The tasks of ARR’s Internal Audit Office Quality assurance of carried out tasks

1. The tasks of ARR’s Internal Audit OfficeQuality assurance of carried out tasks Internal Audit Office (in Polish: BAW) Warsaw, 16 November 2012

2. Agenda • Information about the Agricultural Market Agency (ARR) • Legal basis of actitivities conducted by internal audit within ARR • Assurance tasks • Internal assessments • External assessments • Training and up-grading of skills of internal audit office staff

3. 1. Information about the ARR The Agency was established in 1990 in order to implement state intervention policies aiming: • to stabilise agricultural and food markets, • to secure incomes derived from farming.

4. 1. Information about the ARR In 2004 ARR was granted an unconditioned accreditation to become one of the two Polish paying agencies in charge of EU-payments made under the EAGF and the EAFRD. The current organisational structure of the Agency and rules of its operations were laid out in the Parliamentary Act of 11 March 2004 on the Agricultural Market Agency (ARR) and organisation of some agricultural markets. ARR has got the status of a state legal person. The Agency is supervised by the Minister of Agriculture and Rural Development and, as regards financial matters, by the Minister of Finance.

5. 1. Information about the ARR The Agency is comprised of: 1) the Headoffice; 2) Regional Branches, covering one or more administrative regions of Poland (voivodships) The organisational structure of the Headoffice, the number, the territorial scope and seats of Regional Branches, as well as detailed rules on financial management and on the drawing of draft financial plan for ARR, are laid out in the charter of ARR.

6. 1. Information about the ARR Regional Branches (OT) of ARR: 1. Katowice 2. Lublin 3. Olsztyn 4. Poznań 5. Szczecin 6. Warszawa 7. Wrocław 8. Białystok 9. Bydgoszcz 10. Gdynia 11. Gorzów Wielkopolski 12. Kielce 13. Kraków 14. Łódź 15. Opole 16. Rzeszów

7. 1. Information about the ARR According to the Parliamentary Act on ARR and on organisation of some agricultural markets, these are key tasks for the Agency: • Interventions in agricultural and food markets aiming to stabilise these markets with tools of the Common Agricultural Policy (CAP): CAP market intervention schemes. • Administration of some other CAP schemes (i.a. foreign trade, food promotion, supply of food aid to the most deprived within the EU, support to apiculture)

8. 1. Information about the ARR Key tasks of ARR: 3.Gathering, analysing, processing and dissemination of information on agricultural and food markets, • Promotion and information activities aiming at promotion of agricultural and food products, promotion of certain production methods, as well as regarding food quality systems (except for tasks dealt with by the Ministry of Agriculture and Rural Development), • Administration of national schemes of support for agricultural markets.

9. 1. Information about the ARR ARR is an entity that belongs to the public finance sector and is subject to requirements of the act on public finance. According to Article 18 of the act on public finance, ARR is an implementing agency, i.e. a state legal person established on the basis of a separate parliamentary act in order to execute tasks of the state. At the same time, ARR is an EU-paying agency implementing measures laid out in the Council Regulation (EC) No. 1290/2005 and in the Commission Regulation (EC) No. 885/2006.

10. The European Commission The Ministry of Finance Ministry of Agriculture and Rural Development The Agency for the Restructuring and Modernisation of Agriculturethe 1st and the 2nd pillar of CAP The Customs ARR the1st CAP pillar 1. Information about the ARR

11. 2. Legal basis of activitiesconducted by internal audit within ARR The double role of ARR (an implementing agency according to the Parliamentary Act on public finance and an EU-paying agency) Execution of internal audit within ARR is regulated by both Polish and EU legal provisions: • Polish regulations: - Articles 272-296 of the Parliamentary Act on public finance, - the Ordinance by the Minister of Finance of 1 February 2010 regarding execution and documentation of internal audit, - the Communication no. 4 by the Minister of Finance of 20 May 2011 regarding internal audit standards for public sector entities. • EU regulations: - Annex I, point 4 B of the Commission Regulation (EC) No. 885/2006

12. 2. Legal basis of activitiesconducted by internal audit within ARR Internal Audit within ARR is executed by an Internal Audit Office established in 2002 r. called Biuro Audytu Wewnętrznego (BAW). BAW is located in the Headoffice of ARR. External regulations on internal audit are implemented by means of internal administrative acts, i.e. Orders by the President of ARR.

