CHAPTER III

SPECIFIC PROVISIONS FOR FINANCIAL MANAGEMENT AND FINANCIAL CORRECTIONS

Criteria for determining serious deficiencies in the effective functioning of management and control systems(Article 55(4) of Regulation (EU) No 223/2014)
Article 8
1
The Commission shall base its assessment of the effective functioning of management and control systems on the results of all available systems audits, including tests of controls, and of audits of operations.
The assessment shall cover the internal control environment of the programme, the management and control activities of the managing and certifying authorities, monitoring by the managing and certifying authority, and the control activities of the audit authority and shall be based on verification of compliance with the key requirements set out in Table 1 of Annex II.
The fulfilment of these key requirements shall be assessed on the basis of the categories set out in Table 2 of Annex II.
2
The main types of serious deficiency in the effective functioning of the management and control system shall be cases where any of the key requirements referred to in points 2, 4, 5, 13, 15, 16 and 18 of Table 1 of Annex II, or two or more of the other key requirements in Table 1 of Annex II are assessed as falling into categories 3 or 4 set out in Table 2 of Annex II.

Criteria for applying flat rates or extrapolated financial corrections and criteria for determining the level of financial correction(Article 55(4) of Regulation (EU) No 223/2014)
Article 9
1
Financial corrections shall be applied for all or part of an operational programme, where the Commission identifies one or more serious deficiencies in the functioning of the management and control system.
Notwithstanding the first subparagraph, extrapolated financial corrections shall be applied, for all or part of an operational programme, where the Commission identifies systemic irregularities in a representative sample of operations, allowing for a more accurate quantification of the risk for the Union budget. In this case, the results of the examination of the representative sample shall be extrapolated to the rest of the population from which the sample was drawn for the purpose of determining the financial correction.
2
The level of flat-rate correction shall be fixed taking into account the following elements:
a
the relative importance of the serious deficiency or serious deficiencies in the context of the management and control system as a whole;
b
the frequency and extent of the serious deficiency or serious deficiencies;
c
the degree of risk of loss for the Union budget.
3
Taking into account these elements, the level of financial correction shall be fixed as follows:
a
where the serious deficiency or serious deficiencies in the management and control system is so fundamental, frequent or widespread that it represents a complete failure of the system that puts at risk the legality and regularity of all expenditure concerned, a flat rate of 100 % shall be applied;
b
where the serious deficiency or serious deficiencies in the management and control system is so frequent and widespread that it represents an extremely serious failure of the system that puts at risk the legality and regularity of a very high proportion of the expenditure concerned, a flat rate of 25 % shall be applied;
c
where the serious deficiency or serious deficiencies in the management and control system is due to the system not fully functioning or functioning so poorly or so infrequently that it puts at risk the legality and regularity of a high proportion of the expenditure concerned, a flat rate of 10 % shall be applied;
d
where the serious deficiency or serious deficiencies in the management and control system is due to the system not functioning consistently so that it puts at risk the legality and regularity of a significant proportion of the expenditure concerned, a flat rate of 5 % shall be applied.
4
Where the application of a flat rate fixed in accordance with paragraph 3 would be disproportionate, the level of correction shall be reduced.
5
Where, due to a failure of the responsible authorities to take adequate corrective measures following the application of a financial correction in an accounting year, the same serious deficiency or serious deficiencies is identified in a subsequent accounting year, the rate of correction may, due to the persistence of the serious deficiency or serious deficiencies, be increased to a level not exceeding that of the next higher category.
Article 10
This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union.
Article 3 shall apply from 1 December 2014, as regards information on data recorded and stored referred to in Annex I.