ESTONIA – LATVIA – RUSSIACross Border Cooperation Programme

within European Neighbourhood and Partnership Instrument 2007-2013

ANNUAL PROGRESS REPORT 2014

TECHNICAL PART

Joint Managing AuthorityMinistry of Environmental Protection and Regional Development of the

Republic of Latvia

Date: 30 June 2015

Table of Contents

1. Identification.....................................................................................................................3

2. Overview of the Implementation of the Programme..........................................4

2.1. Programme Objectives and Priorities...............................................................4

2.2. Programme Implementing Structure and Activities Implemented within the Reporting Period.................................................................................................6

2.3. Programme Activities to be Implemented....................................................15

3. Programme Financing.................................................................................................16

3.1. Payments to Actions............................................................................................16

3.2. Technical Assistance............................................................................................19

4. Audit..................................................................................................................................24

4.1. Programme Level..................................................................................................24

4.2. Project Level...........................................................................................................25

5. Information and Communication.............................................................................27

5.1. Internal Communication Arrangements........................................................27

5.2. External Information and Visibility Arrangements....................................28

6. List of Annexes.....................................................................................................................38

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1. Identification

Programme Programme title: Estonia – Latvia – Russia Cross Border Cooperation Programme within European Neighbourhood and Partnership Instrument 2007-2013Eligible area concerned:Estonia: Kirde-Eesti, Lõuna-Eesti, Kesk-Eesti; adjoining area: Põhja-EestiLatvia: Latgale, Vidzeme; adjoining areas: Rīga City and PierīgaRussia: Leningrad region, Pskov region, Saint Petersburg CityProgramme period: 2007-2013Programme number: C (2008) 8332Reporting year: 2014

Consolidated Annual Report

Date of approval of the report by the Joint Monitoring Committee: 29 June 2015

This annual report is prepared in accordance with Article 28 of the Commission Regulation No 951/2007 of 9 August 2007, laying down implementing rules for cross-border cooperation programmes financed under Regulation No 1638/2006 of the European Parliament and of the Council laying down general provisions establishing a European Neighbourhood and Partnership Instrument (hereinafter referred to as Implementing Rules). The report contains information on implementation of the Estonia – Latvia – Russia Cross Border Cooperation Programme within European Neighbourhood and Partnership Instrument 2007-2013 (hereinafter referred to as Programme) from 1 January 2014 to 31 December 2014. This report consists of technical part and financial part; it also includes Annexes mentioned in Articles 28, 29, 30 and 31 of the Implementing Rules.

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2. Overview of the Implementation of the Programme

2.1. Programme Objectives and Priorities

The strategic objective of the Programme is to promote joint development activities for the improvement of the region’s competitiveness by utilising its potential and beneficial location in the cross roads between the European Union and Russian Federation. The specific objective is to make the wider border area an attractive place for both its inhabitants and businesses through activities aimed at improving the living standards and investment climate. In order to reach its strategic objective, the Programme foresees three priorities focusing on fostering economic development, addressing common challenges in the border area and promoting cooperation of local communities.

The 1st Open Call for Proposals, launched on 23 August 2010 and the 2nd Restricted Call for Proposals, launched on 10 January 2012, were based on the idea to achieve all the Programme objectives. All priorities were open for submission of applications through the Calls for Proposals.

Priority I – Socio-economic Development - is dedicated to strategic development of border region’s competitiveness through support to business and labour market development, improvements in communication networks and exploring region’s potential for tourism as well as maintaining efficient and safe borders. It is expected that new innovation promotion activities and networks, as well as joint initiatives at increasing accessibility of the Programme will be created. In tourism the Programme aims at developing tourism infrastructure and new products, elaboration of joint tourism strategies and events aimed at extending the attractiveness of the area.

Priority II – Common Challenges - aims at addressing common problems and initiating and continuing joint actions in the areas of common interest on both sides of the border. The objective of the implementation of projects within this Priority is to develop environmental infrastructure objects and new solutions for protection of environment; promote business activities based on local crafts, know-how and traditional skills, as well as find joint solutions to save energy.

Priority III - Promotion of People to People Cooperation - is focusing on small scale activities for improving the cooperation of the border region supporting wide range of activities to be performed by regional and local municipalities and various actors of the society, which have been identified as being of crucial importance to a more integrated region. The result of the projects implemented within this Priority is expected to be networks and agreements between local municipalities, NGOs and other institutions of the involved regions, joint seminars, trainings and forums.

To ensure efficient and effective implementation of the Programme it foresees to implement indicators through the actions granted within the Programme. The indicators serve to monitor and evaluate to which extent the Programme has achieved its objectives, and the efficiency with which it has done so. Two levels of indicators are distinguished within the Programme:

Horizontal – indicators comprise measurements referring to transversal principles that need to be upheld at all impact levels of the Programme (short-

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term, medium-term and long-term). Monitoring and evaluation will follow limited and simple indicators focusing on the Programme contribution to European cross-cutting themes, Strategic Environmental Assessment for the Programme and Strategy Paper objectives, such as: sustainable development and equal opportunities.

Vertical – the second indicator level follows the Programme design in formulating specific indicators for achievement. Indicators at priority level are necessary to evaluate and monitor the Programme. These indicators are linked to the aim of each priority. Output indicators: measure consequences on the activity level. They have the shortest time horizon, referring to outcomes which are typically directly related to the activity itself and are relatively fast to materialise. Result indicators: measure consequences on the level of the field of intervention. They apply to a longer time scale than output indicators, and refer to direct consequences.

A review and analysis of indicators set to achieve the Programme’s objectives was done after the start of projects implementation within the Open Call for Proposals. Out of 45 projects 41 were still in active implementation phase in year 2014, the same as all Large Scale Projects (hereinafter referred to as LSP). Though some conclusions could already be made and results forecasted, accurate evaluation of indicators reached within the Programme will be possible once implementation of all projects will be finalized.

In the present stage of project implementation the division of project by Priorities is set - 14 projects are implemented in Priority I, 15 projects - in Priority II and 16 projects - in Priority III. These projects include those approved within both Calls for Proposals.

Upon deeper analysis of planned activities of all projects it was determined that in fact altogether 22 projects include activities that are dedicated to socio-economic development, the main theme of the Priority I. 7 of them involve activities supporting business development and labour market development in the border area (Measure 1.1 “Fostering socio-economic development and encouraging business and entrepreneurship”), 6 projects deal with creating new or improving existing cross-border physical connection and ICT links (Measure 1.2 “Transport, logistics and communication solutions”), and 9 projects are devoted entirely or have the component of tourism development (Measure 1.3 “Tourism development”).

The analysis indicated, that within Measure 1.3 of Priority I 7 projects will be implemented in order to develop new tourism infrastructure, joint tourism strategies and tourism related services and products. Numerous joint events and/or information services are planned within the Measure. 2 projects that are implemented within Measure 1.2 aim at creating joint activities to increase accessibility of/in the Programme area and infrastructure objects and 5 projects implemented within Measure 1.1 will contribute to business and labour market development in the border area.

Evaluation of the planned project outputs indicates that as a result of implementation of projects within Priority I several networks of business cooperation will be established and new cross-border business activities created. Great efforts of project partners has also been devoted to development of joint solutions and strategies, organization of joint cross-border events as well as creation of joint products especially in tourism.

For Priority II the majority of projects (12) belong to Measure 2.1 “Joint actions aimed at protection of environment and natural resources” and Measure 2.2 “Preservation and promotion of cultural and historical heritage and support of local traditional skills”. It is expected that through implementation of these projects new environmental infrastructure and solutions will be developed, joint planning activities and/or initiatives organised as well as restoration of historical and/or local sites and at least

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one new business activity that is created on the basis of local crafts, know-how and traditional skills will be carried out. Implementation of 3 projects within Measure 2.2 is expected to result in restoration of historical and/or local sites and at least one new business activity that is created on the basis of local crafts, know-how and traditional skills.

Priority III contains 3 projects for the Measure 3.1 “Development of local initiative, increasing administrative capacities of local and regional authorities”, whereas, 13 projects are to be implemented within Measure 3.2 “Cooperation in spheres of culture, sport, education, social and health”. The expected results of the projects are partnerships, contracts and agreements establishing permanent relations among official bodies of involved partnerships, as well as involvement of institutions in educational, cultural, sport and social activities.

2.2. Programme Implementing Structure and Activities Implemented within the Reporting Period

2.2.1. Joint Monitoring Committee

During 2014 the Joint Monitoring Committee (hereinafter referred to as JMC) has been working intensively to ensure effective implementation of the Programme. In its daily work the JMC commented draft documents elaborated by the Joint Managing Authority of the Programme (hereinafter referred to as JMA) and the Joint Technical Secretariat (hereinafter referred to as JTS), discussed outstanding issues via e-mail and phone, took decisions via written procedures and gathered for meetings.

In accordance with the Rules of Procedure of the JMC, approved on 19 March, 2009 with changes approved on 30 December, 2011 Russia was the chairing country of the JMC in 2014. Ms Angelina Stebakova, Advisor of Unit for Project Activities of Department of Interaction with the Eurasian Economic Commission and Economic Cooperation with CIS Countries of the Ministry of Economic Development of the Russian Federation has been nominated to chair meetings of the JMC. The JMC 9th

meeting was organised on 10 December, 2014 in Saint Petersburg, Russia.The main issues under discussion for the JMC 9th meeting were:

implementation of Annual Work Plan and Information and Visibility Plan 2014; progress of implementation of projects: outputs, results, challenges; absorption and savings of Technical Assistance budget and savings after

projects completion and use of savings, other financing issues; overview of the Audit Task Force work; prolongation of programme and project implementation period; approval of documents for implementation of the Programme in 2015.