13. 2. 2. Legal basis of activitiesconducted by internal audit within ARR Internal administrative acts which constitute the basis for execution of internal audit within ARR: - Order No. 286/2008/W by the President of ARR of 14 October 2008 regarding introduction of Organisational Rules and Regulations for ARR with later amendments • Order No. 77/2012/KP by the President of ARR of 22 May 2012 regarding introduction of Internal Audit Manual • Order No. 105/2010/W by the President of ARR of 30 June 2010 regarding introduction of Internal Audit Charter within ARR (with later amendments)

14. 2. 2. Legal basis of activitiesconducted by internal audit within ARR BAW reports directly to the President of ARR; It is comprised of two sub-units: • Financial and IT Audit (DAFI), • Support Processes and Management Audit (DAPWiZ). Currently, BAW staff are eleven: • Director and Deputy director of the Office, • 1 Secretary, • 2 Heads of sub-units- Internal auditors, • 6 internal auditors (3 in DAFI and 3 in DAPWiZ) 1 Auditor per 100 ARR staff

15. 2. 2. Legal basis of activitiesconducted by internal audit within ARR Key tasks of BAW: • To prepare annual and strategic audit plans, • To execute assurance tasks, • To execute consulting tasks, • To prepare draft Statements of assurance on ARR accounts for the previous EAGF year and Statements on the state of management control in ARR • To report, • To co-ordinate and to participate in external audits conducted in ARR.

16. 2. 2. Legal basis of activitiesconducted by internal audit within ARR Methodology of audit in ARR has been described in details in Internal Audit Manual (KP_AWE) comprising the following procedures: - AWE_P1: Preparation of an audit plan - AWE_P2: Execution of an assurance task - AWE_P3: Execution of consulting tasks - AWE_P4:Quality assurance and professional development of BAW staff - AWE_P5: Preparation of Statements of assurance on ARR accounts and Statements on the state of management control in ARR - AWE_P6: Reporting Each procedure describes the purpose of such process, the scope of procedure, definitions and abbreviations, responsibities and rights, description as how to proceed, parameters of the process (how to measure the process effectiveness) and related documents.

17. 2. 2. Legal basis of activitiesconducted by internal audit within ARR This systematic approach allows internal auditors to run uniform documentation and provides guidance as how to proceed with individual tasks. All ARR procedures have got a strictly defined structure. The structure results from the management system (in compliance with ISO 9001:2009). Management of documents (i.a. procedures) and their supervision is conducted in accordance with another internal manual entitled Management of documents and records. Standardisation of documentation allows for quality assurance (from the formal point of view) in BAW activities.

18. 3. Assurance tasks In ARR assurance tasks are conducted in accordance with procedure entitled AWE_P2- Execution of an assurance audit task

19. 3. Assurance tasks Stages of execution of an assurance task: 1. To set up an audit team 2. To inform the entity/unit (JA/KA) that it will be audited and to gather information 3. To carry out a preliminary review 4. To prepare a plan for the assurance task 5. To present information to the JA/KA on the assurance task/to run an opening meeting

20. 3. Assurance tasks Stages of execution of an assurance audit task : 6. Execution of the assurance task (the examination) 7. Preparation of the List of findings 8. Presentation of findings on the actual status/the closing meeting with JA/KA 9. Preparation of the report on the assurance task 10. Implementation of audit recommendations 11. Follow-up activities

21. 3. Assurance tasks 1. To establish an audit team: - BAW Director establishes an audit team - Each audit task is always co-ordinated by an internal auditor - Director takes into account auditors’ professional experience, the type of knowledge desired and auditors’ skills, as well as the task’s complexity - The co-ordinator runs current audit files • Audit activities are conducted collectively by the team It is possible to invite an expert.

