1. Structural Funds in Ireland Structural Funds in Ireland Financial control & audit - Financial control & audit - ERDF & Cohesion Fund operations Dermot Byrne Head of Unit ERDF Financial Control Unit, Department of Finance, Ireland Open Days – Brussels, September 2004

2. Overview l Introduction - Ireland and the EU l Ireland’s National Development Plan regions l Financial control and audit - structures l ERDF Financial Control Unit l Key features & responsibilities of the Unit l Risk assessment model l Lessons learned l Findings of audits / controls l Conclusions l Future outlook

3. National Development Plan 2000-2006 Border, Midland & Western Region (OBECTIVE 1) Southern & Eastern Region (OBJECTIVE 1 in transition)

4. Paying Authority ERDF Cascade Structure Intermediate Body Ireland Managing Authority Final BeneficiaryFinal Recipient Department of Finance (ERDF & Cohesion Fund) Regional Assembly or Government Department Government Department or Agency Local Authority or State Agency Private firm receiving grant aid

5. Comptroller and Auditor General Department of Finance (PA) ERDF control and audit structure Intermediate Body ERDF Financial Control Unit Internal Audit Managing Authority Internal Audit Final Beneficiary Internal Audit Systems audits M5% verifications

6.  Functionally independent of Paying & Managing Authorities  Reports to Audit Committee of Ministry of Finance  Role supported by secondary legislation (Statutory Instrument)  Carries out M 5% (ERDF) and M15% (Cohesion Fund)  Responsible for management of Systems Audits (ERDF & CF)  Article 15 Body designated to issue declarations on winding up  Co-funded by the European Union – 50% Technical Assistance  Article 13 annual reports to the Commission Financial Control Unit Structure and Key Activities

7. Risk Assessment for Auditors ? Guideline available as Appendix I to Annual Report 2003 & Commission Audit Manuals

8. Risk Assessment - Stages Measure 1 Organisation 1 Organisation 2 Organisation 3 Operational Programme Measure 1Measure 2Measure 3 Organisation 3 Project 1Project 2Project 3 STAGE 1 Select Measure(s) STAGE 2 Select Organisation(s) STAGE 3 Select Project(s)

9. KEY RISK FACTORS KEY RISK FACTORS LOW 12 MEDIUM 34 HIGH 5 SCORE Complexity of Regulations 1 1 Public or Private Operations 2 6 Previous reported problems 1 2 Type of Funding / Action 3 3 Previous Audit Reports 3 3 TOTAL SCORE (MAX. 40) (40 max) 15 SCORE % (divide by 40) 38% MONETARY VALUE OF MEASURE (€) €20m RISK ADJUSTED MONETARY VALUE (€) €7.6m Risk Model - Example 1 3 2 1 1 Weight Factor

10. Risk Assessment Model  A logical and structured model which is:  Easy to explain and understand  No complicated mathematics or computer programme  Can be recorded easily on Excel spreadsheet  Ready for use by internal audit units  Provides a hard copy record of risk assessment process  The Model is accepted by the European Commission  We recommend that risk factors be limited to 5/6 most appropriate  Too many factors dilute scores of key risks  Weighting can be used to highlight key risks for particular area

11. Lessons learned Summary of Findings to Date l Standardised certification of expenditure for co-financing l Improved quality of information to Final Beneficiaries l Significant development of internal audit capacity in public sector l Increased publicity & information l Errors in compilation of expenditure returns l omission errors / adjustments not recorded/supported clearly l Reconciliation with forms from level below in cascade l Reality of expenditure - errors l inclusion of advances / accruals / unpaid invoices in claims l notional overhead costs / mark ups included

12. Lessons learned Summary of Findings to Date (con‘d) l Inadequate procedures manuals (procedures and responsibilities) l Eligibility Issues l Include direct costs (labour/materials/hire costs/expenses) l exclude administrative salaries / overheads (additionality) l ensure that charges are at market cost l Pay close attention to scope of Cohesion Fund Decisions Inadequate audit trail difficulty reconciling returns to organisation’s records difficulty sourcing original invoices / evidence adjustments not adequately recorded Article 4 spot checks Formalises existing checking procedures Ensure reconciliation with records at level below

13. Conclusions – future outlook  Cohesion fund now on a multi-annual basis  Eligibility rules will be based on national rules  Increased ‘confidence’ in national systems of control and certification  Where MS is the principal financial contributor  Assurance on reliability of systems from independent audit body  Financial corrections will be on a progressive basis  Delegation gives increasing responsibility to national audit/control bodies  Failure will attract financial correction

14. Contact: ERDF Financial Control Unit 15 Lower Hatch Street, Dublin 2 IRELAND. Phone:353 1 639 6257 Fax:353 1 639 6201 E-mail:dermot.byrne@finance.gov.iedermot.byrne@finance.gov.ie Annual Reports (1999, 2000/01, 2002, 2003) can be found at: www.csfinfo.comwww.csfinfo.com (publications/annual reports) www.ndp.ie