1. Financial management Management and control systems Training for Programme Operators March 2012

2. Financial allocation

3. Allocation within BS

4. Allocation in programme

5. Financial model Pre-financing model  Advance instalments to POs based on future cash needs  Reporting on use of funds received previously  Pre-financing requests reviewed by FMO and cross-checked against previous requests and reported incurred expenditure  Small amount retained from each claim, released at programme completion

6. Financial reporting  Interim financial reports and final financial report certified by CA  Fixed reporting periods covering four calendar month every year  Fixed deadline for reporting and fixed payment dates  FMO can withhold payments in case of delayed or incomplete reporting

7. Financial reporting chart

8. Financial flow

9. Advantages of financial setup  Pre-financing more suitable to the programming approach than reimbursement model  Easier access to liquidity for Programme Operators  De-centralised financial controls can be adapted to the size of grant and type of projects  More predictable workload and more reliable disbursement forecast

10. Management and control systems – national level (1) Financial control at national level  Responsibility of the Certifying Authority  Certification of expenditure declared by POs  Exception: programmes operated by the FMO or a DS entity Certification of financial reports  Part of interim financial report and final programme report  Certification procedure and method to be designed by CA Eligible expenditure of a programme  Expenditure incurred directly by the PO (programme management, bilateral funds at programme level, etc.)  Re-granting: payments to projects from the PO, and not expenditure incurred by project promoters

11. Management and control systems – national level (2) Management and control functions of the NFP  Overall responsibility for reaching the objectives of the FMs  Monitor progress and quality of implementation of programmes  Progress towards programme outcomes and objectives  Fulfilment of publicity requirements  Signing programme implementation agreements with POs Management and control functions of the AA  Audits on effective functioning of management and control systems both at national and PO level  Project audits based on an appropriate sample  Annual audit report and opinion  Closure declaration

12. Management and control systems – programme level Setting up management and control systems  Responsibility of the Programme Operator  Collecting applications, selecting projects, signing project contracts  Verification of project outputs and project expenditure  Ensuring payments to projects  Verification of compliance with the Regulation, the programme agreement, applicable national law and EU law  Reporting to the FMO / NFP / CA / Irregularities authority  Information and publicity System design  NFP / CA / AA encouraged to give guidance to POs  Verification function can be delegated by the POs  Consider economies of scale, capacity, past experience

13. Audit report and opinion (1) System description by NFP, CA, AA, POs; report and opinion by AA  Compliance with the Regulation and generally accepted accounting principles  Proportionality in relation to the effectiveness of achieving the objectives of the programmes  Assess adequacy of design, not the practical effectiveness Timing, conditions  NFP/CA/AA: before Donor approval of the first programme or within 12 months of the MoU signature, any payments to programmes are conditional upon Donor review  POs: within 6 months of the submission of the first interim financial report

14. Audit report and opinion(2) Approach  Formal appointment of relevant entities  Approved written procedures covering all areas of responsibilities foreseen in the Regulation  Agreements / acts of delegation of functions, if relevant  Detailed verification of procedures can be done at a later stage during audits on effective functioning of systems Previous audits  AA can rely on previous findings if the entities involved and the systems are the same  Results of SF/CF 2007-13 compliance assessment

15.  Main criticism of FM 2004-09  Trade-off between cost of control and tolerable error rate  Issues to consider when setting up control systems  Desk check vs. on-the-spot check  100% verification vs. sample based verification  Ex-ante vs. ex-post verification  Adequate tools (e.g. IT systems, templates, checklists, etc.)  Strict reporting deadlines towards the FMO  Adequate payment flow to projects to be ensured Proportionality

16. New modalities  Proof of expenditure  Option A: invoices or accounting documents of equivalent probative value  Option B: report by an independent and certified auditor  Differentiation can be made between project promoters and donor project partners  Indirect costs (overheads)  Project promoters and partners may opt for a flat rate up to certain limits  Methodology to ensure fair apportionment of overall overheads

17. Exceptional situations  Specific cases  NFP acting as PO  PO acting as project promoter  DPP acting as donor project partner  Potential risks and issues  Financing from different budgets  Conflict of interest in project selection  Conflict of interest in control functions  Mitigation measures  Segregation of functions within the entity concerned  Clear responsibilities and reporting lines  Transparency, accountability and good governance