In addition to the topics stated above discussions also included the following important issues: presentation of feedback of the CBC Monitoring, projects participation at programme, EC and other events – promotion of programme, changes in the “Communication and Visibility Guidelines for Large Scale Projects”, changes in the JTS staff, as well as other issues.As a result the following decisions were made during the 9th meeting of the JMC:

prolongation of implementation period for 14 projects approved; Annual Work Plan for 2015 approved; Information and Visibility Plan of the Programme for 2015 approved;

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Changes in Sections 2.2. and 3.6. of “Communication and Visibility Guidelines for Large Scale projects” approved;

Changes in JTS staff, related to smooth takeover of duties of project manager as well the continuity of projects supervision to establish a temporary project manager position at the JTS Riga office for the period from 18 December 2014 till 1 March 2015 and offering the position of temporary project manager to project manager Ms Polina Zaytseva approved;

Proposal – to assign savings (EUR 169 145,18 from finalised projects and EUR 450 664,71) from TA budget 2013 equally (50/50) to preparation of Latvia – Russia and Estonia-Russia Cross – Border Cooperation Programmes 2014 – 2020 co-financed by the European Union and the Russian Federation in 2015 Annual TA budget approved. It was also agreed that the JTS will collect data on cumulative unused financing after project closure and will send it to the JMC for information and decision making via written procedure once every quarter in 2015. Formal decision on savings in TA budget 2014 will be taken after audit (in third quarter of 2015);

The Technical Assistance Budget for 2015 was approved with minor modification in justification part of budget line 2.1.2.7.

The 9th meeting of the JMC

Through 2014 the following 15 JMC decisions were taken via written procedure: Shorten written procedure for approval of necessary allocations in the Technical

Assistance budget 2014; Shorten written procedure to approve the major modifications requested by the

project ELRII-320 “Development and promotion of using Green energy and energy saving principles in public houses”;

Written procedure for the approval of extension of the implementation phase for projects financed by Estonia – Latvia – Russia CBC Programme till the 31 December 2015;

Shorten written procedure for approval of necessary allocations in the Technical Assistance budget 2014;

Written procedure to approve the Annual Progress Report of the Programme 2013;

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Shorten written procedure for approval of necessary allocations in the Technical Assistance budget 2014;

Written procedure for the JMC approval of necessary changes in the Work Plan 2014;

Written procedure for the approval of the use of Projects Contingency reserve; Written procedure for approval of necessary allocations in the Technical

Assistance budget 2014; Written procedure for the approval of the use of Projects Contingency reserve; Written procedure for approval of necessary allocations in the Technical

Assistance budget 2014; Written procedure for approval of the major modifications proposed by the

project ELR-LSP-2 “BCP Narva – Ivangorod"; Written procedure to approve the major modification proposed by the project

ELRII-448 “Medical Waste”; Written procedure for approval of the updated Procedure for reimbursement of

travel and accommodation costs for members of the Joint Programming Committee of the Estonia – Russia CBC Programme 2014-2020 and Joint Programming Committee of the Latvia – Russia CBC Programme 2014-2020;

Written procedure for approval of Instruction for the reimbursement of Travel and Accommodation (Joint Monitoring Committee, Joint Task Force member or deputy member (in case member is not participating) or substitute, persons who are travelling to the job interviews organised by the Programme authority and other persons, according to the actual Technical Assistance budget and its justification).

2.2.2. National Authorities

During 2014 functions of the National Authorities (hereinafter referred to as NAs) of the Programme were implemented by the Ministry of the Interior of the Republic of Estonia, the Ministry of Environmental Protection and Regional Development of the Republic of Latvia (hereinafter referred to as MEPRD) and the Ministry of Regional Development of the Russian Federation. However on 8 September 2014 the government of the Russian Federation approved the abolishing of the Ministry of Regional Development with the competences being spread to a number of ministries. As a result functions of the NA of the Russian Federation have been assigned to the Ministry of Economic Development of the Russian Federation.

During the Programme implementation it was agreed to organise meetings of the NAs of the Programme participating countries with the JMA and the JTS to foster the process of implementation of the Programme and to find solutions of outstanding issues if needed be. This approach has allowed to come to common understanding on Programme’s essential issues and to avoid lengthy discussions during the JMC meetings. However, in 2014 there was no need to organise such meetings. The NAs ensured the relevant policy making and monitoring of the Programme on behalf of the participating countries through participation in other thematic (e.g. Annual Event, etc.) meetings of the Programme and by communicating via e-mails, telephone, electronic conferences.

2.2.3. Joint Managing Authority

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According to the Programme the MEPRD of the Republic of Latvia is designated to act as the JMA of the Programme, implementing the functions of Operational Management Section (hereinafter referred to as OMS), Financial Management Section (hereinafter referred to as FMS) and Internal Audit Section (hereinafter referred to as IAS).

In 2014 the tasks of the OMS, the FMS and the IAS of the JMA were fulfilled by independent departments of the MEPRD of the Republic of Latvia to ensure the separation of functions as it is required in the Article 10 of the Regulation No 1638/2006 of the European Parliament and of the Council of 24 October 2006 laying down general provisions establishing a European Neighbourhood and Partnership Instrument (hereinafter referred to as ENPI Regulation). The functions of the OMS (2,6 workloads) are assigned to Cross Border Cooperation Programme Division of the Development Instrument Department, the functions of the FMS (1,7 workload) – to Cross Border Cooperation Programme Control Division of the Project’s Monitoring Department and functions of the IAS (1 workload) – to Audit Division of the Internal Audit Department.

In 2014 the JMA continued to implement efficient and correct management and implementation of the Programme, including technical assistance. As a result essential internal procedures are followed and updated in accordance to needs of the Programme and operation of the system ensured (2 procedures was actualised and 7 orders, related with Programme implementation, issued).

The work of the JMC was ensured - one JMC meeting took place in December, 2014, 15 decisions were taken via written procedures;

The operational follow-up and financial management of the projects has been carried out. 44 amendments to Grant Contracts were signed, 84 minor changes of the projects approved. Final payments to 9 finalised projects and numerous interim payments were paid within 2014. 14 projects asked for prolongation its activities for 2015 and were accepted by the JMC decision, other projects are finalised and working on their final reports (detailed information in Section 2.2.6.-2.2.7). Monitoring of projects took place, sample checks of the projects were held as well (detailed in Section 4.2.).

In order to start a preparation to Programme closure, with regards to the Article 46 of the Implementing Rules, on 25 February 2014 the task force for the Programme closure was constituted.

The JMA took part in preparation of the new Latvia – Russia Programme 2014-2020, providing input in writing of the Programme Document; organising and participating in the meetings of the Joint Programming Committees (altogether 5 meetings took place), as well as managing other issues related with the new programming period 2014-2020.

2.2.4. Joint Technical Secretariat

The JTS is composed of international staff, which is recruited on a proportional basis, ensuring knowledge of all Programme area languages and English language. The JTS performs its duties as one team being able to replace and assist each other for timely and qualitative achievement of results of the delegated tasks.

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There were some changes in the JTS staff in 2014 - starting from March project manager with knowledge of Russian of Riga main office went on maternity leave and recruitment of a new employee was carried out. The recruited person started duties in April. In accordance with the JMC decision at the very end of the year 2014 an additional temporary position of project manager for 3 months was established to ensure smooth run of Programme implementation and projects supervision as well as to ensure continuity of the JTS tasks, as some more employees of the JTS staff would go on maternity leave in the beginning of 2015.

In 2014 the JTS and its branch offices informed, supervised and assisted project beneficiaries and partners in project implementation and finalising issues. Seminars for project beneficiaries and partners, covering mostly reporting and results performance themes, were organized by the JTS in all participating countries. In addition, Mobilisation Briefings for beneficiaries were organised to assist them in finalisation phase of project implementation as well as to emphasise importance of project implementation and results and proper reporting (more detailed information provided in Section 5.2.3.2.). In 3-4 June Programme Annual event was organized in 3-4 Gatchina, Russia. It was devoted to children related issues (more detailed information provided in Section 5.2.3.1.). The JTS also assisted the JMA in elaboration of the documents, organised meetings of the JMC, drafted minutes, prepared, implemented, and followed up its decisions, including launching of written procedures, etc. In its daily work the JTS also took part in elaboration and update of procedures needed for Programme implementation (list of procedures provided in Section 2.2.8.).The JTS provided assistance for the preparation of future Estonia – Russia CBC Programme and Latvia – Russia CBC Programme by practical arrangements of JPC meetings and other events, preparation of information of present Programme’s achievements, taking minutes etc.

The JTS staff took part in international network meetings and laboratory groups organized by INTERACT.

2.2.5. Joint Task Forces

By the decision of the JMC a Joint Task Force (hereinafter referred to as JTF) for implementation of a specific tasks can be formed. The JTF include representatives of all Programme participating countries, nominated by the NAs.

Several JTF meetings were devoted to recruitment of JTS staff in 2014. During the meeting of the JTF on 14 March in Riga, Latvia applicants for the position of project manager at the JTS main office in Riga were interviewed; afterwards a candidate was selected for the period of maternity leave of the project manager with knowledge of Russian.

