November 2012

Behind the scenes Monitoring interregional projects

European UnionEuropean Regional Development Fund

Behind the scenes

Monitoring

interregionalprojects

Walter Deffaa is the Director General of regional policy at the European Commission since 2012. Among his previous experience, he has also held the same position in the Commission’s Internal Audit service, and has several publications on European public finance and audit issues.

European Territorial Cooperation is now firmly embedded in our Cohesion Policy, and nobody can deny its impact and its added value. By bringing Europeans closer together, helping to solve common problems and facilitating and promoting the sharing of ideas and experience it has become a cornerstone of European integration.

In this respect, the INTERREG IVC programme, which gathers together the 27 Member States of the European Union, Norway and Switzerland, is a very valuable laboratory of ideas that contributes considerably to EU territorial cohesion. With an allocation of 300 million euros, representing only 0.1 % of the Cohesion policy budget, it enables regions anywhere in Europe to benefit from the experience and knowledge of other regions which share the same concerns or face the same issues.

By focusing on innovation, the knowledge economy and the environment, this programme largely anticipated the Europe 2020 agenda, as confirmed by the presence of an INTERREG IVC project in the list of winners of the Regio Stars 2012 Awards.

The programme is therefore very popular, and hundreds of project applications were submitted in the current programming period by regional and local authorities. The other side of the coin is that only a few of them could be finally selected.

As for every programme, the Managing Authority must be accountable to all partners for its recommendations and decisions so these must be soundly argued and firmly based on the established rules.

The programme and projects must therefore be managed correctly with strict application of eligibility rules, objective appraisal of the quality of the project and proper financial management and control.

I hope this brochure will give the reader some impressions of the sophisticated but necessary machinery devised to make the best use of public money and of our policy.

Walter Deffaa

Jean-Pierre Jochum is President of the French Interministerial Committee for the Coordination of Controls regarding European Structural Funds – CICC (until January 2012). He represents the Audit Authority of the INTERREG IVC programme and chairs the 28-member Group of Auditors.

Having held this position since April 2001, I have been responsible for setting up and auditing the management and control systems of the INTERREG IIIC (2002-2006) and INTERREG IVC (2007-2013) programmes, alongside the 12 other

European Territorial Cooperation programmes in which France is a partner. This continuity has allowed me to build up a certain experience in adapting audit procedures designed for national level to the more complex European project context. I have also witnessed the professionalisation of the secretariat, with whom we work hand in hand, in all matters concerning audit and control. Their experience and knowledge of the regulations and requirements, the problems faced by project partners, and their day-to-day financial monitoring prove invaluable to the efficient working of the process.

To those who may criticise the weight of the control process, I would say that proportionality has been achieved in the declaration of costs, especially now that the INTERREG IVC programme has successfully implemented simplification measures for administration costs – the first European Territorial Cooperation programme to do so. In my opinion, this is as far as it is possible to go with simplification in this area.

Of course, further progress can be made, especially in the relations between the different actors in the audit process: the private audit company, the secretariat, the Group of Auditors. In a programme made up of 29 different national, legal and administrative systems, we will always face issues of different cultures of control. If one member state does not function well, it is the whole programme that pays, so the need for clear communication is essential.

Due to the changes in procedure from one period to another, it is sometimes difficult to measure the progress made in matters of audit and control and can hinder consolidation of procedures. As I hand over my role of President of the CICC to my successor, I would hope to see more consolidation, and more capitalisation on existing procedures than is currently the case between programmes.

From my point of view, regional policy has a real utility in raising the standard of living across Europe. Richer countries have an interest in improving the resources of less rich countries, in order to build a coherent body that can weigh on a global scale.

Jean-Pierre Jochum

Purpose of this brochure

This brochure is designed to give an insight into the serious and careful way that European money is monitored and managed through cooperation projects by the INTERREG IVC programme.

The very nature of these projects – cooperation at a distance on policy experience – can give the

impression that it is impossible to measure what the money is spent on or what results are achieved. This is not at all the case, and while effective indicators for measuring cooperation activities had to be made up from scratch, in 2005, the system has evolved into the professional, multi-level governance we know today.

As in any system, improvements can always be made. But it is important to understand that in this programme, a coherent and rigorous verification process has been in place from the beginning, using project and programme-level indicators to monitor not only outputs but also results.

Auditing expenditure on non-infrastructure projects is one thing; add in the rules and procedures of 29 participating countries while ensuring an equal application of EU rules, and the picture soon becomes much more complex.

The INTERREG IVC programme has put in place a control and audit system that deals with all these parameters. This publication provides a snapshot of the controls in place to ensure an efficient and effective monitoring and control of how EU funds are spent in interregional cooperation.

