Kiri

Lõkke 4 / 10122 Tallinn / 663 8200 / [email protected] / www.rtk.ee / Registrikood 70007340

Andreas von Busch

European Commision DG REGIO

Ours 05.04.2024 no 11.1-8/24/932-1

Correction

We hereby send you additional information regarding the planned flat-rate correction.

Establishing Justifications and Commencement Date for Applying Flat-Rate 5%

We typically implement additional checks in cases of suspected systematic errors. However, as the 2014-

2020 period ends, this approach wouldn't have been practical. It would have proved excessively time-

consuming, necessitating extra resources from both the 2nd level IB and the MA. Thus, we have concurred

with Audit Authority’s proposal to apply a 5% correction rate. This decision is justified and proportionate,

aligning with the scale of ineligible costs identified during audits conducted between 2021 and 2023,

averaging 6.8% per project. The correction rate applies only to reconstruction procurements, as the errors

detected so far are all related to reconstruction procurements, and no errors have been detected in the owner

supervision and technical consultant procurements.

Previous audits conducted under measure 6.1.1 have demonstrated the functionality of management and

control systems. Audit JKS-9/2017 (final report dated 01.03.2018) received a category II, indicating the

absence of such issues. Consequently, it isn't necessary to implement the correction rate retrospectively for

the entire 2014-2020 period. Instead, it should commence from the amendment to the measure's regulation

(measure 6.1.1), requiring beneficiaries to conduct reconstruction procurements through the state

procurement register. This obligation began with projects whose financing decision was based on the

regulation adopted from 04.04.2019. Similar requirements were also stipulated in measure 15.3.3, where

we apply the correction rate to all reconstruction procurements.

Flat-Rate Sum Calculation

In measure 6.1.1, 112 projects are covered by the flat rate, with eligible costs totaling 98 750 083.89 euros,

of which the grant is 39 680 079.44 euros. Therefore, in this measure, 5% or 4 937 504.19 euros are

considered ineligible, of which the grant is 1 984 003.97 euros.

In measure 15.3.3, 83 projects are covered by the flat rate, with eligible costs totaling 55 263 330.44 euros,

of which the grant is 22 756 100.61 euros. Therefore, in this measure, 5% or 2 763 166.52 euros are

considered ineligible, of which the grant is 1 137 805.03 euros.

Thus, 7 700 670.71 euros are considered ineligible in these measures, of which the grant is 3 121 809 euros.

Certification of the expenditures

In the certification process (accounting year 2022-2023), we removed reconstruction costs in full for the

projects related to the accounting year (costs incurred from the period 01.04.2022-31.03.2023). Based on

the analysis of the Auditing Authority, there are 242 projects affected. 121 out of them were related to the

accounting year (measure 15.1 55 projects and measure 6.1 66 projects).

MA plans to submit the payment request in April 2024 and by that time it is necessary to map out the scope

that has been identified as having a problem and apply the flat rate method to it.

Planned Future Measures

As follow-up actions MA has planned the following steps:

1. Managing authority (MA) has planned additional controls in the 2024 action plan and has created

corresponding tasks in Jira. Furthermore, MA systematically conducts various types of controls and

analyses. These activities are aimed at ensuring compliance, identifying potential risks, and enhancing the

effectiveness of operations. MA will implement regular checks to verify the accuracy and completeness of

data, transactions, and processes. By systematically reviewing these aspects, we can promptly address any

risks and irregularities. Furthermore, MA utilizes risk analysis as part of our control procedures. By

analyzing potential risks within various datasets or processes, we can efficiently assess the overall quality

and compliance levels. This approach provides insights into broader trends and patterns, enabling us to

prioritize areas for further scrutiny or improvement.

2. As a prompt solution to enhancing the system, the implementing body will take over the procurement

process. Previously, the procurements were conducted by the applicant. This workflow alteration results in

an administrative burden increase, but it ensures the correctness of the procurement process. By shifting

the responsibility to the implementing body, there will be a need for additional administrative efforts to

manage the procurement activities effectively. Additionally, by centralizing the procurement process under

the implementing body, it enables more comprehensive oversight and control, thereby minimizing the risk

of errors or irregularities. Therefore, while there may be initial challenges associated with the increased

administrative burden, the long-term benefits of ensuring the accuracy and effectiveness of the procurement

process justify this transition.

3. As a future development, we are analyzing possibilities for the establishment of simplified cost options

or result-based methods to mitigate the risk of price manipulation. The simplification represents a strategic

approach to mitigate the risk of price manipulation within the procurement process. Transitioning to

simplified cost options requires careful planning and analysis to ensure their effective implementation.

While simplification offers advantages in terms of transparency, it also may create new risk of potential

irregularities and oversight mechanisms to safeguard against irregular expenditures that need to be

addressed.

