The Audit Authority The Netherlands 2007-2013 Meeting AA Italy June 10th 2010 Harry L. Jansen RE RA Projectleader ERDF Italy June 10th 2010

Organisational Chart Ministry of Finance Italy June 10th 2010

Dutch AA organisation Dutch Audit Authority 3 Teams: EFDF: 20 persons ESF: 7 persons (and 7 hired through ESForg) EFF: 2 people 2 Lawyers Italy June 10th 2010 Italy June 10th 2010

Dutch Audit Authority is responsible for ERDF (€ 830 million) ESF (€ 830 million) EFF (€ 50 million) Italy June 10th 2010 Italy June 10th 2010

Structural Funds in the Netherlands Situation 2000 -2006 For the SF 2000-2006: each internal audit department responsible for the audit of ‘their funds’; 2006: Audit of the European Commission: yellow cards all over. 2007-2009: auditors of the ministry of Economic Affairs, Internal Affairs and Agriculture plus hired accountants had to audit a sample of projects (2000-2006). The managing authorities had to ascertain their work by means of the checklists of the EC; 2009-2010: still finalizing project expenditures (n+2) for the winding up of the programmes Rijksauditdienst - Audit Authority Italy June 10th 2010

Structural Funds in the Netherlands Situation 2007 - 2013 The programmes 2007-2013: Four operational programmes ERDF (with a co-ordination unit in the ministry of Economic Affairs) For each OP a managing authority and some intermediate bodies (€ 830 million) One ESF programme (co-ordination within a special agency (€ 830 million) (www.agentschap.szw.nl) One EFF programme (co-ordination within the ministry of Agriculture) (50 million) One Certifying Authority for all SF and EFF (within Ministry of Agriculture) One Audit Authority for all SF and EFF (within Ministry of Finance) Rijksauditdienst - Audit Authority Italy June 10th 2010

Tasks of the AA Compliance assessments + opinion (art.71) (Art. 71 (2) 1083/2006 and Art. 25 1828/2006 + annex XII + Guidance note on Compliance Assessment Audit strategy (Art. 62 (1) c 1083/2006 and Art. 18 1828/2006 + annex V + COM guidance note) Systems Audits (Art. 62 (1) a 1083/2006) Audits of operations (Art. 62 (1) b 1083/2006, Art. 16-17 1828/2006 + annex IV) Annual Control report and annual opinion (Art. 62 (1) d (i) 1083/2006, Art. 18 (2) 1828/2006 + annex VI) and (Art. 62 (1) d (ii) 1083/2006, Art. 18 (2)+(4) 1828/2006 + annex VII) Independance and supervision of other audit bodies (Art. 62 (3) 1083/2006, Art. 23 b+d 1828/2006 ) Audit standards (Art. 62 (2) 1083/2006) (Partial) closure declaration (Art. 62 (1) d (iii) + Art. 88 1083/2006, Art. 18 (5) 1828/2006 + annex IX) and (Art. 62 (1), Art. 18 (3) 1828/2006 + annex VIII) Rijksauditdienst - Audit Authority Italy June 10th 2010

Single Audit / Single Information Already many years a joint audit with DG Budget established ESF: working towards a contract of confidence as we speak; EFF: in the fall of 2010 again working towards the same ERDF: in the spring of 2011 the same Rijksauditdienst - Audit Authority Italy June 10th 2010

Starting activities AA 2007 - 2008 Start in 2007 with a group of 10 people, all of them only part-time being involved in the audit of SF- in the beginning; Compilation of the group: Several of them certified accountants & IT-auditors, 2 lawyers (also certified auditors) and an internal co-ordinator; 2007 -2008 activities: audit strategies ; compliance assessments; developing audit approach and programmes; participating in many consultative structures; Not responsible in any way for old programming periods. Rijksauditdienst - Audit Authority Italy June 10th 2010

Situation 2008-2009 Finalizing Compliance Assessments (art.71) late; New period Management Authorities not fully operational due to n+2 old period and national action plan; No expenses declared to the Commission; IT-systems not yet fully developed and operational. Rijksauditdienst - Audit Authority Italy June 10th 2010

Compliance assessment Build up to Audit Opinion (1) steps for audit opinion 6th step Audit opinion 5th step Annual control report 4th step Audit on operations 3rd step System audits 2nd step Audit strategy 1st step Compliance assessment Rijksauditdienst - Audit Authority Italy June 10th 2010

Compliance assessment Build up to Audit Opinion (2) steps for audit opinion 6th step Audit opinion 5th step Annual control report 4th step Not performed Audit on operations 3rd step Partially performed System audits 2nd step Audit strategy 1st step Compliance assessment Rijksauditdienst - Audit Authority Italy June 10th 2010

Elements of Assurance or Confidence Improvements Does not work work minor some substantial 1 2 3 4 Conclusion / score 95% 35% 25% 15% 5% System audits 90% 80% 70% Audits of operations 60% Rijksauditdienst - Audit Authority Italy June 10th 2010

