Simplification of ETC programme management - Focus on audit matters Anne Wetzel Directeur Europe Région Hauts de France Petra Geitner Interreg Europe Christophe Wacquez Interreg NWE Bruxelles, 22/11/2017

Simplification Commitment 2014-2020 period Harmonization: INTERACT finance network + 4 programmes hosted by Hauts-de-France Region Simplification of rules for beneficiaries EU-hierarchy of rules > less national rules / gold plating More budget flexibility, less control steps simplified cost options: 10% to 15% of costs E-cohesion: all steps online PP/FLC/LP/JS/MA/CA

Simplification Benefits Benefits for the beneficiaries and programmes Reducing complexity, saving time and money More focus on results Reducing the risk, less audit findings Keeping European cooperation attractive

Further Potential of Simplification 1. Decrease of programme administration cost - more focus on results and performance 2. Improving awareness of ETC specificities 3. Adopting a truly single audit approach

Further Potential of Simplification Decrease of programme administration cost - more focus on results and performance

Programme Administration Decrease of programme administration cost - more focus on results Programme Administration   2007-2013 2014-2020 Designation documentary review of MCSD Designation audit Payment information 3/year Payment forecast 1/year 2/year  Annual closure of accounts Management declaration Annual control summary (incl. analysis of FLC corrections) 1/year, 7 times in total Annual control report + audit opinion Final control report 1 Risk mapping, anti-fraud strategy, use of Arachne Inherent Formalized regulatory requirement

Focus on “Designation” Decrease of programme administration cost - more focus on results Focus on “Designation”   2007-2013 2014-2020 Timeline Sept 2008 to EC = CP adoption + 1 y. August 2017 = CP adoption + 2.2 years

Focus on “Designation” Decrease of programme administration cost - more focus on results Focus on “Designation”   2007-2013 2014-2020 Procedure MCSD to EC after assessment by AA Selection of MA by MC Selection of CA by MA CA designation audit by BE IAB MA designation audit by FR IAB designation by FR MS

Focus on “Designation” Decrease of programme administration cost - more focus on results Focus on “Designation”   2007-2013 2014-2020 Scope MCSD Pages: 50 Annexes: 12 Pages: 104 Annexes: 65 Template template: 20 pages Guidance: 64 pages Self-assessment checklist: 29 pages (not aligned with MCSD template)

Further Potential of Simplification 2. Improving awareness of ETC specificities Goal 1: Investment f. growth & jobs EUR 340 billion Goal 2: European Territorial Cooperation EUR 10.2 billion

€100,000 detected (=0.42% of checked) 2. Improving awareness of ETC specificities Audit requirements 2007-2013 2014-2020 Sampling method Non-statistical ? Actual 159 audits Budget €1 million (3.6% of TA) 1.2 million (4.1% of TA) Errors detected €21 million out of €405 million checked €100,000 detected (=0.42% of checked)

high number of partners, with often limited expenditure 2. Improving awareness of ETC specificities ETC high number of partners, with often limited expenditure several MS, each responsible for own FLC system

Requirements for audits 2. Improving awareness of ETC specificities Requirements for audits (Regulation (EC) no. 1303/2013, Article 127 (1)) “the declared expenditure shall be audited based on a representative sample and as a general rule on statistical sampling methods” Cocof Guidance on sampling: minimum of 30 audits per year, highly complex, little predictable 2007-2013 2014-2020 Audits 159 audits min. 210 audits Budget €1 million (3.6% of TA) > €1.2 million

Requirements for non-statistical sample method 2. Improving awareness of ETC specificities Requirements for non-statistical sample method (Regulation (EC) no. 1303/2013, Article 127 (1)) 5% of operations 10% of the expenditure declared to EC in accounting year

Non-statistical sampling 2. Improving awareness of ETC specificities Non-statistical sampling 2000-2006 2007-2013 2014-2020 5% of expenditure Appropriate sample 5% of operations, 10% of expenditure 5.5% of expenditure 30% of operations 10% of expenditure = €38million Average PP = €180,000 + 200 audits

