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NWE AUDIT SEMINAR

NWE AUDIT SEMINAR. INTERREG IIIB NWE Programme Secretariat. NWE AUDIT SEMINAR. Content: I Financial Management Issues II Organisation of 1st level control III Audit Rules and Requirements IV Practical Examples V Deliverables check. I. FINANCIAL MANAGEMENT ISSUES. NEXT DEADLINE

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NWE AUDIT SEMINAR

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  1. NWE AUDIT SEMINAR INTERREG IIIB NWE Programme Secretariat

  2. NWE AUDIT SEMINAR • Content: • I Financial Management Issues • II Organisation of 1st level control • III Audit Rules and Requirements • IV Practical Examples • V Deliverables check

  3. I. FINANCIAL MANAGEMENT ISSUES • NEXT DEADLINE • Payment claim and activity report are due by 30 June 2005 • Please read the recommendations made by the Secretariat in the assessment report of your previous claim and activity report • Important to respect the deadline • “First in, first paid” (if everything is OK)

  4. I. FINANCIAL MANAGEMENT ISSUES • SPECIFIC ARRANGEMENTS AT THE END OF 2005 • The procedure applied at the end of 2004 will most probably be applied again at the end of 2005 • Two-steps procedure: • end of November 2005: non audited payment claim • end of December 2005: complete audited payment claim and activity report • The arrangements will be confirmed in September 2005 with detailed explanation

  5. I. FINANCIAL MANAGEMENT ISSUES • COMPLIANCE WITH THE SPENDING TARGET • It is a requirement set in the Grant Offer Letter (Article 6) • Unlike in 2004, the Programme authorities are ready – at the end of 2005 - to reduce ERDF budget to projects that cannot reach their target • If your project is at risk, please contact the Secretariat to discuss the problem and the possible solutions

  6. I. FINANCIAL MANAGEMENT ISSUES • PAYMENTS TO PROJECT: 10% RETENTION The Monitoring Committee decided at its last meeting (April 2005) that: • maximum 90% of the grant will be disbursed upon receipt (and approval) of interim payment claims • the remaining 10% will be paid once the final payment claim together with the external audit report has been submitted and approved

  7. I. FINANCIAL MANAGEMENT ISSUES • PROJECT SITE VISITS Different opportunities already exist for the JTS and the projects to meet: • External events organised by the Programme (e.g. Mid-term Event, Lead Partner seminars, etc.) • External events organised by the projects (e.g. Kick-off event) • Invitation to participate in project Steering Group • N+2 meetings held in 2004

  8. I. FINANCIAL MANAGEMENT ISSUES • PROJECT SITE VISITS The Secretariat would like to visit all projects at least once during their lifetime for an in-depth meeting. The aim is to: • Learn from projects’ experience (best practice for the next programming period) • Assist projects in solving specific problems • See the deliverables of the project • Check the management system put in place

  9. II ORGANISATION OF FIRST LEVEL CONTROL SUMMARY 1st level control • What is 1st level control? • How is it organised in the NWE programme

  10. II ORGANISATION OF FIRST LEVEL CONTROL (2)Principle ‘Decentralised implementation’ Commission overall responsibility for EU Regional Policy Budget Member States responsible for implementation of programmes and in first instance for financial control

  11. II ORGANISATION OF FIRST LEVEL CONTROL(3) Structural Fund Financial Controls • 1st level • Member States (MS) have to verify the delivery and reality of the products and services co-financed and the compliance with European and National Rules • (Article 4 Regulation 438/2001) • 2nd level • MS have to carry out sample checks on management systems and expenditure (5%) • 3rd level • MS have to issue a closure declaration at the end of the programme assessing validity of final application of programme • Commission/European Court of Auditors can carry out own audits

  12. II ORGANISATION OF FIRST LEVEL CONTROL(4) Organisation & Content • 1st level control – what? • ‘Verification of delivery of products and services co-finances, the eligibility and the reality of the expenditure claimed and the compliance to applicable national and community rules” (Article 4 Commission Regulation 438/2001) • 1st level control – how? • ‘recording of verifications of individual operations on the spot’

  13. II ORGANISATION OF FIRST LEVEL CONTROL(5) Organisation Example Purchase of a toaster

  14. II ORGANISATION OF FIRST LEVEL CONTROL(6) 1st level control checkQuestions • Does it exist? • Complies with Community rules ( e.g. EC eligibility rules, procurement) and relevant national rules • Eligible? (see Art. 30 General Regulation 1290/1999)? • actually paid out « Supported by receipted invoices or accounting documents of equivalent probative value » during eligibility period • necessary to implement the project action plan/approved application (Grant Offer Letter)?

