AUDIT TEAM

Version 2016-01-21

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Address https://gelex.eu/eli/EU/doc/http://publications.europa.eu/resource/cellar/bd5f3731-f968-46b2-b697-eaaa97f3350f.0006.01@2016-01-21/en

Contents

Preamble
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The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary areas or management topics. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks to performance or compliance, the level of income or spending involved, forthcoming developments and political and public interest. This performance audit was produced by Audit Chamber II — headed by ECA Member Henri Grethen — which specialises in structural policies, transport and energy spending areas. The audit was led by ECA Member Iliana Ivanova, supported by the head of her private office, Tony Murphy, Mihail Stefanov, attaché, and Peter Borsos, assistant; Emmanuel Rauch, head of unit; Valeria Rota, team leader; and Luis De La Fuente Layos, Zhivka Kalaydzhieva and Anna Fiteni, auditors. From left to right: Z. Kalaydzhieva, M. Stefanov, E. Rauch, I. Ivanova, T. Murphy, L. De La Fuente Layos and P. Borsos. Europe 2020 strategy The European Union’s 10-year jobs and growth strategy. It was launched in 2010 to create the conditions for smart, sustainable and inclusive growth. European employment strategy The European employment strategy was introduced in 1992 by the Treaty of the European Union and since then has been the cornerstone of the EU’s employment policy. Its main aim is the creation of more and better jobs throughout the EU. It now constitutes part of the Europe 2020 strategy and it is implemented through the European Semester. European Semester The European Semester is the first phase of the EU’s annual cycle of economic policy guidance and surveillance. Each European Semester, the European Commission analyses the fiscal and structural reform policies of every Member State, provides recommendations and monitors their implementation. In the second phase of the annual cycle, known as the National Semester, Member States implement the policies they have agreed. European Social Fund The European Social Fund (ESF) aims at strengthening economic and social cohesion within the European Union by improving employment and job opportunities (mainly through training measures), encouraging a high level of employment and the creation of more and better jobs. Indicator A measurable proxy for an objective that will give useful information to assess the degree to which an objective is met. Intervention Any action or operation, carried out by public authorities or other organisations, regardless of its nature (policy, programme, measure or project). Means of intervention employed are grants, loans, subsidised interest rates, guarantees, participation in equity and risk capital schemes or other forms of financing. Managing authority A managing authority is a national, regional or local public authority (or any other public or private body) which has been designated by a Member State to manage an operational programme. Its tasks include selecting projects to be funded, monitoring how projects are implemented and reporting to the Commission on financial aspects and results achieved. National reform programme This is an annual document which is prepared and submitted by each Member State presenting the country’s policies and measures to sustain growth and jobs and to reach the Europe 2020 strategy targets. The national reform programme is presented in parallel with its stability/convergence programme, which sets out the country’s budgetary plans for the coming 3 or 4 years. Operational programme An operational programme (OP) sets out a Member State’s priorities and specific objectives and how the funding (EU and national public and private co-financing) will be used during a given period (generally 7 years) to finance projects. These projects must contribute to achieve a certain number of objectives specified at the level of the OP’s priority axis. An OP is prepared by the Member State and has to be approved by the Commission before any payments from the EU budget can be made. OPs can only be modified during the period covered if both parties agree. Priority axis One of the priorities of the strategy in an operational programme comprising a group of operations which are related and have specific measurable goals. Programme period The multiannual framework within which Structural Funds and Cohesion Fund expenditure is planned and implemented. Shared management A method of implementing the EU budget where the Commission delegates implementation tasks to the Member States, while retaining final responsibility. ‘Youth guarantee’ The ‘Youth guarantee’, adopted by the Council recommendation of 22 April 2013 on establishing a ‘Youth guarantee’, should ensure that all young people under the age of 25 receive a good quality offer of employment, continued education, an apprenticeship or a traineeship within 4 months of leaving formal education or becoming unemployed. The ‘Youth guarantee’ is a crucial structural reform, making institutions work better together to provide concrete results for young people. Youth unemployment is not a new phenomenon as most Member States have faced structural problems in integrating young people in the labour market for many years, and the youth unemployment rates are generally higher than the ones for other age categories. The financial and debt crisis exacerbated the longstanding problem of the EU’s youth (aged 15-24) unemployment rate. It increased from above 15 % in 2008 to unprecedentedly high levels of more than 23 % in 2013 and has reduced in 2014 to just above 22 %. In December 2011, the Commission presented its ‘Youth opportunities initiative’, setting out measures to address youth unemployment. This built on its ‘Youth on the move’ flagship initiative and on the experience of actions funded through the European Social Fund (ESF). At the informal European Council meeting of 30 January 2012, as part of its ‘Youth opportunities initiative’, the Commission proposed to Member States to develop and implement comprehensive initiatives for youth employment, education and skills and introduce youth action plans within their national reform programmes. It also proposed to set up youth action teams (YATs) bringing together national and Commission experts. These action teams should help the eight Member States with the highest levels of youth unemployment to make the best use of EU structural funding by directing unallocated funds from the 2007–2013 programme period to projects that supported job opportunities for young people and facilitated access to funding by small businesses. The Court assessed whether the redirection (i.e. reprogramming and reallocation) of ESF funding benefited from proposals developed in 2012 by the youth action teams on how to achieve faster and more effective results for young unemployed people through ESF spending. The YATs initiative covered almost 10 billion euro of ESF funding still available for reprogramming in the eight Member States concerned. We concluded that youth action teams set up for the eight Member States made limited specific proposals on how to achieve faster and more effective results for young unemployed people. The effectiveness of the advisory role of the Commission to the Member States in relation to the YATs was limited by the level and quality of information available to it on how existing ESF or national measures for young unemployed people work on the ground. While the YATs exercise led to the reprogramming and reallocation of ESF funds (according to data provided by the Commission totalling around 1.9 billion euro by June 2013), the assessment of the Commission on OP amendments focused mainly on budgetary aspects rather than on the best use of ESF funds. Finally, there were shortcomings in how the Commission monitored and reported on the results of the YATs initiative until 2014. The Court recommends that the Commission should:

for future initiatives of this kind, take due account of the possibilities and constraints given by the political and legal context, its specific knowledge of and expertise in the area (based on the implementation of EU and nationally funded measures) and the availability of the required administrative and financial resources at EU and Member State level;

for the 2014-2020 programme period:

