This project is co-financed by the European Union and the Republic of Turkey

1. Bölgesel Rekabet Edebilirlik Operasyonel Programı’nın Uygulanması için Kurumsal Kapasitenin Oluşturulmasına Yönelik Teknik Yardım Technical Assistance on Institutional Building for the Implementation of RCOP in Turkey This project is co-financed by the European Union and the Republic of Turkey Basics of Financial Management under IPA Programme Ankara, 16 September 2011 burcu.arikan@ecorys.com.tr IPA Funds Programme Management 12-19 sept. 2011

2. Content This project is co-financed by the European Union and the Republic of Turkey Budget Allocations in IPA Structure Flow of Funds Functions and Role of the Finance Division under the RCP-CID and RCOP Lifecycle of Expenditures General overview for payments Plenary Discussion and Questions IPA Funds Programme Management 12-19 sept. 2011

3. 1)Budget Allocations in IPA Structure Let’s start from the beginning The Commission must keep tight control overthe way the Community budget is executed since, under Article 274 of the EC Treaty, the Commission is ultimately responsiblefor budget implementation of both commitments and payments. The Commission has to take appropriate steps to ensure that the principles of sound financial management are being adhered to in all cases.

4. When the Commission gives money? Implementation of the budget is onlydelegated to Member States (shared management) or third countries (decentralised management) if the Commission is satisfiedthat the countries in question will implement the budget in accordance with the rules in force and with the principles of sound financial managementand that a clearance of accounts/financial correction mechanism is in place to correct potential irregularities.

5. Before deciding • Before confer management powers the Commission is checking the fulfillment requirements to the management and control systems – Accreditation Process • If you need Commission money you should answer the requirements

6. Requirement for implementation of IPA Programme • The Commission confers the management of certain actions on the beneficiary country, while retaining overall final responsibility for general budget execution. • For this purposes of assistance under the IPA Regulation decentralised management shall cover at least tendering, contracting and payments which at the same time refers to the life cycle of expenditures.

7. Accreditation Criteria Annex to the IPA Implementing Regulation 718 • Control Environment • Planning and Risk Management • Control Activities • Monitoring Activities (supervision of interventions) • Communication (ensuring all actors receive information necessary to fulfill their role)

8. Remember the COSO Model? Control Activities mainly related with thefinancial management of IPA funds

9. Candidate Status Croatia (Hırvatistan) the former Yugoslav Republic of Macedonia (Makedonya) Turkey (Türkiye) Potential candidate status Albania, Bosnia& Herzegovina (Arnavutluk, Bosna Hersek) Iceand (İzlanda) Serbia and Montenegro including Kosovo according to UNSCR 1244 (Sırbistan, Karadağ ve Kosova) Budget Allocation (IPA) 2007-2013 Instrument for Pre- Accession Assistance Budget: 11,468 billion euros

10. Allocation of IPA funds per component for TurkeySource: Instrument for pre- accession assistance (IPA) revised multi- annual indicative financial framework for 2011-2013

11. For Turkey: 2007-2013 Total Budget allocation for Turkey under all IPA Components: 4,874 billion euros • Total Budget allocation for Component 3, Regional Development: 1,800 billion euros

12. Component 3: Regional Development 2007-2013 For 2007-2013 (Ministry of Science, Industry and Technology) * Estimation for 2012-2013 based on the MIFF and 33% share of RCOP in Component 3.

13. 2) Flow of Funds(Logical Framework) EU Contribution: Fund transfer from the Commission to the NF National Co- Financing: Fund transfer from the Line Ministries to the NF For Both: Fund transfer from the NF to Contracting Authority PLEASE SEE THE ANNEX

14. FLOW OF FUNDS

15. Request of Funds from the Commission (Brussels)by the NF (Turkey) • Request of Funds from the Commission (Brussels)by the NF (Turkey) • Payments, transfer of funds from the Commission(Brussels) to the NF(Turkey)

