Leader Issues related to irregularities found during audits Brussels, 31 May 2017

Outline Main audit findings Simplification of control rules

Administrative checks - Findings Assessment of the RoC RoC assessed at payment claim stage Proportionality for the submission of offers: Three offers not requested and not presented with the application Too high thresholds Unjustified derogation from rules established by MS No recording of the assessment of the RoC

Administrative checks - Findings Selection criteria Inappropriate definition of selection criteria i.e.: “a project proposal has been submitted”; “at least one year membership of the LAG” Open ended calls Lack of a ranking and scoring system due to a "First in, first out" application process  ineffective selection criteria Project selection Deficiency in the voting process All applications for a call were usually submitted to a general vote rather than to a specific project-based vote

Administrative checks - Findings Supervision Absence of adequate supervision procedures Administrative checks systematically carried out on an incomplete set of documents sent by the LAGs (no application for support) In-situ visits formally delegated to the LAGs, but the MA/PA does not perform any checks on these in-situ visits In-situ visits Deficient implementation of in-situ visits Generic report, which does not clearly identify which investments have been checked In-situ visit performed by the project leader (also the LAG coordinator): potential conflict of interest

Administrative checks - Findings Other findings Assessment of eligible costs (payment claims) In kind contributions: Payments against missing documents, too high hourly rates, no records about time spent and activities carried out. Insufficient details of the invoices to link them to the project (i.e. activities carried out) Necessary information about the project missing in the contract with the final beneficiary

On-the-spot checks - Findings OTSC do not assess the reliability of the administrative checks OTSCs are performed before the completion of the administrative checks on payment claims Payments made before receipt of the OTSC final report No specific guidelines with regard to the approach for the sampling during OTSC Sampling method of selection of the invoices to be verified not described in the control report No specific guidelines with regard to the approach for the sampling during OTSC (e.g. the minimum percentage of the expenditure which should be checked, specific (more risky) cost categories to be checked, mix of small and large amounts etc.)  No uniform approach between inspectors with regard to sampling/invoices to be checked.

On-the-spot checks - Findings Incomplete OTSC report No recording of work undertaken (e.g. checklist not signed, not dated, and not supervised, checks on reasonableness of costs not documented, …) OTSC failed to identify several ineligible expenditures Missing items Co-financed publicity requirements were not met Deficient follow-up of open issues in the OTSC report – OTSC report not supervised The required follow-up check is not recorded in the subsequent control report

Ex-post checks - Findings Ex-post checks below 1% expenditure Audit trail Lack of adequate audit trail for administrative and OTS checks Composition of LAG selection meetings No mention of potential conflicts of interest by the LAG Minutes of the LAG meeting and scoring sheets for appraisal not signed and not dated; no name of evaluator on appraisal sheets

Simplification of control rules applicable to LEADER

Administrative checks For operations with a support rate up to 30% the assessment of the RoCs at payment claim stage Assessment of the RoCs For operations with eligible costs up to EUR 5.000 assessment on the basis of a draft budget at application for support For Umbrella projects the assessment of the RoCs at payment claim stage For certain projects this provision constituted a burden for beneficiaries and authorities, for whom an accurate estimation of the costs following the methods in the regulation (Comparison of offers, reference price list or evaluation committee) at the moment of the application for support is too burdensome and not reliable. The need to assess the RoCs at application stage obliges beneficiaries to justify the costs are reasonable long before the projects have been selected for support. This admin burden and time delay is not justified when the applicant is financing substantial share of the project. the flexibility refers to the timing of assessing the RoCs for small operations: an assessment of costs is difficult at the stage of the application for support. The implementation of operations must be flexible enough to allow an allocation of resources and costs in an efficient way. Therefore, it should be possible to assess the RoCs at final payment stage (during the admin checks on payment claims). For very small projects where the risk to the fund is limited an agreed draft budget submitted by the applicant could suffice to evaluate the RoCs. MAs should consider the adequateness of the items and costs included in the draft budget and come up with different estimates in the grant agreement. No further assessment will be necessary. The existing rules have shown excessive rigidities, posing problems for their implementation. Umbrella projects require specific assessment as regards the RoCs. Assessment not possible at application stage. This flexibility facilitates the implementation and controllability of these groups of projects. The new formulation clarified that the assessment of the RoCs by the PA at the payment claim stage should be carried out at the level of the group of projects (umbrella projects) and not at the level of the individual sub-projects, which is the responsibility of the LAG (beneficiary). The compliance with selection criteria should be checked at the application for support stage only when relevant. 11

Control rate and sample for OTSC On-the-spot controls Control rate and sample for OTSC Control sample to be calculated on the expenditure claimed. Operations for which only advances have been claimed are not to be included in the control sample. Content of of checks No repetition of same checks (administrative and OTSC) Advance payments for LAG running and animation costs by nature do not have any underlying expenditure incurred and paid attached to the claim. Therefore, OTSC seem unnecessary at this stage where nothing relevant in terms of eligible expenditure, commitments and other obligations can be checked. payment claims that contain advance payments should be taken out of the population from which the sample will be extracted; usually these claims refer to operations for which implementation has not yet started or it is at the beginning. In addition, payment claims found not eligible after the admin checks shall not be counted towards the achievement of the 5%. In other words, sample is based at the level of expenditure (excluding pure advances). MS had to select more than 5% of the sample to foresee circumstances of operations whose payments are not carried out by the end of the year (change to be paid). the sample is extracted from the claims submitted in year n, controlled during that year and/or beginning year n+1 and reported in the control statistics by 15 July after the payments have been made. Refusals, withdrawals and admin penalties (Art.35(2) of Reg.640+Art.63 of Reg.809) should not have an impact on the achievement of the min control rate. Only payment claims found ineligible in the context of the administrative checks would not count towards the control rate. PAs would be able to extend the checks if needed and have more flexibility of drawing the 5% control sample. Administrative checks should be as exhaustive as possible and to be supplemented by OTSCs on elements that cannot be checked administratively. Eligibility conditions which have already been conclusively checked in the administrative stage and will not alter during the implementation of the operation in the moment of the approval, they would not have to be checked again on-the-spot. Everything that can be checked and is appropriate to be checked administratively should be checked at that stage. This provision aims to avoid duplication between the administrative and the OTSCs, ensuring the necessary complementarity to verify that all eligibility criteria, commitments and other obligations are fulfilled before payment to beneficiary. The results of the checks should be appropriately recorded. MS still have to check everything that is possible and appropriate to be checked by admin means, leaving for the OTSCs only those elements that by exclusion cannot be checked. All conditions to be verified either at one stage (administratively) or the other (before payment). The concrete elements largely depend on the type of operation and beneficiary; there are some operations for which the RDP imposes such obligations that can only be checked OTS (eg. certain eligibility criteria under investments). 12

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