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(a) ensure that future reprogramming requests from Member States are triggered by an expectation of achieving better results rather than mainly resolving difficulties in absorbing EU funds;

(b) approve the Member States’ requests for OP amendments only if the additional results to be obtained through the proposed budgetary transfers can reasonably be achieved;

(c) require Member States to report in sufficient detail both extraordinary transfers within operational programmes and changes within priorities in their annual implementation reports and present the results achieved;

(d) participate actively in OP monitoring committees and encourage Member States to take the appropriate steps where it is clear from its assessment of the annual implementation reports that the targets will not be met;

ensure that minimum plausibility and reliability checks are systematically carried out when using data provided by Member States in its communications.

Youth unemployment is not a new phenomenon as most Member States have faced structural problems in integrating young people in the labour market for many years, and the youth unemployment rates are generally higher than the ones for other age categories (see Figure 1). The financial and debt crisis exacerbated the issue with the EU’s youth (aged 15-24) unemployment rate jumping rapidly from above 15 % in 2008 to 21 % in 2010, and again to more than 23 % in 2012 and 2013, reducing in 2014 to just above 22 %. Within the framework of the European employment strategy, the European Commission has supported Member States in reducing the levels of youth unemployment for many years. Moreover, in the context of Europe 2020 strategy, the ‘Youth on the move’ flagship initiative was launched in September 2010 and presented a framework of policy priorities to reduce youth unemployment, with particular focus on facilitating the transition from education to work and reducing labour market segmentation. Source: Eurostat, ‘Total unemployment — Labour Force Survey series — Unemployment rates by sex, age and nationality (%)’, update 28.9.2015. On 20 December 2011, the Commission launched the ‘Youth opportunities initiative’ (YOI), calling for immediate action to be taken in 2012 and 2013, both by Member States and the Commission. The EU’s aim was to support Member States in improving the employment and educational situation of young people by reviewing their policies and performance in the context of the European Semester surveillance process, and by mobilising the EU Structural Funds, in particular the European Social Fund (ESF), for actions aiming at reducing levels of youth unemployment. In April 2013, following a Commission proposal, the Council recommended the Member States to provide a ‘Youth guarantee’, to the effect that they would ensure that all young people under the age of 25 received a good–quality offer of employment, continued education, an apprenticeship or a traineeship within 4 months of leaving formal education or becoming unemployed. The primary responsibility for tackling youth unemployment policy lies with Member States, at national, regional and local levels. According to the Treaty on the Functioning of the European Union, Member States and the EU have to develop a coordinated strategy for employment, in particular for promoting a skilled, trained and adaptable workforce and labour markets responsive to economic change. The EU’s role in employment policy is to coordinate the Member States’ employment policies and also to support and, if necessary, complement their action. Moreover, the objective of a high level of employment has to be taken into account in the formulation and implementation of EU policies and activities. In the context of the European employment strategy, reinforced since 2011 by the European Semester of economic governance, the Commission also has a role in proposing country-specific recommendations to the Council, which concern inter alia the employment policies of the Member States. At the informal European Council meeting of 30 January 2012, as part of the YOI, the Commission proposed that Member States develop and implement comprehensive initiatives for youth employment, education and skills, and introduce youth action plans into their national reform programmes. The Commission also put forward the idea of setting up youth action teams (YATs), to help the eight Member States with the highest levels of youth unemployment to mobilise EU funding — including from the ESF — that was still available under the 2007-2013 programme period to support job opportunities for young people and help SMEs access funds (see Box 1). The youth action teams initiative was launched with the aim of targeting unallocated EU funding and expertise to deliver faster and more effective results. Each team had to work with the national partners on targeted actions to combat youth unemployment and help the SMEs to get access to loan and grant financing. The experts were to have a fresh look at the use of Structural Funds and utilise the Commission’s knowledge of good practice in different Member States in order to help national authorities reallocate funds to projects that would make the ’biggest difference in the shortest time’. The YATs were composed of experts from the competent national authorities and from the Commission’s Directorates-General for Regional and Urban Policy, Employment, Social Affairs and Inclusion, Education and Culture, and Economic and Financial Affairs. They were coordinated by representatives from the prime ministers’ offices in the Member States and the Secretariat-General of the Commission under the authority of its President. The YATs initiative focused on the eight Member States having rates of youth unemployment of around 30 % or above at the end of 2011: Ireland, Greece, Spain, Italy, Latvia, Lithuania, Portugal and Slovakia. Member States were selected on the basis of youth unemployment rates. While the European Council has requested the Commission to work as a first step with those Member States which have the highest youth unemployment levels to redirect available EU funds towards support for young people to get into work or training, no consideration was given by the Commission to the ESF funding available for reprogramming when selecting the eight Member States (see Table 1). The action teams were set up in February 2012 and they held meetings in the eight Member States between 14 and 28 February 2012 (see Figure 2). Source: Eurostat: Youth employment figures. Commission: Dates of the YATs meetings. The ESF regulation stipulates that it shall contribute towards the EU’s priorities as regards strengthening economic and social cohesion by improving employment and job opportunities, encouraging a high level of employment with more and better jobs. The ESF operates under shared management, with the Commission bearing the ultimate responsibility for the implementation of the EU budget. The Fund is implemented through national and regional multiannual operational programmes (OPs) prepared by the Member States and approved by the Commission. Within each OP, total available funds are broken down among the different priority axes of the OP. During the programme period, before closure of the programmes, in circumstances requiring departure from the original goals set in the programme and in accordance with the regulations, the Member States or the Commission in agreement with the Member States may change the distribution of the unused funds from one priority to another. This redirecting can take the form of a transfer:

between OPs (for example between two ESF OPs or between an ESF and a European Regional Development Fund (ERDF)/Cohesion Fund OP);

between priority axes of a given OP; or

within two different sub-parts of a given priority axis.

