1 nwe audit seminar interreg iiib nwe programme secretariat

1

NWE AUDIT SEMINAR

INTERREG IIIB NWE Programme Secretariat

2

NWE AUDIT SEMINAR

Content:

I Financial Management Issues

II Organisation of 1st level control

III Audit Rules and Requirements

IV Practical Examples

V Deliverables check

3

I. FINANCIAL MANAGEMENT ISSUES

NEXT DEADLINE

• Payment claim and activity report are due by 30 June 2005

• Please read the recommendations made by the Secretariat in the assessment report of your previous claim and activity report

• Important to respect the deadline

• “First in, first paid” (if everything is OK)

4


SPECIFIC ARRANGEMENTS AT THE END OF 2005

• The procedure applied at the end of 2004 will most probably be applied again at the end of 2005

• Two-steps procedure:- end of November 2005: non audited payment claim- end of December 2005: complete audited payment claim

and activity report

• The arrangements will be confirmed in September 2005 with detailed explanation

5


COMPLIANCE WITH THE SPENDING TARGET

• It is a requirement set in the Grant Offer Letter (Article 6)

• Unlike in 2004, the Programme authorities are ready – at the end of 2005 - to reduce ERDF budget to projects that cannot reach their target

• If your project is at risk, please contact the Secretariat to discuss the problem and the possible solutions

6


PAYMENTS TO PROJECT: 10% RETENTION

The Monitoring Committee decided at its last meeting

(April 2005) that:

• maximum 90% of the grant will be disbursed upon receipt (and approval) of interim payment claims

• the remaining 10% will be paid once the final payment claim together with the external audit report has been submitted and approved

7


PROJECT SITE VISITS

Different opportunities already exist for the JTS and theprojects to meet:

- External events organised by the Programme (e.g. Mid-term Event, Lead Partner seminars, etc.)

- External events organised by the projects (e.g. Kick-off event)

- Invitation to participate in project Steering Group- N+2 meetings held in 2004

8


PROJECT SITE VISITS

The Secretariat would like to visit all projects at least

once during their lifetime for an in-depth meeting.

The aim is to:- Learn from projects’ experience (best practice for

the next programming period)- Assist projects in solving specific problems- See the deliverables of the project- Check the management system put in place

9

What is 1st level control?

How is it organised in the NWE programme

II ORGANISATION OF FIRST LEVEL CONTROLSUMMARY 1st level control

10

II ORGANISATION OF FIRST LEVEL CONTROL (2) Principle

‘Decentralised implementation’

Commission overall responsibility for EU Regional Policy Budget

Member States responsible for implementation of programmes

and

in first instance for financial control

11

II ORGANISATION OF FIRST LEVEL CONTROL (3)

Structural Fund Financial Controls

1st level • Member States (MS) have to verify the delivery and reality of the

products and services co-financed and the compliance with European and National Rules

(Article 4 Regulation 438/2001)

2nd level • MS have to carry out sample checks on management systems and

expenditure (5%)

3rd level •MS have to issue a closure declaration at the end of the programme

assessing validity of final application of programme

•Commission/European Court of Auditors can carry out own audits

12


Organisation & Content

•1st level control – what?

‘Verification of delivery of products and services co-finances, the eligibility and the reality of the expenditure claimed and the compliance to applicable national and community rules” (Article 4 Commission Regulation 438/2001)

•1st level control – how?

‘recording of verifications of individual operations on the spot’

13


Organisation Example

Purchase of a toaster

14


1st level control check Questions

Does it exist?

Complies with Community rules ( e.g. EC eligibility rules, procurement) and relevant national rules

Eligible? (see Art. 30 General Regulation 1290/1999)?

actually paid out « Supported by receipted invoices or accounting documents of equivalent probative value » during eligibility period

necessary to implement the project action plan/approved application (Grant Offer Letter)?

