The Committee on Budgetary Control adopted the report by Crescenzio RIVELLINI (EPP, IT) concerning Special Report No 2/2012 of the Court of Auditors entitled

'Financial instruments for SMEs co-financed by the European Regional Development Fund'.

Welcoming the Court of Auditors' report and its overall conclusion ( please refer to the summary of the report dated 27/03/2012 ), Members are of the opinion that such an audit report would be of great value also at the end of the 2007 - 2013 programming period, enabling further conclusions regarding performance of financial instruments (FIs) for small and medium-sized enterprises (SMEs) cofinanced by the ERDF .

SMEs and European Funding : recalling that SMEs are the backbone of the Union economy, Members recognise that at the time of fiscal constraint and reduced lending capacity of the private sector, SMEs and in particular micro-enterprises have been the most affected and should accordingly be targeted with strengthened Union support to continue generating employment, innovation and growth.

Members stress that the use of FIs in cohesion policy in relation to the SMEs should be reinforced in the future as it can guarantee revolving funds, foster public-private partnerships and achieve a multiplier effect with the Union budget (e.g. repayable and revolving FIs and ensuring that successive waves of SMEs can benefit).

Special Report No 2/2012 : Members state that the Court of Auditors focused its audit in three main types of FIs: equity, loan and guarantee instruments and that they are all eligible instruments for ERDF co-financing, but must comply with Union and national eligibility rules. The main objective of the audit was to assess whether ERDF spending on financial engineering measures for SMEs had been effective and efficient. Welcoming the Court's findings and recommendations regarding financing gap assessment, Members notice that in the legislative proposal for the next programming period such assessment is made obligatory in the form of an ex ante assessment. They invite the Commission to find appropriate justification for this privileged position, inasmuch as this treatment could limit the ability to repossess the excess funds and the possibility to allocate them to other SMEs.

Members are also concerned at the shortcomings identified by the Court of Auditors concerning funding granted to SMEs (particularly the slow rate at which the Funds reach the SMEs, lack of specificity of financial instruments based on their needs, gaps in their leverage). They support the Court in its call to establish a clearer definition of the concept of leverage in financial instruments and a greater level of flexibility of the legislative framework on access to funds.

Members recognise the potential of innovative financial engineering instruments to build up capital and enhance investments , as opposed to grants consistently perceived to be excessively cumbersome and bureaucratic by their beneficiaries.

The Commission is called upon, inter alia , to: (i) increase ERDF’s ability to leverage in private investments that match public contributions; (ii) avoid delays in delivering SME access to finance mainly with origin in administrative, legal, organisational or strategic reasons; (iii) clarify the current range of definitions of SMEs , which vary in the Union according to the different purposes or objectives; (iv) simplify administrative procedures as regards to financing and of reducing co-financing requirements.

Recommendations : the main recommendations proposed by the Members are as follows:

- evaluation by the Commission of SMEs’ financial deficit before proposing any new financial engineering measures;

- increase information in the Member States on access for SMEs to sources of finance;

- provide for a more adequate regulatory framework oriented towards performance and results rather than mere compliance;

- agree on a small number of measurable, relevant, specific and uniform result indicators for FIs;

- explore the possibility of supplying to the Member States off-the-shelf financial engineering structures and instruments for SMEs (e.g. grants with royalties, dedicated investment vehicles) only where these would result in speeding up implementation and in reducing management costs;

- include all ERDF co-financed FIs for SMEs into a single operational programme per Member State , or into a single priority axis in the national operational programme within a Member State, with the aim to - rationalise the planning process and remove one of the key delaying factors found;

- articulate the concept of European added value in the legal framework for the 2014-2020 period;

- consider alternative ways of pursuing SME support through financial engineering instruments if the cohesion policy framework were to be considered unsuitable.

PURPOSE: to present the Special report of the European Court of Auditors ( No 2/2012 ) on the efficiency of financial instrument for SMEs co-financed by the European Regional Development Fund.

CONTENT: the European Court of Auditors (ECA) concludes in its special report (No. 2/2012) that the effectiveness and efficiency of the European Regional Development Fund (ERDF) spending on financial instruments for small and medium enterprises (SMEs) were hampered by the regulatory framework being inappropriate for the different types of financial instruments used.

There were widespread delays in the funds reaching the recipient SMEs and the supported actions were ineffective in leveraging in private investment. SME financing gap assessments, when prepared, suffered from significant shortcomings.

In addition, some recipient SMEs were charged unjustified management fees by the financial intermediaries used.

The ECA’s performance audit shows that the Structural Funds regulatory framework used for this SME support through financial instruments was originally designed for grant spending, and thus unfit to take into account the specific characteristics of the debt and equity instruments used.

There were weaknesses in:

the provisions for leveraging and ‘recycling’ the funds, the justification for amounts allocated to financial engineering measures, the conditions to justify the recourse to preferential private sector treatment, and the eligibility conditions for working capital.

Court recommendations : the ECA makes a number of recommendations to the Commission to improve the regulatory framework for these instruments, as well as for managing efficiency and effectiveness. These include:

ensuring that Member State proposals are justified by gap assessments of sufficient quality to be used when approving the measures; providing a reliable and technically robust monitoring and evaluation system; exploring the possibility of supplying Member States with simplified and tested structures and instruments to speed up implementation and reduce management costs; defining and setting minimum requirements for leverage and ‘recycling’ of funds.

If these recommendations cannot be implemented under the Cohesion policy framework then the special report concludes that consideration should be given to finding more effective ways of providing this type of support to small and medium sized enterprises .

PURPOSE: to present the Special report of the European Court of Auditors ( No 2/2012 ) on the efficiency of financial instrument for SMEs co-financed by the European Regional Development Fund.

CONTENT: the European Court of Auditors (ECA) concludes in its special report (No. 2/2012) that the effectiveness and efficiency of the European Regional Development Fund (ERDF) spending on financial instruments for small and medium enterprises (SMEs) were hampered by the regulatory framework being inappropriate for the different types of financial instruments used.

There were widespread delays in the funds reaching the recipient SMEs and the supported actions were ineffective in leveraging in private investment. SME financing gap assessments, when prepared, suffered from significant shortcomings.

In addition, some recipient SMEs were charged unjustified management fees by the financial intermediaries used.

The ECA’s performance audit shows that the Structural Funds regulatory framework used for this SME support through financial instruments was originally designed for grant spending, and thus unfit to take into account the specific characteristics of the debt and equity instruments used.

There were weaknesses in:

the provisions for leveraging and ‘recycling’ the funds, the justification for amounts allocated to financial engineering measures, the conditions to justify the recourse to preferential private sector treatment, and the eligibility conditions for working capital.

Court recommendations : the ECA makes a number of recommendations to the Commission to improve the regulatory framework for these instruments, as well as for managing efficiency and effectiveness. These include:

ensuring that Member State proposals are justified by gap assessments of sufficient quality to be used when approving the measures; providing a reliable and technically robust monitoring and evaluation system; exploring the possibility of supplying Member States with simplified and tested structures and instruments to speed up implementation and reduce management costs; defining and setting minimum requirements for leverage and ‘recycling’ of funds.

If these recommendations cannot be implemented under the Cohesion policy framework then the special report concludes that consideration should be given to finding more effective ways of providing this type of support to small and medium sized enterprises .