Risk analysis (UVER) Luigi Guerci

Public Investment Verification Unit (UVER) The organisational principles at the foundation of the management and control system defined by the Community regulations refer to the following key elements of the system itself: integration of management and control system components; separation of functions; risk assessment.

Public Investment Verification Unit (UVER) Integration of management and control system components (art. 71 Reg. (EC) 1083/06 and annex XII Reg. (EC) 1828/06) management activities (programming, ordinary management, payment, reporting, etc); risk assessment; routine check activities (1st level); sample check activities (2nd level); monitoring system.

Public Investment Verification Unit (UVER) It is a sequential procedure, where each component may affect another, regardless of the sequence of the process.

Public Investment Verification Unit (UVER) Management activities must ensure the effectiveness and correctness of the Implementation Risk analysis is the activity that allows to identify and oversee those internal and external factors that may compromise the fulfilment of intervention objectives, with special reference to the objectives of sound financial management.

Public Investment Verification Unit (UVER) Routine check activities (1st level) are carried out in parallel with intervention management and are represented by all those controls accompanying the activities of the Managing authorities and shall include: - administrative check regarding 100% of applications for payment - on the spot check on a sample basis Art. 60 let. b 1083/2006

Public Investment Verification Unit (UVER) Sample check activities (2nd level) are aimed at verifying the efficacy of the management and control systems implemented and, based on selective criteria and on a risk analysis, the statements of expenditure presented at the various levels involved

Public Investment Verification Unit (UVER) Routine check activities (1st level) First level activities Sequence of activities Administrative Checks Art. 13 par 2 lett. A 1828/06 On the Spot check Art 13 par. 12 lett. B Reg 1828/06 Self control Administrative check Risk analysis Sampling operations On the Spot check Tipology control Control activities Contol representativeness All operations All operations Sample check

Public Investment Verification Unit (UVER) Sampling activities are performed on reported eligible expenditure based on the administrative check.

Public Investment Verification Unit (UVER) For assessment purposes, risks may be classified as: - inherent risks (IR) of the management system - control risks (CR), i.e. the possibility that a systematic control be unable to prevent or detect errors or irregularities.

Public Investment Verification Unit (UVER) Inherent risks (IR) of the management system are mainly related to: - type of operation involved - type of beneficiaries involved

Public Investment Verification Unit (UVER) The Operation classes considered are the following: 1. construction of public works 2. procurement of goods and services 3. granting of funds and services to individual beneficiaries 4. training the adoption of the operation class is proposed as a baseline for the identification of management macro- processes and the relevant risks

Public Investment Verification Unit (UVER) To define the risk level of each macro- process we have considered the following main factors: - number of activities into the macro- process - number of administrative documents handovers - number of entity involved and number of level of responsibility

Public Investment Verification Unit (UVER) According to these factors we can identify different level of risk as follow: High risk: 1. construction of public works with presence of intermediate body; 2. granting of funds and services to individual beneficiaries with presence of intermediate body; 3. training with presence of intermediate body;

Public Investment Verification Unit (UVER) Medium risk: 1. construction of public works; 2. granting of funds and services to individual beneficiaries; 3. training; 4. procurement of goods and services with presence of intermediate body Low risk: 1. procurement of goods and services;

Public Investment Verification Unit (UVER) With reference to risk level associated with Beneficiaries we can identify: - Public Administrations - Public Bodies - Private Bodies In this case, the risk level is connected to the presence of public controls and to the solvency capacity in case of recovery of sums wrongly paid.

Public Investment Verification Unit (UVER) According to these factors we can identify different level of risk as follow: High risk: Private Bodies Beneficiaries Medium risk: Public Bodies Beneficiaries Low risk: Public Administrations Beneficiaries

Public Investment Verification Unit (UVER) Combining risk levels obtained considering type of operations (Macro process) and type of Beneficiaries we have the following:

Public Investment Verification Unit (UVER) We can now identify the values of the Inherent Risk (I.R.) for each risk level: High risk: IR=1 Medium risk: IR=0,65 Low risk: IR=0,45

Public Investment Verification Unit (UVER) Self control risk The risk level has to be found in relation to the financial impact of irregularities detected during the administrative check regarding 100% of applications for payment

Public Investment Verification Unit (UVER) We have set the following level of self control risk: High self control risk: financial impact of irregularities detected during the administrative check over 30% of the reported expenditures Medium self control risk: financial impact of irregularities detected during the administrative check between 10% and 30% of the reported expenditures

Public Investment Verification Unit (UVER) Low self control risk : financial impact of irregularities detected during the administrative check under 10% of the reported expenditures

Public Investment Verification Unit (UVER) According to previous factors we can now identify the values of the Self Control Risk (C.R.) for each risk level: High self control risk: CR=1 Medium self control risk: CR=0,28 Low self control risk: CR=0,17

Public Investment Verification Unit (UVER) We can now classify all operations, with eligible reported expenditure after the administrative check, in different group according to the general risk level (Inherent risk + Control risk) obtaining the following table

Public Investment Verification Unit (UVER)

Public Investment Verification Unit (UVER) Sampling activities are performed in relation to: - risk level - financial dimension - number of operation Firstly we can identify our sample considering a higher rate of expenditures in connection with higher Risk level

Public Investment Verification Unit (UVER) Case 1: Y  0.65, N < 100 High risk Low number of operations The sample shall identify operations for over 30% of expenditures

Public Investment Verification Unit (UVER) Case 2: Y  0.65, N > 100 High risk High number of operations Firstly we organize operation in a decreasing order The sample shall identify N1 operations for over 30% of expenditures of the first 100 biggest operations

Public Investment Verification Unit (UVER) Than we identify N2 operations covering the 15% of expenditures of the group from operation 101 and operation 500 In the end we identify N3 operations covering the 6% of expenditures of the group from remaining operations The number of operations in our sample will be N1 + N2 + N3

Public Investment Verification Unit (UVER) Case 3: 0,17 Y 0.45, N < 100 Medium risk Low number of operations The sample shall identify operations for over 20% of expenditures

Public Investment Verification Unit (UVER) Case 4: 0,17 Y 0.45, N > 100 Medium risk High number of operations Firstly we organize operation in a decreasing order The sample shall identify N1 operations for over 20% of expenditures of the first 100 biggest operations

Public Investment Verification Unit (UVER) Than we identify N2 operations covering the 10% of expenditures of the group from operation 101 and operation 500 In the end we identify N3 operations covering the 4% of expenditures of the group from remaining operations The number of operations in our sample will be N1 + N2 + N3

Public Investment Verification Unit (UVER) Case 5: Y < 0.17, N < 100 Low risk Low number of operations The sample shall identify operations for over 10% of expenditures

Public Investment Verification Unit (UVER) Case 4: Y 100 Low risk High number of operations Firstly we organize operation in a decreasing order The sample shall identify N1 operations for over 10% of expenditures of the first 100 biggest operations

Public Investment Verification Unit (UVER) Than we identify N2 operations covering the 5% of expenditures of the group from operation 101 and operation 500 In the end we identify N3 operations covering the 2% of expenditures of the group from remaining operations The number of operations in our sample will be N1 + N2 + N3

Public Investment Verification Unit (UVER) This methodology ensure, in case of high number of operations (up to 1.800) that the sample will cover roughly 12% of expenditures for group characterized with an high risk level and roughly 4% of expenditures for group characterized with a low risk level

Public Investment Verification Unit (UVER) Rate of expenditures to be checked on a sample basis considering risk level and number of operations