22. 3. Assurance tasks 2. To inform the entity/unit that it will be audited and to gather information: • The co-ordinator obtains documents and information that facilitate identification, assessment and analysis of risks in the audited area. Moreover, he/she collects information about controls within that area and (optionally) about results of former audits of the Management System, former management reviews, results of risk analysis and self-assessment of the managament control. • The audited entity/unit (JA/KA) is informed about the audit with a letter.

23. 3. Assurance tasks 3. To execute a preliminary review • The audit team reviews documents, materials and information regarding the audited area, both obtained from JA/KA and gathered by themselves • The audit team executes a risk analysis and assesses the status of implementation of recommendations issued after previous audits of that area • Information resulting from that preliminary review is presented as a Note from the preliminary preview [AWE_P2_z9].

24. 3. Assurance tasks 4. To prepare a plan of the assurance task On the basis of the preliminary review the audit team preparesA plan of the assurance task [AWE_P2_z6]. The plan contains the following components: • Topic of the task, • Objectives of the task • Definition of the task’ s scope, both subject and object of the task • Significant risks in the area covered by the task • Tools and techniques that will be used to execute the task, including the sampling • Techniques of execution of the task, description of planned tests, types of documents that will be examined • Criteria of assessment of the actual state and a method of classification of these criteria [AWE_P2_z15], • Organisational assumptions and a planned time schedule of the assurance task

25. 3. Assurance tasks 4. To prepare a plan of the assurance task • The plan of the assurance task [AWE_P2_z6] is accompanied by enclosures, i.a. by the audit questionnaire[AWE_P2_z8] • It is possible to introduce a change to the plan of the assurance task [AWE_P2_z7] Quality assurance – The plan and each (time) changes are approved by BAW Director

26. 3. Assurance tasks 5. To present information to the JA/KA on the assurance task/to run an opening meeting • Before execution of the task (audit examination), the Co-ordinator or a delegated team member (other internal auditor) informs the head of KA/JA about the task’s objective and assessment criteria/ tools/techniques that will be used • The above information is presented in writing or during the opening meeting; such meeting is recorded in minutes

27. 3. Assurance tasks 6. Execution of the assurance task (the examination) • Gathering, analysis, interpretation and documentation of findings made during examination in relation with objectives that have been previously set and with the task’s scope • The examination is executed either in the seat of JA/KA or outside the seat of JA/KA (e.g. at BAW) JA/KA staff provide explanations and information to the auditors • The auditors document the examination in working documents(audit forms (questionnairies), notes from audit activities) Quality assurance - All working documents drawn up by team members are checked up by the Co-ordinator or by other delegated team member (an internal auditor). Such check is documented by the signature of the person who performed it.

28. 3. Assurance tasks 7. To prepare The list of findings • Findings regarding the actual state which are made during execution of the audit, along with classified assessment results, according to criteria included in the audit plan, are listed on The list of findings [AWE_P2_z12]. • Findings made during execution of the assurance task may refer to the functioning of the management control system, i.a. • implementation of measures according to the Polish and EU legislation, • implementation of measures according to internal administrative acts (manuals, orders by the President of ARR, other), • the designed method of data processing within the IT system of ARR, • reliability of reports, • effectiveness of implementation of measures

29. 3. Assurance tasks 7. To prepare The list of findings • Findings regarding weaknesses of the management control system are classified according to criteria laid out in the Plan of the assurance task[AWE_P2_z6]. The list of findings shall also include information on unfulfilled recommendations from previous years, should these still apply, and minor remarks • Identified weaknesses of the management control system should be supported by evidence. Quality assurance – The list of findings is checked up by the Co-ordinator or by other team member, and is approved by BAW Director

30. 3. Assurance tasks 8. Presentation of findings on the actual status/the closing meeting with JA/KA • To hand the list of findings over to the head of JA/KA • A presentation of preliminary results of the assurance task may take place during the closing meeting which is recorded in minutes.

