European Court of Auditors 2/20/2018 European Court of Auditors Internet : “http://www.eca.eu.int”

Internal Control System 2/20/2018 Integrated Administration and Control System IACS The audit of IACS Internal Control System Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

The audit subject What does IACS do ? Why was IACS introduced ? 2/20/2018 The audit subject What does IACS do ? Why was IACS introduced ? How does IACS work ? What are the main features ? Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

2/20/2018 IACS What does it do ? IACS is the main control system over payments to farmers Over 6 million aid applications are processed at Member state level under IACS throughout the EU, for over €25 billion in 2000, representing about 64% of CAP payments By 2004, over 80% of CAP payments will be covered, as more schemes are included under IACS and as direct payments increase after the Agenda 2000 reform Arable crops is the biggest scheme (€16 billion) followed by premiums for beef (€4 billion) EAGGF payments to farmers Over 6 million aid applications are processed at Member state level under IACS throughout the EU, for over €25 billion in 2000, representing about 64% of CAP payments By 2004, over 80% of CAP payments will be covered, as more schemes are included under IACS and as direct payments increase after the Agenda 2000 reform Arable crops is the biggest scheme (€16 billion) followed by premiums for beef (€4 billion) Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

EAGGF expenditure covered by IACS in % 2/20/2018 EAGGF expenditure covered by IACS in % Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

IACS Member States’ Shares 2/20/2018 IACS Member States’ Shares Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Measures covered by IACS in 2001 (1/2) Measures fully included in IACS: billion € Area aid for arable crops: 16.9 Premiums for beef and veal 3.7 Aid for sheep meat and goat meat 1.4 Extensification 0.9 Other 0.3 Total 23.2 Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Measures covered by IACS in 1999 (2/2) Measures for which agricultural parcels have to be cross checked with other measures in IACS: billion € Production aid for olive oil 2.5 Agri-environmental measures 2.0 Premiums for tabacco 1.0 Less favoured areas 0.9 Aid for cotton 0.7 Other 1.8 Total 8.9 Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Measures covered by IACS in the future Wine Tomatoes Processed citrus fruits Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

IACS Why and when was it introduced ? The 1992 reform of the Common Agricultural Policy shifted emphasis away from price support mechanisms, and significantly increased the level of direct payments to farmers. This multiplied the number of payments and schemes to be administered, and was the reason why IACS was created. IACS was established by Council Regulation 3508/92. The implementing rules were provided for by Commission Regulation 3887/92(revised by Commission regulation 2419/2001) Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

2/20/2018 IACS How does it work ? There are 5 elements of IACS to be established by Member States a computerised database; a land parcel identification system; an animal identification and registration system; aid applications; an integrated control system. Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

IACS Main Features: The computerised database (1 of 5) The database should record data from aid applications for each agricultural holding for at least three years. The database may be decentralised, as long as the systems are compatible. In practice, there are often several systems and organisations involved, depending on the Member State’s administrative structure. The database is essential for: payment processing, cross checking, application of sanctions (including retroactive sanctions), management information... Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

IACS Main Features: The land parcel identification system (2 of 5) This system identifies the location and area of agricultural land parcels and traces their ownership. It may be based on the “cadastre” (Germany, Spain, France), or aerial / satellite photography (Ireland, Portugal, Scotland) i.e. “Geographical Information System”, or official maps (rest of UK). It often includes information about land use (though this is not essential) New requirement: Geographical Information Systems required in all Member States from 2005. The identification system is essential for: payment processing, checking claimed areas, checking duplicate claims for the same parcel, checking claims for ineligible areas, carrying out on the spot inspections... Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

IACS Main Features: The animal identification and registration system (3 of 5) Rules initially provided by Directive 92/102: herd registers and ear tagging. Following BSE, Regulation 820/97: adds requirements for computerised database (Directive 97/12) and animal passports. On the spot inspections of 10%. The system is essential for: checking the apparent eligibility of animals claimed (sex, race, age, identification), checking for duplicate claims, checking ownership... Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

IACS Main Features: Aid application (4 of 5) 2/20/2018 IACS Main Features: Aid application (4 of 5) One area aid application per farmer. Several animal premium applications possible. Basic information on the area / animal claimed, the claimant, relevant supporting information. Aid applications are essential for: providing the basic information on aids claimed... Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

IACS Main Features: The integrated control system (5 of 5) An integrated system of administrative checks and on the spot inspections; Administrative checks: cross checks between farmers claims and parcel / animal identification databases; cross checks between individual farmers claims; checks on eligibility of claimed areas / animals (e.g. eligible for area aid, surface area, eligible age of animal, validity of tag number…); checks to avoid overpayment in case of quota / base area overshoots. On the spot inspections: Risk based; Minimum 5 % for areas; 10% for animals (5% with fully operational database); May use aerial / satellite photography. Sanctions: Complicated sliding scale, depending on rate of over-declaration found; Serious negligence: zero aid; Fraud: zero aid next year too. Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

IACS Overview of principal IACS controls Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

