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Audit of the Single Payment Scheme ( SPS) (Systems audit)

Audit of the Single Payment Scheme ( SPS) (Systems audit). Recent Developments in EU Agricultural Funds. Content of the presentation. Systems Audit of SPS The audit will be split into three phases (2006-2008) and each phase will be split into two stages

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Audit of the Single Payment Scheme ( SPS) (Systems audit)

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  1. Audit of the Single Payment Scheme (SPS)(Systems audit) Recent Developments in EU Agricultural Funds EUROSAI - Prague

  2. Content of the presentation • Systems Audit of SPS • The audit will be split into three phases (2006-2008) and each phase will be split into two stages • The first phase will be limited to the establishment and management of payment entitlements (2006-2007) • The second phase will adress the activation of payment entitlements, payments and the reliability of inspecctions (2006-2008) • The third phase will focus on IT systems and their reliability (2007-2008/2009) • Recent developments pending for systems audit EUROSAI - Prague

  3. Presentation of SPS • Introduction – CAP reform • Single Payment Scheme (SPS) • Legal basis • Overview • Implementation process • Reasons for the audit, Scope of the audit • Audit objectives and approach • Expected audit results • Audit Programme • Example • Questions, answers EUROSAI - Prague

  4. Introduction – CAP reform • June 2003 reform of the Common Agricultural Policy (CAP) aims to achieve the following: • allow farmers to produce to market demand, no link of the subsidy with the production (decoupling) • promote environmentally and economically sustainable farming through the linking of the SPS to respect environmental, food safety, animal and plant health and animal welfare standards (‘cross-compliance’) • strengthen the EU’s position in WTO agricultural trade negotiations • simplify CAP application for farmers and administrators • keep budgetary costs stable and manageable (financial discipline) • safeguard the rural economy and environment (modulation, new measures) EUROSAI - Prague

  5. Single Payment Scheme (SPS) • Legal basis • basic regulations • Council Regulation (EC) No 1782/2003 of 29th September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers, as amended • other Council Regulations that can be found in Annex 1 of the APM • implementing regulations issued by the Commission • Commission Regulations No 795/2004 of 21st April 2004 laying down detailed rules for the implementation of the SPS, as amended • Commission Regulations No 796/2004 of 21st April 2004 laying down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system (IACS), as amended • Com. Reg. No 2235/2003, No 2237/2003, No. 1973/2004, No.1655/2004 • national implementing regulations issued by the Member State EUROSAI - Prague

  6. Single Payment Scheme (SPS) • Overview (Key elements of Single Payment Scheme ) • payment is irrespective of what the farmer produces (= decoupling) • who is entitled ? • entitlements only go to farmers actively farmingat the date each Member State (MS) introduces the scheme • farmers are allotted payment entitlements either based on: • reference amounts (generally amounts of direct payments each farmer received in the reference period 2000-2002, though different calculation options are available for specific cases) • flat rates (regional ceilings divided by the number of eligible hectares decelared by the farmers of the region in the year of SPS introduction) • a mixture of reference amounts and flat rates (either static or dynamic) • activating entitlements • payments are granted annualy where farmers have eligible hectares at their disposal to activate the appropriate number of entitlements (in principal permanent crops, fruit and vegetables, ware potatoes and forestry are not considered as eligible land) • conditions farmers must fulfill (‘cross-compliance’) – must respect Good agricultural and environmental condition and Statutory management requirements EUROSAI - Prague

  7. Single Payment Scheme (SPS) • Implementation (Options for SPS design and calculation) • Basic (historic) approach – entitlements granted based on payments received in reference period (reference amounts) • Regional (flat rate) approach – entitlements granted based on the disvison of regional ceilings by the number of eligible hectares decelared by the farmers of the region in the year of SPS introduction(this model entails some redistribution of payments between farmers) • Mixed models – mix of the above two models, further can be divided as hybrid static model (the proportion of the above two models stays the same from the first application) or as hybrid dynamic (proportion changes from the first application) EUROSAI - Prague

