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1. The Commission shall make financial corrections by cancelling all or part of the Union contribution to a national programme and effecting recovery from the Member State concerned in order to exclude from Union financing any expenditure which is in breach of applicable law, including in relation to deficiencies in the management and control systems of Member States which have been detected by the Commission or the Court of Auditors.

2. A breach of applicable law shall lead to a financial correction only in relation to expenditure which has been declared to the Commission and where one of the following conditions is met:

(a) the breach has affected the selection of a project under the national programme, or, in cases where, due to the nature of the breach, it is not possible to establish that impact, there is a substantiated risk that the breach has had such an effect;

(b) the breach has affected the amount of expenditure declared for reimbursement by the Union budget, or in cases where, due to the nature of the breach, it is not possible to quantify its financial impact, but there is a substantiated risk that the breach has had such an effect.

3. When deciding on a financial correction under paragraph 1, the Commission shall respect the principle of proportionality by taking account of the nature and gravity of the breach of applicable law and its financial implications for the Union budget.

4. Before the adoption of any decision to refuse financing, the findings from the Commission and the Member State’s replies shall be notified in writing, following which the two parties shall attempt to reach agreement on the action to be taken.

5. Financing may not be refused for:

(a) expenditure which is incurred by the Responsible Authority more than 36 months before the Commission notifies the Member State in writing of its findings;

(b) expenditure on multiannual actions within the scope of the national programmes, where the final obligation on the beneficiary occurs more than 36 months before the Commission notifies the Member State in writing of its findings;

(c) expenditure on actions in national programmes, other than those referred to in point (b), for which the payment or, as the case may be, the final payment, by the Responsible Authority, is made more than 36 months before the Commission notifies the Member State in writing of its findings.

6. The Commission shall, by way of implementing acts, lay down the arrangements for the implementation of the conformity clearance as regards the measures to be taken in connection with the adoption of the decision and its implementation, including the information exchange between the Commission and the Member States and the deadlines to be respected. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 59(3).