No other JTF meetings were organised in 2014.

2.2.6. Projects selected through the Calls for Proposals

Out of 45 projects of both Calls for Proposals 41 were in implementation phase in 2014. Responsible project managers, financial managers and information managers of

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the JTS made 48 on-spot visits to project partners. External construction experts were involved in 10 on-spot visits in order to check the infrastructural component of the projects. Since the start of project implementation period in total 149 interim and final reports have been submitted and 131 of them approved. Major share of reports were submitted and approved in 2014: 93 interim reports received, of which 87 approved. The interim reports revealed a number of common mistakes, which were addressed during seminars, briefings and individual consultations delivered to the projects. The common issues were:

delays of submission of reports; inaccuracies in currency exchange rate, reconciliation of finances in reports,

accountancy printouts, expenditure verification reports, and overspending in budget headings unreported to the JTS prior to submission of report;

inconsistencies in application of visibility requirements; confusion with description of outputs and results, difficulties in describing

various aspects of project implementation in a satisfactory manner, etc.

Payments totalling EUR 15 098 260,22 (excl. LSPs) were transferred to the project beneficiaries. The 80 notification letters for minor changes and 44 requests for addendums (major modifications) were received. Most common types of changes were budget changes, including reallocations between project partners, activity changes, partnership changes, prolongation of project implementation period.

20 projects of the 1st Call for Proposals finalised implementation of activities in 2014, of these 9 projects were finalised in the first part of the year. Likewise, 12 projects of the 2nd Call for Proposals finalised implementation of activities in 2014 with 1 project completing its activities in the first half of the year. Thus, 32 projects have been in the stage of preparation of final report, and 9 projects were subject to balance payment in amount of EUR 1 390 616,08.

18 projects were allowed to prolong implementation period, of which 9 projects (1 of the 1st Call and 8 of the 2nd Call) extended the activities to 2015 by the decision during the 9th meeting of the JMC. These were: “Via Hanseatica” (ELRI-113), “Landscape pearls” (ELRII-261), “Heritage Business” (ELRII-291), “AQUA LIFE” (ELRII-349), “CBA” (ELRII-383), “Medical Waste” (ELRII-448), “LogOnTrain” (ELRII-465), “Sun and Wind” (ELRII-473) and “4 investors” (ELRII-535).

Projects “LSG Development” (ELRII-269), “Heritage Business” (ELRII-291), “AQUA LIFE” (ELRII-349), “Sun and Wind” (ELRII-473) were evaluated by the European Commission CBC Monitoring Mission in 2014. The objective was to provide the European Commission and key stakeholders with an external and independent brief analysis of project performance and, where necessary, to recommend measures of improvement. The CBC Monitoring Mission made positive conclusions about implementation of projects and about relevance of Programme performance.

2.2.7. Large Scale Projects

Following the approval of five project summaries by the European Commission in 2011 and signing of Grant Contracts, all five LSP are currently under implementation.

12 interim reports were submitted and approved in 2014. Upon check and approval process of the interim reports some common challenges and mistakes were identified, e.g., use of correct currency exchange rate, lack of visibility, insufficient information

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provided in the narrative part of the report, differences in amounts between report/ account printout/ auditor’s report, etc.

In 2014 11 requests for major changes and 6 notifications of minor changes has been received and approved by the JMA. Most common types of changes were budget changes and change/update of activities. Analysis of the submitted changes showed that main reasons for changes were lack of financial resources for implementation of project activities and the fact that project implementation started later than initially planned. Taking into account aforementioned, all LSPs received approval of extension of implementation of activities into year 2015 by the decision during the 9th meeting of the JMC.

In 2014 on-spot visits were carried out in total for 22 partners of the following projects: ELR-LSP-1 “Safe Road”, ELR-LSP-2 “BCP Narva-Ivangorod”, ELR-LSP-3 “Common Peipsi”, ELR-LSP-4 “Vientuli-Brunishevo”, ELR-LSP-6 “Narva-Ivangorod”. The main issues with project implementation disclosed during the visits included delays in timetable of implementation of project activities, insufficient quality of construction works, non-observance of visibility requirements.

There were some major events for LSPs in 2014 that also exhibited important achievements of the projects:

- The cornerstone of the main building of the Border Crossing Point „Vientuļi” was laid together by project partners within LSP project “Reconstruction of BCP "Vientuli" and arrangement of BCP "Brunishevo”” (Vientuli-Brunishevo).

- Karlova boat harbour in Tartu, Estonia was ceremonially opened by the Mayor of Tartu city Mr Urmas Klaas within LSP “Economically and environmentally sustainable Lake Peipsi area” (Common Peipsi).

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- Mustvee harbour and Kallaste slip was ceremonially opened by the Mayors of Mustvee and Kallaste for LSP “Economically and environmentally sustainable Lake Peipsi area” (Common Peipsi).

- LSP “Economically and environmentally sustainable Lake Peipsi area” (Common Peipsi) held its Final event – grand trip around all infrastructure investment sites reconstructed or created within the project.

- Cornerstone Ceremony of pedestrian terminal of Narva 1st border crossing point (BCP) took place in Narva, Estonia for LSP “Complex reconstruction border crossing points in Ivangorod and in Narva” (Narva-Ivangorod BCP).

Altogether ten construction objects of LSPs have already been finalized: Rapina harbour, Tartu Harbour, Mustvee harbour and Kallaste slip for project “Common Peipsi”’, water treatment infrastructure in Pechory, Palkino, Gdov and Pskov Districts and in Pskov City for project “Common Peipsi”’ and reconstruction of Värska-Reha and Reha-Koidula roads for project “Safe Road”.

2.2.8. Management and Control System

In 2014 the JMA continued to improve Management and Control System and adjust it to the Programme needs. All sections of the JMA and the JTS were involved in elaboration or in case of necessity preparation of amendment of Programme’s internal procedures.

The following procedures have been amended:

Procedure for reimbursement of travel and accommodation costs and payments of per diems for members of the Joint Programming Committee of the Estonia – Russia CBC Programme 2014-2020 and Joint Programming Committee of the

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Latvia – Russia CBC Programme 2014-2020 co-financed by the European Union and the Russian Federation;

Instructions of the Estonia – Latvia – Russia Cross Border Cooperation Programme within the ENPI 2007-2013 for the reimbursement of Travel and Accommodation;

Communication and Visibility Guidelines for the Large Scale Projects Estonia – Latvia – Russia Cross Border Cooperation Programme within the ENPI 2007-2013;

On ensuring updating of the Register of the legal acts and other documents of the Estonia – Latvia – Russia Cross Border Cooperation Programme within the ENPI 2007-2013 management and implementation;

Procedure on eligibility of expenditures made from the Technical Assistance budget of the Estonia – Latvia – Russia Cross Border Cooperation Programme within the ENPI 2007-2013;

Procedure on monitoring of projects funded by the Estonia – Latvia – Russia Cross Border Cooperation Programme within the ENPI 2007-2013.

The JMA and the JTS each year make a scrupulous analysis to detect procedures to be elaborated or amended in order to make sure that all processes of Programme implementation are covered and well implemented.

2.2.9. Programme’s Agreements and Contracts

Protocol to the Financing Agreement between the European Community and the Government of the Russian Federation on Financing and Implementing the Cross Border Cooperation Programme was signed in 7/11 November 2014. By this protocol the deadline for project implementation has been prolonged by one year – till 31 December 2015.

The following service contracts have been concluded by the JMA in 2014:

Agreement No 24 between MEPRD, SRDA and LTD “AURUM IT” On elaboration of additional restricted access to website of the Estonia – Latvia – Russia Cross Border Cooperation Programme within ENPI 2007-2013 and usage of domain estlatrus.eu, concluded on 10 April 2014. One more service contract concluded between MEPRD and “AURUM IT” Ltd. No 103, on maintenance of the Programme’s website till 31 December 2015.

Agreement No 25 between MEPRD and LTD “KPMG Baltics” On verification of the Annual financial reports of the Programme for 2013, 2014 and 2015. This Agreement replaces previous contract with Joint Stock Company “BDO”, which was concluded till May 2013, on verification of Annual financial reports, last on 2012.

Agreement No 38 between MEPRD and LTD “ALT RD” On maintenance and upgrade of the databases of the Estonia – Latvia – Russia Cross Border Cooperation Programme within ENPI 2007-2013, concluded on 29 April 2014. Replaced service contract No 5-13/10 between the Ministry of Regional Development and Local Governments and “Affecto Latvia” Ltd concluded on 29 January 2009 for “Maintenance of databases systems of the European Union Structural Funds Latvia – Lithuania Cross Border Cooperation Programme under European Territorial Cooperation Objective and Estonia – Latvia – Russia Cross Border Cooperation Programme within European Neighbourhood and Partnership Instrument (incl. readjustment and compatibility)”. Since conclusion

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of the agreement the Ltd, acting as performer has changing its name twice, due to the internal reorganisations. At the moment all requirement foreseen in the agreement has been fulfilled by the “Tieto Latvia” Ltd. The agreement was in force till the end of January 2014.

Procurement agreement No 99 between MEPRG and LTD “Grupa93” On development of Strategic Environmental Assessment of the Latvia – Russia Cross Border Cooperation Programme 2014-2020.

