Structural Funds in Ireland

1
(No Transcript)
2

• Structural Funds in Ireland
• Financial Control Audit
• ERDF Cohesion Fund operations

Dermot Byrne Head of Unit
ERDF Financial Control Unit, Department of
Finance, Ireland Louvain Institute for Ireland
March 2004
3

• National Development Plan 2000/06
• Operational Programmes

EU Total m
m Economic and Social
Infrastructure 1,279 22,360 Employment and
Human Resources 425 12,555 Productive
Sector 839 5,725 Southern Eastern
Region 1,074 3,791 Border, Midlands
Western Region 2,646 CAP
accompanying measures 4,324 PEACE
105 127 3,740
51,528 EU Structural Cohesion
Funds Includes 576m from Cohesion
Fund
4

• European Commission
• Regulation 438/2001

• Member states shall ensure that
• A2 - Managing and Paying Authorities and
  Intermediate Bodies receive adequate guidance on
  management/control systems
• A2 - Such systems provide adequate assurance as
  to correctness, regularity and eligibility of
  claims for EU assistance
• A3 - Clear definition, allocation and separation
  of functions
• A3 - Intermediate Bodies report to Authority
  responsible
• on performance of tasks and means employed
• A4 - Systems verify delivery of
  products/services, reality
• of expenditure and compliance with eligibility
  rules

5

• European Commission
• Regulation 438/2001

• Article 10 of Regulation relates to Audit
• Member States shall organise checks on operations
  on an appropriate sampling basis
• Article 10.1(a) - To verify the effectiveness of
  the management and control systems in place
• Article 10.1(b) - To verify selectively, on the
  basis of risk analysis, expenditure declarations
  made at the various levels
• Checks shall cover at least 5 of total eligible
  expenditure
• Appropriate mix of types and sizes of operation
• Take account of risk factors identified by
• Member State/ EU
• Check main intermediate bodies final
  beneficiaries

6
Internal Control // Audit Function
Internal Control System of controls established
by management to carry out business of
organisation in an efficient and orderly manner,
safeguarding the assets and ensuring completeness
and accuracy of records. i.e.,
ex-ante authorisation, segregation of duties,
accounting, physical, written procedures
(NB Article 4 checks)
Audit Function Independent examination of (a)
financial records (b) internal control
system in order to give an opinion / assurance
on the accuracy of final accounts and
effectiveness of internal control system. i.e.,
ex-post system-based audit and 5 verification
(Article 10)
7
ERDF Cascade Structure
Ireland
Department of Finance (ERDF Cohesion Fund)
Regional Assembly or Government Department
Government Department or Agency
Local Authority or State Agency
Private firm receiving grant aid
8
ERDF Control and Audit Structure Example for a
road project
Ireland
Europe

• European Court of Auditors (ECA)

9

• Cash Flow for ERDF Operations

• Managing Authorities/Intermediate Bodies/Final
  Beneficiaries receive their initial funding from
  the National Exchequer,
• i.e. EU aid is advanced by the State
• This advance can be in respect of costs, some of
  which, may be ineligible for EU aid
• When the expenditure is finally incurred, the
  Final Beneficiary completes an expenditure return
  and returns it to level above in the cascade
• The completion of expenditure returns enables the
  
• Paying Authority to recoup funds from the EU
  - Returns
• do not effect cash flow to the Final
  Beneficiary

10

• ERDF Financial Control
• Structure in Ireland

• Cash Flow (Exchequer advances)
• Audit Trail of final expenditure
• Claim to EU / Money from EU

11
Controlling Risk ?
12

• Audit Coverage and Risk

• Selection of the sample takes account of
• appropriate mix of types and sizes of projects,
• main implementing bodies (one audit)
• main final beneficiaries (one audit)
• Address risk factors identified by MS or EU
• Risk Analysis
• the business activity (inherent risk of error)
• the staff organisation (control risk)
• audit (detection risk)

13

• European Commission
• Risk Model

• Risks are linked to three factors
• the business activity (inherent risk)
• complexity (rules, cascade levels, contractors)
• type of activity (tangible or intangible result?)
• the staff and organisation (control risk)
• control environment / procedures /
  responsibilities competence / experience of staff
• volatility (new or well established body?)
• audit environment (detection risk)
• nature, frequency and results of audits

14
Risk Assessment - Stages
STAGE 1 Select Measure(s)
STAGE 2 Select Organisation(s)
STAGE 3 Select Project(s)
15

• Risk Assessment Model

• Quantify potential risk by assigning a score for
  relevant risk factors at each stage.
• Three level Risk assessment
• Measure
• Organisation
• Project
• high / medium / low - risk (score 1 - 5)
• calculate a total risk score
• calculate a Risk Adjusted Monetary Value
• Repeat exercise for each Measure / organisation /
  project

16
Risk Model - Example

• KEY RISK FACTORS

LOW 1
2
MEDIUM 3
4
HIGH 5
TOTAL
Complexity of Regulations




1
1
Public or Private operations

2



2
Previous reported problems
1




1
Type of Funding / Action


3


3
Previous Audit Reports


3


3
TOTAL SCORE (MAX. 25)
10
SCORE (divide by 25)





40
MONETARY VALUE OF MEASURE ()





20m
RISK ADJUSTED MONETARY VALUE ()





8m
17

• Quantifying Risks - FCU Model

• Model assumes that each Risk Factor is of equal
  importance,
• i.e. potential risk posed by each factor is
  the same
• Consider that some risk factors tend to have a
  greater effect on the level of risk, for
  instance
• Previous reported problems
• Public or private operations
• Therefore it might be desirable to weigh the
  scores for these risk factors, i.e. apply a
  multiplier to the score to allow for its relative
  importance.

