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The Audit Authority and its role in the supervision of management and control systems for SF

The Audit Authority and its role in the supervision of management and control systems for SF. Shared responsibility! Mission impossible?. Who is speaking. Director of ERDF-Audit Department in the Federal Chancellery  Head of Audit Authority for ERDF in Austria (EU member since 1995)

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The Audit Authority and its role in the supervision of management and control systems for SF

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  1. The Audit Authority and its role in the supervision of management and control systems for SF Shared responsibility! Mission impossible?

  2. Who is speaking Director of ERDF-Audit Department in the Federal Chancellery  Head of Audit Authority for ERDF in Austria (EU member since 1995) Since 1994 responsibility for • SFP 1995-1999: 34 programs (incl. C-initiatives) • SFP 2000-2006: 23 programs (incl. C-initiatives) • SFP 2007-2013: 22 programs (incl. C-initiatives) From those 79 programs  30 ‘main-stream’ = objective 1, objective 2

  3. Available ERDF funds for AUSTRIA Mainstream program - ERDF-funds available and used: SFP 1995-1999: committed: 446 Mio. € used ERDF: 443 Mio. € SFP 2000-2006: committed: 895 Mio. € used ERDF: 742 Mio. € final result expected for 2010 SFP 2007-2013: committed: 680 Mio. € programs just started 3

  4. Audit Experiences made Before EU-funds-audit responsibility was delegated – audit of national programs and projects Audit experience EU-programs and projects: system audits of umpteen Managing Authorities and approximately more than 100 Intermediate Bodies Audit of approximately 800 ERDF-funded projects 4

  5. EU-Programs in Austria Austria is a net-payer country – public opinion: we recycle our own money Austria is a small country – well developed – thus in comparison with other Member States Structural Funds play a financially ‘subordinated’ role. The management efforts to use the money the best way are disproportional high! EU is quite ‘unpopular’ in Austria: European Social Regional Cohesion Policy in Austria  is rather an instrument for ‘Political Cohesion’ 5

  6. The role of the Audit Authority Duties and responsibilities are very detailed laid down in the regulations! Critical reflection of the actual status from the perspective of an Audit Authority: The role of the AA in shared management: very challenging, very exposed and very thankless! Public perception of the AA: the long arm of the European Commission Within the last 10 years a high-speed evolution of the audit requirements can be observed! More details are laid down. Programs and Projects became much more complex in the last years! 6

  7. Is shared management ….. …… the ‘root of all evil’? Definitely the shared management is the most challenging principle to implement policy objectives because: Partnership needs a common understanding of the partners what are the common goals, objectives and principles. Only equal partners will have a successful partnership! If one is ‘stronger’ problems will automatically occur! Uncertainty of partners ends in overregulation, surveillance and finally in frustration! 7

  8. Shared management ….. …… the ‘root of all evil’? Evident Risk that the ‘Principle of Distrust’ is incorporated step by step Provocative question: are those budgetary fields better administered which are managed under the responsibility of only one partner? for national funding programs: definitely not – the same errors and mistakes are detected! are programs managed by the EC only better performing? What about the error rate of the ECA in the research frame-work program, the external affaires, etc.? 8

  9. Not to be misunderstood ….. …… Austria is 100 % supportive to … ensure sound and efficient management and control of all public funds including EU-funds, contribute with all necessary means to fulfill the legal obligations and not give only lip service to common principles, implement in equal partnership the programs, seek for improvements by sharing the practical experiences made. 9

  10. But what are the reasons that it seems as if the situation of the management of Structural Funds has not – visibly – improved? Cohesion policy is a very complex multi-layer policy area! Out of this potential conflict of interest results! Why this and let me give you some examples: 10

  11. The several dilemmas of SF-policy 1 Both partners – the Commission and the Member State – are not homogenous single bodies which follow all the same objectives! Different interests within each of the bodies increase the number of potential conflicts of objectives. And this not only in personal but also in time-cycle aspects. For example: Commission is a ‘unique’ body. But different Directorates/units within the Directorates have for the same intervention different – and sometimes - conflicting objectives. Also EP has this potential conflicting objectives! 11

  12. The several dilemmas of SF-policy 2 Practical observations: General Director sends to the Member States letters and guidance documents explaining, that adequate assurance has to be given that only eligible, legal und regular expenditure may be declared to EC. The same General Director sends at the end of the year information-letters to MS with requests and reminders to speed up the payment declarations to avoid n+2 losses. 12