The status of already concluded contracts in force:

Agreement No 4.3-13/1, concluded on 18 February 2011between the JMA and the Saint Petersburg Foundation for SME development on hosting the Russian Branch Offices of the JTS, situated in Saint Petersburg and Pskov with amendments of 10 December 2013;

Amendment No 1 to Agreement No 8-21/1, concluded on June 19, 2010 between the JMA and the Enterprise Estonia on hosting the Estonian Branch Office of the JTS, situated in Tartu, amended on 11 November 2013.

2.3. Programme Activities to be Implemented

The activities to be implemented in 2014 are listed in the Programme Annual Work Plan for 2015 (please see Annex IV.2 to this report), as well as other Programme documents, in particular Technical Assistance budget justification for 2015 (please see Annex IV.4 to this report), the Information and Visibility Plan for 2015 (please see Annex IV.5 to this report). The main activities to be implemented in 2015 are:

Three Programme events are going to be organised, one in each Programme country. First will be in April – in Pskov, Russia, then in May – in Tartu, Estonia and final in June – in Gulbene, Latvia.

Programme Closing Event to be organised in Riga, Latvia in September. Support and supervision during implementation of all projects via thematic

and/or networking seminars (reporting, indicators, results and visibility of the projects, etc) for beneficiaries and/or partners of the actions; communication and support by responsible project manager, financial manager and/or information manager; on spot visits and participation in projects’ events, etc.;

Regular update of information on Programme website; Programme’s participation in communication actions of European Cooperation

Day will be ensured; 10th meeting of the JMC shall be organised regarding the implementation and

achieved results of projects of calls for proposals and LSPs, closure of the Programme, etc.

Preparation to Programme closure. Programme closure work plan will be developed and working group operational, that will analyse the necessary actions and works to be done for Programme closure.

Other annual permanent works to be implemented in 2015. Procedures ensuring management and control of the Programme will be updated or elaborated, if needed, financial management will be ensured, information for auditors (internal and external) will be prepared and provided, reports developed, storage of documentation ensured;

Assistance (practical arrangements of JPC meetings and other events, information of present Programme’s achievements, etc.) for the preparation of future Estonia – Russia CBC Programme 2014-2020 and Latvia – Russia CBC

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Programme 2014-2020 will be ensured. Around 3 meetings of each programme are going to be organised.

3. Programme Financing

3.1. Payments to Actions

According to the Chapter 8.4 ‘The Financial Management of the Programme and decision on modifications to the Programme indicative financial plan of the 6th JMC meeting on 13 – 14 December 2012, the total indicative eligible budget of the Programme is 71 861 190 EUR, of which 47 774 730 EUR is European Commission funding (in accordance with the Strategy Paper), 15 909 000 EUR is Russian funding (in accordance with Financing Agreement), 1 635 900 EUR is funding ensured by the Estonia and Latvia to Technical Assistance and projects – Priority II and Priority III and 6 541 561 EUR is national public co-financing from the beneficiaries and project partners for the projects (in accordance with Article 20 of the Implementing Rules). 42 997 256 EUR of total European Commission funding was allocated to the Priorities I-III.

47 774 730 67%

15 909 000 22%

1 635 900 2%

6 541 561 9%

Indicative eligible budget by source of funding, EUR (%)

Community funding

Russian funding

Co-financing by Member States to TA

National public co-financing from projects

Additional financing made available from Estonian State budget for LSPs involving partners from Estonia and Russia is 9 081 558 EUR has been fully received to the separate Programme account opened specially for this purpose.

The European Commission financing rate of ENPI funds for Priorities I - III shall be up to 90% of eligible expenditure. In case of private enterprises, the European Commission financing rate may be up to 50% of eligible expenditure in the projects selected through the Open Call for proposals.

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For the private entities participating in the LSPs supported under the Priorities 1 and 2 the maximum co-financing from the Programme cannot exceed 50% of the total eligible costs for respective project partner from Estonia and Latvia and 90% of the total eligible costs for respective project partner from the Russian Federation.

In accordance with the Paragraph 8.4 of the Programme, the required Russian funding in total amount 15 909 000 EUR (15 086 576 EUR for projects) is fully received. The required last amount for year 2013, 2014 and 2015 was received in full to the Programme account on 5 April 2013.

As it is described in section 2.2.6 and 2.2.7 of this Report, total 50 Grant Contracts with the projects selected for funding (5 of them LSP) were signed within the Programme. The total budget of 45 projects, selected through the calls for proposals is 36 614 069,09 EUR and Programme grant is 32 790 147,87 EUR. As it is described in the next picture, 14 245 945,86 EUR of Programme co-financing are foreseen for first priority, 14 948 604,88 EUR for second priority and 3 595 597,13 EUR for third priority.

Priority I Priority II Priority III0.00

2,000,000.00

4,000,000.00

6,000,000.00

8,000,000.00

10,000,000.00

12,000,000.00

14,000,000.00

16,000,000.0014,245,945.86 14,948,604.88

3,595,597.13

Programme co-financing for the projects (without LSP) by Priorities, EUR

23 further pre-financing instalment payments and 9 balance payments were made in 2014 to the Beneficiaries (without LSPs). Under first priority – 11 payments (2 306 949,19 EUR), under second priority – 11 payments (3 650 022,66 EUR) and under third priority – 10 payments (643 882,38 EUR) were made in 2014 (without LSPs). The total sum of further pre-financing instalment and balance payments complete 6 600 854,23 EUR in 2014 (without LSPs). Payments to projects allocated by priorities and measures can be seen in the table below.

17

Priority I Priority II Priority III0

500000

1000000

1500000

2000000

2500000

3000000

3500000

934,865.11

1,372,084.08

886,546.02

1,443,804.55

1,319,672.09

422,639.29

221,243.09

Measure 1.1Measure 1.3Measure 2.1Measure 2.2Measure 2.3Measure 3.1Measure 3.2

Payments to projects (without LSPs) by Priori-ties and measures in 2014, EUR

To LSPs 3 pre-financing instalment payments were made in 2014.

The total sum of pre-financing instalment payments to LSPs is 8 663 544,49 EUR (including 5 437 503,67 EUR under first priority, measure 1.2 and 3 226 040,82 EUR under first priority, measure 1.3) in 2014.

Altogether the amount of payments to the Beneficiaries complete 15 264 398,72 EUR in 2014. 10 653 314,63 EUR was spent from the EU funding and 4 611 084, 09 EUR from the funds of Participating countries.

Altogether to projects was paid 53 964 105,44 till the end of the year 2014 EUR or 74% of total available funding for projects of the Programme. From the beginning of the Programme 35 408 171,82 EUR was spent from the EU funding, 11 026 580,92 EUR from the funding of Russian Federation and 7 529 352,70 EUR from Member states funding, including 6 962 774,02 EUR of Estonian additional funding for LSPs.

On 9 July 2014 the JMA had sent to the European Commission a Payment Request for a pre-financing instalment of 9 926 045,30 EUR. The amount of payments corresponded to the actual financial needs of the Programme and had been based on the provisional budget and JMA`s commitments and payments for the year 2014 and for beginning of the year 2015. However only 8 802 636,39 EUR was received to the Programme account on 28 October 2014. Remaining 1 123 408,91 EUR, according to European Commission’s letter of 22 October 2014 (ref. DEVCO/F5/CK/ak (2014) 3494382) should be paid after payment credits become available.

Altogether the amount asked as a pre-financing for 2014 forms 9 926 045,30 EUR, that is 56,38% of the remaining European Commission co-financing of Programme, which wasn’t requested yet. It is planned that in 2015 the rest of balance payments to the projects of the 1st Call for Proposals, interim and balance payments to the projects of the 2nd Call for Proposals, as well interim payments to the LSPs will be made.

18

3.2. Technical Assistance

Respecting the Programme’s rule and according to the decision on modifications to the Programme indicative financial plan of the 6th JMC meeting on 13 – 14 December 2012 the total amount allocated for the Technical Assistance is 6 445 584,85 EUR, which includes 4 777 472,90 EUR of the European Commission funding, 822 424,48 EUR of the Russian Federation funding and 845 687,47 EUR funding ensured by Estonia and Latvia.

The FMS of the Programme ensured the Programme finance planning according to the legal acts regulating the State Budget of the Republic of Latvia for year 2014, providing financial plans and cost estimates for the Programme funding, to ensure the monitoring and transparency of the funds.

According to the Chapter 8.4.2 ‘Technical Assistance budget’ of the Programme the Technical Assistance budget shall, within the annual limits established in the financial table, be approved by the JMC at its first meeting. It will then be adopted regularly, on a yearly basis, at subsequent meetings of the JMC. The JMC approved the Technical Assistance Budget for 2014 with planned costs for preparing forthcoming CBC ENI Programmes Latvia – Russia and Estonia – Russia, on 11 December 2013 with last changes on 19 November 2014. Initially 1 589 993,80 EUR was approved for 2014, however during the year several changes have been made, respecting the decision of the JMC. After results of the audit of expenditures of the Technical Assistance budget 2013 the amount of savings was officially defined and forwarded to the Technical Assistance budget 2014, in budget lined related with preparation of the next period programmes. Taking into account all changes made within 2014 the final amount of Technical Assistance budget approved for spending in 2014 was 1 687 858,59 EUR.