18
Risk Model - Example
Weight Factor

• KEY RISK FACTORS

LOW 1
2
MEDIUM 3
4
HIGH 5
SCORE
1



1
Complexity of Regulations

1
6
Public or Private Operations


2


3
Previous reported problems
2
1




2
Type of Funding / Action

1

3

3

Previous Audit Reports

1

3


3
TOTAL SCORE (MAX. 40)
15
SCORE (divide by 40)





38
MONETARY VALUE OF MEASURE ()





20m
RISK ADJUSTED MONETARY VALUE ()





7.6m
19
Financial Control Unit Structure
20
Financial Control Unit Structure and Key
Activities

• Functionally independent of Paying Managing
  Authorities
• Reports to Audit Committee of Ministry of Finance
• Underpinned by Statutory Instrument (S.I. 123 of
  1999)
• Staffed by qualified / part-qualified
  accountants
• Carries out M 5 (ERDF) and M15 (Cohesion Fund)
• Responsible for management of Systems Audits
  (ERDF CF)
• Article 15 Body designated to issue declarations
  on winding up

21
Financial Control Unit Structure and Key
Activities

• Co-funded by the European Union 50 Technical
  Assistance
• Report to Technical Assistance Monitoring
  Committee
• Audit Reports go direct to European Commission,
• Ministry of Finance Managing Authority
• Article 13 Reports application of Articles 10
  12 (Audit and corrections etc)
• Summary more than a Central Harmonisation Unit
• Advice on best practice - Annual Report
  
  ( Web site www.csfinfo.com/htm/
  publications )

22

• Systems Audit Management

• Plan / Roll out audits
• Risk assessment / audit coverage
• Communicate with IA functions
• Set clear terms of reference
• Monitor and Control
• Target dates for completion of audits
• Evaluate Audit Units and approach to audit
• Collection of audit reports (standard format)
• Quality Assurance
• Possible review of sample of audits
• Reporting
• Annual Report on results of Systems Audits

23

• Audit Report Structure

• Executive Summary (large report only)
• Methodology and Scope of Audit
• Key Findings and Conclusions
• Key Recommendations
• Objectives of Audit
• Evaluate effectiveness of management and controls
  systems
• Test expenditure for compliance with EU
  National regulations
• Methodology and Scope of Audit
• Risk assessment / sample / areas examined /
  personnel on audit
• (Detailed) Findings and conclusions
• Should include response of Auditee
• (Detailed) Recommendations

24

• Financial Control Unit
• Summary of Findings to Date

• Errors in compilation of expenditure returns
• duplication / omission errors
• transcription errors at various levels
• Reality of expenditure
• inclusion of accruals / unpaid invoices in claims
• delayed cheque clearance
• advances treated as expenditure
• notional pension costs
• Income omitted
• Inter-company profit / margin
• lack of competitive tendering
• publicity requirements not met

25

• Financial Control Unit
• Summary of Findings to Date (cond)

• Inadequate procedures manuals (procedures and
  responsibilities)
• Eligibility Issues
• exclude administrative salaries / overheads
  (additionality)
• ensure that charges are at market cost
• if in doubt, leave it out
• poor project monitoring - cost control /
  budgeting / cost overruns
• Inadequate Audit Certificates in support of grant
  claims
• terms of reference (eg, eligibility rules)
• Inadequate audit trail
• difficulty reconciling returns to organisations
  records
• difficulty sourcing original invoices / evidence
• adjustments not adequately recorded
• 
  

26

• Financial Corrections
• Regulation 448/2001

• MS must prevent/detect irregularity and effect
  recovery
• Funds can be re-allocated if
• MS remedies weaknesses in system
• Ascertains extent of irregularity and effects
  recovery
• EC makes correction only when MS fails to follow
  up findings or finds systemic errors in financial
  management and control system
• Correction may be
• Individual file
• Amount extrapolated from representative sample of
  files
• Flat rate amount (2, 5, 10, 25 or 100) if
  precise amount cannot be determined, based on
  perceived risks.
  

27

• Priorities for 2000/06

• Comprehensive Procedures Manuals
• Clear allocation / segregation of
  responsibilities at all levels
• Sound risk assessment in audit planning and
  sampling
• Distribute EU regulations/guidelines to those
  responsible for expenditure
• Ensure adequate monitoring / cost control
• Maintain supporting documentation

28

• Useful Internet Sites

• http//www.csfinfo.com
  
• (Irish Structural Funds information site)
• http//www.europa.eu.int
• (European Commission site)
• http//www.europa.eu.int/eur-lex
• (Legislation search)
• http//www.eca.eu.int
• (European Court of Auditors site)

29

• Contact the FCU at

ERDF Financial Control Unit 15 Lower Hatch
Street, Dublin 2 Ireland. Phone [phone]
6217 Fax [phone] E-mail eucontrol_at_financ
e.gov.ie Annual Reports (1999, 2000/01,
2002) www.csfinfo.com/htm/publications/official