General Audit Objective: 2/20/2018 General Audit Objective: The audit should check that the five elements of IACS are in place in the Member States and that they enable adequate control of aid applications and effective on the spot controls Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Specific Audit Objectives(1/2) 2/20/2018 Specific Audit Objectives(1/2) EU level Has the Commission independently supervised the timely implementation of IACS by the Member States? Has the Commission assessed the extent to which the objectives of IACS have been attained in an economic and efficient manner and eventually recommended corrective action? Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Specific Audit Objectives(2/2) 2/20/2018 Specific Audit Objectives(2/2) Member States level Have the five elements of IACS been implemented and are the data in the databases complete, valid and updated on time? Are effective administrative controls operating, more specifically using the cross check aiming at avoiding payment for ineligible areas and animals or in case of overshoot of base areas or premium ceilings? Do on the spot controls meet the regulatory requirements and is their impact assured by the appropriate application of risk analysis techniques and of regulatory sanctions? Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Audit field and risks Audit field 2/20/2018 Audit field and risks Audit field Basic information on the audited system( Measures included, organisation in the Member States, budgetary significance) Audit scope Risks Inherent risks Control risks) Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Audit approach Information available 2/20/2018 Audit approach Information available General importance in relation with other audits Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Implementation Member States to be visited Work to be completed 2/20/2018 Implementation Member States to be visited Work to be completed in office EU level Member State level (first and second phase) Audit evidence Resources Planning Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Weaknesses found at Member State Level Area Aid 2/20/2018 Weaknesses found at Member State Level Area Aid Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Weaknesses found at Member State Level Bovine Premiums 2/20/2018 Weaknesses found at Member State Level Bovine Premiums Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Suckler Cow premium error rates 2/20/2018 Suckler Cow premium error rates Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

IACS Audit Background to the Reliability of IACS inspections Conclusion in 1996 Annual Report (see PE request in the discharge procedure); Conclusion in Special Report n° 19/1998 on BSE; Timeliness: 2nd year after transition period Main control tool for EAGGF expenditure and complicated system; Frequent SOA findings ; Special Report n° 4/2001 Audit of Bovine identification and registration system Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Reliability of IACS Inspections General Audit Objective: 2/20/2018 Reliability of IACS Inspections General Audit Objective: The audit should assess the reliability of inspections or on the spot controls and the use made by the Commission of the information on these controls made available by the Member States. Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Reliability of IACS Inspections Specific Audit Objectives (1/2) 2/20/2018 Reliability of IACS Inspections Specific Audit Objectives (1/2) EU level Do IACS inspections provide to the Commission the necessary reliable information on legality and regularity of EU expenditure covered by IACS and on the adequate implementation of IACS management procedures? Does EU legislation provide for efficient IACS inspections and uniform application of sanctions provided for under EU legislation? Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Reliability of IACS Inspections Specific Audit Objectives (2/2) 2/20/2018 Reliability of IACS Inspections Specific Audit Objectives (2/2) PA level Do PAs , when selecting holdings, comply with EU legislation and Commission instructions? Are risk analyses efficient? Are the statistics on area aids or animal premiums forwarded to the Commission reliable? Do national control instructions comply with EU legislation? Do national administrative procedures, before payment of EU aid, integrate inspection findings and sanctions as applicable? Do 2001 IACS inspection findings comply with EU legislation and are they reliable? Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Reliability of IACS Inspections Audit scope 2/20/2018 Reliability of IACS Inspections Audit scope Commission : legislation, reports (clearance of accounts, certifying bodies, aerial photography or satellite imaging, specific IACS, internal evaluation...), consolidated statistics 15 Paying Agencies in 10 Member States (Belgium, Denmark, Germany, Spain, France, Ireland, Italy, The Netherlands, Portugal, Sweden): systems analysis, internal audit reports, sampling, national instructions, administrative procedures before payment 90 inspection re-performances : 45 for area aid and 45 for animal premiums: Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Reliability of IACS Inspections Sampling 2/20/2018 Sampling requirements : random and risk based area aid : 5 % (min 4 % risk based & min 1 % random) animal premiums : if 10 % (min 8 % risk based & min 2 % random) if 5 % (min 4 % risk based & min 1 % random) Reference population : aid applications - random sample in 16 Paying Agencies in 10 Member States as selected by MUS for SOA EAGGF excluding Greece (reliability of administrative controls) and United Kingdom (foot and mouth disease) 45 inspections on area aid and 45 inspections on animal premiums MUS sampled Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Reliability of IACS Inspections Implementation Timing APM adopted on 19septembre 2002 audit missions to Member States : November 2002 to April 2003 SOA Specific appraisal timing for Annual report 2002 Internal delegation between EAGGF Sectors Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Reliability of IACS Inspections Audit resources 15 auditors 300 man x weeks (110 in 2002 and 152 in 2003) 80 man x weeks on mission in the Member States (30 in 2002 and 50 in 2003) Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Content PART 1 : IACS PART 2 : Reliability of IACS Inspections Audit Subject Audit objectives and criteria Audit field and risks Audit approach Implementation Main audit findings PART 2 : Reliability of IACS Inspections Audit Objectives Audit scope Sampling Audit resources Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Reliability of IACS Inspections Main findings 2/20/2018 Reliability of IACS Inspections Main findings Reliability of on the spot inspections Adequacy of reporting of findings (for SOA or clearance of accounts) Systems weaknesses Interpretation guidelines Commission use of findings Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems

Third EUROSAI Training Event Prague -May 2003 2/20/2018 Third EUROSAI Training Event Prague -May 2003 Evaluation of Internal Control Systems