DG REGIO - Directorate I - Audit

1. How the Commission will gain assurance on Structural Fund expenditure in the 2007-13 programme period DG REGIO - Directorate I - Audit

2. Introduction • Elements of assurance Increased assurance should result from: • new elements in the regulations forthe 2007-13 period • the implementation of the Action Plan towards an Integrated Internal Control Framework • the recommendations made by the IAS • the work done in the current period to improve systems in the Member States New features: • clearer definition of the roles and responsibilities • alignment of audit standards and reporting • dissemination of good practices • monitoring system to record progress of Action Plan implementation and IAS recommendations

3. Introduction • Assurance sources Sources: • guarantees obtained during the programme negotiations • ex ante assessment of the compliance of the design of the management and control systems • certification of expenditure, and information about irregularities and the withdrawal and recovery of funding • Commission audit work and the power to interrupt or suspend payments and to apply financial corrections • Member States’ audit work and the reporting of the results with a formal annual opinion • declarations by the audit authority at partial and final closure

4. Guarantees of previous periods • Good governance • establishment of system architecture before programme approval (Article 36) • involvement of auditors in the negotiations (guidance and advice) • aim: eliminate and/or rectify existing weaknesses in current systems • capitalizing on work done in 2006 concerning "Action 13: analysis of the present controls at sector and regional level and the value of existing statements and declarations"

5. Compliance assessment • Legal basis: Article 70 • Nature: ex ante - before first interim payment application or at the latest within 12 months of programme approval • Content: • description of the management and control system • independent assessment of compliance of systems design • Scope: • general principles of the management and control system • designation of the programme authorities • capacity of the programme authorities to perform their functions, such as • verifications of legality and regularity by MA • certification of expenditure by CA • delivery of an annual audit opinion by AA • Commission auditors examine the reports and monitor the implementation of corrective measures (if needed) • Commission will not make interim payments until it is satisfied that there is an unqualified opinion on which it can rely

6. CA - Certification of expenditure • Legal basis: Art 60 • Scope: certify the expenditure it declares to the Commission for reimbursement as accurate • Aim: to provide assurance that the first-level checks by management, the foundation of the entire control system, have been properly carried out. • Commission initiatives: • proposal for the MAs to make a declaration in the annual implementation report (outcome pending) • notes on good practice in first-level management checks (action 14a) and in performance of the certification function for the current period (relevant also for 2007-13) • clarified and rationalized rules on the reporting of irregularities, recoveries and withdrawals of expenditure from co-financing (aim: to enable the Commission to make better use of the information provided)

7. Commission instruments • Commission's systems audits • starting in 2008 • work among the 2 DGs will be coordinated under joint audit strategy, results will be shared • IAS recommendations (“Issues to be considered”, 3) and action 9 of Action Plan shall ensure high standard of work • progress report on coordination of the audit process (IAS recommendation) • Interventions with a financial consequence • thesemay take the form of • payment interruption (Article 89) (power lies with the Authorizing Officers by delegation) • payment suspension (Article 91) • financial corrections (Article 100) • these powers provide assurance that if there is evidence of irregularities corrective measures can be applied to avoid financial loss to the EU budget

8. Audit work of Member States Strengthening of Single Audit approach • Concept: Member States' activity is seen as an integral part of the control system) • Additional requirements to be introduced: • designation for each programme of a responsible audit authority (Article 58) • the submission of an audit strategy which is subject to approval by the Commission services (Article 61) • annual audit opinion (Article 61) based on common standards laid down in the Commission regulation (Action 16c) Other Commission initiatives • bringing forward the submission of the annual control report and audit opinion by six months to the end of the year to ensure that the results of national audit work are available for the AAR process • standardizing the content of annual control reports (etc. inclusion of a requirement to report error rates found) • updating the Structural and Cohesion Funds audit manuals (Action 14b) • introducing into the regulations the obligation on Member States having more than one audit authority to designate a central coordinating body for audit matters (outcome pending)

9. Audit opinion at partial and final closure • legal basis: Article 61 • it requires an audit opinion to be provided at the closure of a programme • the provision of an audit opinion shall lay a formal responsibility on the audit authority for all audit work carried out and it should strengthen the level of assurance provided • partial closure: new possibility (Article 86a) • it can be applied for expenditure up to the end of a given year in the course of the programme period, • aim: reduce the burden on the audit authority at the end of the programme period • an audit opinion for at partial closure will also be required

10. Audit in the Commission • Audit Practice (1) • Systems audits based on risk analysis. Objective: provide audit opinion on the functioning of MCS in the MS Risk analysis: • By MS, fund, programme. Result: risk score for each programme, selection of MMSS/programmes to be audited • Coordination audit service ./. geographical unit • Coordination audit service ./. other SF DGs (common audit strategy and planning)

11. Audit in the Commission • Audit Practice (2) Desk work: • Examination of systems descriptions from MS • Examination of audit reports + annual reports from MS • Audit reports from other SF DGs and ECA • Annual coordination meetings (financial control) • Closure statements (at closure)

12. Audit in the Commission • Audit Practice (3) On-spot work: • Systems audits - systems review • project audits - audit opinion on functioning of systems • Closure audits - reliability of closure statement - eligibility of expenditure declared (project sample) - audit opinion on reliability of closure statement and on eligibility of expenditure declared

13. Audit in the Commission • Systems Review Key findings: • Winding-up body: rights and access to information; methodology/scope; follow-up • Audit services (Art. 10 R. 438/2001): methodology; scope; formalisation; follow-up • Paying Authority: functional independence; quality and scope of checks • MA/intermediary bodies: project selection procedures; Article 4 checks; audit trail; monitoring tools; follow-up of audit findings

14. Audit in the Commission • Substantive testing Main checks: • Selection of funding applications • Verification of expenditure declared: original invoices, supporting documents (ex. bills of quantities), payment proof, book-keeping • Other Community policies: public procurement; publicity; environment; state-aid • Compliance with requirements of OP/SPD and national rules for funding • Physical examination (visit) of project