  15. II ORGANISATION OF FIRST LEVEL CONTROL(7) INTERREG Programmes • CRUCIAL ROLE LEAD PARTNER AUDITOR certifies claim statement: • Based on our examination, we certify: • 1. That the financial information is accurately stated in this Payment Claim and that expenditure has been incurred in accordance with the provisions in the Grant Offer Letter, the European Community Structural Funds regulations, in particular Commission Regulation 448/2004 on eligibility rules, and the NWE Project Audit Guidelines. • 2. The reality of "deliverables" (services, works, supplies, etc.) against plans, invoices, acceptance documents, experts' reports, and, where appropriate, on the spot. • 3. The maintenance of an adequate and reliable accounting system and the maintenance of the audit trail (Commission Regulation 438/2001 Annex I) at all levels within the project. • The auditor also confirms that he/she is absolutely independent of the project.

  16. II ORGANISATION OF FIRST LEVEL CONTROL(8) INTERREG Programmes • Checks to be done in several locations in different Member States in order to control • difficulty to ensure the delivery of services carried out and the reality of expenditure in INTERREG Programmes • Lead Partner can not carry out all required eligibility checks • ( e.g. compliance with national rules, reality of expenditure etc.) • Challenge: Impossible to do exhaustive 1st level control by one body

  17. II ORGANISATION OF FIRST LEVEL CONTROL(9) NWE Programme • PRINCIPLES • shared responsibility for 1st level control Lead Partner/project partners/JTS/ Member States • takes into account financial liability of Lead Partner for expenditure incurred by all project partners towards the programme/National Authority of the Lead Partner • Reference documents: NWE Project Audit Guidelines, Grant Offer Letter, Joint Convention

  18. Project Control Procedure Payment Claim Controls Money Flow JTS Assesses the Activity Report and the Payment Claim received (check of LP audit statement) Prepares the payment request to the Paying Authority Member States National Authority consulted if any suspicion of irregularity Paying Authority Programme Bank Account Certified Audit statement for project expenditure Project Lead Partner Receives audited claims + supporting documents Carries all necessary additional checks Project Partner Controls invoices Project Partner Controls invoices

  19. II ORGANISATION OF FIRST LEVEL CONTROL(10) project financial controls • Grant Offer Letter (Article 15) • Intermediate Claim internally audited by certified auditor from a separate organisation unit of Lead Partner (i.e. not by the Finance Manager of the project) • Final Payment Claim by an external independent auditor covering the whole project funding • Partners have to carry out all financial controls required by LP (GOL Article 16 and Model Joint Convention Article 4+ 11)

  20. II ORGANISATION OF FIRST LEVEL CONTROL(11) INTERREG Programmes • NWE Audit Guidelines: ‘Final Payment Claim’ • External auditor • certifies eligibility and validity of entire project expenditure for all partners • records controls carried out on sample basis and findings of final audit • Ref. Documents: • Guidance Final Payment Claim • Final expenditure sheet • Audit report template • FINAL RESPONSIBILITY LIES WITHIN LEAD PARTNER

  21. II ORGANISATION OF FIRST LEVEL CONTROL(12) INTERREG IIIB NWE • Challenge of 1st level control • LP has to rely on controls carried out at partner level • LP is liable for full eligible expenditure certified after 1st level control • Need for clear organisation of 1st level control within the project adapted to project size and budget

  22. II ORGANISATION OF FIRST LEVEL CONTROL(13) Example Purchase of a toaster by partner

  23. II ORGANISATION OF FIRST LEVEL CONTROL(14) Questions • Does it exist? Check to be done at Partner level • Complies with Community rules ( e.g. EC eligibility rules, procurement) and relevant national rules Check to be done at Lead Partner (LP) /Partner (PP) level • Eligible? (see Art. 30 General Regulation 1290/1999)?Check to be done at LP/PP level • actually paid out « Supported by receipted invoices or accounting documents of equivalent probative value » during eligibility period • necessary to implement the project action plan/approved application (Grant Offer Letter)?

