

10. If the contracting party has not entered information regarding the detected irregularities in the Management Information System in the respective quarter, it shall be deemed that the respective contracting party has detected no irregularities in the respective quarter.

11. The managing authority shall, within 10 working days after the end of the term referred to in Paragraph 9 of this Regulation, organise a meeting with all the institutions referred to in Paragraph 3 of this Regulation to discuss the irregularities detected during the respective quarter and take a decision on the irregularities to be reported to the European Commission. The institutions referred to in Paragraph 3 of this Regulation may submit other additional questions to be reviewed during the meeting until the end of the term referred to in Paragraph 9 of this Regulation.

12. The managing authority shall, within five working days before the meeting referred to in Paragraph 11 of this Regulation, send the aggregated information electronically to the participants of the meeting regarding the irregularities detected in the respective quarter and the additional questions submitted in accordance with Paragraph 11 of this Regulation.

III. Reporting to the European Commission on the Detected Irregularity

13. The contracting party shall report a irregularity to the European Commission using the data exchange system developed by the European Commission and maintained by the European Anti-Fraud Office, which ensures safe data exchange between the European Commission and each institution involved in the management of the European Union funds (hereinafter - Irregularity Management System).

14. The contracting party shall enter a irregularity in the Irregularity Management System and send information in online mode to the European Commission regarding irregularities, which conform to the conditions of Article 28(1) and (2), Article 30(1) and Article 36 of Commission Regulation (EC) No 1828/2006 of 8 December 2006 setting out rules for the implementation of Council Regulation (EC) No 1083/2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and of Regulation (EC) No 1080/2006 of the European Parliament and of the Council on the European Regional Development Fund (hereinafter - Regulation No 1828/2006), and irregularities regarding which it was decided to report at the meeting referred to in Paragraph 11 of this Regulation. The contracting party shall report to the European Commission on the irregularity, which conforms to the conditions of Article 29 of Regulation No 1828/2006, in accordance with the time period and procedures laid down in Paragraph 15 of this Regulation.

15. The contracting party shall enter information regarding the irregularity, which conforms to the conditions of Article 29 of Commission Regulation No 1828/2006 in the Irregularity Management System and send it to the European Commission in online mode within three working days after detecting the respective irregularity, concurrently informing the managing authority, audit authority, certifying authority and responsible institution (if it is not the contracting party) electronically.

16. The managing authority shall verify that the information referred to in Paragraphs 14 and 15 of this Regulation has been entered, by comparing the information entered in the Irregularity Management System with the summary referred to in Paragraph 12 of this Regulation within three working days after preparation of the summary, and, if necessary, remind the contracting party regarding entering of information.

17. The head of the respective institution referred to in Paragraph 3 of this Regulation shall decide on the scope and type of rights to use the Irregularity Management System. A request for the assignment of the rights to use the Irregularity Management System shall be submitted to the managing authority in writing.

18. The managing authority shall aggregate the information referred to in Paragraph 17 of this Regulation and take the necessary actions to grant the right to use the Irregularity Management System to the institutions referred to in Paragraph 3 of this Regulation.

IV. Recovery of Irregular Expenditure, if the Final Beneficiary is a Direct or Indirect Administrative Institution, Derived Public Person or Other State Institution

19. If the final beneficiary, in the project implemented by which the irregularity referred to in Sub-paragraph 2.1 of this Regulation was detected, as a result of which irregular expenditure have been incurred, is a direct or indirect administrative institution of the State, a derived public person or another State institution, the contracting party shall:

19.1. if possible, on the basis of an agreement on project implementation, withhold the irregular expenditure from the current or next payment request;

19.2. if irregular expenditure cannot be withheld in accordance with Sub-paragraph 19.1 of this Regulation and the amount of irregular expenditure in the event of one irregularity in one project does not exceed 120 euro, the irregular expenditure may be written off as expenditure;

19.3. if irregular expenditure cannot be withheld in accordance with Sub-paragraph 19.1 of this Regulation and written off in accordance with Sub-paragraph 19.2 of this Regulation, the contracting party shall inform the final beneficiary within three working days in writing regarding the possibility of repaying the irregular expenditure voluntarily, sending a copy to the certifying authority. If within two weeks after sending the respective information, the irregular expenditure have not been repaid voluntarily or no reply has been received as to the possibility of repaying them voluntarily, the contracting authority shall inform the head of the direct or indirect administrative institution of the State, derived public person or another State institution, who made the irregular expenditure, sending the information referred to in Paragraph 5 of this Regulation in writing.

