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Title: L


1
Audit of the Single Payment Scheme
(SPS)(Systems audit)
  • Recent Developments in EU Agricultural Funds

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

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

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 EUs 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)

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

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 farming
    at 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

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)

8
Single Payment Scheme (SPS) Member States
implementing SPS from 2005
9
Single Payment Scheme (SPS) Member States
implementing SPS in 2006 or 2007
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

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)

12
Audit objectives 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

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.

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

15
Expected Audit results (Benchmarking)
16
Expected Audit results (Benchmarking)
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

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 pure
    regional approach are presented in slides 19 to
    35.
  • For hybride models a combination of the audit
    programmes will have to be tailor made.

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).
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)
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
22
Basic (Historic) Model4) Allocation of the
National Reserve
slide 22
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)
23
Basic (Historic) Model5) Management of the
entitlements
slide 23
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

24
Basic (Historic) Model Activation 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

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).
26
Regional (Flat Rate) Model 2) 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.

27
Regional (Flat Rate) Model 3) Allocation of the
National Reserve
slide 27
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)
28
Regional (Flat Rate) Model 4) Management of the
entitlements
slide 28
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

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, ...)

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

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.

32
Definition of the Reference 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.

33
Establishment and Notification of the
entitlements
slide 33
  • 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 areas during the
    first year of application

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

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

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)

37
Conclusion
  • Questions Answers
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