  24. II ORGANISATION OF FIRST LEVEL CONTROL(15) Main elements of project 1st level control • ORGANISE YOUR PROJECT CONTROL • Clear Communciation with partners (Finance group, checks list etc.) • Organisation of Sample checks (invoices, reality of expenditure, compliance with rules, partner control system) • Recording of organisation (site visit reports, audit reports etc.) • Cost – benefit, time, resources, risk

  25. II ORGANISATION OF FIRST LEVEL CONTROL(16) SUMMARY 1st level control: Reference documents • Structural Funds regulations • Council Regulation 1260/1999 • Commission Regulation 438/2001 • Commission Regulation 448/2004 • NWE programme • NWE Grant Offer Letter • Joint Convention • NWE Guidelines for Project Promoters • NWE Audit Guidelines • Final Payment Claim Guidance

  26. III AUDIT RULES AND REQUIREMENTS • AUDITOR'S DECLARATION • Based on our examination, we certify: • 1. That the financial information is accurately stated in this Payment Claim and that expenditure has been incurred in accordance with the provisions in the Grant Offer Letter, the European Community Structural Funds regulations, in particular Commission Regulation 448/2004. • 2. The reality of “deliverables” (services, works, supplies, etc.) against plans, invoices, acceptance documents, experts' reports, and, where appropriate, on the spot. • 3. The maintenance of an adequate and reliable accounting system and the maintenance of the audit trail (Commission Regulation 438/2001 Annex I) at all levels within the project.

  27. 1. ELIGIBILITY RULES • 4 levels of eligibility • a) General Regulation 1260/1999 • - Art. 1 objectives and tasks (no link to Prog. objectives, no eligibility) • - Art. 9 definitions (in particular « Final Beneficiary ») • - Art. 30.2 eligibility in time (Programme level) • - Art. 30.3 eligibility of expenditure • «  The relevant national rules shall apply … except where … the Commission lays down common rules … » • b) National rules • National rules apply except when EC lays down common rules • e.g. Intellectual Property, Public Procurement below EU threshold

  28. 1. ELIGIBILITY RULES (2) • … 4 levels of eligibility • c) NWE provisions • - CIP, Programme Complement, Grant Offer Letter • - Programme Documents (e.g. Audit Guidelines) • EU Regulations = minimum requirements MS entitled to lay down stricter rules ! • d) The 12 eligibility rules (Regulation 448/2004) • Rule 1: Expenditure actually paid out!

  29. 1. ELIGIBILITY RULES (3) • Eligibility of often problematic types of expenditure: • 1. General Costs + Staff Costs • 2. Contributions in kind • 3. Sub-partners • 4. Expenditure incurred outside the eligible area • 5. Financial and Other Charges • 6. Receipts

  30. 1. ELIGIBILITY RULES (4) • 1. General Costs + Staff Costs • Overheads = things that you cannot touch • Overheads must not be claimed in budget line « staff » • Regulation 448/2004, Rules 1.5, 1.8, 1.2 • "overheads are eligible expenditure provided that they are based on real costs which relate to the implementation of the operation co-financed by the Structural Funds and are allocated pro rata to the operation, according to a duly justified fair and equitable method" • Consequence: overheads are not eligible if calculated as a %age of staff costs or based on flat rates!

  31. 1. ELIGIBILITY RULES (5) • Letter from EC, DG REGIO of 12 August 2004 on fixed rates for personnel costs and overheads: • - Timesheets must be kept; • - Pre-determined or average rates are not eligible (expenditure actually paid out); • - Expenditure based on estimates is not eligible; • - Implicit costs (e.g. depreciation) are not eligible; • - Interest payments are not eligible. • NWE: - General Costs limited to 5% of total project budget! • - Calculation of staff costs must be based on on timesheets and • payslips! • If not supported by such documentation, must be declared • ineligible!

  32. 1. ELIGIBILITY RULES (6) • Example: • Staff costs claimed that are calculated by taking the average costs for a specific function in the organisation (applying fixed rates based on pay spines), including an overhead %age based partly on actual average costs and partly on implicit costs. • ELIGIBLE??