[9 August 2011, 12 June 2012, 29 October 2013]

19 ¹ If the irregularity referred to in Sub-paragraph 2.2 of this Regulation has been detected in relation to the final beneficiary referred to in Paragraph 19 of this Regulation, the contracting party shall act in accordance with the procedures laid down in Paragraph 19 of this Regulation as regards the financing disbursed to the final beneficiary within the time period not exceeding 12 months before an administrative violation report is drawn up for the respective administrative violation.

[9 August 2011]

20. In withholding the expenditure referred to in Sub-paragraph 19.1 of this Regulation, the contracting party shall inform the final beneficiary regarding the withholding of actual expenditure within three working days after receipt of information. If the respective expenditure were declared to the European Commission, the certifying authority shall be informed as well. The date when the paying authority has made payment shall be considered the date when irregular expenditure are recovered, or, if the payment is not made, when the paying authority has verified the payment request, from which the irregular expenditure are withheld.

21. If the contracting party writes off the irregular expenditure referred to in Sub-paragraph 19.2 of this Regulation, it shall draw up an accounting statement, which includes the number and name of the European Union fund, action programme, priority, measure, activity, sub-activity and project, the total amount of irregular expenditure and its division by the sources of financing, the date when irregular expenditure were written off as expenditure, and inform the final beneficiary. The contracting party shall, within three working days after writing off the irregular expenditure, submit a copy of the accounting statement to the certifying authority. The date of recovery of the irregular expenditure shall be the date when the contracting party draws up an accounting statement.

[12 June 2012]

22. If the possibility of repaying the irregular expenditure referred to in Sub-paragraph 19.3 of this Regulation is applied, the date of recovery of the irregular expenditure shall the date when the irregular expenditure are transferred to the account referred to in Paragraph 30 of this Regulation. The contracting party shall inform the certifying authority regarding the final beneficiary's agreement to repay the irregular expenditure voluntarily within three working days after receipt of the consent.

23. The Ministry of Finance shall inform the Cabinet once a quarter regarding all the cases referred to in Paragraphs 19 and 19.¹ of this Regulation. A decision to recover the irregular expenditure shall be taken if the contracting party has failed to conform to the procedures laid down in Sub-paragraph 19.1 or 19.2 of this Regulation or the irregular expenditure have not been repaid within the time period referred to in Sub-paragraph 19.3 of this Regulation, or no reply has been received from the final beneficiary regarding the possibility of repaying them voluntarily.

[9 August 2011]

24. If the contracting party has not applied the procedures laid down in Sub-paragraphs 19.1 and 19.2 of this Regulation or the irregular expenditure have not been repaid within the time period referred to in Sub-paragraph 19.3 of this Regulation, or no reply has been received from the final beneficiary regarding the possibility of repaying them voluntarily, the date of recovery of the irregular expenditure shall be the date when the Cabinet reviews the information referred to Paragraph 23 of this Regulation. If the Cabinet decides on recovery of certain irregular expenditure, the date of recovery of the irregular expenditure shall be the date when the final beneficiary has executed the decision by the Cabinet. The managing authority shall inform the certifying authority, contracting party and head of the direct or indirect administration institution of the State, derived public person or higher institution of another State institution that have made the irregular expenditure regarding the decision by the Cabinet within five working days after the respective meeting of the Cabinet.

