SCVO response to Scottish Parliament Economy, Jobs and Fair Work Committee

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13 April 2018

Our position

SCVO is a named stakeholder in the ESIF Operational Programmes. Based on this experience: We note a lack of transparency in the approval and prioritisation process for the current round of allocations by the Scottish Government. The LEAD partner model is not operating the match funding principle as described in the Operational Programme which puts an immense amount of pressure on Third Sector partners. We are very concerned at the rate at which funds continue to be decommitted by the Commission from the programme which reflects poorly on the management of the ESIF in Scotland. We list a number of concerns with the way Skills Development Scotland is managing the “National Third Sector Challenge Fund” and contrast this with the much better approach taken with the “Social Economy Development Programme” We note that the European Commission has placed the Scottish Programmes into ‘Interruption’ due to audit trail problems. We suspect this is due to Scottish Government underestimating the amount of work and skills required to administer structural funds, compounded by a lack of openness, urgency and pace. In conclusion, many aspects of Scottish Government work very well. But management of the European Structural and Investment Funds is not part of this. For future funding, replacement of Structural Funds post-Brexit must advance on and not regress on the priorities of social inclusion, combating poverty, growth of the social economy, labour market mobility and employability. A Successor Fund Grant Scheme should be 100% funded (not require match funding) and involve advance payments for delivery agents, and resource collaboration with other countries.

Our response

SCVO is named in the Operational Programmes to deliver the European Structural and Investment Funds in Scotland as a stakeholder and was one of a range of stakeholders consulted in the identification of the spending priorities.  During the original consultation process SCVO consistently argued for more funding to be allocated to priorities which could be easily accessed by the third sector- in particular the key Commission themes of “Promoting Social Inclusion and Combating Poverty & Discrimination” and “Labour Market mobility”. Both big policy areas that the third sector in Scotland lead the way on. Based on this experience, we provide the following answers to the Committee’s inquiry.

Current spending priorities and approval process

1. How the Scottish Government identified and agreed spending priorities for its current ESIF allocations.

It was difficult to see how decisions were made when agreeing the spending priorities. There was a lack of transparency. Tables and amounts that were circulated by the Scottish Government (SG) at the draft stage of the Operational Programme (OP) planning were confusing and poorly presented and on occasion did not add up. When the final spending priority amounts were finalised and the Operational Programme published monies had been moved from the priorities that SCVO had indicated were most relevant to the Third Sector.

2. The processes the Scottish Government went through with the European Commission to gain approval for its ESIF plans. It is not clear how the Scottish Government gained approval. A blog entitled Future of the Funds was set up by the Managing Authority (MA) to inform people but it was inactive for a period months, perhaps more than a year. Our colleagues in England and Wales kept us informed of progress with the UK Partnership Agreement and indeed it was often they who highlighted Scottish Managing Authority issues with Westminster and the Commission to us.
3. The involvement of SG agencies, local authorities and the third sector at this stage of the process. The third sector had very little real influence at the priorities and approval stage of the process. In many instances correspondence and appeals by the SCVO to be involved were ignored and not even acknowledged.

