EUROPEAN Union bosses have frozen more than £45million of money destined for scores of projects across Scotland – because of a blunder by the Scottish Government.
In the Highlands, islands and Moray alone, communities risk losing out on £5million from the European Social Fund because of apparent “irregularities” – while £41.3million earmarked for the north-east and the rest of the country has also been thrown into doubt.
Last night the Commission confirmed to the Press and Journal that it had “suspended” the remaining payments from the cash pot.
The Scottish Government insisted it was working with public bodies to comply with EU regulations.
However, the suspension triggered fury across the north – with politicians demanding urgent answers from Scottish ministers and warning of major damage to the nation’s international reputation.
It has emerged that Holyrood officials first reported problems with their own system for managing the money in December, including “irregularities concerning expenditure in several operations”.
Following eight months of talks between Edinburgh and Brussels, the European Commission has now decided to hold back all further payments from the last funding round because “there is insufficient assurance that all the measures to rectify the problems have been taken”.
The suspended funds represent almost a quarter of the £193million earmarked for Scotland from the social fund between 2007-2013.
The money is awarded to support unemployed, economically inactive and disadvantaged people.
Last night, Highland Council leader Margaret Davidson called for immediate answers.
“I’m extremely disappointed if we have been dragged into losing money because of problems elsewhere,” she said.
“We met the minister and senior official last week and they didn’t tell us this. I need to ring the Scottish Government in the morning and find out why this has happened.”
Alistair Carmichael, former Scottish secretary and Liberal Democrat MP for Orkney and Shetland, said: “It’s not just the financial loss, it’s the reputational damage to Scotland, and it’s also the projects that are going to now lose funding.
“These suspensions are not unknown but they are very unusual, and the commission usually goes out of its way to reach an accommodation with the member state before taking an action of this sort.
“I think we need to see earliest and fullest possible disclosure of what has been going on here.
“It’s important for projects of this sort to have the funding they need and this is not the sort of reputation Scotland wants in Brussels.”
One insider said last night he believed the irregularities were “just some misjudgements and some mistakes” and were not “malicious”.
The Press and Journal understands Scottish ministers were informed of the Commission’s decision two weeks ago, and have been given two months to resolve the issues.
Labour’s public services spokeswoman Jackie Baillie said: “This is hugely concerning news, especially given that this money goes to job opportunities for vulnerable people.
“The Scottish Government needs to get to the bottom of what has gone wrong here, this is cash that should be supporting disadvantaged people that isn’t getting through.”
In a statement issued to the Press and Journal, the European Commission said: “The commission has taken the decision to suspend payments from the European Social Fund for Scotland.
“Member states have the obligation to ensure that EU money is spent properly and that all procedures and documents respect the rules set out under the structural funds.
“In December 2014, the Scottish national authorities reported problems in the management and control system within the managing authorities (Scottish Government).
“The control report from 2014 also found irregularities concerning expenditure in several operations.
“On the basis of these findings and after an extensive dialogue with Scottish national authorities during several months, the commission decided that there is insufficient assurance that all the measures to rectify the problems have been taken.
“The commission has therefore adopted a suspension of payments for these two programmes. The funds suspended date back to the previous programming period 2007-2013.
“The commission will now continue to work with the Scottish authorities to resolve this.”
Councillor Davidson raised concerns about delays to the release of EU funding with Infrastructure Secretary Keith Brown last week, however she was unaware at the time that funding from the previous spending round had been suspended.
A Scottish Government spokesman said: “Cabinet Secretary Keith Brown met Highlands and islands council leaders and representatives last week in Inverness and discussed progress on European Structural Funds, including the European Social Fund.
“Approvals are imminent but await final clearance by auditors.
“Obviously with the current interruptions to programme payments we are very keen to ensure all processes all fully compliant with EU regulations before we issue any approvals.
“The interruptions were prompted by some public bodies failing to comply with their audit obligations, clearly this is unacceptable and is being addressed.”