  33. 1. ELIGIBILITY RULES (7) • 2. Contribution in kind • Regulation 448/2004, Rule 1.7 a-f and Rule 1.5 • Non cash element! (provision of products or services without cash payment); • Value can be independently assessed and audited; • Total eligible cost less contribution in kind must be higher than total ERDF: • Example: Total project budget: 150 • Total ERDF: 75 • Total contribution in kind: 100 • TEC – contrib in kind: 150 - 100 = 50 • 50 < 75 = not eligible!! • NWE: Contributions in kind can only be included in payment claims if they were included in the Approved Application Form attached the Grant Offer Letter.

  34. 1. ELIGIBILITY RULES (8) • 3. Sub-partners • = partners who are not part of the formal partnership, but are directly involved • In the implementation of the project. • different from external experts and consultants! • Interpretative note of the Commission Services (CDRR/01/0069/01) on Council • Regulation 1260/1999 – Article 32 (1) Subparagraph 3: • Expenditure incurred by sub-partners can be « treated as payments effected by final beneficiaries » provided that (all criteria listed must be fulfilled): • a) documentary evidence exists that the sub-partners contribute (financially + content wise) to the project; • b) the final beneficiary (official project partner) retains overall financial responsibility; • c) the expenditure is backed up (receipts, invoices, accounting documents of equivalent probabative value) • d) the expenditure of sub-partners is reported formally to the final beneficiary (project partner) who is responsible for verifying the reality and eligibility; • e) the audit trail is maintained in acc. with Art. 7.2 (a) of Regul. 438/2001

  35. 1. ELIGIBILITY RULES (9) • 4. Expenditure incurred outside the eligible area • General rule: expenditure must be incurred by partners within the eligible Programme area (Rule 12 of Commission Regulation 1685/2000). • Exception: location of public partners outside the Programme area, but which are competent in their scope of action for certain parts of the eligible area, provided that the results of a project are for the benefit of the eligible area. • Expenditure incurred outside the eligible area by partners located within the Prog. area: e.g. costs of a meeting or conference held outside the area • must be justified in full in approved application (clear need for the expenditure must demonstrated; • If not included in application then individual justification to Secretariat before! expenditure is incurred!

  36. 1. ELIGIBILITY RULES (10) • 5. Financial and Other Charges • Regulation 448/2004, Rule 3: • Ineligible: debit interest, fines, exchange rate losses • Eligible: if directly linked to project implementation (e.g. bank charges, notary fees, …) • 6. Receipts • Regulation 448/2004, Rule 2 concerns all receipts except for investments generating revenue must be deducted from expenditure before claimed (Example: publishing of a project book); • Regulation 1260/1999, Art. 29.4 concerning investments generating revenue. • Best practise in eligibility: • Link expenditure in with all other rules – common sense! • Avoid « grey » areas, if you think that sth. is not eligible, don’t do it!

  37. 2. REALITY OF DELIVERABLESPayment Claim – Reality of expenditure • « The reality of expenditure (services works, supplies etc.) against plans, invoices, acceptance documents, experts’report, and where appropriate on the spot »

  38. 2. REALITY OF DELIVERABLES(2)Payment Claim – Reality of expenditure Expenditure supported by receipted invoices or accounting documents of equivalent probative value Documents constituting proof of delivery of products and services for which eligible expenditure is claimed Recording of Delivery and reality of expenditure has to be controlled • NWE Audit Guidelines: • The auditor of the payment claim at both partner and Lead Partner level should record the checks which have been carried out whilst certifying the claim. This applies in particular for the reality of “deliverables”.

  39. 2. REALITY OF DELIVERABLES Possible controls Crosscheck payment claim vs. activity report; expenditure vs. activity ( e.g. Annexes of Activity Report) Is the delivery clearly documented ( e.g. also intangible results: minutes of meetings etc.) Detailed documentation of reported staff costs (list of hours accounted for project, clear calculation of rate of staff costs, output of work etc.) Are products/goods purchases physically available? On-site controls of investments

  40. 2. REALITY OF DELIVERABLES(4)‘Reality of expenditure’ Reality of control delegated to partner level Controls at partner level need to be recorded (audit statement, audit report, check list etc.) Sample checks of Lead Partner (on-site visits, document of delivery, tender documents ( e.g. call for tender, evidence of regulatory approval etc.) RECORD CHECKS!