Current spending

4. How the differing needs of Scotland’s regions are accounted for in the current range of ESIF programmes.

Whilst the Operational Programme recognises that the rural areas of Scotland, both in the north and the south of the country, have different needs from the more populated areas in the current programme, in all priorities there is a failure to deliver programmes that are appropriate to Scotland’s regions.  This is most clearly illustrated by in the first three years of the Operational Programmes. The OP had a forecast spend for European Social Fund (ESF) and Youth Employment Initiative (YEI) of £218,312,820. However, the Annual Implementation Report for 2016 states that at December 2016 there had been no claims made by the Scottish Government in the ESF programme: “The timeline for establishment of the 2014-20 programmes was set out in the previous AIR.  In summary the Operational Programmes for the ERDF and ESF were approved by the Commission in December 2014, and the Managing Authority invited strategic intervention applications from March 2015.  The interruption and suspension of three of the four 2007-13 programmes in Scotland diverted a significant level of Managing and Audit Authority resources, which delayed the development of the 2014-20 the Management and Control System, and thereby delayed the detailed assessment process and risk evaluation of new operation applications.  This meant there had been no claims and therefore no physical progress to report in the previous AIR. The current AIRs report financial and indicator data comprising only one operation, being a claim for Zero Waste Scotland, under ERDF Priority Axis 6g, in the Sustainable Growth area.  There are therefore no expenditure or performance data in the AIR for the ESF.” It is clear that when the LEAD partner model is not operating the match funding principle as described in the Operational Programme, that funds although committed to Lead Partners, are not actually being spent by Delivery Agents.  The operational programme stated that: “Strategic interventions (SIs) will be managed and co-financed by Lead Partners, typically the existing organisations and legal vehicles which already manage domestic funding in the same policy area.” The vast majority of the Lead Partners are requiring Delivery Agents to find their own match.  Throughout Scotland, but particularly in the H & I organisations are unable to participate in the ESIF programmes as they cannot bring match to the project.  Actual expenditure figures which were available relating to values committed to Lead Partners show that up to the end of 2016 there is a marked difference between the amounts of money that has been committed to Lead Partners in the more developed areas as opposed to the Transition area.  This is common throughout all categories of delivery with expenditure achieved to date in the Transition area lower than in the more developed area. The Managing Authority themselves recognised that there was a major problem in the delivery of the programme and in December 2016 and initiated an early review of the programme.  By April 2017 the Draft review stated the following with respect to problems caused by lack of match funding: “50% of H&I SIs and 44% LUPS have issues with match funding availability.  Analysis suggests that it is an issue under all priorities, to a greater or lesser extent.  More of an issue for Highlands and Islands, despite the 50% match funding.  It seems to be an impediment to projects coming through some challenge funds under ERDF and it is a widespread issue under ESF Priorities 1 (labour mobility) and 2 (social inclusion and poverty) for local authorities and third sector” Despite acknowledging this major problem, with the exception of the Third Sector Division, very few of the Lead Partners have made any attempt to provide match funding or to provide advances of grant. Both of which would massively extend the use of ESIF by Third Sector organisations.  The Lead partner should be delivering match to the delivery agents and they are not. This puts an immense amount of pressure on Third Sector organisations. This was the whole basis for moving from a challenge fund model to a partnership model so as to avoid issues with match. Government would match at source based on their domestic policy programmes. Lead Agents who were not providing match for SIs should not have been approved by the MA process. Other proposals advocated by SCVO in multiple ways from letters to Ministers, through JPMC, meetings with Officials included increasing intervention rates and amending certain Scottish National Rules in order to unblock the system.  Although these were areas recognised by the MA as requiring change and subsequently reported on in various JPMC and Review Committee meetings attended by SCVO representatives; it is only in March 2018 that these changes were even introduced. This lack of urgency in reacting to the operational failures of the delivery of the funds in the first three years of the programme has contributed towards the failure to spend the ESIF monies in real terms. This has resulted in the European N+3 rule being applied and millions of pounds have already been decommitted by the Commission from the programme and it is most likely that further funds will be decommitted during the life of the programmes. A consistent occurrence in the management of ESIF in Scotland. How the 2014-2020 programme funding is being spent, which areas have benefitted and any issues with these commitments or processes. SCVO is the lead applicant of a consortium bid to the “National Third Sector Challenge Fund” administered and managed by the Lead Agent, Skills Development Scotland (SDS). There are a number of issues with the processes being followed: Match Funding.  SDS did not provide match funding for their programme despite being responsible for over £33 million to spend on employability programmes. SCVO advised SDS before they were approved to top slice their funds and match at source. They ignored this and went ahead and procured separately asking providers to bring their own match. Most of the match being brought was SDS Employment Fund (EF) monies. SCVO believe that SDS ignoring this crucial advice has created a huge, complicated, staff heavy unnecessary administrative process that is not fit for purpose for applicants or themselves. Again no ownership of this and a small team left isolated within SDS. In addition SDS expected match to come from EF contracts which they themselves only awarded approximately one month before the previous match funding runs out. This causes immense pressure on trustees who not knowing if there is funding should be issuing redundancy notices to staff delivering ESF projects. Time scale for processing claims. Claims are not being processed within the contract timescale.  Lead partners appear to have insufficient staffing to cope with the demands of the claims process. This failure to verify claims is leading to financial hardship for the organisations delivering the project and having an extreme effect on their cash flow position. Common sense approach to verification.  The Managing Authority considered using a common sense approach to verifying documentation relating to participants registered by 31 December 2016 by accepting a wider variety of documentation to justify that the participant is both eligible for support and can evidence the achievement being verified. But this common sense approach does not apply to any participants registered from 1 January 2017. Nobody can explain why. Procurement and National Rules.  The procurement process has been protracted. This was true for both the Lead Partner applications and the Delivery Agent applications.  This was exacerbated by the insistence of the MA to introduce National Rules in Scotland which are not applied in other countries in Great Britain or in other EC programmes delivered in Scotland.  In particular, the insistence by the MA that staff had to be 100% on the project, or 100% on ESIF projects has made delivery of the projects almost impossible for a number of organisations. In November 2013 SCVO submitted three papers to the Managing Authority proposing improvements in the method of delivery. One of the points that we highlighted was that the European Regulations specifically permitted Part Time staff and that a failure to allow part time staff would create immense problems.  These problems have arisen, not just in the Third Sector but also in Education establishments where specialised staff are blocked from participating in projects. Areas which have benefited: The Social Economy Development Programme is a Strategic Intervention managed by the Third Sector Division (TSD). Whilst the delays in getting this programme to “open calls” stage was outrageous (almost two years) it is an example of better practice in this programme. The TSD matched all eligible expenditure and where able to offer 100% funding for eligible costs. All rounds were massively oversubscribed and the money will be spent. However, the TSD only had a small amount of money on policy areas that benefit the outcomes of the whole Scottish Programme. SCVO have made representations at JPMC, to the MA and the Minister to seriously increase the budget of the TSD to accelerate spend in this programme and not have to hand back any more money. This was back in 2016. To date this still has not happened. The lack of urgency and policy ownership is astounding given monies are already decommitted and further monies are at serious risk. SCVO sit on the panels for the TSD funds and there are countless good projects, fit for purpose and eligible being turned away because of a shortage in the TSD budget whilst millions of ESIF sit unspent.  Understanding current accountability and reporting issues. The Operational Programme stated that: Scotland has a well-established management framework for EU Funds, and will therefore dedicate only 2% of the programme value to technical assistance. This will be used to support:

• Managing, Audit and Certifying Authority costs associated with the secure management of the Fund, principally staffing
• IT system implementation in line with requirements for monitoring and reporting and E-Cohesion

It appears that the Scottish Government when it centralised the management of Structural Funds and moved to a partnership model completely under estimated the amount of work required by the Lead partners to administer structural funds and overestimated the skills of their colleagues to take on this project. There was either no training or very little training to staff within the Lead Partners to deliver ESIF programmes. Right from 2014 and up to 2017 SCVO made countless representations to help support staff in the TSD in order to progress this quicker. We attended several meeting with senior staff promising our support would be formalised and implemented immediately only to be followed by long periods of radio silence and avoidance. The Scottish Government claims have again been suspended and the Commission has notified the Managing Authority that it has placed the Scottish Programmes into ‘Interruption’. This means it will not make further payments to SG until issues identified by the Audit Authority are resolved. Three audits carried out on ESF processes identified issues and made a number of recommendations. In each, the audit trail was not complete enough to satisfy the EC. Only when the EC are assured that processes are working satisfactorily can the interruption be lifted.   The new European Structural Funds IT system ‘EUMIS’ was supposed to be launched in January 2015, with full implementation in summer 2015. This did not happen and the system which was meant to have separate functionality for Lead Partners, Delivery Agents and Managing Authority is not operating as originally planned.  This has meant that Lead Partners have had to develop their own claims process, for NTSF this is an excel spreadsheet and Delivery Agents have no access to EUMIS. Guidance was to be published by the end of 2014 for Structural Funds, prior to programme commencement, with a regular update system in place within the MA to maintain it and ensure its relevance as the programme cycle develops. We are now at Version 6 of the Guidance. Lead partners are still seeking bids from Delivery Agents and stating that staff have to be 100% on the project. From 1st March 2018 this is no longer the case and it is clear that the MA are not bringing changes that they have made sufficiently to the attention of the Lead Partners who are delivering on their behalf.  In both the ESF and the ERDF programmes there has been a lack of both resources and training of staff and an under estimation of the complexity of managing and administering ESIF funds. The implementation of the Partnership Model in Scotland is an example of extremely poor and incompetent Project Management by the Managing Authority and Scottish Government. In addition their lack of understanding of their civil servant role as an “enabler” who works “with” Scotland’s stakeholders is of serious concern. How current and previous programmes are evaluated and any suggested improvements to the evaluation process. We are unclear as to how these programmes are being evaluated. Programme evaluation is not transparent. As part of a mid-term review/early review the MA consulted the sector on what needs to happen in phase two by meeting with SCVO and some other organisations and the Third Sector Employability Forum (TSEF). All of our previous comments in this paper were raised. However, we received no further correspondence on what changes were being endorsed and when they would be implemented. Again the lack of openness, urgency and pace was apparent. SCVO are fortunate to sit on the JPMC and only through this mechanism would you sometimes know what was happening. As a key stakeholder we have not been sent any information on programme evaluation. Evaluation should be valuable, informative and proportionate. Evaluation should allow for reflection and be in real time and not after years have passed. Previous evaluations carried out by SCVO on the role of the sector in ESIF have shown a decreasing level of involvement and this has directly correlated with a reduction in meeting outcomes for the hardest to reach in our society – a key indicator of previous programmes. Learning on making the funds easy to access for the third sector has not been take on board.