V. Recovery of Irregular Expenditure, if the Final Beneficiary is a Private Individual

25. If the final beneficiary, in the project implemented by which the irregularity referred to in Sub-paragraph 2.1 of this Regulation has been detected, as a result of which irregular expenditure have been incurred, is a private individual, the contracting party shall:

25.1. if possible, on the basis of the civil contract on project implementation, withhold the irregular expenditure from the current or next payment request of the project;

25.2. if the irregular expenditure cannot be withheld in accordance with Sub-paragraph 25.1 of this Regulation and the amount of irregular expenditure in one project in the case of one irregularity does not exceed 120 euros, the irregular expenditure may be written off as expenditure;

25.3. if the irregular expenditure cannot be withheld in accordance with Sub-paragraph 25.1 and written off in accordance with Sub-paragraph 25.2 of this Regulation, the contracting party shall agree with the final beneficiary according to the civil law procedures or issue an administrative act on the recovery of the irregular expenditure within three months after detecting a irregularity, but no later than within the time period determined in Article 3(1) of Council Regulation (EC, EURATOM) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests and within three working days the administrative act along with a warning on compulsory fulfilment of administrative act is sent to the final beneficiary (copy of the agreement reached according to the civil law procedures, the administrative act and the warning shall be sent to the certifying authority).

[9 August 2011, 12 June 2012, 29 October 2013]

25.¹ If the irregularity referred to in Sub-paragraph 2.2, 2.3 or 2.4 of this Regulation has been detected in relation to the final beneficiary referred to in Paragraph 25 of this Regulation, the contracting party, in accordance with the procedures laid down in Paragraph 25 of this Regulation, shall ensure the recovery of its financing paid to the final beneficiary within a time period not exceeding 12 months before the administrative report is drawn up for the respective administrative violation or the initiation of criminal proceedings.

[9 August 2011]

26. In withholding the expenditure referred to in Sub-paragraph 25.1 of this Regulation, the contracting party shall inform the final beneficiary within three working days after the actual withholding of expenditure. If the respective expenditure have been declared to the European Commission, the certifying authority shall be informed as well. The date when the paying authority has made payment shall be considered the date when irregular expenditure are recovered, or, if the payment is not made, when the paying authority has verified the payment request, from which the irregular expenditure are withheld.

27. If the contracting authority writes off the irregular expenditure referred to in Sub-paragraph 25.2 of this Regulation, it shall prepare an accounting statement, which includes the number and name of action programme, priority, measure, activity, sub-activity and project, the total amount of the irregular expenditure and its division by the sources of financing, the date when the irregular expenditure were written off as expenditure, and inform the final beneficiary. The contracting party shall, within three working days after writing off the irregular expenditure, submit a copy of the accounting statement to the certifying authority. The date of recovery of the irregular expenditure shall be the date when the contracting party draws up an accounting statement.

[12 June 2012]

28. If the contracting party has issued the administrative act referred to in Sub-paragraph 25.3 of this Regulation, however, the final beneficiary cannot repay the irregular expenditure within the time period determined in the warning referred to in Sub-paragraph 25.3 of this Regulation:

28.1. within at least three working days before the end of the time period determined in the warning referred to in Sub-paragraph 25.3 of this Regulation, the final beneficiary shall inform the contracting party in writing regarding the necessity to change the time period determined in the warning;

28.2. the contracting party shall assess the submitted information and, if necessary, issue a new warning on compulsory execution of the administrative act within seven working days after receipt of the submitted information;

28.3. the contracting party shall inform the final beneficiary within three working days after issuing a new warning regarding compulsory execution of the administrative act. A copy shall be sent to the certifying authority.

29. If the irregular expenditure are recovered in accordance with Sub-paragraph 25.3 of this Regulation, the date of recovery of the irregular expenditure shall be the date when the irregular expenditure are transferred to the account referred to in Paragraph 30 of this Regulation.

VI. Repayment and Accounting of Irregular expenditure

30. To ensure repayment of the irregular expenditure, the contracting party shall open an account with the State Treasury.

31. The contracting party shall monitor that the final beneficiary repays the irregular expenditure to the account referred to in Paragraph 30 of this Regulation.

32. Within five working days after repaying the irregular expenditure to the account referred to in Paragraph 30 of this Regulation, the contracting party shall:

32.1. submit a payment order to the paying authority on transfer of the recovered European Union fund and State budget financing into the State budget revenues. The paying authority shall ensure execution of the payment order within three working days after receipt thereof;

32.2. inform the certifying authority regarding the recovered European Union fund and State budget financing, indicating the number and title of the project, the total amount of the irregular expenditure and its division by the sources of financing.