  41. 3. Accounting system and Audit trail • « The maintenance of an adequate and reliable accounting system and the maintenance of the audit trail (Commission Regulation 438/2001 Annex 1) at all levels within the project »

  42. 3. Accounting system and Audit trail (2)Accounting System Maintenance of a separate accounting system or an adequate accounting code for all transactions relating to the project (Article 34 General Regulation) at Lead Parter/Partner level Accounting system at partner level can be tested by Lead Partner (e.g. expenditure sheets, verification of accounting system)

  43. 3. Accounting system and Audit trail (3)Description of Audit Trail Project Audit trail shall describe (see also Section 3 of approved application and Annex I of Regulation 438/2001): Processes Documents created Data system used Controls in place Follow up of financial corrections Archiving Verification of the documented audit trail (inlcuding the content of the Joint Convention) at project and partner level

  44. 3. Accounting system and Audit trail (4)Control of Audit Trail Clear separation of internal control functions ( e.g. staff certifying receipts of goods and services, authorising payments and checking payment claims) Are receipts and payments for the project separately identifiable within the financial and accounting system? Are amounts paid accuratly noted in the accounting system? Verification of internal control procedures (follow up of internal audit’s findings) Verification of the allocation and the transfer of the ERDF funds Management and control system of Joint Convention implemented? Reconciliation of amount claimed in the payment claim with supporting documents RECORD CHECKS!

  45. 3. Accounting system and Audit trail (5)Archiving of supporting documents At least until the end of 2012 (see Grant Offer Letter Article 12) archiving of Supporting documents regarding project expenditure and controls including documents constituting proof of delivery of products and services (either originals or versions certified to be in conformity with the originals on commonly accepted data carriers according to national legal requirements) • Ref.: Commission Regulation 2355/2002 amending Regulation 438/2001

  46. 3. Accounting system and Audit trail SUMMARY1st level control: Reference documents • Structural Funds regulations • Council Regulation 1260/1999 • Commission Regulation 2355/2002 • Commission Regulation 438/2001 • Commission Regulation 448/2004 • NWE programme • NWE Grant Offer Letter • Joint Convention • NWE Guidelines for Project Promoters • NWE Audit Guidelines • Final Payment Claim Guidance

  47. IV PRACTICAL EXAMPLES • There is not only 1 correct way to implement the rules, • but different solutions are possible! • Important: • Set up efficient audit system, based on eligibility rules, and • communicate to all involved! • (Auditor of project Lead Partner organisation must assume final responsibility for eligibility • of all incurred project expenditure!) • Most suitable audit system for project partnership is defined by: • a) Partner structure; • b) Resources available; • c) Rules and Requirements!

  48. IV PRACTICAL EXAMPLES (2) • Examples from projects develop « best practise model » • for future programming periods (don’t lose experience gained) • Different systems according to type of audit: • Audit of Final Payment Claim: • Options limited: external auditor required to check whole project budget and draft report (model report and other templates issued by the Secretariat) • Audit of Interim Payment Claims: • Main options: 1) Reportsand/or • 2) Checklists and/or • 3) LP check prior to partner audit

  49. IV PRACTICAL EXAMPLES (3) • 1) Reports • 1. LP auditor: set up template report for first level control; • 2. Partner auditors: fill in report and send it back to Lead Partner auditor; • 3. LP auditor: checks and compiles information from different reports and creates report for whole project; • 4. LP auditor sends recommendations to partner auditors for future reports; • Report Structure – example from SCALDIT project: • Project partner general details • Executive summary • Methodology and scope of the audit • Main findings and conclusion • Signature auditor • Key recommendations (from LP auditor partner specific) • General recommendations (from LP auditor to all partner auditors)

  50. IV PRACTICAL EXAMPLES (4) • 2) Checklists • 1. LP auditor: set up template checklist for first level control; • 2. Partner auditors: fill in checklist and send it back to Lead Partner auditor; • 3. LP auditor: checks and compiles information from different checklists and includes in audit for whole project; • Checklist Structure – example from MESH and WIHCC (annex) projects: « Checklist for first level control » • 1. Project partner general details • 2. « In auditing the relevant documentation for the above period, I have: • - verified that the expenditure is supported by appropriate justifying documentation (receipts and invoices or accounting documents of equivalent probative value); … • 3. Conclusion • 4. Signature auditor

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