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1. The financial corrections made by Member States in accordance with Article 14(1), point (f), shall consist of cancelling all or part of the financial contribution from the Reserve. Member States shall recover any amount lost as a result of an irregularity detected.

2. The Commission shall take appropriate action to ensure that the financial interests of the Union are protected through the exclusion of irregular amounts submitted to the Commission in the application referred to in Article 11 of this Regulation from Union financing and if irregularities are subsequently identified through the recovery of the amounts unduly paid in accordance with Article 101 of the Financial Regulation.

3. The Commission shall base its financial corrections on individual cases of identified irregularity and shall take account of whether an irregularity is systemic. Where it is not possible to quantify precisely the amount of irregular expenditure, or where the Commission concludes that the management and control system for the Reserve is not working effectively to safeguard the legality and regularity of the expenditure, the Commission shall apply a flat rate or extrapolated financial correction. The Commission shall respect the principle of proportionality by taking account of the nature and gravity of the irregularity and its financial implications for the Union budget.

4. Prior to the application of financial corrections through the recovery of amounts unduly paid, the Commission shall inform the Member State concerned of its assessment and invite that Member State to submit its observations within 2 months of informing the Member State of its assessment.