15


INTERREG Programmes

CRUCIAL ROLE LEAD PARTNER AUDITOR certifies claim statement:

•Based on our examination, we certify:

•1. That the financial information is accurately stated in this Payment Claim and that expenditure has been incurred in accordance with the provisions in the Grant Offer Letter, the European Community Structural Funds regulations, in particular Commission Regulation 448/2004 on eligibility rules, and the NWE Project Audit Guidelines.

•2. The reality of "deliverables" (services, works, supplies, etc.) against plans, invoices, acceptance documents, experts' reports, and, where appropriate, on the spot.

•3. The maintenance of an adequate and reliable accounting system and the maintenance of the audit trail (Commission Regulation 438/2001 Annex I) at all levels within the project.

•The auditor also confirms that he/she is absolutely independent of the project.

16


INTERREG Programmes

Checks to be done in several locations in different Member States in order to control

• difficulty to ensure the delivery of services carried out and the reality of expenditure in INTERREG Programmes

• Lead Partner can not carry out all required eligibility checks ( e.g. compliance with national rules, reality of expenditure etc.)

Challenge: Impossible to do exhaustive 1st level control by one body

17


NWE Programme

PRINCIPLES

shared responsibility for 1st level control Lead Partner/project partners/JTS/ Member States

takes into account financial liability of Lead Partner for expenditure incurred by all project partners towards the

programme/National Authority of the Lead Partner

Reference documents: NWE Project Audit Guidelines, Grant Offer Letter, Joint Convention

18

Project Control Procedure

Paying Authority

Programme Bank Account

JTS

Assesses the Activity Report and the Payment Claim received (check of LP audit statement)

Prepares the payment request to the Paying Authority

Member States

National Authority consulted if any suspicion of irregularity

Certified Audit statement for project expenditure

Project Lead Partner

Receives audited claims + supporting documents

Carries all necessary additional checks

Project Partner

Controls invoices

Project Partner

Controls invoices

Payment Claim Controls

Money Flow

19


project financial controls

Grant Offer Letter (Article 15)

- Intermediate Claim internally audited by certified auditor from a separate organisation unit of Lead Partner (i.e. not by the Finance Manager of the project)

- Final Payment Claim by an external independent auditor covering the whole project funding

- Partners have to carry out all financial controls required by LP (GOL Article 16 and Model Joint Convention Article 4+ 11)

20


INTERREG Programmes

NWE Audit Guidelines: ‘Final Payment Claim’

External auditor

certifies eligibility and validity of entire project expenditure for all partners

records controls carried out on sample basis and findings of final audit

Ref. Documents: -Guidance Final Payment Claim-Final expenditure sheet -Audit report template

FINAL RESPONSIBILITY LIES WITHIN LEAD PARTNER

21


INTERREG IIIB NWE

Challenge of 1st level control

•LP has to rely on controls carried out at partner level

•LP is liable for full eligible expenditure certified after 1st level control

•Need for clear organisation of 1st level control within the project adapted to project size and budget

22


Example

Purchase of a toaster by partner

23


Questions

Does it exist? Check to be done at Partner level

Complies with Community rules ( e.g. EC eligibility rules, procurement) and relevant national rules Check to be done at Lead Partner (LP) /Partner (PP) level

Eligible? (see Art. 30 General Regulation 1290/1999)? Check to be done at LP/PP level

actually paid out « Supported by receipted invoices or accounting documents of equivalent probative value » during eligibility period

necessary to implement the project action plan/approved application (Grant Offer Letter)?

24


Main elements of project 1st level control

ORGANISE YOUR PROJECT CONTROL

Clear Communciation with partners (Finance group, checks list etc.)

Organisation of Sample checks (invoices, reality of expenditure, compliance with rules, partner control system)

Recording of organisation (site visit reports, audit reports etc.)

Cost – benefit, time, resources, risk

25

Structural Funds regulations

Council Regulation 1260/1999 Commission Regulation

438/2001 Commission Regulation

448/2004

NWE programmeNWE Grant Offer Letter Joint ConventionNWE Guidelines for Project PromotersNWE Audit Guidelines Final Payment Claim Guidance


SUMMARY 1st level control: Reference documents

26

III AUDIT RULES AND REQUIREMENTS

AUDITOR'S DECLARATION

Based on our examination, we certify:

1. That the financial information is accurately stated in this Payment Claim and that expenditure has been incurred in accordance with the provisions in the Grant Offer Letter, the European Community Structural Funds regulations, in particular Commission Regulation 448/2004.

