1. OPEN DAYS 2006 The European Week of Regions and Cities Brussels, 9 – 12 October 2006 _______________________ Workshop 11E18: Structural Funds 2007 – 13: The New Control and Audit Requirements Gabriella SEBESTYÉN Vice Head of the Paying Authority in Hungary

2. The way from the National Fund to the Certifying Authority How do we cope with the changes of EU regulations and requirements?

3. 3 The next presentation will give answers to the following questions: 1.How the pre-accession requirements have contributed to the design of the SCFs implementation system in Hungary and what are the main differences? 2.How a paying authority can meet the requirements of the certifying authority and why do I consider it important for the certifying authority to fulfil the role of the paying authority?

4. 4 National Fund and Paying Authority 1998 – 2004 (2006) Pre-accession funds (Phare, SAPARD, ISPA) The Central treasury entity through which EU funds are channelled towards the Recipient. Functional independence from IAs Main partners: implementing agencies (3), national control authority, EC Delegation for ex- ante control in DIS, full liability of NAO after EDIS approval Framework Agreement, Memorandum of Understanding, Financing Agreement IT system: Perseus, Memor 2004 – 2006 (2008) Structural Funds: ERDF, ESF, EAGGF, FIFG (5 operational programmes), Cohesion Fund (projects) Authority which draws up and submits payment applications and receives payments from the Commission. Functional independence from MAs Main partners: managing authorities (5), intermediate bodies (22), body responsible for 5-15% checks, body responsible for issuing the winding-up declaration Council Regulations and Commission Regulations IT system: SFC, EMIR

5. 5 Paying Authority and Certifying Authority 2004 – 2006 (2008) Structural Funds: ERDF, ESF, EAGGF, FIFG (5 operational programmes), Cohesion Fund (projects) Authority which draws up and submits payment applications and receives payments from the Commission. Main partners: managing authorities (5), intermediate bodies (22), body responsible for 5-15% checks, body responsible for issuing the winding-up declaration 2007 – 2013 (2015) Structural Funds: ERDF, ESF; Cohesion Fund (15 operational programmes) draws up and submits to the Commission certified statements of expenditure and applications for payment (reception of payments is not the responsibility of the CA by definition) Main partners: managing authorities, intermediate bodies, audit authority

6. 6 Milestones towards better regulation pre-accession funds were regulated independently from national aid schemes based on bilateral agreements with EC and complementary Government Decrees as implementing rules SAPARD and EDIS accreditation have resulted in establishing main functions and implementing good practices in the preparation of procedures manuals, audit trail, main actors of EU funds management were selected, some experience had been gained, implementation systems in Member States could have been studied through twinning programmes After accession for Structural Funds, Cohesion Fund and CAP the already established bodies have been continuously operating as managing authorities or intermediate bodies, also central horizontal functions have remained within the same organisations with wider authority (National Aid Coordinator as Community Support Framework Managing Authority, National Fund as Paying Authority, Government Control Office as body responsible for 5% check and as winding-up body)

7. 7 Milestones towards better regulation (cont.) There are a lot more bodies involved in the management of SFs, as previously for pre-accession funds, therefore some bodies with only national experiences have entered the SCFs implementation system. However strong central structures, Objective 1 coverage for the whole country, intensive audit activity, the need for efficiency and effectiveness, and a single IT management and monitoring system have required (and also allowed for) simplification and standardisation of procedures. Until the end of 2006 a simplified and standardised implementation system will be in place, equally complying with either the 2004-2006, or the 2007 – 2013 programming period.

8. 8 What should be certified? (i) the statement of expenditure is accurate, results from reliable accounting systems and is based on verifiable supporting documents; (ii) the expenditure declared complies with applicable Community and national rules and has been incurred in respect of operations selected for funding in accordance with the criteria applicable to the programme and complying with Community and national rules;

9. 9 Certification activities to ensure accuracy of expenditures (i) the statement of expenditure is accurate, results from reliable accounting systems and is based on verifiable supporting documents Ex post transfer of EU contribution to the Managing Authority Even though the reception of Funds is not the responsibility of the Certifying Authority by definition, we still consider this function to be of great importance in order to be able to fulfil the certification function, because most of the checks are done in the course of financial management and accounting Accounting (double entry accrual based accounting system) Fact finding assessments (desk check of invoices and supporting documents on a sample basis to verify the proper entering of data into the IT system) Check of evidence for the application of the four-eye principle (signature rights, user rights)

10. 10 Certification activities to ensure compliance (ii) the expenditure declared complies with applicable Community and national rules and has been incurred in respect of operations selected for funding in accordance with the criteria applicable to the programme and complying with Community and national rules Assessment of Procedures manuals Assessment of Audit reports (internal audit and 5%) Assessment of Irregularity reports Assessment of MA verification reports (summary of controls and audits performed), including information of on-the-spot checks Fact finding visits (a step-by-step overview of procedures applied compared to the procedures manual and the audit trail at managing authorities and intermediate bodies on-the-spot)

11. 11 Coordination of control activities Prevention, perception, correction Financial management and control, treatment of irregularities, accounting National implementing regulations, operational manuals, guidelines 4-eye-principle, desk supervision, managerial approval Application of checklists Possibility to stop a procedure Possibility to correct errors Application of sanctions Desk check is 100%, on-the-spot check is sample- based

12. 12 Coordination of audit activities Internal audit 5% checks (15% ) Winding-up European Commission audit units within DGs responsible for the different funds Audit plans are based on risk assessment, but scope and depth are always different which makes synchronization nearly impossible Auditors address management when making recommendations, therefore results are dependent on management decisions Follow-up of audit activities require a lot of administrative work Audit findings must always be taken into account for future risk assessments and audits

13. 13 Our continuing and challenging obligations Reception and transfer of EU funds, closure of previous programmes, reporting of irregularities Increasing number of partners Increasing variety and amount of funds and programmes, different implementing rules Widening responsibility under shared management Increasing level of assurance (larger sample), intensity of ex-ante control Rather strategic role of managing authorities limits their potential for verification which implies for direct relationship between Certifying Authority and intermediate bodies

14. 14 Gabriella SEBESTYÉN Deputy director HUNGARY, Ministry of Finance Office of the National Authorising Officer (Paying Authority) gabriella.sebestyen@pm.gov.hu +36 1 327 5667