  8. Single Payment Scheme (SPS)Member States implementing SPS from 2005 EUROSAI - Prague

  9. Single Payment Scheme (SPS)Member States implementing SPS in 2006 or 2007 EUROSAI - Prague

  10. Reasons for and scope of the audit • Reasons to audit SPS Entitlements are • The Single Payment Scheme (SPS) is a central element of the CAP reform • To implement properly SPS is a huge task and it will be prone to problems and errors • First payments under SPS will be done from 2006 budget (represents 13% of the general budget - € 14.653 Mio and this will increase further in the next years) • Payment entitlements will be established once and then used for later payments, if incorrectly calculated now, all future payments will be incorrect as well EUROSAI - Prague

  11. Reasons for and scope of the audit • Scope of the audit • The first phase of the audit will be limited to the establishment and management of payment entitlements • First stage (in 2006) – visit of 13 paying agencies in the 10 Member States that introduced SPS in 2005 and audit of the Commission • Second stage (in 2007) – visit of paying agencies in 5 Member States that introduce SPS in 2006 (appear in budget year 2007) EUROSAI - Prague

  12. Auditobjectives and approach • The main objectives of this audit are to assess whether: • The Commission has set up the necessary procedures to ensure uniform and correct calculation of entitlements, respecting the national ceilings and has adequately supported the Member States in their efforts to set up the initial implementation of the SPS. • The national provisions adopted by the Member States comply with EU legislation and the entitlements have been correctly calculated. • The Member States have set up adequate administrative procedures and a reliable internal control for the correct, complete and accurate establishment and management of payment entitlements EUROSAI - Prague

  13. Audit approach • There will be two major areas the audit will focused on: • At the Commission level where it has to be assessed whether: • administrative procedures and controls have been put in place at the Commission to ensure compliance with EU legislation; • the Commission ensures uniform implementation, where necessary • adequate supervision is exercised for the proper implementation of the SPS in the Member States • At the Member State level where it has to be assessed whether: • adequate procedures are in place for establishing payment entitlements; • a proper system for the management of the payment entitlements is in place; • adequate controls function effectively. EUROSAI - Prague

  14. Audit approach • Two kinds of audit test will be performed: • a walk-through test – based on a limited sample of applications representing all the possible types of payment entitlements in a given agency in order to document the control system • a compliance test – based on a statistical sample of at least 30 applications from the entire population in order to determine, if the controls are effectively functioning; the sample will include as much as possible transactions selected for substantive testing by FEOGA 1 • The evidence collection plan contains the audit objectives, the audit criteria, the source of the audit evidence and the audit procedures to be undertaken by the auditors EUROSAI - Prague

  15. Expected Audit results (Benchmarking) EUROSAI - Prague

  16. Expected Audit results (Benchmarking) EUROSAI - Prague

  17. Audit programme (Basics) • For every paying agency a specific audit programme is needed. However every programme will have to cover the same basic items. • The following five areas have been identified in order to design and understand better the steps needed for the calculation of the entitlements under SPS as per Council Reg (EC) 1782/2003: • Eligible population • Definition of the reference amount • Establishment and Notification of the entitlements • Allocation of the National Reserve • Management of the entitlements EUROSAI - Prague

  18. Audit programme(Options for implementing SPS) • The audit programmes will have to be adapted following the options decided for by the Member States. • The key points of the historic and the pureregional approach are presented in slides 19 to 35. • For hybridemodels a combination of the audit programmes will have to be tailor made. EUROSAI - Prague

  19. Basic (Historic) Model1) Eligible population slide 19 A) Farmers who have been granted payments in 2000-2002 under at least one of the support schemes referred to in Annex Vi. of Reg. 1782/2003 (Art 33 1.a) B) Farmers who have received a holding by actual or anticipated inheritance by a farmer referred to in A) – Art. 33 1.b. Application before 15/05/2005 Payment entitlements can be granted to: • new farmers (after 31/12/02) • farmers in special situation • farmers in areas subject to development or restructuring programmes C) Farmers who have received an entitlement from the national reserve or by transfer (Art 33 1.c). EUROSAI - Prague

