Strengthening Governance of EU Funds under Cohesion Policy

Executive summary

Given rising investment needs and declining public investment spending, European Union (EU) funding mechanisms represent an important tool to ensure investment spending among EU Member States. In the current 2014-2020 programming period, EUR 461 billion was allocated to the European Structural and Investment Funds (ESIF). National co-financing brings the total to EUR 647 billion available for ESIF investment in the European Union. Given the breadth and importance of ESIF, making the most of the opportunities it offers rests on ensuring quality institutions and administrative capacities as well as effective governance and management mechanisms.

Administrative capacities matter for the effectiveness and impact of ESIF. In particular, quality governance practices, institutions and institutional practices can positively affect the returns to Cohesion Policy investment, regional competitiveness and economic growth. Thus, it is essential to invest in governance, to build adequate capabilities to manage EU funds among all levels of government, and to design strong investment strategies. These concepts are key tenets of the OECD Recommendation of Effective Public Investment across Levels of Government. Ahead of the 2021-2027 programming period, the European Commission launched a pilot project to support ESIF Managing Authorities (MAs) in the development of Roadmaps aimed at strengthening their administrative capacities to effectively oversee, administer and evaluate the use of ESIF. Five MAs were selected by DG REGIO to participate in this project – three at the national level and two at the regional level. The findings in this report draw from the project undertaken with these five MAs. From this selected group, MAs throughout the ESIF management system may recognise similar challenges, and the lessons are broadly applicable not only to EU Member State Managing Authorities, but to public sector institutions charged with designing and implementing investment strategies and seeking to strengthen their capacities to do so.

Key findings

Each MA in the pilot displayed specific challenges relating to diverse issues, including local market conditions, distinct governance structures and the precise combinations of thematic objectives. Despite the individual characteristics of each MA, including size, territorial scope (national or regional), level of expertise in ESIF management, etc., common threads in terms of challenges, experiences, needs and (occasionally) solutions, emerged throughout the diagnostic phase and in stakeholder interviews. Although each MA is affected to different degrees by the challenges listed below, a key observation of this project is that all five of the MAs – and most likely more beyond this sample – will recognise elements of these challenges that apply to them.

Challenge Area 1: People and organisational management

MAs generally have skilled and professional staff, but these are not perceived or managed as a strategic asset. Most staff in MAs are managed in traditional hierarchal settings where talent management is not perceived strategically for achieving the goals of ESIF investments. This often leads to some skills shortages or the misallocation of skills, a lack of formalisation around job profiles and roles, and poor anticipation of skills needs and workforce planning.

There is a widespread desire for more training, but learning and development modules lack a strategic vision and are under-utilised. Most MAs have training modules designed to keep staff up to date with legislative and regulatory developments. Beyond these core modules, training is not perceived by staff as useful to their career development. Competences for ESIF administration have rarely been defined, and as such, learning and development is not systematically aligned with core competency development.

MAs need to be able to recruit and retain top talent, but feel constrained in their options for addressing this. Managing ESIF requires deploying a range of skills and technical knowledge, but many MAs lack the flexibility and agility to do so. MAs face competition in terms of attracting necessary skills, and existing human resource management policies are often rigid and slow. Opportunities for mobility is often limited, with many staff sitting in flat hierarchies with little chance of meaningful career progression. Over time, employee engagement can be affected, and in some MAs, turn-over is high.

Challenge area 2: Strategic implementation of Operational Programmes

MAs face common challenges in their strategic approach to Operational Programme implementation and the ESIF investment cycle, which affect spending effectiveness. Regardless of country contexts and degree of experience with ESIF financing, there is generally room to enhance capacity in strategic Operational Programme (OP) design, priority setting, information and knowledge sharing, and performance measurement. Doing so could help MAs better capture synergies within their OPs and across Priority Axes, create more integrated investment processes, optimise OP implementation processes throughout the investment cycle, and eventually enhance investment impact.

There is room to build stronger partnerships among Operational Programme stakeholders, particularly with beneficiaries, including through more customised approaches. MAs are fundamental partners in ensuring the effective use of ESIF as a means to attain Cohesion Policy and national development goals. Intermediate Bodies (IBs) and especially beneficiaries, as the final recipients of EU funds, play a decisive role in the ESIF investment process. There is room to better support the capacity of these two groups – and especially that of beneficiaries – to manage and undertake ESIF financed projects throughout the OP investment cycle. Tailoring communication and capacity-building to their needs is one approach. This additional consideration can be fundamental to establishing and maintaining constructive partnerships with OP stakeholders, particularly beneficiaries.

Challenge area 3: Framework conditions

Framework conditions exert significant pressure on Operational Programme implementation, ultimately affecting absorption capacity. Framework conditions are generally outside an MA’s direct control, however, they strongly affect the capacity of MAs to smoothly manage OP investment. Frequent changes to regulatory and legal frameworks (both national and European-level), “one-size-fits all” approaches to OP implementation, inconsistent interpretations in control, verification and audit processes, and complex and/or opaque procurement laws all contribute to generating administrative burden and high transaction costs. This can result in implementation delays, financial corrections, mistrust in the system and, at an extreme, a disincentive among beneficiaries to use ESIF. MAs and other parties, including Intermediate Bodies (IBs), must work together to manage difficulties as quickly and efficiently as possible. It is also important to consider active consultation with MAs and IBs when designing the framework conditions that structure their work.

Higher-level challenges

There is room for greater innovation in how MAs operate and in the practical implementation of Operational Programmes. The structures and processes framing ESIF management and implementation aim to minimise risk and mitigate potential fraud or error. This is highly reasonable. Meanwhile, the mechanisms established to accomplish this may be stifling the capacity of national and regional MAs to be innovative in diverse activities, including how they administer and manage their staff and organisations, and how they design and select projects. In turn, this may limit how effectively they can meet higher level objectives or their desired investment outcomes.

Initiatives to build the administrative capacity of MAs should be undertaken at the appropriate scale. There is a significant amount that MAs can do to build their capacity for more effective OP investment, particularly with respect to those matters that lie within their organisational mandate. There are other matters, however, that affect their ability to act and invest effectively, and overcoming these requires support from higher-level bodies. Human resources is an example. While MAs may be short-staffed and/or under-skilled, they often lack the authority and/or incentive to hire additional employees and train them to the extent necessary, due to regulations set centrally that apply to the broader public service. Furthermore, being heard on such matters as burdensome procedures, or inconsistent control results, and working to find practicable solutions cannot come from one MA alone, but must come from MAs as group. These then need to bubble up to the appropriate higher-level authorities for consideration and action. This type of unity and dialogue among MAs in a country does not seem to occur as often as it should or could. Finally, many of the actions found in the Roadmaps developed through this pilot could be better leveraged at a higher-level – through the Management and Control System or at National Coordination Body-level, for example. Doing so may have greater impact than taking an MA-by-MA approach. Actions could be easier to implement and have a broader impact on the administration and use of ESIF in a country, better supporting the ability of EU Member States to meet Cohesion Policy objectives.