Future programmes

SCVO is part of a UK working group looking at the proposed “Shared Prosperity Fund” announced by PM Teresa May. This group consists of SCVO’s sister councils across England, Wales and Northern Ireland and over 50 organisations delivering projects and programmes under the DWP Employability and anti-poverty programmes in England. As part of this group many things are under discussion such as the framework for successor funds i.e. UK framework devolved but managed by different organisations with similar themes across the UK. OR “Barnetted” and leave it up to the devolved administrations to decide on Governance arrangements, spending priorities and allocations. How any future replacement of ESIFs could be used to improve employment, infrastructure and productivity in Scotland’s regions? What MUST happen is no regression on the status quo. The investment priorities of social inclusion, combating poverty, growth of the social economy, labour market mobility and employability must be ring-fenced and indeed enhanced. It is critical that these policy areas are not left bereft of investment post the end of this programme and Brexit. Many improvements could be made as we could be potentially starting with a clean sheet and pot of money. There will be no requirement to follow the current Scottish European Funds National Rules and a more sensible grant facility where compliance regulations are related to the amount of grant can be introduced. SCVO would like to see significant funds being managed by the sector for the sector. Our colleagues in Wales manage over £75 million out to the sector. The funds are all committed and on target for spend. Investing in the sector and its priorities is low risk, high value and provides maximum outcomes Which level of government is best placed to decide how future funding is allocated and what accountability processes should be in place? There is an in-built assumption to this question that only a level of government can decide, allocate and be accountable for funding. SCVO would strongly disagree that this is necessary. Indeed our colleagues at WCVA in Wales currently manage, allocate and are accountable for over £75 million of ESF. Our colleagues in Romania (FDSC) are the managing authority for all civil society funding. We need to be more ambitious in Scotland and learn from others. The current managers of ESIF in Scotland do not have a strong track record. What are the potential opportunities and risks presented by any replacement fund or programme for ESIFs?

Opportunities

There is a potential to introduce a Successor Fund Grant Scheme, which is 100% funding and provides advance payments to organisations.  The level of the grant available should be proportionate to the overall size of the project e.g. £3000 or £3million In employability there is an opportunity to fund 100% projects targeted at stage one clients and pre-stage one clients. A much needed area of investment particularly when levels of employment are higher and national programmes do not provide for them. Transnational activity can be much more explicitly supported for volunteer and staff exchanges, learning, networking and sharing given that we are likely to be excluded from ERASMUS+ or have limited access. In addition the Scottish/UK third sector will no longer have commission support through framework grants etc. to collaborate and cooperate with civil society across Europe on the big policy issues and innovation. Successor funding must ensure this vital collaboration continues. Flexibility to change priorities, focus and allocations depending on environmental factors and societal challenges.

Risks

The UK government consultation on the UK Shared Prosperity Fund has been postponed until later this year (possibly early autumn) and there is deep concern about the timescale for replacing ESF and the potential for a gap in funding. The Scottish Government and MA are not even discussing mitigation/hiatus proposals with key stakeholders. Owing to a failure to spend in the current ESIF programmes there will be no additional funding from the UK government. All monies to Scotland will be in the block grant. SCVO have invested a considerable amount of staff time at our own cost to try and influence this process and to help accelerate the spend in the programme to avoid money being handed back, therefore allowing the UK Treasury to arrive at the assumption that Scotland does not need a Successor Fund because they don’t spend what they have. We have been ignored, not listened to and dismissed. SCVO staff have extensive experience and expertise in this area and are highly skilled. We made genuine offers to help and our “expert advice” was not even acknowledged on occasions. It is beyond comprehension that the Managing Authority are so unaccountable and the inextricable links between ESIF and Brexit for Scotland are being ignored.

About us

The Scottish Council for Voluntary Organisations (SCVO) is the national body representing the third sector. There are over 45,000 voluntary organisations in Scotland involving around 138,000 paid staff and approximately 1.3 million volunteers. The sector manages an income of £5.3 billion. SCVO works in partnership with the third sector in Scotland to advance our shared values and interests. We have over 1,900 members who range from individuals and grassroots groups, to Scotland-wide organisations and intermediary bodies. As the only inclusive representative umbrella organisation for the sector SCVO:

• has the largest Scotland-wide membership from the sector – our 1,900 members include charities, community groups, social enterprises and voluntary organisations of all shapes and sizes
• our governance and membership structures are democratic and accountable - with an elected board and policy committee from the sector, we are managed by the sector, for the sector
• brings together organisations and networks connecting across the whole of Scotland
• SCVO works to support people to take voluntary action to help themselves and others, and to bring about social change.
• Further details about SCVO can be found at scvo.scot.

 

Contacts

Alison Cairns, Head of European Affairs or Ruchir Shah, Head of Policy. Scottish Council for Voluntary Organisations, Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh EH3 6BB Email: politicalengagement@scvo.scot Tel: 0131 474 8000 Web: www.scvo.scot