16. National Authorising Officer (Ulusal Yetkilendirme Görevlisi) • National Authorising Officer (NAO): • is the head of the National Fund (NF) • has the full responsibility for the financial management of EU funds • responsible from the legality and regularity of transactions • responsible from the effective functioning of management and control systems under IPA regulation

17. The Responsibilities of the NAO/NF Responsibilities of NF&NAO according to Article 26 of the IPA regulation: • requesting funds from the Commission; • organising the bank accounts; • authorising the transferof funds received from the Commission to the Contracting Authority/Operating Structures

18. Request of Funds from the NF According to Article 40 of the IPA regulation: In relation to each IPA component&programme, each year by the 28 February, each Beneficiary country shall send to the commission a forecast of its likely payment applications for the financial year concerned and for the subdequent financial year.

19. To request the funds Signatureof the Financing Agreement, the Contracting Authority in close cooperation with the OS shall, on the basis of: • The Procurement Plan and • Commitment and Disbursement forecasts provided tothe NAO / NF with their forecasts for payment to Contractors.

20. Payments by the Comission to the NF

21. Request of Funds from the Line Ministries (Brussels)by the NF (Turkey) • Request of Funds from the Line Ministries by the NF (Turkey) • Payments, transfer of funds from the Line Ministres to the NF(Turkey)

22. The OS / Contracting Authority is responsible for: The request for funds from the National Fundensuring the national co-financing The payment to Contractor Responsibility of OS/Contracting Authority

23. Ensuring the National co-financing • As a general rule and unless otherwise agreed with the EC: • Investment projects require national co-financing equivalent to at least 15% of total eligible expenditure under the relevant project • Technical assistance projects require national co-financing equivalent to at least 10% of total eligible expenditure under the relevant project

24. Request of Funds from the NF by the Contracting Authority • Request of Funds from the NF (Turkey) by the Contracting Authority/OS • Payments, transfer of funds from the NF to the Contracting Authority/OS

25. Request of Funds From the NF to the Contracting Authorithy The amounts of the Requests for Funds are established on the basis of detailed disbursement forecasts based on the invoices already checked and approved by the OS/Contracting Authority and end-recipients, derived from detailed commitment forecasts developed by the OS and payment schedules under signed contracts

26. Request of Funds from the NF by the OS/Contracting Authority • Finance Divisionis preparing the Requests for Funds on a regular basis (generally quarterly basis) • Finance Division is responsible to check the approved limit and if there is a difference between the requested and approved amount to clarify the issue with the National Fund

27. 3) Responsibilities of Finance Division under RCP-CID / RCOP • Sound Financial Management

28. Overall Responsibilities of Finance Division 1)Request for Funds from the National Fund 2)Payment Authorisation and Execution 3)Financial Reporting 4)Accounting VERY IMPORTANT! Clear segregation of duties between two functions • Finance • Accounting

29. Segregation of Duties • In accordance with the good internal control practice the following shall be in place in relation to financial procedures: – Segregation between payment authorisation and payment execution – Segregation between financial management and accounting Accountantsresponsible for maintaining the IPA accounting records arenot involved in the approval nor in execution of payments - Segregation between financial management and tendering Accounting and payment approval functions are separated from the tendering function

30. Responsibilities of Finance Division Finance Function Staff Chief of Finance Division IPA Expert- Payment 1 IPA Expert- Payment 2 Responsibilities • Preparation of Request for Funds • Execution of payments for service, framework, supply and works contracts • Provision of assistance to VAT exemption and other tax related issues • Financial Reporting

31. Responsibilities of Finance Division Accounting Function Staff Chief of Finance Division IPA Expert- Senior Accountant IPA Expert- Accounting Responsibilities • Organising book-keeping activities • Presto

32. Responsibilities of Finance 1) Request for Funds • Request of Funds from NF • Verification of availability of funds and checking if the funds are available under the relevant sub-account to execute the payment • Checking if the amount requested in the Request of Funds are adequate for the reimbursements, in order to avoid a surplus balance of the funds and late payments.