  13. The several dilemmas of SF-policy 3 Several ‘solutions’ had been invented to avoid n+2 losses: expenditure which occurred but has not fully passed all control procedures can be declared – outcome of this ‘strategy’ can sometimes be read in the ECA-DAS-report in case MS are not sure if expenditure is fully eligible or if an irregularity exists – expenditure may be declared when a notification to OLAF (irregularity report) is made – this leads to an artificial increase of irregularity reports – consequences can be read not only in the Art. 280 report but also in the newspapers as fraudulent EU funds! 13

  14. The several dilemmas of SF-policy 4 EC/EP policy objective: programs and projects should become more innovative, involve more participants and less administrative burdensome!  Innovative and more complex projects are more risky – risk capital funds, innovative measures, research and development operations – these types of operations have by nature a higher inherent risk than ‘simple’ investment projects! 14

  15. The several dilemmas of SF-policy 5 In the Commission regulation on implementation of SF a tolerable error rate of 2% has been laid down! Thus Managing Authorities will have to decide: Innovative, new types of projects with higher risk? Consequences in case the tolerable risk-target is not met are clear! Implement only safe projects, with less innovative character – to be on the safe side! 15

  16. Demystification of some illusions 1 Illusion 1: more money improves the achievement of policy objectives and leads to better and more innovative programs Innovation does not need so much money, but it needs ‘freedom’ for development and a secure and stable environment. Failure is more probable than for big infrastructure projects! Lot’s of problems result of the fact that at the end of a program period things are stricter interpreted as in the beginning! 16

  17. Demystification of some illusions 2 Illusion 2: In the program period 2007-2013 the Commission and the European Parliament have promised/promoted SIMPLIFICATION Provocative question: simplification for whom? For the implementing authorities? definitely not – additional administrative burden was added. For the EC? – I have my doubts! For the projects/beneficiaries? Definitely not. Also more administration for beneficiaries! 17

  18. Demystification of some illusions 3 Illusion 3: A single audit concept could reduce the burden for MS! There is no single audit concept in the field of structural funds! Far from it! Different levels of control have to be implemented by regulation. Different – independent - bodies perform audits on the same expenditure! Some projects are audited several times – without any indication of misuse or irregularity – some smaller programs feel an audit over-kill! 18

  19. Demystification of some illusions 4 Illusion 4: MS should manage, audit and control the EU-money as they treat their national money! For heaven’s sake! For Austria (and many other MS) it is evident, that the EU money is managed much stricter than the national funds. And it is a matter of fact that much more controls and audits are performed for the projects with EU money!! 19

  20. Demystification of some illusions 5 Illusion 5: National eligibility rules will improve the ‘eligibility’ of expenditure declared by the MS! I have serious doubts! The existing problem – what is eligible – was only transferred to another level – it was not solved! For programs under the objective ‘Territorial Cooperation’ where some/many MS cooperate this means that several rules will be applicable in parallel – (for the same type of expenditure)! Increased risk that authorities make mistakes as they have to respect different rules at the same time – depending in which program a project is financed!! 20

  21. Popular misunderstandings irregularities are fraud according to the regulation things have to be reported, which are not fraud – many cases are administrative mistakes! tolerable risk is misuse and fraud in the public discussion the meaning of tolerable risk is not understood in the right manner political declarations will improve the situation as long as the inherent problems are not solved additional declarations will change the situation - management level might count on declarations from others!! 21

  22. On the way to a positive DAS? If there is no simplification for SF-programs and MS – are we at least on the right way to a positive DAS? (if we consider the positive DAS as a common ‘meta-objective’ for all of us?) I am afraid: NO – quite the contrary! But what can be done to improve the situation? 22

  23. Room for improvement The following should be considered: Reduction of inherent risk – less complexity, clear and simple rules for all participants – the more participants/levels the higher the risk! Expectations of projects, administration and politicians are too high – everything is a project and everything is charged to the project and the more partners the better! Reduction of control risk – quality assurance of control bodies – creation of awareness together with simple rules – availability of enough qualified resources must be ensured! 23

  24. Politically to be considered Definition of tolerable risk: are 2 % acceptable error rate for this types of interventions (innovative programs) realistic? Shall programs be started when from the beginning the failure is evident? High risk programs!! Where is the breakeven of costs of control? Can we avoid the audit-overkill? Definition of errors: what is an error – what is a mistake? Errors and mistakes or not fraud!! 24

  25. Thank you for listening! Contact: Susanna RafalzikFederal Chancellery AustriaDepartment IV/3 – Financial Control of the ERDFE-mail: susanna.rafalzik@bka.gv.at 25

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