In 2014 1 093 343,53 EUR (or 594 515,06 EUR less than planned) constituting 64,78% of the total amount foreseen for 2014 were spent to ensure implementation of the Programme and its activities. This year all spent amount 1 093 343,53 EUR was 100% covered from the European Commission’s contribution. This is done to maintain the proportion of co-financing provided in the Programme. According to last changes of the Programme, the proportion of EU financing for technical assistance and co-financing provided by the Participating countries is 74,12% and 25,88% respectively. Till the end of 2014 the cumulative amount spent from the EU financing for all programming years for Technical Assistance is around 2,5 million, but from the Participating countries around 1,3 million. It means that around 65% of Technical Assistance budget expenditure was paid from EU contribution to Technical Assistance budget but 35% - from the co-financing provided by the Participating countries. Following year (2015) the proportion of co-financing set by the Programme will be observed and reached.

In 2014 around 11 % from the total planned European Commission’s funding were spent. From the beginning of the programme 1 896 418,28 EUR or around 40 % from totally planned European Commission contribution was spent. The detailed breakdown of expenditure within budget lines is shown in the Financial Report on absorption of Programme Technical Assistance budget 2014 for the JTS and the JMA, of (Annex IV.1 to this Report). Moreover the detailed information regarding the European Commission’s funding is shown in the Financial Part of this Report (Annex II to this Report).

As shown in the following table 504 006,42 EUR were spent for the JTS, the JMA and Branch offices staff costs (77,33% from the planned for 2014). 409 592,62 EUR

19

(80,79% from planned for 2014) were spent for the JTS, i.e. for staff, administrative costs, travel and accommodation expenditures, office furniture and equipment. 341 178,69 EUR (64,55 % from planned) were spent for branch offices (including 88 088,26 EUR for information activities in Estonia and Russia). 37 390,01 EUR were spent for information activities, i.e. events and promotion and information materials from JTS main office budget (76,46 % from the total planned for 2014). 1 469,77 EUR were spent for Committees and JTFs, which includes organisational expenditures and participants’ travel costs. 1 737,17 EUR were spent for external expertise, procuring infrastructure experts. 24 384,04 EUR were spent for database and website and 89 926,56 EUR were spent for future cooperation preparing next generation of CBC ENI Programmes. 172 991,48 EUR were spent for the JMA expenditures, i.e. staff costs, office furniture, equipment, travel and accommodation, 5-10% controls, future cooperation and audit (it is 74,40% from the total planned of JMA for 2014).

Staff costs

Administrati

ve costs

Trave

l costs

Equipment a

nd supp...

Informati

on activiti

es

Committees, T

ask Fo

...

Exte

rnal

experti

se

Database

and w

ebsite

5-10% contro

lsAudit

Other c

osts

Futu

re Cooperati

on0.00

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

600,000.00

700,000.00 636,252.88

141,324.01 149,254.32

130 500,0025,000.00

92,872.6567,200.00

418,534.77

504,006.42

112,049.65110,837.31

125,478.27

1,737.1792,872.65

0.00

89,926.56

Planned in 2014 Used in 2014

Planned and allocated in 2013, EUR

281 791,62 EUR were spent for the staff costs of the JTS, that consists of salaries, taxes, health insurance and other costs connected with staff employment and training. The JTS was operational all the year. During the year there were some changes in the JTS staff – a position of project manager for the JTS main office in Riga was established and a new staff member recruited in March. The recruitment of additional project manager position for December was carried out and project manager started duties in December. All positions within the JTS were filled and that influenced some allocations in Technical Assistance budget for 2014.

45 190,25 EUR were spent on administrative costs of the JTS, those include overheads, office rent, communication and office running costs (please, see the table below).

73 505,55 EUR were spent to cover travel and accommodation costs, as well as daily allowance of the JTS employees for participation in Programme related meetings, project on-spots, capacity raising seminars, future programming meetings and workshops. 4 456,77 EUR were spent for obtaining office furniture and equipment.

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Tender procedure was carried out for purchase of laptops with basic software for the new employees and hard discs for the keeping of project information; financing was also used for updating licences, and other necessary equipment for the office run of the JTS.

97 958,47 EUR were spent by the JTS branch office in Estonia, in Tartu (including financing for future Estonia-Russia CBC Programme 2014-2020 preparation 41 134,76 EUR). 243 220,22 EUR were spent by the JTS branch offices in Russia (201 667,75 EUR by the branch office in Saint Petersburg (including financing for future Estonia-Russia CBC Programme 2014-2020 preparation and for future Latvia-Russia CBC Programme 2014-2020 preparation in total 32 416,27 EUR) and 41 552,47 EUR by the branch office in Pskov).

Staff costs31.69%

Administrative costs5.08%

Travel and ac-commodation

8.27%

Office furniture, equipment

0.50%

Branch Office in EE 11.02%

Branch Offices in RU27.35%

Information activ-ities

4.20%

Committees, Task Forces0.17%

External expertise including SC

0.20%

Database and website2.74%

Future cooperation8.79%

JTS spendings by budget lines in 2014 (%)

One meeting of the JMC of the Programme and one JTF meeting for the JTS staff recruitment was organised within the accounting period. 1 469,77 EUR were spent for arrangement of the JTF meetings.

To ensure the information activities 125 478,27 EUR (main office together with branch offices) were spent for folders, note books, brochures, stickers with the Programme logo and logo of European Cooperation Day, as well as roll-up stands, small flags of participating countries and with Programme logo, etc. 6 information seminars and 3 briefing consultations were organized for project beneficiaries and auditors in all participating countries (project closing issues, auditor seminars and reporting seminars), the Annual event was organised in Gatchina, Russian Federation and several external network events were attended by the JTS staff.

For salaries (including taxes) of the employees of the Operational Management Section, Financial Management Section and Internal Audit Section of the JMA 130 119,26 EUR were spent. 7 011,44 EUR were spent for the administrative costs of the JMA (Office rent and monthly fees and for Office running). 5 549,97 EUR were spent for the JMA's equipment (computer, three new laptops and printer). 12 033,76 EUR were spent for the JMA travel and accommodation, to attend the JMC meeting, JPC meetings, capacity raising seminars, workshops and experience exchange meetings, etc. 92 872,65 EUR were spent for 5-10% control of the Programme’s projects

21

expenditure audit and 18 277,05 EUR were spent for the Programme’s Audit (External audit). 11 727,10 EUR were spent for Future Cooperation.

Staff costs46,87%

Administrative costs2.5%Travel and accomodation

4.3%

Equipment 2.0%

5-10% con-trols

33.45%

Audit6.6% Future Cooperation

4.2%

JMA spendings by budget lines (%), 2014

Staff costs Administrative costs Travel and accomodation Equipment

5-10% controls Audit Future Cooperation

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4. Audit

4.1. Programme Level

According to the Article 29 of the Implementing Rules (951/2007) (hereinafter referred to as IR) the Internal Audit Section (hereinafter referred to as IAS) of the JMA shall each year implement a control programme to check the internal circuits and ensure that procedures have been correctly applied within the JMA.

Internal Audit Section has drafted the Internal Audit Control Programme for period under review 01/2014 - 12/2014 (Article 29 of Implementing Rules). According to it in the reference period Internal Audit Section has performed one system audit “Overall management of the processes and controls in the EE-LV-RU Programme 2014” in order to check the internal circuits and ensure that procedures have been correctly applied within the JMA and the JTS.

Based on verifications auditors concluded that:1. Calls for Proposals and Project Generation of the 2nd Call of Proposals and Project Selection of the 2nd Call of Proposals were sound and adequately designed for the purpose of the Programme. 2. the internal control system of Reporting and Review works, however there were found several deficiencies as outlined in the Annex I.1 to this report.

Recommendations expressed for the identified deficiencies during the audit are monitored for implementation.

Audit covers the period from 1 January 2012 to 31 December 2014.

The checks of the internal (system) audit were carried out according to the Internal Audit Control Programme 2014, during the period from 8 December 2014 - 5th May 2015 and the main focus was on the following issues:

1) Compliance assessment of developed internal control system with Programme documents, Implementing rules and PRAG. 1.1. Assessment of Calls for Proposals and Project Generation of the 2nd Call

for Proposals (Article 4, 15.2, 41, 42. Implementing Rules., 6.3.1, 6.4., 6.6.PRAG)) including:

Preparation of calls for Proposals, Information and visibility actions for the Programme, Project Generation process,

1.2. Assessment of Project Selection of the 2nd Call for Proposals (Article, 12.2, 13, 15.2, 41, 45 Implementing Rules, 6.4., 6.6. PRAG) including:

Submission of project Proposals, Project evaluation process, Eligibility and Evaluation Criteria, Decision making process of submitted project Proposals. 2) Walkthrough testing of internal circuits and procedures to check and assess

system of Reporting and review cowering procedures established by JMA to control Technical Assistance funding.

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The Audit Task Force (hereinafter referred to as ATF) was established on its first meeting on 28 February 2011. The representatives from national responsible bodies of the Republic of Latvia, the Republic of Estonia and the Russian Federation are nominated by the National Authorities. Rules of Procedure of Audit Task Force were approved on its first meeting of the Audit Task Force.

The 4th Audit Task Force meeting was held in Riga (Latvia) on 29 October 2014. During the ATF meeting the following issues were discussed:

results of system audit performed by IAS; updated IAS Control Programme for internal audits for the auditing year 2014; results of sample checks of actions (projects audits) in year 2014, carried out

by the external audit company Ltd. Ernst & Young Baltic. The external audit company presented Audit Protocols for each project partner under the review these Audit Protocols were coordinated with the members of ATF;

Status of the implementation of recommendations issued in year 2013 for sample checks;

Consolidated Report of Implementation of the Annual Audit Plan; Status of the Programme implementation; ATF Rules of Procedure (updates).