2. The reality of “deliverables” (services, works, supplies, etc.) against plans, invoices, acceptance documents, experts' reports, and, where appropriate, on the spot.

3. The maintenance of an adequate and reliable accounting system and the maintenance of the audit trail (Commission Regulation 438/2001 Annex I) at all levels within the project.

27

1. ELIGIBILITY RULES

4 levels of eligibility

a) General Regulation 1260/1999- Art. 1 objectives and tasks (no link to Prog. objectives, no eligibility)- Art. 9 definitions (in particular « Final Beneficiary »)- Art. 30.2 eligibility in time (Programme level)- Art. 30.3 eligibility of expenditure

« The relevant national rules shall apply … except where … the Commission lays down common rules … »

b) National rulesNational rules apply except when EC lays down common rulese.g. Intellectual Property, Public Procurement below EU threshold

28

1. ELIGIBILITY RULES (2)

… 4 levels of eligibility

c) NWE provisions - CIP, Programme Complement, Grant Offer Letter

- Programme Documents (e.g. Audit Guidelines)

EU Regulations = minimum requirements MS entitled to lay down stricter rules !

d) The 12 eligibility rules (Regulation 448/2004)Rule 1: Expenditure actually paid out!

29


Eligibility of often problematic types of expenditure:

1. General Costs + Staff Costs

2. Contributions in kind

3. Sub-partners

4. Expenditure incurred outside the eligible area

5. Financial and Other Charges

6. Receipts

30


1. General Costs + Staff CostsOverheads = things that you cannot touch

Overheads must not be claimed in budget line « staff »

Regulation 448/2004, Rules 1.5, 1.8, 1.2 "overheads are eligible expenditure provided that they are based on real costs which relate to the implementation of the operation co-financed by the Structural Funds and are allocated pro rata to the operation, according to a duly justified fair and equitable method"

Consequence: overheads are not eligible if calculated as a %age of staff costs or based on flat rates!

31


Letter from EC, DG REGIO of 12 August 2004 on fixed rates for personnel costs and overheads:- Timesheets must be kept;- Pre-determined or average rates are not eligible (expenditure actually paid out);

- Expenditure based on estimates is not eligible;

- Implicit costs (e.g. depreciation) are not eligible;

- Interest payments are not eligible.

NWE: - General Costs limited to 5% of total project budget!

- Calculation of staff costs must be based on on timesheets and payslips! If not supported by such documentation, must be declared ineligible!

32


Example:

Staff costs claimed that are calculated by taking the average costs for a specific function in the organisation (applying fixed rates based on pay spines), including an overhead %age based partly on actual average costs and partly on implicit costs.

ELIGIBLE??

33


2. Contribution in kindRegulation 448/2004, Rule 1.7 a-f and Rule 1.5Non cash element! (provision of products or services without cash payment);Value can be independently assessed and audited;

Total eligible cost less contribution in kind must be higher than total ERDF:Example: Total project budget: 150

Total ERDF: 75 Total contribution in kind: 100 TEC – contrib in kind: 150 - 100 = 50

50 < 75 = not eligible!!

NWE: Contributions in kind can only be included in payment claims if they were included in the Approved Application Form attached the Grant Offer Letter.

34


3. Sub-partners= partners who are not part of the formal partnership, but are directly involvedIn the implementation of the project. different from external experts and consultants!

