1. 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

2. 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, …

3. 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.

4. 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

5. 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]

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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)

12. Thank you for your attention!
Questions?