According to the Article 31 of the Implementing Rules the JMA shall call upon an independent public body or contract an independent approved auditor who is a member of an internationally recognised supervisory body for statutory auditing to carry out each year an ex post verification of the revenue and expenditure presented by the JMA in its annual financial report, in accordance with the standards and ethics of the International Federation of Accountants (IFAC). “KPMG Baltics” Ltd. performs this function in accordance with the service contract concluded on 10 April 2014. “KPMG Baltics” Ltd. audited the JMA’s and the JTS Technical Assistance expenditure of 2014 and issued external audit report (Annex II to this report) certifying the statement of revenue and expenditure presented in the annual financial report 2014 as actually incurred, accurate and eligible.

4.2. Project Level

According to the Article 30 of the IR the IAS each year shall draw up a report on the previous year's implementation of the audit plan for the projects, referred to in Article 37, describing in detail the methodology used by the JMA for selecting a representative sample of projects, as well as the controls carried out, the recommendations made and the conclusions drawn by the JMA in relation to the financial management of the projects concerned.

In order to comply with the requirements described above, projects that have submitted expenditure verification reports during the year 2013 have been included in the “Annual Audit Plan 2014 for the projects” by the JMA according to Article 30 and Article 37 of the IR.

The Programme rules require that each partner of the project approved for financing must contract an Audit Company to verify the eligibility of costs incurred during the project implementation by carrying out expenditure verification.

The IAS announced tender in Official Journal of the European Union for external audit services performing sample checks for the Programme (Second Level control). As a

24

result, multi-annual contract was signed with the external audit company “Ernst& Young Baltic” Ltd. on 27 August 2013.

The sample checks of the Actions (projects) were carried out on the spot by the contracted audit company.

Audit services were performed in accordance with the International Federation of Accountants (IFAC) provisions and Code of Ethics. Compliance with the International Standards (4400) for task performance regarding particular service was met (International Standard on related services 4400 „Engagements to PerformAgreed-upon Procedures Regarding Financial Information”).

External auditor carried out sample checks in accordance with the JMA project audit plan. 11 Projects out of 25 were selected for audit covering 15,8 % (EUR 1 230 884,15) of total projects book value (EUR 7 792 455,96) as well 17,1% (18 Partners) of total Project Partners number (105 Partners). Sample result covers 7 Latvian Project Partners, 6 Russian Project Partners and 5 Estonian Project Partners. In such a way regional coverage per programme countries is ensured. Sample results also cover projects of all priorities (Priority I, Priority II and Priority III) and different types of beneficiaries (Public authority, Public equivalent body, NGO, Association formed by public or public equivalent bodies). Sample checks were carried out based on the Methodology for sample checks for ENPI – CBC that provides audit checklists, which shall be used for project review. Abovementioned methodology has been approved by the ATF.

Program projects were audited by reviewing project income and expenditure (including checks on the spot where the project has been implemented). It involved 100% review of the Programme partner expenditures, which have been included in the annual audit plan and considering supporting document compliance with following requirements:

- Project partner expenditure meet the requirements of Commission Regulation (EC) No. 951/2007 of 9 August 2007 laying down implementing rules for cross-border cooperation programmes financed under Regulation No 1638/2006 of the European Parliament and of the Council laying down general provisions establishing European Neighbourhood and Partnership Instrument (hereinafter – Regulation No. 951/2007);- Project partner expenditures comply with the requirements set out in the programme guidelines;- Project partner expenditures meet the requirements of the national legislation in the field of procurement and Practical Guide to Contract procedures for EC external actions (hereinafter - PRAG), where applicable;- Project partner’s expenditure supporting documents comply with the state’s accounting procedures and document formatting rules where such expenditure has occurred.- The project partner's expenditure has actually incurred and reported correctly, so that it is eligible to receive funding according to the project grant agreement.- Declared expenditure is justifiable and lawful.

As a result, each project partner audit findings were gathered in the Audit Protocol written in English. The Audit Protocol provided information whether declared expenditure actually incurred, whether it was reported correctly and the project is eligible to receive funding. Furthermore, suggestions and findings were included

25

indicating to the project partner or to the JMA what changes are needed in order to improve project and program financial management.

Total amount of verified expenditure is 1 230 884,15 EUR (Programme financing part: 1 096 195.34 EUR), total amount of detected ineligible expenditure is 1 4 72,40 EUR (Programme financing part: 1317,84 EUR).

All the results of the external audit are consolidated in the Report of implementation of the audit plan for the projects, referred to in Article 30 and Article 37 of the IR, and are attached as Annex I.2. to this report.

Only 3 insignificant irregularities (1 - project ELRI-167 “E-archive”, Culture Information Systems Centre –829,85 EUR, Programme financing part – 746,87 EUR, 2 - project ELRI-191 “AAC”, University of Tartu – 563,80 EUR, Programme financing part – 500,09 EUR, 3 – project ELRI-109 “ESTLATRUS TRAFFIC”, Tartu City Government – 78,75 EUR, Programme financing part – 70,88 EUR) were noted during the sample checks, therefore overall conclusions based on the results of implemented audit plan are:

- project expenditure verification reports reliably identifies eligible costs of the projects; - the Joint Managing Authority has made correct decisions regarding the eligibility/ non- eligibility of project expenditure.

5. Information and Communication

5.1. Internal Communication Arrangements

Exchange of information between the Programme management bodies and the Programme Participating Countries was carried out via the JMC meeting organised in December, 2014 and the JTF for the JTS staff recruitment as well as communicating by e-mails, telephone and Skype.

The JMC ensured the effectiveness and quality of the implementation of the Programme according to the Rules of Procedure of the JMC i.e. reviewing the management decisions taken by the JMA, evaluating and monitoring accomplished progress towards the objectives of the Programme, examining all reports submitted by the JMA, and, if necessary, taking appropriate measures. All Programme Participating Countries participated in the JMC and took part in solving specific issues and decision making.

“Four eyes principle” was generally applied in management and administration of the Programme. All documents issued by the JMA as structural units of the MEPRD were elaborated in accordance with the Procedure on Circulation of Documents, i.e. each document was prepared by an expert, endorsed by Head of the Division and signed by the Head of the OMS or the FMS, IAS or Head of the JMA. In all cases the “four eyes principle” was observed.

The JTS prepared and on monthly basis updated the Work Plan 2015, informative tables on projects reporting timeline, major and minor modifications in projects. All information was always sent to the JMA. Internal meetings between the JMA and the JTS took place upon need.

26

The JTS organised regular monthly staff meetings with involvement of the branch offices from Estonia and Russia, altogether 9 internal trainings/meetings and 2 Skype conference meetings were organised. The JTS main office internal meetings were organised at least once a week and the minutes of the meetings are forwarded to all of the JTS staff and the JMA. All of the JTS employees submitted their weekly plans and the report on tasks performed to the Head of the JTS as well as the monthly time-sheets. Everyday communication within the JTS was organised by phone, e-mail and Skype. Targeted training “Findings; Recovery – JTS tasks and responsibilities” was organized for the JTS staff with the support of the INTERACT team.

Decision making within the Programme was collegial. Basic rule states that the Programme management body, issuing the decision, coordinates and harmonizes it with other responsible bodies before the decision enters into force. More detailed descriptions are provided in the respective procedures.

In order to ensure adequate storage and processing of Programme and actions’ data a secure limited access computerised Programme management system – Programme database is elaborated and operated by the JMA and the JTS. The procurement for the selection of a company for maintenance of the Programme data base took place in the 1st quarter of 2014. The contract was signed on 29 April.

The database ensures storage and processing of full Programme life-cycle information and is based on project level data. It is a tool used for project receipt, filing, assessment, reporting, monitoring, payments and aggregating data on Programme level.

Operation of the Programme database ensures a high reliability and control on the expenditure declared to the European Commission and on the administrative management of the actions granted within the Programme. The system is also used for recording and storing in computerized form financial records for each action to ensure that data on implementation necessary for financial management, monitoring, verification, audits and evaluation is collected and accessible for the JMC, the JMA, the JTS, the Programme Participating Countries and other institutions carrying out above named functions. All the concerned Programme Authorities have the access (user’s or viewer’s, depending on functions) to the Programme database using personal login and password.

5.2. External Information and Visibility Arrangements

5.2.1. Website of the Programme

Internet is regarded as a major channel for communication within the Programme. Three of these tools for communication that internet users take advantage of are e-mail, website and twitter.

“Programme News” and “Project News” sections for the Programme website were updated on a regular basis. Outputs and results including different publications and Results Sheets of implemented projects were published in “Projects” section. This contributed substantially to providing information to the wider audience about success stories of the Programme.

27

News about Programme and project activities and events held in 2014 were published on a regular basis; they included 58 items of Programme news and 84 items of Project news. Translation of information into national languages of the Programme participating countries was ensured. About 345 events submitted by the projects via “Add your event” section were revised and published in the “Events” section of the webpage.

Some major improvements were ensured for the Programme webpage. Subscription for News was upgraded and webpage users had the opportunity to subscribe under each published news. Programme publications issued for significant promotion of Programme results, European Cooperation Day 2014 and Annual Event in Gatchina were added to the Publication section. Photos from key Programme and project events were uploaded to the Photo Gallery section of the website - 13 new galleries contributed to visibility of Programme implementation.