  20. Basic (Historic) Model2) Reference amount slide 20 Calculation for crops,livestock premiums,starch potatoes, seeds, dried fodder (Art 37 and Annex VII); Hardship cases – modification of the reference period (Art 40) two basic calculation methodes: for area aids: three year average of the established numbers of hectares in the reference period multiplied by the aoolicable aid rate of annexe VII. for livestock premiums: three year average of the established animals in the reference period multiplied by the aoolicable aid rate of annexe VI individual sanctions are not taken into account Reduction for partially decoupled schemes (Art 64) Linear reduction for overshooting of the national ceiling, if applicable (Art 41) A farmer whose production was adversely affected during the reference period shall be entitled to request a modification of the reference period (the year affected will not be used for the calculation; if the whole reference period 2000-2002 is affected, the calculation shall be based on the period 1997-1999) Reduction for the constitution of the National Reserve (Art. 42) EUROSAI - Prague

  21. Basic (Historic) Model3)Establishment and Notification of the entitlements slide 21 Normal entitlements establishment (Art 43) Special entitlements (in case farmer has no land Art 47 + 48) Set-aside entitlements Art 53 Number = the 3 year average of the declared areas for crops and forage areas Value =Division of the reference amount by the 3 year average of the declared areas for crops and forage areas (see article 43 of Reg 1782/2003) Number=When farmer was granted livestock premiums but had no hectares or the entitlement per hectare results in an amount higher than 5000 euro : reference amount divided by 5000 euro Value = 5000 euro or fraction Number = the 3 year average number of compulsory set-aside hectares Value = the 3 year average amount for set-aside land divided by the 3 year average number of compulsory set-aside hectares Notification to farmers before 31/12/2005 EUROSAI - Prague

  22. slide 22 Basic (Historic) Model4) Allocation of the National Reserve Payment entitlements form the National Reserve can be granted to (Art 42): New farmers (commenced their agricultura activity after 31/12/2002) (Option) Farmers in special situations Farmers in areas subject to development or restructuring programmes (Option) EUROSAI - Prague

  23. slide 23 Basic (Historic) Model5) Management of the entitlements Integrated Administration and Control System (IACS) Elements of the integrated system - Art 18 Computerised data base – Art 19 Identification system for agricultural parcels (Art 20) System for identification and registration of payment entitlements (Art 21) to allow verification of entitlements and cross-checks with the aid applications and the identification system for agricultural parcels to allow direct and immediate consultation, of the data relating to at least the previous three consecutive calendar and/or marketing years EUROSAI - Prague

  24. Basic (Historic) ModelActivation of Entitlements slide 24 • Yearly claim • Parcels declared may be used for any agricultural activity except (Art 51): • permanent crops • fruit and vegetables • ware potatoes • Cross-compliance EUROSAI - Prague

  25. Regional (Flat Rate) Model1) Eligible population slide 25 All the farmers whose holdings are located in the region concerned of Reg. 1782/2003 (Art 59 1.) Application before 15/05/2005 Payment entitlements can be granted to: • new farmers (after first year of application) • farmers in special situation • farmers in areas subject to development or restructuring programmes Farmers who have received an entitlement from the national reserve or by transfer (Art 33 1.c). EUROSAI - Prague

  26. Regional (Flat Rate) Model2) Establishment and Notification of the entitlements slide 26 Reduction of the regional ceiling by the national reserve Normal entitlements (Art 59.2 ) Set-aside entitlements(Art 63) Number = the number of eligible hectares declared for the establishment of the payment entitlements in the first year of application of the SPS (taking into account hardship cases art 49.4) Value =Division of the reduced regional ceiling by the number of eligible hectares declared for the establishment of the payment entitlements in the first year of application of the SPS Number = the number of eligible hectares declared for the establishment of the payment entitlements in the first year of application of the SPS multiplied with a set-aside rate. The 10 % compulsory set-aside multiplied by the proportion in the region between the arable crop area in the reference period and the total eligible land. Value =value of the normal entitlements. Normal entitlements with authorisation for use for the production of fruit and vegetables and ware potatoes (Art 60) Within a maximum number of hectares based on the reference period, farmers may ask for identifying entitlements authorising the use of parcels for fruit, vegetables and ware potatoes production. EUROSAI - Prague