Yours sincerely,

(signed digitally)

Urmo Merila

Deputy Director General of the State Shared Service Centre

Head of Managing Authority

Additional recipients: Aivars Rozmanis; Milan Kovacs

Kristi Sell 663 1821

[email protected]

Lõkke 4 / 10122 Tallinn / 663 8200 / [email protected] / www.rtk.ee / Registrikood 70007340

Andreas von Busch

European Commision DG REGIO

Ours 05.04.2024 no 11.1-8/24/932-1

Correction

We hereby send you additional information regarding the planned flat-rate correction.

Establishing Justifications and Commencement Date for Applying Flat-Rate 5%

We typically implement additional checks in cases of suspected systematic errors. However, as the 2014-

2020 period ends, this approach wouldn't have been practical. It would have proved excessively time-

consuming, necessitating extra resources from both the 2nd level IB and the MA. Thus, we have concurred

with Audit Authority’s proposal to apply a 5% correction rate. This decision is justified and proportionate,

aligning with the scale of ineligible costs identified during audits conducted between 2021 and 2023,

averaging 6.8% per project. The correction rate applies only to reconstruction procurements, as the errors

detected so far are all related to reconstruction procurements, and no errors have been detected in the owner

supervision and technical consultant procurements.

Previous audits conducted under measure 6.1.1 have demonstrated the functionality of management and

control systems. Audit JKS-9/2017 (final report dated 01.03.2018) received a category II, indicating the

absence of such issues. Consequently, it isn't necessary to implement the correction rate retrospectively for

the entire 2014-2020 period. Instead, it should commence from the amendment to the measure's regulation

(measure 6.1.1), requiring beneficiaries to conduct reconstruction procurements through the state

procurement register. This obligation began with projects whose financing decision was based on the

regulation adopted from 04.04.2019. Similar requirements were also stipulated in measure 15.3.3, where

we apply the correction rate to all reconstruction procurements.

Flat-Rate Sum Calculation

In measure 6.1.1, 112 projects are covered by the flat rate, with eligible costs totaling 98 750 083.89 euros,

of which the grant is 39 680 079.44 euros. Therefore, in this measure, 5% or 4 937 504.19 euros are

considered ineligible, of which the grant is 1 984 003.97 euros.

In measure 15.3.3, 83 projects are covered by the flat rate, with eligible costs totaling 55 263 330.44 euros,

of which the grant is 22 756 100.61 euros. Therefore, in this measure, 5% or 2 763 166.52 euros are

considered ineligible, of which the grant is 1 137 805.03 euros.

Thus, 7 700 670.71 euros are considered ineligible in these measures, of which the grant is 3 121 809 euros.

Certification of the expenditures

In the certification process (accounting year 2022-2023), we removed reconstruction costs in full for the

projects related to the accounting year (costs incurred from the period 01.04.2022-31.03.2023). Based on

the analysis of the Auditing Authority, there are 242 projects affected. 121 out of them were related to the

accounting year (measure 15.1 55 projects and measure 6.1 66 projects).

MA plans to submit the payment request in April 2024 and by that time it is necessary to map out the scope

that has been identified as having a problem and apply the flat rate method to it.

Planned Future Measures

As follow-up actions MA has planned the following steps:

1. Managing authority (MA) has planned additional controls in the 2024 action plan and has created

corresponding tasks in Jira. Furthermore, MA systematically conducts various types of controls and

analyses. These activities are aimed at ensuring compliance, identifying potential risks, and enhancing the

effectiveness of operations. MA will implement regular checks to verify the accuracy and completeness of

data, transactions, and processes. By systematically reviewing these aspects, we can promptly address any

risks and irregularities. Furthermore, MA utilizes risk analysis as part of our control procedures. By

analyzing potential risks within various datasets or processes, we can efficiently assess the overall quality

and compliance levels. This approach provides insights into broader trends and patterns, enabling us to

prioritize areas for further scrutiny or improvement.

2. As a prompt solution to enhancing the system, the implementing body will take over the procurement

process. Previously, the procurements were conducted by the applicant. This workflow alteration results in

an administrative burden increase, but it ensures the correctness of the procurement process. By shifting

the responsibility to the implementing body, there will be a need for additional administrative efforts to

manage the procurement activities effectively. Additionally, by centralizing the procurement process under

the implementing body, it enables more comprehensive oversight and control, thereby minimizing the risk

of errors or irregularities. Therefore, while there may be initial challenges associated with the increased

administrative burden, the long-term benefits of ensuring the accuracy and effectiveness of the procurement

process justify this transition.

3. As a future development, we are analyzing possibilities for the establishment of simplified cost options

or result-based methods to mitigate the risk of price manipulation. The simplification represents a strategic

approach to mitigate the risk of price manipulation within the procurement process. Transitioning to

simplified cost options requires careful planning and analysis to ensure their effective implementation.

While simplification offers advantages in terms of transparency, it also may create new risk of potential

irregularities and oversight mechanisms to safeguard against irregular expenditures that need to be

addressed.

Yours sincerely,

(signed digitally)

Urmo Merila

Deputy Director General of the State Shared Service Centre

Head of Managing Authority

Additional recipients: Aivars Rozmanis; Milan Kovacs

Kristi Sell 663 1821

[email protected]