Control framework and Audit of European Structural and Investment Funds Visit of the Finance and Constitution Committee of the Scottish Parliament Brussels, 17 September 2018 Scotland House Brussels

Introduction Committee Members are interested in learning about the role of audit of EU funds what works well (and not so well) in terms of monitoring and auditing EU funds Focus of this presentation is on the control framework for European Structural and Investment Funds (ESI Funds) 2014 – 2020 and the role of audit of ESI funds Presentation by Olivia Jordan – Deputy Head of Unit DG REGIO C3 Willy Swartjes –Team Leader DG REGIO Audit C3 (UK-IE-EL-CY-ETC)

ESI funds 2014 – 2020 and regulatory framework 5 European Structural and Investment Funds 2014 – 2020 Five fund specific regulations and one Common Provisions Regulation (‘CPR’) for ESI Funds => Regulation (EU) 1303/2013. The CPR provides common provisions for Management and Control Systems and Audit

Shared management How is the EU budget implemented? Financial Regulation (FR) article 58 defines three Management modes ESI funds are under Shared Management by MS authorities and the European Commission Cohesion policies & AGRI & use "Shared" (76% of the EU budget)

Shared management FR Art. 59 sets out - Implementation tasks for the MS (e.g. selection of projects, monitoring results, …) - Sound financial management principle - Sector specific rules - Commission to monitor and audit (proportionality) - MS designate authorities responsible for MCS (MA, CA and AA) - MS report

Control framework – responsibilities at 2 levels

Control framework – Member State level Managing Authority (MA) Manages operational programmes in accordance with the principle of sound financial management Certifying authority (CA) Draws up and submits payment applications to the Commission Certifies that payment applications result from reliable accounting systems, are based on verifiable supporting documents and have been subject to verifications by the managing authority Audit Authority (AA) Carries out audits and provides annual audit opinion on the accounts, the functioning of the management and control system of the operational programme, and the legality of the expenditure declared (based on a sample of operations)

Control framework – Commission level Geographic Units => Negotiate operational programmes and monitor implementation (including payment of funds) Audit units => audit and review of work and procedures of MS authorities (systems audit) and audit of expenditure declared to the Commission The Commission remains accountable to the European Parliament and Council for all payments from the Funds (annual discharge procedure). Safeguards: - 10% retention of interim payments until acceptance of the annual accounts - Possibility to interrupt of suspend payments

Audit - Mission of Commission audit services Commission audit services of DG REGIO, EMPL and MARE apply the single audit framework for the Funds managed by these DGs under shared management for the 2014-2020 programming period. Overall objective of audit services' activity is to contribute to the assurance of the Directors General on the proper use of the Funds. => obtain assurance that the systems - comply with requirements of the relevant EU Regulations; - are functioning effectively to prevent and detect errors and irregularities and fraud and to ensure the legality and regularity of the expenditure declared to the Commission  

Audit - Commission audit strategy ESSENTIAL => under shared management The single audit concept (148(3) and (4) of the CPR): the Commission may rely principally on previous controls performed by the authorities in the Member States after having performed its own verifications that preceding controls are effective. => make best use of all audit information at our disposal, notably the annual control reports and audit opinions received each year from the national or regional audit authorities for each operational programme => review the work of the audit authorities (desk review in Brussels, or at the level of the authority) to satisfy ourselves that the opinions can be relied upon => complement by risk-based audit work performed by the Commission audit services, at the level of the programme authorities or if necessary ‘downstream’ at the level of the final recipients / beneficiaries of EU funds

Audit - What works well? What does not? Single audit principle (coordination) Common audit methodology, guidance (e.g. on assessment of systems, sampling) Good and constructive collaboration, coordination and exchange of information with the audit authorities Works less well / can be improved Complexity of rules for specific areas such as EU procurement and state aid rules and /or national rules for eligibility of expenditure ("Goldplating") Regulatory requirements for management and control systems do not differentiate according to the size of the programme