Interpretative note of the Commission Services (CDRR/01/0069/01) on CouncilRegulation 1260/1999 – Article 32 (1) Subparagraph 3:

Expenditure incurred by sub-partners can be « treated as payments effected by final beneficiaries » provided that (all criteria listed must be fulfilled):

a) documentary evidence exists that the sub-partners contribute (financially + content wise) to the project;

b) the final beneficiary (official project partner) retains overall financial responsibility;

c) the expenditure is backed up (receipts, invoices, accounting documents of equivalent probabative value)

d) the expenditure of sub-partners is reported formally to the final beneficiary (project partner) who is responsible for verifying the reality and eligibility;

e) the audit trail is maintained in acc. with Art. 7.2 (a) of Regul. 438/2001

35


4. Expenditure incurred outside the eligible area

General rule: expenditure must be incurred by partners within the eligible Programme area (Rule 12 of Commission Regulation 1685/2000).

Exception: location of public partners outside the Programme area, but which are competent in their scope of action for certain parts of the eligible area, provided that the results of a project are for the benefit of the eligible area.

Expenditure incurred outside the eligible area by partners located within the Prog. area: e.g. costs of a meeting or conference held outside the area

must be justified in full in approved application (clear need for the expenditure must demonstrated;

If not included in application then individual justification to Secretariat before! expenditure is incurred!

36


5. Financial and Other ChargesRegulation 448/2004, Rule 3:

Ineligible: debit interest, fines, exchange rate lossesEligible: if directly linked to project implementation (e.g. bank charges, notary

fees, …)

6. ReceiptsRegulation 448/2004, Rule 2 concerns all receipts except for investments

generating revenue must be deducted from expenditure before claimed (Example: publishing of a project book);

Regulation 1260/1999, Art. 29.4 concerning investments generating revenue.

Best practise in eligibility:Link expenditure in with all other rules – common sense!Avoid « grey » areas, if you think that sth. is not eligible, don’t do it!

37

2. REALITY OF DELIVERABLESPayment Claim – Reality of expenditure

« The reality of expenditure (services works, supplies etc.) against plans, invoices,

acceptance documents, experts’report, and where appropriate on the spot »

38

2. REALITY OF DELIVERABLES (2)

Payment Claim – Reality of expenditure Expenditure supported by receipted invoices or accounting documents of

equivalent probative value

Documents constituting proof of delivery of products and services for which eligible expenditure is claimed

Recording of Delivery and reality of expenditure has to be controlled

NWE Audit Guidelines:

The auditor of the payment claim at both partner and Lead Partner level should record the checks which have been carried out whilst certifying the claim. This applies in particular for the reality of “deliverables”.

39

2. REALITY OF DELIVERABLES Possible controls

Crosscheck payment claim vs. activity report; expenditure vs. activity ( e.g. Annexes of Activity Report)

Is the delivery clearly documented ( e.g. also intangible results: minutes of meetings etc.)

Detailed documentation of reported staff costs (list of hours accounted for project, clear calculation of rate of staff costs, output of work etc.)

Are products/goods purchases physically available?

On-site controls of investments

40

2. REALITY OF DELIVERABLES (4)

‘Reality of expenditure’

Reality of control delegated to partner level

Controls at partner level need to be recorded (audit statement, audit report, check list etc.)

Sample checks of Lead Partner (on-site visits, document of delivery, tender documents ( e.g. call for tender, evidence of regulatory approval etc.)

RECORD CHECKS!

41

3. Accounting system and Audit trail

« The maintenance of an adequate and reliable accounting system and the

maintenance of the audit trail (Commission Regulation 438/2001

Annex 1) at all levels within the project »

42

3. Accounting system and Audit trail (2)

Accounting System

Maintenance of a separate accounting system or an adequate accounting code for all transactions relating to the project (Article 34 General Regulation) at Lead Parter/Partner level

Accounting system at partner level can be tested by Lead Partner (e.g. expenditure sheets, verification of accounting system)

43

3. Accounting system and Audit trail (3) Description of Audit Trail

Project Audit trail shall describe (see also Section 3 of approved application and Annex I of Regulation 438/2001):

Processes

Documents created

Data system used Controls in place

Follow up of financial corrections

Archiving

Verification of the documented audit trail (inlcuding the content of the Joint Convention) at project and partner level

44

3. Accounting system and Audit trail (4) Control of Audit Trail

Clear separation of internal control functions ( e.g. staff certifying receipts of goods and services, authorising payments and checking payment claims)

Are receipts and payments for the project separately identifiable within the financial and accounting system?