The first two cases are ‘reprogramming’, and require a Commission decision to amend the OP. For the third case, referred to in this report as ‘reallocation’, the transfer may also be made on the basis of a Commission decision or performed by the Member State itself within the flexibility of the priority axis concerned. In the latter case, the managing authority would have to be asked to assess the budget reallocation involved. Furthermore, the Commission performs a supervisory role over the monitoring framework and it is also responsible for checking that the OPs have delivered the expected outputs and results. In practice, as part of its monitoring responsibility, the Commission reviews the annual implementation reports prepared by the managing authorities and holds annual examination meetings with the managing authorities to examine the progress made in the implementation of the operational programmes, with a view to improving them. The Commission also participates in the work of the monitoring committees in an advisory capacity. The ESF budget for the 2007-2013 programme period amounted to 76 billion euro (more than 10 billion euro per year) and it was allocated through 117 operational programmes across the 27 Member States at the time. However, by the end of 2011, Member States still had 22 billion euro in ESF funds which had not been committed to concrete activities. Of this almost 10 billion euro in unallocated ESF funds were available for the YATs in the eight Member States with the highest youth unemployment rates (see Table 1). Source: Commission estimate at the end of 2011. Member State Amount (million euro) Share of total unallocated ESF (EU-27) Italy 3674 16.5 % Spain 2712 12.2 % Portugal 1760 7.9 % Greece 1495 6.7 % Lithuania 289 1.3 % Slovakia 39 0.2 % Ireland 2 0.0 % Latvia 0 0.0 % Total of the 8 Member States 9971 44.8 % Other Member States 12300 55.2 % Total unallocated ESF 22271 100.0 % In its update to the Council in March 2013, the Commission outlined that targeted investment from the EU structural funds can have a powerful impact on growth and employment. The aim of the action teams was to maximise the impact of EU structural funding by directing the funds still to be allocated for the 2007-2013 period to projects directly supporting young people and SMEs. At the start of the exercise in 2012, it was estimated that around 82 billion euro of EU structural funds were still to be allocated for the budgetary period 2007-2013 across the EU. This included around 30 billion euro for the eight Member States where action teams were created. According to the document, the work of the teams has contributed by the beginning of 2013 to a mobilisation in each of the eight Member States of this funding totalling 16 billion euro. It added that this funding would help around 780000 young people and 55000 SMEs as well as supporting other growth-enhancing measures. In March 2014, the Commission issued its most recent publication focusing on ESF redirection. According to this, ESF resources reprogrammed and/or reallocated to specific actions for youth amounted to around 4.2 billion euro, of which 1.8 billion euro had been committed to projects which were ongoing at that time in the Member States. Around 1.2 million young people were likely to benefit from this support (see paragraphs 51 to 56). Through this audit the Court assessed whether the redirection of ESF funding benefited from proposals developed in 2012 by the youth action teams on how to achieve faster and more effective results for young unemployed people through ESF spending. The audit scope was limited to ESF-related actions within the YATs initiative and excluded those from other sources including in particular the ERDF. We examined whether:

the Commission, through the knowledge and information available for existing ESF youth employment initiatives and measures and/or its knowledge of good practice in other Member States, had effectively fulfilled the advisory role envisaged in this initiative;

the YATs initiative had resulted in the Member States making proposals for a significant and targeted reprogramming of the funds available under the 2007-2013 ESF operational programmes (or by reallocating funds within the OP priority axis) and the proposals had been assessed by the Commission in line with the objectives of the YATs initiative;

adequate arrangements were established by the Commission to report on the follow-up of the YATs initiative.

Our audit covered the period 2012 to 2014 and focused on the Commission’s contribution to the YATs initiative. In particular it included:

a review of the information which the Commission had in 2012 concerning ESF measures in favour of young unemployed people and the respective performance of these measures;

a review of the reprogramming made within 12 months after the YATs meetings for the 60 ESF operational programmes of the eight Member States concerned by the YATs initiative, and a detailed examination of the amendments for a sample of eight OPs and the related Commission assessment;

an analysis of the Commission’s monitoring and reporting on the results of the YATs until the end of 2014.

Evidence was obtained from documentary reviews and interviews with the Commission, and a survey was addressed to the relevant Commission departments involved in the YATs exercise with regard to ESF funding. In March 2015 we published a first report concerning the issue of youth unemployment, namely on the EU ‘Youth guarantee’. The YATs initiative was launched with the expectation that the Commission, through an advisory role, would help the national/regional authorities in the eight Member States reallocate ESF funding to projects that would make the biggest difference in the shortest time (see Box 1). In particular, the Commission’s experts were tasked to work with the national authorities and national social partners on targeted actions to combat youth unemployment. Therefore, we examined:

the performance and financial information available to the Commission on ESF measures for young unemployed people; and

the preparatory action of the Commission prior to the YATs meetings.

