PEMPAL Internal Control Working Group– 45th IACOP Meeting Panel Discussion European Commission Systems of PIC Dr. Manfred Kraff Director-General of the Internal Audit Service Internal Auditor of the European Commission

European Commission Supervision of the Implementation of the EU Budget per Management Mode Shared Member State Centralised Direct Indirect Executive Agencies EU Agencies Specialised EU Bodies EIB & EIF UN Agencies EBRD, …

EU Budget – Pyramid of Key Actors COMMISSION Article 287 TFEU 1.   The Court of Auditors shall examine the accounts of all revenue and expenditure of the Community. It shall also examine the accounts of all revenue and expenditure of all bodies set up by the Community in so far as the relevant constituent instrument does not preclude such examination. The Court of Auditors shall provide the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions /…/ This statement may be supplemented by specific assessments for each major area of Community activity. Article 319 Treaty on the Functioning of the EU (TFEU) 1.   The European Parliament, acting on a recommendation from the Council which shall act by a qualified majority, shall give a discharge to the Commission in respect of the implementation of the budget /…/ EUROPEAN COURT OF AUDITORS (ECA) EUROPEAN PARLIAMENT / COUNCIL COMMISSION Directorates General (DGs) MEMBER STATES / THIRD COUNTRIES / AGENCIES Regions / Programmes / Projects Article 317 (TFEU) The Commission shall implement the budget /…/ on its own responsibility and within the limits of the appropriations, having regard to the principles of sound financial management. Article 317 TFEU Member States shall cooperate with the Commission to ensure that the appropriations are used in accordance with the principles of sound financial management.

Prior to the Reform of the European Commission's Internal Control System The weaknesses before the 2001 reform were the following: Blurred responsibilities – also between political level (College of Commissioners) and operational level (DGs) Centralised (ex-ante) Financial Control Weak internal audit No management disclosures Under-developed accountability

Internal Control System of the Reformed European Commission Improvements in general control framework: - Centralised Financial Control abolished - Control (and responsibility) reverted to the decision makers COSO-based control culture – Internal Control Standards Clear responsibilities and accountability for Directors General: - Act as Authorising Officer by Delegation (AOD) on behalf of the College - Management disclosure - Sign-off of Annual Activity Report (AAR) & Assurance Declaration Creation of Internal Audit Service (IAS): Central independent internal audit function with DG status Reporting to European Commission's Audit Progress Committee (APC) - [Up to 2015: Internal Audit Capability (IAC) for each DG reporting to Director General]

How to Build Assurance within a DG Director General ultimately responsible for DG objectives, risk management, strategy and effectiveness Commissioner consulted on Annual Management Plan and informed about critical risks of the DG in that respect Commission DG Budget DG Central Financial Service Res. Dir Dir Dir Guidance Unit Unit Resource Director supports risk management in the DG guidance and facilitation Staff 6

The Purpose of the AARs (1) AARs are management reports from AODs to the College of Commissioners They must contain management disclosures on: Achievement of policy and operational objectives Functioning of the internal control systems AOD's reasonable assurance that the resources assigned to the activities have been used for their intended purpose and in accordance with the principles of sound financial management (Declaration of Assurance) Reservations, where necessary (identification of material weaknesses) Information presented and assessed in the AAR must be relevant for supporting management conclusions Increased attention to reporting of performance, in addition to the reporting on compliance and sound financial management

The Purpose of the AARs (2) Used as the input for Commission-wide reporting: 'Annual Management and Performance Report' (AMPR) Commission reports to the Discharge Authority on results and management of EU finances College assumes political responsibility for management 'Integrated Financial Reporting Package' AMPR Consolidated Annual Accounts of the EU Report on the follow to the discharge of the previous financial year

Role of the IAS As per the Financial Regulation, IAS audits the internal management and control systems in the: Commission Executive Agencies European External Action Service Decentralised EU Agencies Other autonomous bodies Through its audits, IAS provides independent and objective assurance to the College (via the Audit Progress Committee – see below) and audited entities Provides consultancy services upon request from DGs Objective: Adding value and improving the systems

Audit Progress Committee (APC) Composition: Chair: First Vice-President Timmermans 6 Internal Members (Commissioners) 3 External Members (Selection on the basis of professional knowledge and experience) Role: Ensure the independence of the IAS Ensure that the internal audit activities are conducted in accordance with recognized best practices

IAS Work - Highlights IAS contribution to the Commission's accountability framework Individual audit engagements: financial/compliance, performance, comprehensive audits IAS Limited Conclusion on the state of internal control for each DG (annual, as an input to DG's AARs) IAS Overall Opinion on financial management (Commission level) Annual Internal Audit Report to the College ('99.3-Report') Annual and mid-year Overview Report on the state of implementation of IAS recommendations (to APC) Decentralised Agencies, Joint Undertakings and EU Autonomous Bodies Audit engagements: financial/compliance, performance, comprehensive audits Annual Internal Audit Report (for EU bodies) Annual report on critical and significantly delayed or rejected IAS recommendations (Agencies)

Thank you for your attention! Questions?