[12 June 2012]

33. The paying authority shall inform the contracting party regarding the account of State budget revenues, to which the recovered funds shall be repaid, by the third working day of the current year. If the details of the account of State budget revenues have changed, the paying authority shall inform the contracting party thereof within three working days.

34. If the European Commission applies a financial correction, the Ministry of Finance shall prepare information and submit it to the Cabinet for review along with the information referred to in Paragraph 23 of this Regulation. If the irregular expenditure are to be repaid to the European Commission from the State budget, the Ministry of Finance shall inform the Cabinet thereof without delay. The Cabinet shall make a decision to direct funds from the State budget for repayment of the irregular expenditure.

35. After commencing the activities referred to in Paragraphs 19 and 25 of this Regulation, the contracting party shall ensure the entry of information regarding recovery of the irregular expenditure in the Management Information System.

36. In accordance with the laws and regulations in the field of accounting, the contracting party shall perform the accounting of recoverable and recovered irregular expenditure.

37. The certifying authority shall account for recoverable and recovered irregular expenditure and report to the European Commission in conformity with the legal acts of the European Union on the management and control of the European Union funds. Upon request of the certifying authority, the contracting party and managing authority shall provide the information necessary for preparation of the report referred to in Article 20 of Regulation No 1828/2006.

38. If the recoverable amount has been repaid to the final beneficiary, the contracting party and certifying authority, in order to define:

38.1. the amount of recoverable irregular expenditure in the European Union currency, shall recalculate it for each source of financing, applying the monthly exchange rate set by the European Commission for the month when the paying authority made the payment or, if the payment was not made, approved the payment request which included the irregular expenditure. If the irregular expenditure are included in several payment requests, the monthly exchange rate set by the European Commission shall be applied for the month when the paying authority made the last payment or, if the payment was not made, approved the last payment request which included the irregular expenditure;

38.2. the amount of recovered irregular expenditure in the European Union currency, shall recalculate it separately for each source of financing, applying the monthly exchange rate set by the European Commission for the month when irregular expenditure were recovered.

39. The contracting party shall reduce the total amount of eligible costs of the project for irregular expenditure, inform the final beneficiary and ensure the entry of the respective information in the Management Information System.

40. The requirement referred to in Paragraph 39 of this Regulation shall not apply to the projects where the final beneficiary fulfils the functions of the financial intermediary and beneficiaries are responsible for expenditure according to the contract entered into with the final beneficiary.

VII. Closing Provisions

41. Cabinet Regulation No 500 of 17 July 2007, Procedures for Notifying Irregularities Detected in the Implementation of the European Union Structural Funds and Cohesion Fund, Taking Decisions on the Utilisation of Financing Granted, and Recovering Irregular Expenditure" (Latvijas Vēstnesis, 2007, No 117), is repealed.

42. To ensure entry of the information referred to in this Regulation in the Irregularity Management System, each institution referred to Paragraph 3 of this Regulation shall submit a request to the managing authority for granting the right of use to its employees within one month after coming into force of this Regulation, indicating whether the right of use is granted for entering information, confirming and sending information to the European Commission or viewing it in a read-only mode. The respective body shall inform the managing authority regarding every change to the right of use in accordance with the procedures laid down in Chapter III of this Regulation.

43. Within the framework of sub-activity 3.2.2.1.1 "Development of Information Systems and Electronic Services" of the supplement to the action programme "Infrastructure and Services", the responsible institution and co-operation institution shall implement the administration of irregularities referred to in this Regulation based on the cooperation model defined within the scope of the interdepartmental agreement.

Informative Reference to the Directive of the European Union

[9 August 2011]

This Regulation contains legal norms arising from Directive 2009/52/EC of the European Parliament and of the Council of 18 June 2009 providing for minimum standards on sanctions and measures against employers of illegally staying third-country nationals.

Prime Minister V. Dombrovskis

Minister for Finance E. Repše

Translation © 2016 Valsts valodas centrs (State Language Centre)