Scotland facing £190M in penalties due to spending “irregularities” in EU funds

Audit by the European Commission of the Scottish Government’s European Structural Funds programme have uncovered “spending irregularities” stretching back six years leaving open the possibility of financial penalties of up to twenty five per cent of Scotland’s entire European funds programmes being levied by the European Commission.

In the seven year period to 2020, Scotland was allocated over £800M (€942M) to to improve digital connectivity, increase employment, tackle poverty and inequality, improve transport links, enhance environmental protection and build towards a low-carbon sustainable Scotland through both the European Social Fund and European Regional Development Fund programmes.

EU funds, which are co-financed or ‘matched’ with domestic funding, have been used to support over 200 projects throughout Scotland, including funding for mobile masts to extend 4G coverage in the Highland & Islands, low carbon energy and electric vehicle projects and additional funding to colleges and universities to provide upskilling in specific sectors, including food & drink, life sciences and renewable energy.

The audit and verification issues stretch back some six years to August 2015 when the European Commission suspended Scotland’s £45M European Social Fund programme over spending “irregularities”, in particular the application of a 40 per cent flat rate in grant claims for staff costs was seen as a "misinterpretation" of EC regulations and the related spending had to be withdrawn.

The suspension, which related to Scotland’s prior 2007-2013 spending programme, was enacted by the Commission after an internal report found problems in the "management and control system", with some European funded projects being "unable to adequately account for all the funding they received and spent", according to publications seen by the Herald on Sunday newspaper.

Closure of the 2007-13 Euro funding programme also revealed that the Scottish Government overpaid project sponsors a total of £16m, again, as a result of errors identified by an internal audit.

Last February, the European Commission informed the Scottish Government that Scotland’s European Social Fund programme had been placed in 'pre-suspension' as a result of "serious deficiencies" in the management and control system 'mirroring' previous problems uncovered in the 2007-2013 programme, and gave the Government a grace period of months to resolve the issues.

It also halted any further transfer of Structural Funds from Brussels to Edinburgh and halted the Scottish Government’s ability to make financial claims for funds already spent in Scotland, until the irregularities were identified and resolved.

Auditors then warned Scotland’s Ministers that they would face a financial penalty of up to 25 per cent of the programme - which amounts to around £190m - if the programme is placed in full suspension, as it subsequently was in November 2019.

Scotland’s European Regional Development Fund programme followed its European Social Fund ‘cousin’ into full suspension in January 2020.

According to media reports, the Scottish Government has been trying to resolve the issues and hoped all suspensions would be lifted at the end of next month, with the European Regional Development Fund suspension having now been lifted. However, Scotland’s European Social Fund programme remains in full suspension.

£45.5m of taxpayers' money has already been set aside in the Scottish Government’s accounts as a 'contingent liability' over the suspensions.

With the United Kingdom’s withdrawal from the European Union in 2019, and the conclusion of the transition period at the end of 2021, regional development funding is no longer disbursed from Brussels but, rather, from Whitehall through the United Kingdom Shared Prosperity Fund, yet details remain scant over two years since it was first proposed.

Yet, the manifest errors that have plagued Scotland’s European funded regional aid programmes have not resolved themselves over a period of years and must place doubt upon Scotland’s aims to manage and administer its share of the UK Shared Prosperity Fund funding, when its track record in managing its European funds has been so lamentable.