33. 2) Payments • Receiving requests for payment from contractors, checking legitimacy of request • Checking and verifying the payment dossier in accordance with the contract dossier and standard EU procedures in force at the time • Double-checking of the Payment Dossier; • Checking and verifying the “Good for Payment” amount proposed by the IPA Expert- Payment 1 • Checking the Transfer and Payment Order Form prepared by the IPA Expert- Payment 1 and make sure the sub-accounts, payment accounts, bank details of the Contractor and the payment amounts are correct,

34. 3) Reporting • This function describes the activity of financial reporting performed through OS Accounting program, OS database - MIS and reports prepared manually based on supporting information from these systems. • Reports submitted by the OS are the basis for the NF further reporting to the EC. All reports are provided in the standard format agreed by the NF • Monthly Financial Report, providing to the National Fund, for distribution to the NAC and EC Representation in Ankara, monthly reports covering the status of projects being implemented and the financial status of each programme

35. 4) Accounting • Establishing and maintaining the accounting system • Registration of the contracts with all necessary details; such as Contract Number, Contractor, Contract Amount, Estimated Payment Amounts, Bank Details of the Contractor, bank guarantees, payment requests; • Organises the book-keeping activity; • Ensures appropriate book-keeping and registration for each programme, objective, component, contract; Making records of payments under signed contracts

36. 4) Lifecycle of Expenditures This project is co-financed by the European Union and the Republic of Turkey IPA Funds Programme Management 12-19 sept. 2011

37. Types of Components Service:Procurement of consultancy,research, know-how and training Supplies: Procurement of equipment, materials Works:infrastructure, superstructure and oher engineering works Name of the Training

39. 5) Payments to the Consultants /Contractors

41. Basic Terminology during the payment process of the project • Contractor: For all types of contracts • Consultant: For service contracts • An official commercial request for payment/payment claim/invoice • The complete contract number • The complete contract title • Invoice number • Date of issue of the invoice • The type of payment claim • The period covered by the payment claim

42. Types of Payments • Pre-financing • Further pre-financing Interim Payment • Balance Different in all components!!!

43. After the request of payment is received from a Consultant by the Contracting Authority: • The invoice of the Consultant is registered in the Invoice Register upon receipt by the OS • The original invoice is also registered into the accounting system • The Invoice is checked with Invoice Identification Control Sheet • If approved a payment order is prepared by Finance Manager • Once the payment to the contractor is done the Contracting Authority shall inform the Consultant about the payment

44. Time Frame for payment • Within 45 days of receipt of the contract signed by all parties and all relevant documents (request for payment, financial guarantee if applicable).

45. Invoice / request for payment A detailed list of expenses for fees and incidentals which form the financial report which shall indicate the cumulative expenditure and the balance available. Related Progress Report Expenditure Verification Report by external auditors Timesheets for the related period Working at weekend or national holiday approvals Subject to the approval of the interim report by end recipient and Contracting Authority in accordance with Article 27 of General Conditions The submission and approval of the below documents are necessary to start to 45 days payment deadline (Example service contracts)

46. The role of the end-recipient: • A copy of the front page of the invoices stating “Read and Approved” signed and dated by two authorised signatures one of which is the SRER is a pre-requisite for starting the payment request and execution of the payment deadline of 45 days.

47. Approval of the progress report • The approval of the progress report is a pre- requisite to proceed with the payment • The period of the progress report should comply with the period of expenses in the request for payment/invoice. • The progress reports should be accompanied by a financial report and an expenditure verification by the audit firm

48. Audit Firm for the expenditure verification & eligibility of costs • Notification from the Consultant related to the audit firm • The audit firm has to be a member of an internationally- recognised supervisory body for statutory auditing according to Atricle 20 of the contract • CPA or YMM in Turkey

49. Basic Terminology During the implementation of the project

50. Verifications on fees/man-days To execute a payment there should be reliable and sufficient evidence that: • the experts employed by the consultant have actually been working on the contract for the number of days claimed in the Consultant’s invoices • Fees are paid for services actually rendered, the time worked. • STEs must have CFCU prior approval