The performance-related information available to the Commission regarding ESF employment measures implemented by Member States derived from regular monitoring and evaluation activities at national level. The mandatory minimum reporting obligations of Member States to the Commission were set out in the regulations. This reporting was generally at the level of the priority axis under the OP. In addition, Member States were requested by the Commission to provide ad hoc information on a voluntary basis. Monitoring the performance of a specific measure or project was the responsibility of the managing authority in the Member State. The Commission gathered and reviewed this monitoring and evaluation data on an ongoing basis for individual Member States. During the 2007-2013 programme period, Member States also had a large discretion as to how they report aggregate performance information to the Commission. The regulation prescribed only one mandatory type of indicator, which was output data for participants. With reference to young people, Member States were for example only required to monitor and report annually on the number of participants in ESF measures for people between 15 and 24 years of age. There were no result indicators specified in the regulations. The 2014 ESF Expert Evaluation Network report on the main ESF achievements in 2007-2013 also noted that on the basis of the existing arrangements it was not possible for them to obtain meaningful data on the results of the ESF interventions in the Member States. Moreover, there are weaknesses as regards the quality and reliability of the ESF performance information generally reported by the Member States to the Commission, as noted by the Court in previous reports. The Internal Audit Service of the Commission in its December 2013 report on Directorate-General for Employment, Social Affairs and Inclusion performance measurement systems raised similar issues. On the basis of the monitoring information reported by the Member States, the Commission generally did not know which activities had proved effective in the past in achieving the target objective of getting young people to work. As a result, the Commission was not in a position to easily identify ‘lessons learnt’ or ‘good practices’ (i.e. which ESF measures — whose effectiveness had been proven in the past — could have been rapidly launched with or without reprogramming and which existing measures should have been adapted because they did not work or because they were not a priority). In 2010, the Commission carried out an exercise to examine ‘with Member States the ESF interventions targeting youth and to increase awareness and maximise the potential of the ESF to support young people’. This exercise aimed at identifying ‘good practices’ for an efficient use of ESF money in order to increase youth employment opportunities and inspire the application of these practices more widely in the Member States’ programmes (see paragraph 25). To this end, the Commission surveyed ESF managing authorities in all Member States. On the basis of the replies received, the Commission prepared a report which it defined as ‘an initial step in identifying some of the measures and approaches that are being developed within the ESF, which provide effective support to young people in acquiring relevant education and training and in finding employment and an active role in society’. This report is informative in that it contains numerous examples of measures implemented across the Member States. However, there is no analysis made in the report as to which ESF measure should be considered ‘good practice’. In particular, no reference is made to the effectiveness and efficiency of the interventions in terms of actual measurable results achieved for young people. The report also includes annexes containing an overview of the financial allocation and implementation of the various operational programmes, as well as the number of participants. This information was provided by the Member States on a voluntary basis. The Commission’s disclaimer to the effect that ‘these data are neither comprehensive, nor fully comparable’ illustrates the weaknesses in this type of data available to the Commission on the implementation of the ESF (see paragraphs 25 to 29). For the purpose of the specific YATs exercise the Commission should have had at its disposal a sufficiently detailed overview of the amounts that were potentially available for reprogramming and/or reallocation to support job opportunities for young people. Therefore, we assessed the extent to which such information was available to facilitate the Commission’s preparation of the YATs meetings. Such information was not readily available to the Commission and therefore it needed to establish agreed estimates with the Member States concerned. As regards financial information, one of the difficulties lies with the fact that the ESF financial monitoring system for the 2007-2013 programming period does not allow for funding to be directly linked to specific target groups (such as young unemployed people). The expenditure categories foreseen by the legal framework have been designed by type of intervention, such as ‘implementing active and preventive measures on the labour market’ instead of being classified by target group such as for example ‘young people’ or ‘older workers’. Information on ESF funding potentially available for reprogramming/reallocation is monitored at national level by the managing authorities. The Commission has however agreed in the ESF Technical Working Group with Member States that they voluntarily report their financial execution on the ground for each OP on a quarterly basis. Our audit showed that this quarterly financial reporting was not harmonised: in particular, Member States reported on the basis of their national definitions of the terms ’unallocated’ or ’uncommitted’. Indeed, these definitions stem from a variety of accounting practices across the Member States. As a result the Commission did not necessarily have the most accurate information on financial implementation at its disposal. In this regard, we found significant inconsistencies for Slovakia between the aggregate estimates published by the Commission for unallocated funds and the data used in the context of the YATs exercise (see Box 2). In February 2012, the Commission announced that its experts were ‘ready to go on theground and work with the specific situation and needs of each country’. We assessed whether the Commission, on the basis of its surveillance of the Member States’ employment policies, had, prior to the YATs meetings with the national authorities:

analysed the needs and/or challenges that specific groups of young people faced when entering the labour market;

examined employers’ current and future skills requirements;

identified how ESF interventions could contribute towards fulfilling some of these needs; and

analysed potential changes to the implementation of the programmes (such as adjustments to eligibility and selection criteria) so as to improve the effectiveness of the ESF measures.

