1. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Control and Audit Nicholas Martyn (nicholas.martyn@cec.eu.int) DG Regional Policy Unit I2 Control and audit of the ERDF

2. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Context (1) Commission responsible for:  Implementation of the budget having regard to the principles of sound financial management – Article 274 of Treaty  Application of clearance of accounts or financial correction procedures to enable Commission to assume final responsibility for the budget – Article 53.5 of Financial Regulation  For Structural Funds ensuring that Member States have smoothly functioning management and control systems – Article 38.2 of Regulation 1260/1999

3. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Context (2) Member States responsible for:  Cooperating to ensure sound financial management – Article 274 of Treaty  Ensuring financial control of operational programmes – Article 38.1 of Regulation 1260/1999  Implementing all requirements of Regulations 1260/1999 and 438/2001 on management and control

4. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Relevant national authorities / bodies  Managing authority  Paying authority  Independent “checking” body  Independent “winding up” body  Intermediate bodies

5. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Key components of the control system  Procedures to verify the delivery of products and services co-financed and the reality of expenditure clamed and to ensure compliance with applicable national and Community rules. [Art. 4 of Reg. 438/2001]  Procedures to certify the statements of interim and final expenditures. [Art. 9 of Reg. 438/2001]  Procedures to verify the effectiveness of the managing and control systems. [Art. 10 of Reg. 438/2001]  Procedures to issue declarations on winding-up of the assistance. [Art. 15 of Reg. 438/2001]

6. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Management and control systems: key principles  Clear definition of functions  Clear allocation of functions  Adequate separation of functions  Control of satisfactory performance of functions (Art. 3 of Reg. 438/2001)

7. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Control responsibilities of Managing Authority  Verifying correctness of co-financed operations  Checking payment claims and authorising payment  Preventing/detecting/correcting irregularities  Systems for gathering reliable information ensuring proper accounts  The audit trail (Art. 34 of R.1960/1999; Art. 3, 4 and 7 of R.438/2001)

8. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Verifications by Managing Authority  Delivery of products/services co- financed  Reality of expenditure claimed  Compliance with national and Community rules [eligibility rules (R.448/2004), state aid, public procurement, environment, equality of opportunity, publicity …]  Existence of supporting documents (Art. 4 and 7 of Reg. 438/2001)

9. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Control responsibilities of Paying Authority  Certify statements of expenditure (Art. 9 of R. 438/2001)  Keep a record of recovery orders (can also be kept by MA) and report annually on state of recoveries (Art. 8 of R. 438/2001)  Repay recoveries (and interest) (Art. 8 of R. 438/2001)  Ensure final beneficiary is paid as soon as possible [Art. 32(1) of Reg. 1260/1999]  Make available to the Commission the detailed (computer) records on payments to beneficiaries (can also be done by MA) (Art. 18 of Reg. 438/2001; Annex IV to the said Reg.)

10. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Audit requirements [Chapter IV of Reg. 438/2001]  Verify the effectiveness of the management and the control systems (System audits)  Verify expenditure on a sample of operations (minimum 5%)

11. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Systems audit  Coverage of each main authority and intermediate body  Examination of management and control systems  Control of performance of functions  Check on compliance with Community rules  Assurance that the system works

12. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Sample checks on operations  Independence of auditors  5% of total eligible expenditure  Representative sample of operations  Risk factors taken into account  Verify effectiveness of management and control systems  Verify expenditure declarations at various levels  Spread the implementation of the controls (Art. 10, 11 and 12 of Reg. 438/2001)

13. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Winding up declaration  Independent body  Internationally accepted audit standards  Based on systems examination, on checks already carried out and, when necessary, on further sample checks  Reasonable assurance that certified statement of expenditure is correct (Art. 16 of Reg. 438/2001)

14. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Legal base for Commission audits of Structural Funds Article 38.2 of Regulation 1260/1999: Commission officials or servants may carry out on the spot checks including sample checks on operations financed by the Funds and on management and control systems. Article 6 of Regulation 438/2001: Commission shall satisfy itself on compliance of systems descriptions and undertake reviews of operations of systems on regular basis.

15. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Audit strategy and planning  Audit strategy document  Risk assessment for each audit area – Fund, period  3 year rolling strategy  Priorities and actions  Allocation of resources  Annual audit programme

16. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Methodology  Structural Funds Audit Manual – December 2003  Enquiry Planning Memorandum: assessment of risks, fixing objectives, detailed methodology, checklists  Mission planning memorandum: specific risk assessment, detailed work plan

17. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Types of audit  Desk checks on systems descriptions  Systems audits on the spot  Project/financial audits  Desk checks of closure statements  Closure audits

18. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Objectives of audits  To provide assurance to authorising officer on set up and functioning of management an control systems in Member State  To verify accuracy of expenditure declared  To provide basis for financial corrections to ensure exclusion of irregular expenditure But also ….  To provide basis for collaboration with national authorities for improvements to rectify identified weaknesses

19. SEMINAR on the EEA Financial Mechanism THE EUROPEAN COMMISSION DIRECTORATE- GENERAL REGIONAL POLICY Brussels 13 June 2005 Audit programme for ERDF - 2005  30 auditors DG REGIO unit I.2  Framework contract with private audit firm  Audits on closure of 1994-99 programmes  6 audits DG REGIO  23 audits private audit firm  Audits on 2000-2006 programmes  50 audits DG REGIO  17 audits private audit firm