  27. slide 27 Regional (Flat Rate) Model3) Allocation of the National Reserve Payment entitlements form the National Reserve can be granted to (Art 42): New farmers (commenced their agricultural activity after the first year of application of the SPS (Option) Farmers in special situations Farmers in areas subject to development or restructuring programmes (Option) EUROSAI - Prague

  28. slide 28 Regional (Flat Rate) Model4) Management of the entitlements Integrated Administration and Control System (IACS) Elements of the integrated system - Art 18 Computerised data base – Art 19 Identification system for agricultural parcels (Art 20) System for identification and registration of payment entitlements (Art 21) to allow verification of entitlements and cross-checks with the aid applications and the identification system for agricultural parcels to allow direct and immediate concultation, of the data relating to at least the previous three consecutive calendar and/or marketing years EUROSAI - Prague

  29. Key Questions Paying Agencies Audit slide 29 • Introduction of SPS by the Paying Agencies • What? • Which Approach? • Which measures remain partially coupled? • When? • Key dates « first wave » , « second wave », ... • Key dates partially decoupling (Art 64) • Implementation schedule • How? • National implementation rules • Was it already audited? (Commission, certifying body, internal audit, ...) EUROSAI - Prague

  30. Key Questions Paying Agencies Audit slide 30 • Eligible population • Definition of the reference amount • Establishment and Notification of the entitlements • Allocation of the National Reserve • Management of the entitlements EUROSAI - Prague

  31. Eligible Population slide 31 • Main audit risk: Non farmer gets entitlements • Historical approach: • Member States can invite eligible farmers to confirm their interest for obtaining entitlements (Art. 12) • Two possible questions: • Reliability of data used for addressing farmers • Evidence for the changes in the eligible population between the reference period and the first year of application. • Regional approach • Criteria to determine if an applicant is farmer. EUROSAI - Prague

  32. Definition of theReference Amount slide 32 • Main Audit Risk: Wrong calculation • Historical Approach: • Non reliable historical data (area and/or animals) • Errors in the calculation scheme as defined by annex VII (See questions 5 in audit programme for each applicable payment scheme) • is a direct or a indirect calculation model used • are the correct rates applied? • are the correct regional references and or ceilings taken into account? • are the reductions for overshooting considered? • are the sanctions excluded? • Regional Approach: • Respect of regional ceiling. EUROSAI - Prague

  33. slide 33 Establishment and Notification of the entitlements • Main Audit Risk: Wrong calculation • Historical Approach: • Non reliable historical data (area) • Set aside entitlements: • Non reliable data on set aside area and payments • Regional Approach: • Non eligible area claimed area’s during the first year of application EUROSAI - Prague

  34. The National Reserve slide 34 • Main Audit Risk: • Wrong constitution • Wrong allocation • Constitution • Difference between national ceiling and sum of reference amounts (historical approach) • Correct capping • Allocation • Non eligible population • Wrong calculation of amount EUROSAI - Prague

  35. Management of the entitlements slide 35 • Wrong identification (origin, type, owner, value, use, ... ) • Compatibility with other IACS database components • Historical data are not timely available EUROSAI - Prague

  36. Recent develoments pending for systems audit In its opinion No 2/2004 on the so called «single audit model» and a proposal for a Community Internal Control Framework (CICF) the ECA stated: The type and intensity of checking within internal control systems would be set with reference to the cost and benefits (§ 50). As no systems can reasonably be expected to assure absolute correctness of all transactions, the extent and intensity of checking should make an appropriate balance between the overall costs of operating those checks and the overall benefits they bring (§ 25) EUROSAI - Prague

  37. Conclusion Questions & Answers EUROSAI - Prague

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