31. 3. Assurance tasks 9. Preparation of a report on the assurance task • Following presentation of findings regarding the actual status to the head of JA/KA, the audit team prepares A report on the assurance task [AWE_P2_z13] where in a clear, fair and concise way presents results of the task. Quality assurance – The report (the first version and the second/final version) is signed by all members of the audit team and approved by BAW Director.

32. 3. Assurance tasks 9. Preparation of a report on the assurance task • The head of JA/KA may enter additional explanations or justified reservations to the report. If these reservations are legitimate the report is modified. If not, the audit team delivers their stand on this in writing to the head of JA/KA. • The final version of the report is directed to the President of ARR (alternatively to the Deputy President of ARR) and to the head of JA/KA, while 1 copy is directed ad acta.

33. 3. Assurance task 10. Implementation of audit recommendations Within 14 days since receipt of the audit report, the head of JA/KA: • If he/she considers recommendations legitimate, he/she shall appoint staff responsible for implementation of these recommendations and shall set implementation methods and deadlines, informing the President of ARR and BAW Director in writing; or • If he/she refuses to implement these recommendations, he/she shall inform the President of ARR and BAW Director about reasons of such refusal. If the head of JA/KA does not appoint staff responsible for implementation of audit recommendations or he/she does not set implementation methods/deadlines, or if he/she refuses to implement audit recommendations, the President of ARR, if he/she considers these recommendations legitimate, shall appoint staff responsible for implementation of these recommendations and set implementation deadlines, informing BAW in writing.

34. 3. Assurance tasks 11. Follow-up activities • A letter to KA/JA, asking them to submit information on the status and methods of implementation of audit recommendations, or if possible, acquisition of such information with own means (e.g. on changes of procedures) • Acquisition of required information and explanations Follow-up activities: - To collect and to analise explanations and documents from JA/KA which confirm that individual recommendations are implemented - To accomplish in full the assurance task.

35. 3. Assurance tasks 11. Follow-up activities As regards tasks where the auditors detected weaknesses of the management control classified as high and/or medium risk, follow-up activities should be conducted after the expiry of the deadline for implementation of recommendations but not later than during the year after completion of the task.In case of other tasks, before or during execution of the following task in this area. Results of follow-up activities are documented in the Information note from follow-up activities [AWE_P2_z14]. These notes are submitted to the President of ARR, to the head of JA/KA plus 1 copy ad acta.

36. 3. Assurance tasks Quality assurance in relation with the assurance task • Use of the supervised version of procedure AWE_P2, execution of activities according to what is written in the procedure, use of forms and enclosures which are provided by the procedure. • Keeping files of the assurance task according to Instructions • Supervision of all activities by BAW Director and by the Co-ordinator (supervision required by procedure AWE_P2), • Managerial supervision performed by heads of units (DAFI, DAPWiZ) over their staff, internal auditors in this case (required by Organisational Rules and Regulations for ARR) • Application of additional controlling tools, such as registers, checklists, etc.

37. 3. Assurance tasks Quality assurance in relation with the assurance task: • A separate registration of time dedicated to assurance tasks for each BAW staff (registration covers also other activities of BAW staff), • Feedback information on the quality of performed tasks obtained in the framework of co-operation between BAW Director, the President of ARR and the head of KA/JA, as well as from the questionnaire Assessment of quality of assurance tasks, 8. This process is also assessed in the framework of external audits conducted by external auditors (the Ministry of Finance: an annual certification audit of EAGF Accounts, and an assessment of the internal audit in ARR conducted every 5 years) and by periodic internal audits (a requirement under ISO 9001:2009).