In order to prepare effectively for the YATs meetings the Commission’s Secretariat-General prepared a template (known as the ‘country fiche’) which was circulated for completion by all directorates-general (DGs) which would be involved with the youth action teams (see Box 1). In this context the Directorate-General for Employment, Social Affairs and Inclusion was tasked to provide an analysis of the main causes of high youth unemployment for each of the eight Member States and the groups of young people particularly affected by it. It was also requested to examine the need to refocus available EU funding on youth in the context of ESF operational programme implementation, to identify which short-term ESF measures could help and to look at the possibilities for fast implementation. The completed ‘country fiches’ were consolidated by the Secretariat–General and sent to the Member States prior to the meeting. In November 2011, for Slovakia, the Commission estimated 39 million euro of available ESF funds, whereas, following the Commission’s visit in February 2012 to the Member State in question, 422 million euro of ESF funds were available. While higher estimates are plausible due to the time lags inherent in the reporting system, this cannot be the case for the lower figure. Our analysis of the ‘country fiches’ showed that they provided a general overview of the causes of high unemployment at Member State level (e.g. job instability due to labour market segmentation, drop-outs, long-term unemployment amongst young people, skills mismatches, an absence of job vacancies due to the higher unemployment rate, the economic crisis, etc.). In its ‘country fiches’, the Commission did, to a certain extent, identify the groups of young people particularly affected by unemployment by age and partly by level of education (i.e. ’less skilled/less qualified’). Despite the fact that the Eurostat standard measurement for youth unemployment covers the population in the age range of 15-24, we found that there was a varying degree of detail and little uniformity in the analysis included in the ‘country fiches’ regarding the age range of what constitutes a ‘young person’. Moreover, the analysis did not cover the scale of the problem for young people according to gender, geographical location and/or type of disadvantages (e.g. immigrants, marginalised minorities, etc.). The Commission’s ‘country fiches’ also did not include any analysis of the trends in skills and labour market needs by country and by sector, despite the fact that a good understanding of the employer’s needs is crucial to reduce a skills mismatch. An analysis of the sectors showing a potential increase in labour demand could have been particularly helpful in a situation where high unemployment coexists with increasing difficulties in filling vacancies, as was the case for the EU Member States from 2010 onwards. This would have facilitated the redirection of training towards sectors with greater job capacity. Moreover, our audit showed that the analyses provided by the Commission which contributed to the elaboration of the ‘country fiches’ contained vague statements such as ’we need to develop urgently the skills that are or will be needed in the labour market’ or ’the training should be strictly related to both current and mid-term labour market needs, in priority economic sectors’. As regards the short-term measures to fight youth unemployment, which could be supported by the ESF, we noted that the ‘country fiches’were very general and not time-bound. They could refer to any Member State, particularly in the absence of a detailed analysis of labour market needs (see Box 3). The Commission suggested that Ireland should ‘enhance targeted active labour-market policies for youth with an emphasis on tailor-made career guidance, counselling and job search activities’, ‘intervene rapidly, by offering further education, (re)training or activation measures …’ or ‘speed up labour market transitions for young people’. For Portugal, it suggested measures aimed at young unemployed persons, such as ‘traineeships and retraining and guidance in areas/professions relevant for labour market needs’. While the ‘country fiches’ did identify the groups of young people particularly affected by unemployment, the proposed ESF interventions therein did not always target them specifically. For example, in Italy, young people with a ’high and medium education’ were found to be in particular difficulty. However, the main initiative identified in the ‘country fiche’ involved the reprogramming of available funds from regional ESF OPs (311 million euro for 2012) to the national OP on education, which mostly addresses primary and secondary schools. This choice was mainly motivated by the objective of maximising financial absorption. Apprenticeship contracts and tax credit mechanisms were also suggested as possible interventions, without any evidence that these would be the best instruments to be used in Italy for highly qualified people, in view of its labour market situation. In order to assess the outcome of the YATs initiative, we examined whether:

the YATs meetings resulted in specific proposals for faster and more effective ESF measures to reduce levels of youth unemployment;

there are estimates of the amounts of ESF funds reprogrammed or reallocated as a result of the YATs meetings;

the Commission assessed the effectiveness of OP amendments proposed by Member States following the YATs meetings;

the Commission’s invitation to prepare youth action plans in accordance with the outcome of the YATs meetings was followed by Member States and whether the national reform programmes included reference to the expected results of the ESF reprogramming and reallocation exercise following the YATs meetings.

Following the YATs meetings in February 2012, the Commission summarised the proposals made for ESF reprogramming and budget reallocation in conclusion notes (called operational conclusions) prepared by the Secretariat-General and formally transmitted them to the Member States. Our analysis of Directorate-General for Employment, Social Affairs and Inclusion reports about the YATs meetings and the Secretariat-General’s operational conclusions showed that for seven of the eight Member States, the participants discussed in general terms possible options for the redistribution of ESF funds. They did not actually specify how existing instruments/programmes could be used more effectively to address youth unemployment. Examples of the outcome of these discussions as recorded by the Commission were: ‘further prioritisation in reprogramming to give more emphasis to youth employment and support to SMEs can be explored‘ (Italy) or ‘the authorities will explore the idea of financing additional Leonardo/Erasmus traineeships under the ESF OP‘ and ‘will explore possible pilot projects for dual vocational training‘ (Spain). The YAT meeting with the Lithuanian authorities can be considered as a good practice case compared to the general approach followed (see Box 4). The operational conclusions of the YAT meeting in Lithuania identified concrete actions to improve the situation of young people unemployed by refocusing in a short time ESF available funds. These actions included amongst others:

the prolongation of the project ’Be active on the labour market’ which had ended in January 2012 to cover an additional 6 000-10 000 young people during 2012-2013 (additional ESF funding need estimated at 6-10 million euro). The effectiveness of this project had been positively assessed, more than half of the participants being employed on a permanent basis;

the acceleration of the implementation of the Entrepreneurship Promotion Fund by providing an additional 400 loans and to train an additional 1000 young people (additional ESF funding need estimated at 3 million euro). Almost half of the participants were people under 29 years old.