Are amounts paid accuratly noted in the accounting system?

Verification of internal control procedures (follow up of internal audit’s findings)

Verification of the allocation and the transfer of the ERDF funds

Management and control system of Joint Convention implemented?

Reconciliation of amount claimed in the payment claim with supporting documents

RECORD CHECKS!

45

3. Accounting system and Audit trail (5) Archiving of supporting documents

At least until the end of 2012 (see Grant Offer Letter Article 12) archiving of

Supporting documents regarding project expenditure and controls including documents constituting proof of delivery of products and services (either originals or versions certified to be in conformity with the originals on commonly accepted data carriers according to national legal requirements)

Ref.: Commission Regulation 2355/2002 amending Regulation 438/2001

46

Structural Funds regulations

Council Regulation 1260/1999 Commission Regulation 2355/2002 Commission Regulation 438/2001 Commission Regulation 448/2004

NWE programmeNWE Grant Offer Letter Joint ConventionNWE Guidelines for Project PromotersNWE Audit Guidelines Final Payment Claim Guidance

3. Accounting system and Audit trailSUMMARY 1st level control: Reference documents

47

IV PRACTICAL EXAMPLES

There is not only 1 correct way to implement the rules, but different solutions are possible!

Important: Set up efficient audit system, based on eligibility rules, and communicate to all involved! (Auditor of project Lead Partner organisation must assume final responsibility for eligibility of all incurred project expenditure!)

Most suitable audit system for project partnership is defined by:a) Partner structure;b) Resources available;c) Rules and Requirements!

48

IV PRACTICAL EXAMPLES (2)

Examples from projects develop « best practise model » for future programming periods (don’t lose experience gained)

Different systems according to type of audit:Audit of Final Payment Claim:

Options limited: external auditor required to check whole project budget and draft report (model report and other templates issued by the Secretariat)

Audit of Interim Payment Claims:

Main options: 1) Reports and/or 2) Checklists and/or

3) LP check prior to partner audit

49


1) Reports1. LP auditor: set up template report for first level control;2. Partner auditors: fill in report and send it back to Lead Partner auditor;3. LP auditor: checks and compiles information from different reports and

creates report for whole project;4. LP auditor sends recommendations to partner auditors for future reports;

Report Structure – example from SCALDIT project:Project partner general detailsExecutive summaryMethodology and scope of the auditMain findings and conclusionSignature auditorKey recommendations (from LP auditor partner specific)General recommendations (from LP auditor to all partner auditors)

50


2) Checklists1. LP auditor: set up template checklist for first level control;

2. Partner auditors: fill in checklist and send it back to Lead Partner auditor;

3. LP auditor: checks and compiles information from different checklists and includes in audit for whole project;

Checklist Structure – example from MESH and WIHCC (annex) projects: « Checklist for first level control »

1. Project partner general details

2. « In auditing the relevant documentation for the above period, I have:

- verified that the expenditure is supported by appropriate justifying documentation (receipts and invoices or accounting documents of equivalent probative value); …

3. Conclusion

4. Signature auditor

51


3) Lead Partner checks prior to partner audit example from JAF project:1. LP: checks all partner expenditure after accounts are closed

and communicates results of expenditure check to regional partners (LP is in possession of copies of all partner invoices);

2. Partner auditors: audit regional partner payment claims, taking into account LP findings;

3. LP auditor: checks and compiles information from different auditors and includes in audit for whole project;

This option can be combined with reports and/or checklists

52

V Deliverables check – why?

To check that the project is: Doing what it said it would in the application form Incurring eligible expenditure Proceeding according to the action plan (content and timeframe) Meeting its indicator targets Implementing EU communication requirements (1159/2000)

To check that the partners are: All actively involved in the implementation Achieving value-added from transnational cooperation Reporting properly to the lead partner on actions and their results All still in agreement on the aims, objectives and approach

53

V Deliverables check – when?

