Control and Audit Nicholas Martyn (nicholas.martyn@cec.eut) DG Regional Policy

1. Control and Audit NicholasMartyn(nicholas.martyn@cec.eu.int) DG Regional Policy Unit I2Control and audit of the ERDF Brussels 13 June 2005

2. 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 Brussels 13 June 2005

3. 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 Context (2) Brussels 13 June 2005

4. Relevant national authorities / bodies • Managing authority • Paying authority • Independent “checking” body • Independent “winding up” body • Intermediate bodies Brussels 13 June 2005

5. 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] Brussels 13 June 2005

6. 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) Brussels 13 June 2005

7. 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) Brussels 13 June 2005

8. 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) Brussels 13 June 2005

9. Control responsibilitiesof 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.) Brussels 13 June 2005

10. 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%) Brussels 13 June 2005

11. 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 Brussels 13 June 2005

12. 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) Brussels 13 June 2005

13. 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) Brussels 13 June 2005

14. 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. Brussels 13 June 2005

15. 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 Brussels 13 June 2005

16. 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 Brussels 13 June 2005

17. Types of audit • Desk checks on systems descriptions • Systems audits on the spot • Project/financial audits • Desk checks of closure statements • Closure audits Brussels 13 June 2005

18. 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 Brussels 13 June 2005

19. 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 Brussels 13 June 2005