5.2.2. Programme Twitter

Twitter is a communication tools encouraging social interaction. Programme Twitter account http://twitter.com/ESTLATRUS_ENPI operationally reflects all Programme and project news, periodical digests and events, TV and radio broadcasts and links to project videos. The tweets are posted with links to the news published on the Programme website thus widening website audience. By the end of 2014 about 740 tweets were posted, 100 of them were published in the framework of ECDay 2014 information campaign.

5.2.3. Events and Support on Action Level

5.2.3.1. Programme Annual Event

Annual Event 2014 of the Programme „Joint solutions for the benefit of the Estonia-Latvia-Russia border areas”, held in Gatchina, Leningrad Region, Russia on 3-4 June 2014, was organized with an aim of to promote achievements of the Programme in its’ territory, to present achievements of supported projects and introduce relevant stakeholders with the results of Programme implementation. It should be also looked up as a clustering activity and continuation of thematic capitalization within the Programme.

Annual Event 2014 concentrated on the following topics:

1. Infrastructure development and renovation in the Programme area, promoting relevant LSPs and projects, selected through the calls for proposals with local infrastructure component;

2. Projects addressing directly children, youth and families with children as target groups and/or aiming at some actual needs of these target groups. This theme was important for all Programme countries and as well for Leningrad Region hosting the event as the year 2014 was announced ‘The Year of Children’ by the Governor of the Leningrad Region.

The Annual Event had brought together for 2 days around 200 participants from three Programme countries. On the first day participants visited Pavlovsk to witness opening of the Grand Cascade in Pavlovsk park that was reconstructed with the support of the

28

Programme project „Landscape pearls“ implemented by partnership of Pavlovsk State Museum (Russia) and Alūksne Municipality (Latvia). The Grand Cascade regained its functionality after having been unused since year 1850.

The second day of the event was devoted to conference "Joint solutions for the benefit of Estonia, Latvia and Russia border areas". The conference took place in Gatchina Palace. Mr Andrey Minin, Head of the Committee for External Relations of the Leningrad Region, welcomed conference participants on behalf of the Regional authorities hosting the Annual Event.

Introductory speeches for opening the conference were also given by Heads of National Delegations – Ms Margarita Golovko, Head of European Territorial Co-operation Bureau, Regional Development Department, Estonian Ministry of the Interior (via a video-address), Ms Iruma Kravale, Head of Development Instruments Department, the Latvian MRDLG and Mr Konstantin Shkred, Head of Department for International Relations, Promotion of Interregional and Cross-Border Cooperation, the Ministry of Regional Development of the Russian Federation.

Conference agenda was divided in 3 plenary sessions with 18 speakers covering key topics:

Development of the border-crossings and logistics in the Programme area; Encouraging business and entrepreneurship – success stories; Cross border cooperation for future – benefits for children; Prospects of future cross border cooperation ENI CBC Programmes Estonia –

Russia and Latvia – Russia.

In intermissions between the plenary sessions’ outputs of Programme’s 20 projects, including informative and visual presentations of 13 children related projects were introduced in exhibition “Children in project focus”. A short documentary video about the projects exhibition was produced afterwards.

Continuation of thematic capitalization and clustering activities within the Programme were supported with producing and distribution of the Thematic Fact Sheet and 2 brochures, containing descriptions of the 2nd Call for Proposal projects and LSPs.

The Annual event 2014 was concluded with an open air reception in the Gatchina Palace garden for the Awarding Ceremony for projects that have finalized

29

implementation of activities. The Ceremony was accompanied by the musical concert of «Jazz-Tone» Orchestra of the Volkhov city municipal Palace of Culture, participant of activities of project “Cooperation in the theatre and the music arts development” implemented by partners from Latvia – Limbaži municipality and Salacgrīva municipality council jointly with Administration of the Volhovsky municipal area of Leningrad, Russia.

5.2.3.2. Seminars

In order to ensure information for beneficiaries and partners of the projects that were contracted within the Calls for Proposal and LSPs, the following events were organized:

Briefing meetings-consultations on project implementation; Seminars for Beneficiaries and partners on closure of the projects and final

reporting; Seminars-consultations for external auditors of project beneficiaries and

partners.

Three briefing meetings-consultations took place on 23 January in Riga, Latvia, on 29 January in St.Petersburg, Russia and on 7 February in Tartu, Estonia. The target group of the meetings were responsible project managers of project lead partners. The briefings were held as informal round table discussions and exchange of information and best practices about important issues that concern final reporting and closing of the projects. Participants of the meetings were informed about on-spot visits, deadlines for implementation of activities, payments to the projects, submission of reports, most common risks of ending the projects and solving problematic issues within project partnership.

Briefing meetings in Riga, Latvia, St.Petersburg, Russia and Tartu, Estonia

To ensure successful implementation and reporting process of supported projects 3 two-day seminars were organised for project beneficiaries and partners. Presentations by the JTS staff introduced Programme contractual obligations, requirements on publicity and visual identity of the projects, financial issues, challenges and good practices in partnership, as well other relevant topics of project implementation. Individual consultations were provided. Seminars took place on 26-27 February in Pühajärve, Valga County (Estonia), on 19-20 March in Pskov (Russia) and on 9-10 April in Gulbene (Latvia). High interest from projects’ experts was observed during the events. There were 80 participants representing 22 projects in Pühajärve, 90 participants representing 20 projects in Pskov and 70 participants representing 15 projects in Riga.

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Seminar in Pühajärve, Estonia, Pskov, Russia and Gulbene, Latvia

Three seminars-consultations focusing on final reporting and eligibility of costs were organized for external auditors of project beneficiaries and partners. These events took place on 2 July in Tartu, Estonia, on 3 July in Riga, Latvia and on 17 July in St. Petersburg, Russia. Information about legal framework, visibility requirements, importance of evidences of achieved outputs and results was presented by JTS staff and discussed during the seminars. Events were attended by representatives of 10 projects in Tartu, 9 projects in Riga and 6 projects in St. Petersburg.

5.2.3.3. European Cooperation Day

European Cooperation Day (hereinafter referred as ECDay) was celebrated with a motto “Sharing borders, growing closer”. In total 13 events were held in the Programme territory in September and October 2014 – 1 in Estonia, 5 in Latvia and 7 in Russia. 8 projects organized various type of public activities in Latvia and Russia – such as EU and ECDay quizzes, clean-up activities and exhibition of children’s works. All project activities were reflected in Project News on Programme website and communicated via Programme Twitter; local actions were reflected in social media of ECDay on Facebook and Twitter. The news was also spread via regional Internet media in all Programme countries and in regional TV in Latvia. Three flagship projects were chosen and their stories are published on official ECDay website.

1. Short story about project “To preserve not to lose it – safeguarding of cultural heritage” or Preserve not to lose.

2. “Promoting the use of cultural heritage and resources in product development in border areas” or Heritage Business.

3. “Supporting the local self-government development to improve the quality of life in rural areas” or LSG Development. 

In September, 2014 three similar ECDay events with an aim to preserve tangible and intangible cultural and historical heritage were organized by the Programme in co-operation with the flagship project „Preserve not to lose” and results and achievements of the Programme and projects were promoted directly to local communities. Joint public preservation actions were held on sites of the project - on 13 September in Sangaste (Valga County, Estonia), on 25 September in Dedovichi (Pskov Oblast, Russia) and on 30 September in Balvi (Latvia). The Programme supported installation of new swings, historical component of the Sangaste Castle, saving action of the Grand Oak of Balvi with installation of benches and mini-stage around the old tree and installation of new tourism map and information boards about Knjazi Gorki Manor in Dedovichi.

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An integral part of the EC Day celebration was opening of interactive permanent digital expositions financed by the Programme in the framework of project “Preserve not to lose” in Sangaste and Balvi. In Sangaste Castle, which is historically famous for use of scientific achievements, it was a 3-Dimensional rye field and winking and changing portrait of the historical owner of the castle – Count Berg (called also King of Rye). In the Granary of Balvi Manor traditional values of North Latgale were exposed in unique and well-designed digital ethnographic and historical expositions, that included folklore, traditional singing and its collectors and performers, ethnography, crafts, craftsmanship and its carriers, private collections and materials about Balvi. The expositions have been digitalized and integrated in audio and visual materials. With the help of technologies all that has been collected and kept in storage rooms has been placed in attractive and interactive context of today's needs.

