9.3 Budget Implementation Modes: Direct, Shared & Indirect Management

9.3 Budget Implementation Modes: Direct, Shared & Indirect Management

The implementation mode tells an auditor who performs budget tasks, which rules govern the relationship, and where the control evidence should exist. Article 62 of Regulation (EU, Euratom) 2024/2509 provides three modes. Their relative budget shares vary by year and programme; they are not fixed legal percentages.

Treaty and regulatory foundation

Article 317 TFEU states that the Commission implements the budget in cooperation with Member States, on its own responsibility and within the limits of appropriations, having regard to sound financial management. That responsibility coexists with duties assigned by legislation and agreements to Member States and implementing partners. An auditor should therefore avoid two opposite errors: treating every operational control as if the Commission performed it directly, or treating delegation as if it removed Commission supervision.

Direct management — Article 62(1)(a)

In direct management, implementation is carried out by Commission departments, including appropriately authorised staff in Union delegations, or through executive agencies. Typical instruments include grants, procurement contracts, prizes and directly managed financial operations.

The audit trail is comparatively close to the Commission: calls and tender files, evaluations, legal commitments, payment authorisations, beneficiary reports and ex-post checks should be available in Commission or agency systems. Important risks include incorrect eligibility decisions, weak evaluation records, conflicts of interest, duplicate financing, unsupported personnel or subcontracting costs, and failure to verify deliverables before payment.

“Direct” does not mean risk-free or that every transaction receives the same control. The auditor maps the actual control design, selects procedures responsive to assessed risk and tests whether the responsible authorising service obtained sufficient evidence.

Shared management — Article 62(1)(b)

In shared management, the Commission and Member States perform different tasks under sector legislation. Cohesion programmes under Regulation (EU) 2021/1060 illustrate the chain:

• the managing authority selects and manages operations and performs risk-based, proportionate management verifications under Article 74;
• the accounting function prepares and submits accounts and payment applications as allocated by the programme arrangements;
• a functionally independent audit authority conducts system and operation audits and submits an annual audit opinion and annual control report;
• the Commission reviews assurance packages, performs its own supervisory work and can interrupt deadlines, suspend payments or apply financial corrections when the legal conditions are met.

CAP and other shared-management systems use their own sector architecture, such as accredited paying agencies. The labels and controls therefore must be checked against the governing programme rather than copied mechanically from cohesion policy.

Audit risks arise at interfaces: weak selection, procurement breaches, ineligible beneficiaries or costs, unreliable data, ineffective management verification, sampling errors, and delayed correction. A reviewer should reconcile amounts and findings across beneficiary records, managing-authority systems, the accounts, the audit authority’s work and Commission follow-up.

Indirect management — Article 62(1)(c)

In indirect management, the Commission entrusts implementation tasks to persons or entities listed in the Financial Regulation, including third countries or their bodies, international organisations, the EIB Group, Member State bodies, public-law bodies and certain private-law bodies with a public-service mission.

Before relying on a partner’s systems, rules and procedures, the Commission generally performs the ex-ante assessment in Article 157(3) and (4). It examines internal control, accounting and independent external audit, and—where relevant—rules for grants, procurement, financial instruments, exclusion, publication of recipient information and personal-data protection. Article 157(7) contains cases in which the Commission shall or may decide not to require that assessment. Under Article 157(5), partial compliance can be addressed through appropriate supervisory measures specified in the agreement.

The resulting audit is not simply a repeat of the assessment. It tests the contribution or financing agreement, reports and results, use of funds, audit rights, follow-up of recommendations and any supervisory measures. Multi-donor actions, reliance on partner audits, local sub-implementers and data access can complicate the evidence chain.

A mode-to-evidence audit method

For any programme, work through five questions:

1. Classification: Which Article 62 mode applies to each component? A programme may contain more than one delivery arrangement.
2. Responsibilities: Which entity selects recipients, contracts, authorises payments, keeps accounts, verifies performance and corrects errors?
3. Criteria: Which Treaty, Financial Regulation, sector rule, agreement and internal procedure governs each responsibility?
4. Evidence: Where are approvals, reconciliations, source records, system logs, audit reports and corrective actions retained, and what access rights exist?
5. Supervision and correction: How are exceptions escalated, payments interrupted or suspended where authorised, and irregular expenditure recovered or corrected?

Constructed example

Assume a cohesion operation contains discriminatory tender criteria. The auditor would test the beneficiary’s procurement file, the managing authority’s risk-based verification, the treatment in the accounts, the audit authority’s sampling and conclusion, and the Commission’s supervisory response. The appropriate financial correction depends on the applicable rules and facts; a classroom percentage should never be treated as automatic. The point is to trace one defect through the full shared-management assurance chain.