Non-statistical sampling with sub-sampling Project A LP PP Non-statistical random sampling 5% of projects 10% of expenditure Projects with certified expenditure

Non-statistical sampling with sub-sampling 2. Improving awareness of ETC specificities Non-statistical sampling with sub-sampling 2007-2013 2014-2020 Actual 5,47% of expenditure 37% of operations 159 audits 10% of expenditure 40% of operations 180 audits Cost €1 million (3.6% of TA) 1.2 million (4.1% of TA)

Consequence of (Sub)-sampling Project A LP PP €69,728 Error projection Error projection €2,141,306.35 Programme

Error projection (example from 2015) 2. Improving awareness of ETC specificities Error projection (example from 2015) Error for PP (with low expenditure) Error for LP (or PP with high expenditure) Expenditure audited 8 million Ineligible expenditure (EUR) 69,000 Programme error rate (%) 0.87% Projected programme error rate(%) 2,64% 1,94% Ineligible expenditure projected (EUR) 2.1 million How representative is an error of 1 PP in 1MS for an ETC programme ?

Projection of error rate 2. Improving awareness of ETC specificities Projection of error rate Purely mathematic calculation method Small irregular amount can result in high projected error rate Factors impacting projection: LP or PP? Ratio error amount/audited amount Factors not taken into consideration MS location of a PP / FLC system

Projection of error rate 2. Improving awareness of ETC specificities Projection of error rate Underlying assumption: error of 1 partner from 1 MS is representative for whole programme (IRE=EU-28) No verification if error is really systemic or isolated

Projection of error rate 2. Improving awareness of ETC specificities Projection of error rate Risk: More audits to prove (non)-representativeness > more costs Flat rate corrections Who pays? Solidarity principle vs polluter paying principle What can 1MS do to prevent errors? Other FLC systems out of reach.

Further Potential of Simplification 3. Adopting a truly single audit approach

Control & Audit levels in Interreg Projects 3. Adopting a truly single audit approach Control & Audit levels in Interreg Projects Partner First Level Control Lead Partner Joint Secretariat Managing Authority Certifying Authority Audit Authority National Audits (QC) European Commission European Court of Auditors

Consequences Focus mainly on the expenditure checks 3. Adopting a truly single audit approach Consequences Focus mainly on the expenditure checks Redundancy of the work Each level of control may have its own interpretation of the rules Uncertainty for the beneficiary High cost dedicated to control and audit

Costs of controls and audits The example of the NWE Programme 3. Adopting a truly single audit approach Costs of controls and audits The example of the NWE Programme First Level Control costs: 2 % of the total projects expenditure Second Level Control costs (external provider only): 3% of TA expenditure CA quality costs: 10% of CA costs

Key principles for the future 3. Adopting a truly single audit approach Key principles for the future Simplification Harmonisation Efficiency Improvement Legal certainty Trust

Some examples of possible measures 3. Adopting a truly single audit approach Some examples of possible measures Harmonisation of audit requirements – projects financed by cohesion policy should receive the same treatment than similar projects financed under other DGs Stabilise the interpretation of the rule (clear and final interpretation) with no retroactivity of the interpretation at the time of the audit Guidances become a second layer of rules; increasing complexity Dialogue with ETC representatives (via Interact) is needed

Some examples of possible measures 3. Adopting a truly single audit approach Some examples of possible measures Review the threshold for the proportionality of controls of operations or/and extend the threshold to partner and not to operation Increase the materiality level above 2% - find the right balance between the cost of controls and the risk of error Remove the designation procedure – keep the description of the management and control system to be checked during the first system audit

Some examples of possible measures 3. Adopting a truly single audit approach Some examples of possible measures Limit the number and the levels of controls – clear scope of the audit and defined control points “Single audit approach” “Refers to a system of internal control and audit which is based on the idea that each level of control builds on the preceding one. ’Single audit’ aims at preventing the duplication of control work and reducing the overall cost of control and audit activities at the level of the Member States and the Commission. It also aims at decreasing the administrative burden on auditees” European Court of Auditors

Thanks for your attention!