The Secretariat-General’s operational conclusions emphasised the need to expand or extend existing measures, but they did not clarify sufficiently how the effectiveness of existing measures could be improved. For example, the operational conclusions for Greece mentioned the following measures: ‘increasing the effective implementation of the new national lifelong learning strategy, strengthening Vocational Education and Training (VET) and apprenticeships systems…’, but they did not specify how these measures could be improved compared to the past, in order to help young people overcome the specific barriers they face in entering the labour market. Some existing measures were proposed to be extended because they had ensured quick implementation in terms of absorption of funds without their past effectiveness in terms of results (e.g. number of final recipients entering jobs after the ESF intervention) having been discussed or assessed. Finally, our analysis showed that the Commission did not provide any technical guidelines for Member States on how to improve the targeting of funds in the implementation of their OPs (e.g. by defining the scope of the activities better, launching specific calls for tender including specific selection criteria addressing the needs of the priority target groups of young people, etc.) during these meetings. For our assessment of the outcome of the YATs in terms of redirection of ESF funding to measures aiming at reducing levels of youth unemployment, we considered two specific aspects: the formal ESF reprogramming (with approval through a Commission decision) and the budget reallocation process within a priority axis of an existing OP. In order to provide an estimate of the total amount of ESF reprogramming/reallocation following the YATs initiative, we reviewed financial information provided by the Commission in 2015 for all 60 ESF OPs concerned. We assessed in detail the extent of the reprogramming for a sample of eight ESF OPs. Our analysis showed that there was an ESF reprogramming exercise after the YATs meetings in February 2012. A total of 36 ESF OPs out of 60 in the eight Member States were reprogrammed between February 2012 and March 2013. For the eight OPs that we examined in detail, the ESF funds reprogrammed with the objective of delivering fast results to tackle youth unemployment, as confirmed by the Commission, amounted to 337 million euro. Providing an exact overall figure on the ESF reprogramming and/or reallocation in relation to the YATs is difficult since it may not have been a consequence of the related meetings, but due to other reasons. According to the information made available by Member States to the Commission, by June 2013, the YATs initiative has resulted in the reprogramming and/or reallocation of around 1915 million euro of ESF funds in the concerned Member States with the exception of Latvia (see Table 2). This corresponds to 19.2 % of the 9971 million euro initially available unallocated ESF funds for the eight Member States. Moreover, we found that this information is not accurate, at least for Italy, where the reported total reallocated amount of 557 million euro includes, for the regional ESF OP in Italy (Puglia), an amount of 27 million euro which has in fact been reprogrammed and reported as such in the total reprogrammed amount (i.e. 131 million euro). Source: ECA calculation based on the System for Fund Management in the EU (SFC2007) and data provided by the Commission. Member State Number of ESF OPs ESF before YATs (end 2011) ESF amounts mobilised for youth employment measures/actions as a result of the YATs Total ESF1(million euro) ESF unallocated according to the Commission (million euro) ESF amounts reprogrammed according to the Commission (million euro) ESF amounts reallocated according to the Commission (million euro) Total3 (million euro) Share over total ESF(3/1) Ireland 1 375 2 25 25 6.7 % Greece 4 4364 1495 466 466 10.7 % Spain 22 8057 2712 491 491 6.1 % Italy 24 6931 3674 131 557 688 9.9 % Latvia 1 583 0 0 0 0 0.0 % Lithuania 2 1028 289 27 27 2.6 % Portugal 4 6845 1760 143 143 2.1 % Slovakia 2 1500 39 75 0 75 5.0 % TOTAL 60 29683 9971 1915 6.5 % The Commission was not in a position to provide a breakdown between the ESF amounts reprogrammed and those reallocated for five of the eight Member States. For the sampled OPs the Commission could provide information only for ESF OPs in two Member States: the Greek Education and Lifelong Learning OP (approx. 24 million euro related to new measures for youth) and the Human Resources Development OP for Lithuania(approx. 29 million euro). In March 2014, the Commission issued its most recent publication focusing on ESF redirection. According to this, ESF resources reprogrammed and/or reallocated to specific actions for youth amounted to around 4.2 billion euros, of which 1.8 billion euro had been committed to projects which were ongoing at that time in the Member States. Around 1.2 million young people were likely to benefit from this support. The Court could not confirm the accuracy of these figures. In 2014 the EU’s youth (aged 15-24) unemployment rate has decreased to just above 22 % (see paragraph 1). The evolution of the trend in the youth unemployment rate in the eight Member States concerned by the YAT initiative is shown below (see Figure 3) but a direct link has not been established with the YATs exercise. Source:Eurostat; Total unemployment - Labour Force Survey series - Unemployment rates by sex, age and nationality (%). When proposing to amend an OP, the Member States are required to provide analyses of the reasons for the revisions, including the expected impact of those revisions. In order to ensure the economic, efficient and effective use of EU funds, Member States should also explain the intended effects of the changes, in terms of their effectiveness and efficiency in achieving results in relation to the OP and EU objectives. In its communication on the YATs initiative the Commission stated that ’the reprogramming must be done in agreement between the European Commission and each of the eight Member States and this will be the core work of the action teams’. In this context, the Commission’s ESF-related work consisted in particular of verifying how the support for fighting youth unemployment on the ground in these Member States could be accelerated and/or redirected towards interventions which work/could work faster than others and have the necessary impact. Our analysis of the available documentation for the eight ESF OPs sampled indicates however that the Commission had focused its assessment primarily on budgetary aspects (e.g. avoiding the potential risk of the automatic de-commitment of allocations, accelerating the low financial implementation of OP, etc.), rather than on the effectiveness of the proposed changes, i.e. the best use of ESF funds to help young people to find a job or increase their employability. The Commission, through its assessment and comments to Member States, did not ensure that the submitted OP amendments were justified with reference to the achievement of better results. Nor did it ensure that the proposed reprogramming was an appropriate response to address the specific needs of the different groups of young people (see Box 5). While not mandatory under the 2007-2013 ESF framework, the Commission did not generally encourage Member States to set out or adjust result indicators which would allow a better assessment of the effectiveness of the reallocated funding for young people. The audit found that, with the exception of Portugal (Human Potential OP, see Box 6) and Spain (Navarra OP), the other audited OPs did not set relevant result indicators. In the case of Spain (Navarra OP), the region justified the reprogramming with two objectives of accelerating the low implementation of the OP (which, in December 2011, risked not being able to absorb all allocated funds) and mitigating the impact of the economic crisis on young people, people over 45 years old, people with disabilities and the long-term unemployed. In the framework of this OP, one of the aims was to reinforce the 'Programmes for initial professional qualification' (PCPI), which offer a path for young people that have not obtained a certificate of basic education. Although the Commission’s assessment states that one of the objectives of the revision was to ‘meet existing demand for training, skilling and reskilling action’, the region’s explanation for the changes in the OP does not actually contain any information on what skilling or reskilling is required. There was no evidence that the Commission tried to ascertain whether the changes to training systems proposed by the regional authorities of Navarra moved in the direction of providing skills that were in line with the demands of the labour market. The objective of increasing absorption of available funding was also one of the main objectives in the revision of the proposed OP amendments for Ireland, Italy (Sicily) and Portugal. Following the YAT meeting, Portugal launched the 'Youth impulse' programme, which provides a set of measures aimed at unemployed young people, providing them with work experience to assist their integration in the labour market. Under the ESF Human Potential OP, a new series of professional internships called ‘Employment passport’, were introduced as part of the 'Youth impulse' programme. Through the amendment of this OP, the target values of two result indicators (‘number of jobs created’ and ‘number of trainees integrated after ending an internship’) were increased to reflect the increased financial allocation. In addition it also introduced a new indicator: ‘number of jobs created by reimbursing social security contributions’ to measure the performance of the support for hiring young people, via the repayment of contributions to social security conditional on net job creation. Based on information provided by the Commission, while not a mandatory requirement, following the YATs meetings youth action/employment plans have been prepared by five out of the eight Member States: Greece, Italy (Sicily), Lithuania, Portugal and Slovakia. According to the Commission their main objective is to set out specific policy and budgetary measures to support job creation and training for young people, tackling skills mismatch and early school leaving. Four of these action plans (for Greece, Lithuania, Portugal and Slovakia) presented measures to be supported by the ESF with different levels of detail on how funding would be refocused on targeted measures/actions tackling youth unemployment. The 2012 action plan for Italy (Sicily) was funded by national resources freed by increasing the EU co-financing rate for this regional ESF OP and involved no ESF funding. Our audit revealed that not all the measures set out in the youth action plans indicated a strong targeting of the identified priority group. For instance, despite the fact that, according to the Commission’s documents, the YAT meeting in Portugal stated that highly qualified young people were a priority in order to tackle the ‘brain drain’, the presented measures to be supported by ESF were not specifically aimed at young people with high qualifications (see Box 7). The minutes of the YAT meeting state that ’in order to tackle the ’brain drain’ and putting the expertise of the highly qualified at the service of the Portuguese labour market and businesses, the strategic plan pays special attention to those with master’s and PhD degrees’. However, in the Portuguese youth action plan, provided by the Commission, the single measure specifically targeted to the higher education category represented only 11 % of the ESF resources devoted to the plan. Elements of these youth action plans could be included by Member States in their national reform programmes (NRPs). These NRPs are assessed by the Commission in the context of the European Semester exercise. Therefore we also reviewed the 2012 and 2013 NRPs for the eight Member States, and the related Commission assessment, to ascertain whether they made reference to the outcomes of the YATs meetings. We found that the outcome of the YATs meetings and its implication for redirecting ESF funding towards youth employment measures were referred to only in a general way in the NRPs (see Box 8). Also, in the Commission’s assessment of the NRPs, the reference to the YATs was mainly linked to general statements on amounts being reprogrammed to measures supporting young people rather than concrete solutions for the specific situation and needs of young unemployed people and their expected impact. The Italian NRP for 2012 indicated that ‘reprogramming will be extended to new measures for youth training and employability, within the framework of the EU-Italy action group on youth unemployment and entrepreneurship established after the European Council of 30 January 2012’. However, no details of measures affected by the reprogramming were provided. The Irish NRP for 2012 included a section on youth unemployment. This section mentioned the visit of a Commission delegation in February to discuss the key challenges of youth unemployment. However, it did not include any description of the outcome of that visit in terms of measures that would be supported by EU funds. The text stated that the Irish government remained ’committed to developing innovative policy solutions to tackle this key challenge’. As regards the follow-up given by the Commission to the YATs initiative, we examined whether:

specific monitoring arrangements were established for the YATs reprogrammed and reallocated amounts;

the Commission’s reporting contained relevant and reliable information on the actual achievements of the YATs initiative.

The Commission has monitored together with the Member States the YATs-related OP modifications in favour of youth on the basis of the existing ESF regulatory framework, in particular through the annual implementation reports and the annual examination of the OPs. The annual implementation reports reviewed by the Court revealed that little information was available on the reprogramming exercise and the related results achieved. They usually include only examples and not consistent and comparable information on specific youth target groups. We found that Spain (Navarra OP) was the only case where the Commission explicitly requested the Member State to include monitoring indicators related to the ‘Youth opportunities initiative’ in its observations to the 2012 implementation report. We also assessed the minutes of the annual examination meetings provided by the Commission and found that, in four out of the seven cases examined, their comments focused on financial implementation and outputs rather than on actual results. In these minutes, we found reference to achievements in the context of the YATs initiative for Italy, Lithuania and Slovakia. Based on our analysis, the Commission accepted the data presented by Member States in the annual examination meetings without carrying out sufficient verification (see Box 9). The Commission’s minutes for the annual examination meeting held with the Lithuanian authorities in January 2014 stated that the targets for three measures had already been achieved. For one of them, the measure concerning the provision of micro-credits, our recalculation revealed that in fact only 72 % of the target value had been achieved. In order to keep the European Council informed on the progress with the YATs reprogramming exercise, the Commission made informal requests on an ad hoc basis for information to the ESF managing authorities, to obtain updates regarding the situation in the Member State and in particular on ESF reprogrammed/reallocated funds and on the estimated number of people likely to benefit. The Commission limited its information request to output indicators (e.g. participation in ESF measures), rather than results (see paragraph 26). Based on this information, the Commission reported on the results of the YATs initiative in response to the various updates requested by the European Council (May 2012, November 2012, March 2013, June 2013 and October 2013) and on its own initiative (in March 2014). Our review of the Commission’s update reports to the European Council and other communications showed that these reports did not provide a qualitative analysis of the implementation of the reprogrammed and reallocated funds (see Box 10). Examples presented as ‘concrete actions’ and ‘country-specific results on how the action teams have helped young people’ were sometimes not exhaustive (see Box 11). The YATs updates were limited in their description of the results of the action teams. For example, the May 2012 update included, for Greece: ‘following the work of the YAT in spring 2012, new targeted actions are being initiated for youth’ without specifying which new youth measures would be supported by the ESF and what were the financial amounts at stake. In addition, for Spain, it stated that ‘135 million euro was directed to the public employment service to help young people find work’. These additional funds were provided to support measures already in place at national level especially in order to help employ more young people, without providing any explanation as to their past effectiveness. In the case of the regional ESF OP for Italy (Sicily), new actions in favour of youth employment were not financed by the transfer of ESF resources but by the release, through an increased EU co-financing rate, of national resources originally allocated to the operational programme. This was done under the condition that national funds would have been entirely devoted to youth. This resulted in a plan worth 452 million euro which was expected to benefit 50000 young people. This was announced and reported by the Commission as ongoing in several updates to the Council between May 2012 and June 2013. However, in June 2013, the monitoring committee informed the Commission that the plan showed a significant delay in its start-up phase. The project was finally launched in June 2014 but, immediately afterwards, in August 2014, the Sicilian region revoked the resolution approving and funding the project for the implementation of the measures envisaged. This was due to significant deficiencies in the IT system for selection of participants, which had led to approximately 54 % of users being unable to access the selection process. As all the information published stemmed from the Commission’s ad hoc requests to the Member States, the exercise had to be repeated each time a new update had to be provided to the Council and/or published. For such information provided by Member States on a voluntary basis, the Commission has no legal mandate to carry out reliability and/or plausibility checks. This raises a potential risk of unreliable or incorrect information being included in the update reports provided to the Council. However, also for data which were reported under the ESF framework, checks were not always effective (see Box 12). According to the March 2014 YAT update, as regards the Portuguese ‘Impulso jovem’ initiative, the Commission stated that: ‘In Portugal ... 143 million euro of ESF have been reallocated … and the whole amount committed until the end of 2013. 56000 young people have been covered’. However, this appears to be a target value to be reached rather than the achievements so far. In fact, the OP’s financial execution data, and the data reported in the 2013 annual implementation report related to the Human Potential OP, refer to fewer than 10000 young people which were covered. We concluded that the effectiveness of the advisory support provided by the Commission to the Member States in relation to the YATs was limited by the level and quality of information available to it on how existing ESF or national measures for young unemployed people work on the ground (see paragraphs 25 to 37). Moreover, the Commission’s assessment of the OP amendments proposed by Member States focused mainly on budgetary aspects rather than on the best use of these ESF funds (see paragraphs 58 to 61). Finally, there were shortcomings in how the Commission reported on the result of the YATs initiative until 2014 (see paragraphs 73 to 77). The YATs initiative could not meet the high expectations raised at the informal meeting of the 2012 European Council, not least due to the limitations in information available to the Commission on the basis of the monitoring and reporting arrangements set out in the regulations for the 2007-2013 programme period. This meant that the Commission did not have:

an overview of the existing ESF-funded youth employment measures and which ones were successful in terms of their targeted and actual results at Member State level. Such information could have helped make practical and short-term proposals on how to redirect ESF funds to measures which had proved effective in the past or elsewhere;

complete and up-to-date information on the available ESF funding that could be potentially reprogrammed or reallocated.

As part of its preparatory action the Commission has prepared ‘country fiches’ for each of the eight Member States concerned. It has also coordinated the meetings of the YATs and prepared operational conclusions in terms of ESF reprogramming and reallocation. While these were both positive contributions of the Commission, they were carried out subject to the limitations mentioned above. Our analysis also showed that the youth action teams set up in the eight Member States made limited specific proposals on how to achieve faster and more effective results for young unemployed people. A broader-based, more sustained and longer-term initiative would be required to develop dedicated national youth action plans of the type envisaged by the Commission and enable Member States to use Structural Funds effectively to support their efforts to reduce the levels of youth unemployment. For future initiatives of this kind, the Commission should take due account of the possibilities and constraints given by the political and legal context, its specific knowledge and expertise of the area (based on the implementation of EU and nationally funded measures) and the availability of the financial resources at EU and Member State level. According to information provided by the Member States to the Commission, the total amount of reprogrammed and reallocated ESF funds in seven of the eight Member States which carried out the exercise totalled 1.9 billion euro by June 2013. Providing an exact overall figure is however difficult since not all of this ESF reprogramming is necessarily a consequence of the YATs initiative, but could be due to other reasons. Following the YATs meetings and in relation to their operational conclusions, all Member States prepared youth action plans or considered these aspects in their national reform programmes, although they were general in nature in both cases. Any reprogramming of ESF funding required in this context can only be introduced by the Member State concerned through a proposal to amend the relevant OPs. The Commission is required then to assess the justification provided by the Member State and approve the change if satisfied. We found that, when assessing the Member States’ requests for amendments to the sampled OPs, the Commission did not examine whether the reprogrammed ESF funds were more likely to help young people to ’find a job or increase their employability’ than the measures initially planned. Instead, its assessment focused mainly on the budgetary aspects of the reprogramming exercise. On the basis of the information that the Member States provided to the Commission we concluded that it is also not possible to assess to what extent the specific needs of the different groups of young unemployed people were targeted by the reprogrammed and/or reallocated ESF funds in 2012. For the 2014-2020 programme period, the Commission should:

(a) ensure that future reprogramming requests from Member States are triggered by an expectation of achieving better results rather than mainly resolving difficulties in absorbing EU funds;

(b) approve the Member States’ requests for OP amendments only if the additional results to be obtained through the proposed budgetary transfers can reasonably be achieved;

As the Commission was aware of the limitations of the information provided systematically by the Member States under the ESF monitoring arrangements, for the purpose of preparing regular updates to the Council on the progress of the initiative, it had made ad hoc requests for information to be provided by Member States. For such information provided by Member States on a voluntary basis, the Commission has no legal mandate to carry out reliability and/or plausibility checks. However, also for data which was reported under the ESF framework, checks were not always effective. As a result, the analysis of the information provided to the Council showed some shortcomings in terms of completeness, consistency and reliability. Furthermore as there are no systematic checks carried out by the Commission on the information that has been provided by the Member States there is a potential risk of unreliable or incorrect statements being included in the update reports provided. When using data provided by Member States in its communications the Commission should ensure that minimum plausibility and reliability checks are systematically carried out. This Report was adopted by Chamber II, headed by Mr Henri GRETHEN, Member of the Court of Auditors, in Luxembourg at its meeting of 11 November 2015. For the Court of Auditors Vítor Manuel da Silva Caldeira President

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2016-01-21