Issuing Annual Audit Opinion possible?? Dilemma for the Dutch Audit Authority (also being CPA’s) was if it would be possible to issue an annual audit opinion in this situation with its limitations? or: Is a sound basis established for issuing the opinion. In our view the answer is YES. How? By defining a detailed scope limitation and limiting our opinion to the quality of the M&C systems as far as covered by the audit on KR’s (meaning that in principle the process up to and including project selection and approval was covered) Analysing the work carried out (quality and quantity) Rijksauditdienst - Audit Authority Italy June 10th 2010

Basis for audit work ! Risk assessment from compliance assessments; Audit strategy; Audit program for system audits (perhaps at Homologue); complying with ISA’s (i.e. 315,330,520,E 3000); Sampling both as means of selection and within audits; Testing (procedures, control, …….. etc.); Re-performance; Inspection; …….. Rijksauditdienst - Audit Authority Italy June 10th 2010

Conclusion by key requirement on the basis of the assessment criteria Systems audit steps for assessment - covers the systems audits - conclusions - the compliance with the key regulatory requirements 4th step Overall conclusion Conclusion by authority: - audit authority - certifying authority/IB’s - managing authority/IB’s 3rd step - adressed to services EC - by national AA’s - AA : 4 KR’s - CA : 4 KR’s - MA : 7 KR’s Annex II 3 summary tables = the framework for reaching an overall opinion Conclusion by key requirement on the basis of the assessment criteria 2nd step Assessment criteria non- compliance = - a risk of irregular expenditure - over-reimbursement - AA : 15 AssCr - CA : 12 AssCr - MA : 23 AssCr Annex I the KR’s + relevant AssCr 1st step Rijksauditdienst - Audit Authority Italy June 10th 2010 Systems Audit

Scope Limitation and Score ERDF ESF EFF KR 1 KR 2 KR 3 KR 4 KR 5 KR 6 (IT) KR 7 (follow up) Not: Other KR’s IT CA Follow up Score: 3 Score: 1 Score: 2 Rijksauditdienst - Audit Authority Italy June 10th 2010

From Score to Opinion Unqualified With minor limitation With major limitation Adverse Rijksauditdienst - Audit Authority Italy June 10th 2010

Issued Opinion ERDF ESF EFF Opinion with major limitation KR 1 KR 2 KR 3 KR 1 KR 2 KR 3 KR 4 KR 5 KR 1 KR 2 KR 3 KR 6 (IT) KR 7 (follow up) Opinion with major limitation (in the formulated opinion is indicated that “substantial” improvements are required). Unqualified opinion (Score 1 = unqualified opinion) Unqualified opinion (from score 2 to unqualified opinion using an adjustment based on professional judgement). Score: 3 Score: 1 Score: 2 Rijksauditdienst - Audit Authority Italy June 10th 2010

Position of the Commission ERDF: annual control report and opinion: accepted ESF: EVF: additional explanation asked and answered Rijksauditdienst - Audit Authority Italy June 10th 2010

Top 5 of findings EU25 Not eligible expenditure Other irregularities Missing or incomplete supporting documents Infringement of rules related with public procurement Failure to respect other regulations / contract conditions NL Not eligible expenditure Infringement of rules related with public procurement Missing or incomplete supporting documents Incorrect accounts Infringement of declared overhead costs Rijksauditdienst - Audit Authority Italy June 10th 2010

Plus 3 more for the Netherlands extra rules plus rules which were not in line with the interpretation of the Regulations were implemented, but not applied irregularities Many discussions about additionality of projects ((semi-) government tasks/employees) displacement of funding already in place is not eligible! VAT compensated by VAT compensation fund: not eligible. Rijksauditdienst - Audit Authority Italy June 10th 2010

Plus a new horizontal issue arrising: State Aid Why is state aid such a topic? Many Court-procedures about State Aid; more attention paid to the principle of Common market: state aid distorts the free competition in the EU. + Credit crisis question: How to arrange the co-financing money? (Jasmine, Jeremie & Jessica, venture capital funds, WorldBank, EIB, IMF. Less private money in the market, so structural fund projects will be co-financed with (more) public money. Regulation has impact. State aid = a horizontal subject! Rijksauditdienst - Audit Authority Italy June 10th 2010

Compliance assessment Current audit period steps for audit opinion 6th step Audit opinion 5th step Annual control report 4th step All performed Audit on operations 3rd step System audits 2nd step Audit strategy 1st step Compliance assessment Rijksauditdienst - Audit Authority Italy June 10th 2010

Dilemma’s this years annual opinion How to ensure AA wide unity of performance; ERDF: Not one central Management Authority, but 4 regional MA’s of which one with 4 Intermediate Bodies; What to do when during project audits the materiality limit (2%) is reached; How to extrapolate results from the sample; How to derive a total score from many individual project audits; How do the results of both system audits and project audits influence the annual opinion. Rijksauditdienst - Audit Authority Italy June 10th 2010

Thank you for your attention h.l.jansen@rad.nl Rijksauditdienst - Audit Authority Italy June 10th 2010