1. 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

3. 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

4. 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

5. 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

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

7. Programme Administration
Decrease of programme administration cost - more focus on results
Programme Administration
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

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

9. Focus on “Designation”
Decrease of programme administration cost - more focus on results
Focus on “Designation”
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

10. Focus on “Designation”
Decrease of programme administration cost - more focus on results
Focus on “Designation”
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)

11. 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

12. €100,000 detected (=0.42% of checked)
2. Improving awareness of ETC specificities
Audit requirements
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)

13. 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

14. 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
Audits
159 audits
min. 210 audits
Budget
€1 million (3.6% of TA)
> €1.2 million

15. 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

16. Non-statistical sampling
2. Improving awareness of ETC specificities
Non-statistical sampling
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

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

18. Non-statistical sampling with sub-sampling
2. Improving awareness of ETC specificities
Non-statistical sampling with sub-sampling
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)

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

20. 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 ?

21. 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

22. 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

23. 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.

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

25. 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

26. 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

27. 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

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

29. 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

30. 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

31. 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

32. Thanks for your attention!