General day-to-day monitoring by JTS (project tandem plus communication) throughout the project’s lifetime

Activity Report every 6 months projects on: actions, outputs, results, impacts experience of transnational cooperation – difficulties, lessons, achievements, knowledge transfer, pooling of resources Major changes (i.e. of actions or partnership) foreseen Milestones for next period Outputs of particular interest implementation of EU communication requirements

54

EU regulation 1159/2000

EU Regulation 1159/2000 applies to all Structural Funds.

Transparency : clear and accessible information on funding opportunities

Increased visibility & awareness : Create a positive attitude among programme usersImprove attractiveness of programmesInvolve people more ( widen programme audience)

Evaluation both at programme and project level : set up indicators to measure what has been done and demonstrate effectiveness

55

Implementing EU Communication requirements

Publications (booklets, leaflets,newsletters) :

Title page shall contain clear indication of EU participation and where appropriate, that of the Fund concerned as well as the Community emblem if the national or regional emblem is also used …

Joint signature EU - NWE

56

V Deliverables check – where?

COMPARE….

approved Application Form part A plus Annex I – Action Plan Annex II – Implementation schedule Annex 4 – indicators

….WITH Activity Report Annexes Supporting Documentation

57

V Deliverables check – how ?

Assessment of Activity Reports: First come first served – those arriving soon after deadline All annexes and supporting documentation provided, labelled,

on CD-ROM (except very interesting paper versions) Formally correct (properly signed, dated and stamped) Incomplete submissions referred back or on hold Full set of indicators Only when PDU is satisfied that full evidence is provided on the

state of progress that FIN can proceed with payment

=> Important to provide exhaustive detail and supporting evidence

58

V Deliverables check – what?

What are we looking for? Tips for success… Stick to the numbering of the action plan – consistency between application and AR and annexes Indicate whether actions have been completed or will be carried over to next reporting period Differentiate between investments, joint actions, studies, research, communications, site visits etc. Update list of deliverables – state clearly deliverables secured

and where evidence of them can be found Deliverables should be made available in full

59

V Deliverables check – what (2) ?

Investment deliverables crucial for programme publicity:

Essential to provide detailed insight into what was built/ converted/ restored by: Planning permission or environmental impact assessment Pilot action and investment results Site visits Maps Photos of ‘before’ and ‘after’ for public works

60

V Deliverables check – what (3)?

Joint action and related research deliverables crucial for programme publicity:

Essential to provide detailed insight into what was improved/ uncovered/ mapped/ identified by: Feasibility studies and plans Planning permission or environmental impact assessment questionnaires and/or theoretical concepts Final (or even draft) and/or Consultants’ reports documentation on preparatory meetings (invitations, minutes)

61

V Deliverables check – what (4) ?

Communications deliverables crucial for programme publicity:

Invitations, agendas, participation lists etc. for events Conceptual papers on communication strategies Press releases and pick-ups, newspaper articles TV and radio coverage Specialist journal articles, books Outputs that bear witness to project achievements or help explain it to the lay

man as well as the specialist/ politician

62

CONCLUSION

POINTS IDENTIFIED FOR FURTHER DISCUSSION:

Which audit systems and procedures are most suitable for what type of projects?

Should documents used for first level control by auditors (checklists, reports, …) be standardised for all projects and all partners?

63

MORE INFORMATION

Contact us!INTERREG IIIB NWE Programme Secretariat(firstname)@nweurope.org

Tel: +33 3 20 78 55 00

www.nweurope.com

Contact PointsBE: Alain Colard ([email protected])

DE: Mirjam Witschke ( [email protected])

FR: Delphine Dufoix ([email protected])

IE: Ronan Gingles ([email protected])

Lux: Nicole Skirde-Vural ( [email protected])

NL: Fiona Wieland ([email protected])

UK: Mike Sanders ( [email protected])

http://www.nweurope.com/

mailto:[email protected]

1 nwe audit seminar interreg iiib nwe programme secretariat

Documents

financial control slide

level control slide

approved slide

place slide

ok slide

level control summary

management system

audited payment claim