Additionally, in Sangaste castle new Winter Garden was reconstructed and reopened after 70 years and library house in Dedovichi was restored and renamed as new Cultural heritage centre. In the Cultural heritage centre of Dedovichi digitalized collection embraces information of old mansions, cemeteries, churches, which include Knjazhi Gorki (a Manor), confirms presence of famous Russian poet Pushkin in the region and is prepared to be demonstrated to the visitors. During the ECDay action all participants jointly planted a young oak tree as a symbol of the partnership and cultural connections between three municipalities. In October 2014 Programme supported two ECDay related initiatives in Russia – a photo exhibition of 18 projects involving partners and participants from the Leningrad Region was placed in the Administration of Leningrad Oblast in St. Petersburg for two weeks starting from 13 October 2014. In addition information stand of the Programme was placed in VII St. Petersburg International Innovation Forum, St. Petersburg from 1-3 October 2014. The biggest interest of the visitors of Programme stand was attracted by the Programme publications – 2nd Call Projects notebook and Programme leaflet. ECDay postersProgramme produced two posters devoted to ECDay and they were placed in the venues of the ECDay during public actions in Estonia, Latvia and Russia. Posters reflect outputs of the Programme in figures and provides unique data collected by five ENPI Programmes with participation of the Russian Federation - South-East Finland - Russia, Kolarctic, Karelia, Lithuania-Poland-Russia and Estonia-Latvia-Russia. The layout of the joint ENPI poster is identical to joint publication for Open Days 2014 in journal Regional Review. Both ECDay posters are available in English and Russian and can be viewed under Publications section of the Programme website. ECDay competitions With a great success Programme and its supported projects took part in two competitions organized within the scope of ECDay. Photo competition was organized by the ENPI Info Centre in July 2014 and as a result photo of the project “EstRusFortTour-2” was included in the exhibition “Faces of Neighbourhood” and

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exposed in the Europe Info Centre, Brussels, Belgium in October 2014. Video competition was organized by INTERACT in July, 2014. Five videos of the Programme and Projects were submitted and two of them were evaluated with high scoring. Video of the project “EstRusFortTour-2” got second place and Programme’s promotional video got third place – both in ENPI category by professional jury. Website bannerBanner of the Programme website reflects most memorable moments of the ECDay 2014 (www.estlatrus.eu). 

5.2.3.4. Other Promotion of the Programme

The Programme was promoted during 10th Anniversary International Conference “Cross-border Cooperation: Russian Federation, European Union, and Norway” in Petrozavodsk, Russia, on 14 November, 2014. Joint Exhibition of ENPI CBC Programmes was traditionally offered to the attention of the conference participants. Info-tables of all 5 CBC ENPI Programmes involving Russia including Estonia-Latvia-Russia, South-East Finland-Russia, Karelia, Kolarctic and Lithuania-Poland-Russia ENPI CBC Programmes were equipped with brochures, booklets, posters, promotional items and souvenirs and video presentations and introduced general statistics of Programmes results and projects achievements.

In addition to the above mentioned the JMA/JTS staff also took part in the following international networks:

5th meeting of the INTERACT ENPI Communication Managers network, 4-5 February, Tallinn, Estonia;

4th communication network meeting of ENPI CBC Programmes with Russia, 15 May, Vilnius, Lithuania.

Closer cooperation was established with the ENPI Info centre. Project News about cross border achievements between the European Union and the Russian Federation were distributed via news alerts of the ENPI Info centre.

Information in the national languages (Estonian, Latvian and Russian) about the Programme was distributed for wider audience in close co-operation with the JTS branch offices in Estonia and Russia via press releases and Programme and project news, Fact Sheets and events.

5.2.3.5. Publications

In order to inform target groups of the Programme and to raise awareness of public about the Programme the following publications were issued:

Programme Leaflet – second printed Programme Leaflet in English, Estonian, Latvian and Russian cover actual information related to the budget, partners, type of partnerships and supported fields enable to compare data and facts available in 2014. Leaflet also includes four colourful info graphics and reflects how the programme financing is spread throughout regions and which organizations as partners in projects are benefitting most from the Programme support. 1000 copies in each language are produced.

2nd Call Brochure – Project’s Notebook comprises information about Programme and 20 projects supported during 2nd Call in English and in Programme national languages in 1000 copies.

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11 Fact Sheets issued with current news of the Programme on a monthly basis and provided to wider public. Fact Sheets were distributed via mailing lists in all Programme area as well as published on the Programme website.

Thematic Fact Sheet “Programme’s support to children” was prepared and issued also in paper version (200 exemplars) on the occasion of the Annual Event of the Programme 2014. Thematic Fact Sheet contains information, data and photos related to Programmes direct or indirect cross border support to children as a target group.

Press releases were issued in English and in national languages and sent to the media on major Programme events.

Calendars for 2015 containing information about public holidays in Estonia, Latvia and Russia for the convenience of all participating in the Programme were published in paper as well as electronic version on the website.

9 Results Sheets were elaborated to communicate final outputs and results of 9 finalised projects and are supported with selected photos that characterise activities and outputs of the project to have better visual impression of achieved results.

ECDay 2014 posters – Programme poster (200 exemplars in English and 100 exemplars in Russian) with photos and data about programme support and joint ENPI poster “Power of cooperation” (100 exemplars in Russian). English version of the joint ENPI poster was produced by South-East Finland Russia CBC Programme and shared with other programmes.

Joint publication “Power of Cooperation” in journal “Regional Review” for Open Days 2014. The Programme participated in the joint publication with unique joint information of target groups that receive support through cross border cooperation and other measurable data together with other 4 ENPI programmes cooperating with Russia as external partner.

5.2.3.6. Promotional items

In order to strengthen visual identity of the Programme and make it more recognizable among Programme target groups the following promotional items were produced:

For the Programme Annual Event 2014 in Gatchina, Russia a set of promotional materials with Programme’s logo, including 200 backpacks, 350 magnets, 60 shawls and 20 scarfs was produced.

To visualize the joint results of the ENPI CBC programmes 2007-2013 along the Russian border special poster was designed and printed in cooperation with Kolarctic, Karelia, South-East Finland-Russia and Poland-Lithuania-Russia programmes (200 copies for both Russian and English language). This material was widely used in 2014 EC Day events.

The summary of the outputs and results produced by the Programme was presented on a special poster, which is widely disseminated over the Programme area (200 copies for both Russian and English language).

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To demonstrate impressive results of the projects implemented in Leningrad region small exhibition including 4 roll-ups was produced; it is exhibited in the premises of the regional government.

Promotional items, including 250 cups with Programme logo and 800 small flags with EC Day and Programme’s logos, were created and distributed to the speakers at events, project partners and supporting institutions.

5.2.3.7. Information Activities to be Implemented in 2015

The Information and Visibility Plan for 2015 was approved on 10 December, 2014 at the 9th meeting of the JMC in St. Petersburg, Russia. Information activities are going to be financed from the Programme’s Technical Assistance budget for 2015.

The main activities for the year 2015 are:

Programme Regional Events will be organised in three countries - in Russia on 28-29 April, in Estonia on 27-28 May, in Latvia on 10-11 June, to promote final and sound results and to introduce achievements of the Programme throughout Programme territory and internationally, to present remarkable project sites as good examples. During the events information about future cross border cooperation Programmes will be provided and partnership for

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future bilateral programmes facilitated. Events are to attract media interest and attention.

Final Closing Event of the Programme united with the celebration of the ECDay 2015 will be organised in Latvia on 23 September to promote final and sound results and introduce achievements of the Programme throughout Programme territory and internationally and to provide the information about future cross border cooperation Programmes. The ECDay action on programme level supports the initiative of European Union/ INTERACT. Event is to attract media wide attention.

4 consultations-briefings for the beneficiaries and partners of the Calls for Proposals and LSP projects on final reporting and closure of Programme will be organised in Estonia, Latvia and Russia to inform project implementers on final reporting issues and to ensure smooth finalisation of the projects.

Programme results, visual identity and future programming are going to be presented at the XI Annual International CBC Conference between the European Union, Russian Federation and Norway in September 2015 in Russia.

Programme will take part at Open Days 2015, organised by DG Region of the European Commission in Brussels, Belgium to distribute the information on Programme final results and achievements to wider international audience, decision makers. Joint publication of ENPI programmes with RUS involvement will be prepared for Regional Review of Open Days 2015.

Publicity/ media. Programme representatives will participate in opening of significant Project Sites or presentations of innovative results. Programme results will be introduced and Programme promoted to wider public through information materials during the EU Presidency in Latvia. Three Thematic Fact Sheets reflecting and thematically capitalising achieved results of Programme three priorities will be issued. Project Result Sheets will be produced for all 50 projects supported by the Programme to present the outputs, final results with photo selection of projects.

Programme website www.estlatrus.eu will be maintained and updated regularly to promote the Programme and its results and to provide relevant information to target groups. Social media channels as Twitter will be used for distributing Programme news.

Promotional materials – to promote the Programme and its achievements, to ensure the recognition of the Programme the representation materials and promotional items with the symbolic of the Programme, European Cooperation Day will be produced. Programme comprehensive printed Photo Album reflecting remarkable achievements of the projects will be issued. Awards to the finalised and best projects will be produced and delivered in different categories during the Programme Regional and Final Closing Events.

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6. List of Annexes

1. Annex I: Internal Audit Reports 2014Annex I.1. Internal Audit Report 2014 of Overall management of the process and Controls in the Programme;Annex I.2. Annual report on implementation of the audit plan for the projects 2014;

2. Annex II: External Audit Report for 2014;3. Annex III: Bank Account Statements on 31 December 2014:

Annex III.1: Bank Account Statement of the JMA expenditure (and translation);Annex III.2: Bank Account Statement of the JTS expenditure LV64 (and translation);Annex III.3: Bank Account Statement of the JTS expenditure LV98 (and translation);

4. Annexes IV: Programme’s documentation:Annex IV.1: Financial Report on absorption of Programme Technical Assistance budget 2014 for Joint Technical Secretariat and Joint Managing Authority;Annex IV.2: Annual Work Plan for 2015;Annex IV.3: Technical Assistance budget for 2015;Annex IV.4: Justification of Technical Assistance budget for 2015;Annex IV.5: Information and Visibility Plan for 2015.

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