Michel LamblinProgramme Director

Contents

Building Europe through cooperation 2

Three questions on the European Economic Interest Group: GECOTTI 2

Project assessment process 4

Project monitoring 6

Overview of audit and control system 9

- First Level Control 9

- National control systems – centralised vs decentralised 11

- Quality checks 14

- Second level audit 17

Evolutions 18

Conclusion 19

1

Building Europe through cooperationAnne Wetzel, Europe Director at Nord-Pas de Calais Regional Council, Managing Authority of the INTERREG IVC programme

The MA is responsible for managing and implementing the INTERREG IVC Programme. Why did your institution decide to become a Managing Authority? What capacities should the organisation acting as a Managing Authority have?The Nord-Pas de Calais Region wished to build on its tradition of cooperating with other countries, developed over the last 30 years with neighbouring regions in Belgium, England but also with Silesia in Poland, Senegal and Mali. Managing EU funds is a skill in itself, and we relished the challenge in the context of European Territorial Cooperation. What is important is to know the EU regulations, to be at ease in managing and controlling large sums of money, and to have the capacity to hire and manage a truly paneuropean team.

But we are not on our own; we are working in a network of country representatives, with bodies as well established as our Certifying Authority and our Audit Authority, and an experienced Joint Technical Secretariat. The succes of a programme lies in the mutual involvement of all of them.

What were your institution’s goals for this programming period? Were they reached?The Region wished to be in the centre of a Europe building common solutions to tackle the challenges we all face. We believe that cooperation alongside competition is necessary at EU level to face these challenges.

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Three questions to Pascale Siauve, manager of EEIG GECOTTI*

The EEIG GECOTTI was created by the Nord-Pas de Calais Region and the Walloon Region. What is the mission of this EEIG?This EEIG has been created at the end of 2003 by Daniel Percheron, President of the Nord-Pas de Calais Region. Its first mission is to exchange experiences between two major territorial cooperation Managing

Authorities: the Nord-Pas de Calais Region in France and Wallonia in Belgium. Secondly, to host the three INTERREG Secretariats of which the Nord-Pas de Calais Region is Managing Authority: INTERREG IVA Two-Seas, INTERREG IVB North-West Europe and INTERREG IVC. It is a kind of European agency for territorial cooperation.

What is the budget of the EEIG, and how many staff does it employ?During the present financial period, which runs from 2007 to 2015, the EEIG manages 70 million euros and employs 58 staff from 18 different nationalities, while financing to different degrees National Contact Points and Information Points.

We manage three territorial cooperation programmes with a total budget of over EUR 830 million ERDF – one of the largest budgets of all territorial cooperation managing authorities. A detailed study is currently being carried out to provide more analysis on the impact of hosting these programmes, which will be available at the beginning of 2013.

What were the specificities of managing the INTERREG IVC Programme?In the context of interregional cooperation, the joys but also the challenges come from working in a multicultural environment of languages, cultures and systems of control. Complexity is fine if it’s well organised and, until now, the results of the programme audits are indeed among the best in Europe!

What are the achievements of the Programme that makes you as a representative from the Managing Authority to be proud of?The results that have been achieved already by the projects funded through INTERREG IVC are very impressive – 118 policies have already been improved thanks to interregional cooperation, and over 3500 staff members in public administrations across Europe have increased their capacity in their field of work. We expect these figures to double by the end of the programme.

What are the things that institutions aiming to become a Managing Authority for the next programming period, should be aware of? What could be learnt from your institution? It is important to be aware of the complexity of the mechanisms to be put in place, and the almost perfect level of organisation required! Rigour and seriousness are the keywords. From our point of view, setting up a European Economic Interest Group (EEIG – see below) to host the secretariat held several advantages in terms of administrative efficiency and the employability of European staff. It could be considered an interesting example to follow for other Managing Authorities.

After 8 years of running such an organisation, are you satisfied with the way the EEIG is supporting the programmes?Clearly yes! With this status we are ensuring that the three main requirements of the MA are fully satisfied: regularity, efficiency and visibility:- we strictly observe all public tendering procedures to order all necessary services, studies and

materials, our functioning is permanently controlled by the Managing Authority, as well as regularly by our Certifying Authority and our Second level auditor

- we make all payments to our various providers quickly, and can easily employ staff of various nationalities.

- on top of this, the tax code of the EEIG allows us to save about €4.5 million, equivalent to 11 full-time staff positions over 9 years!

- and finally, I think we communicate quite well on the achievements of the programmes.

*Groupement Européen de Coopération Transfrontalière, Transnationale et Interrégionale

Project assessment process

Quantity dealt with quality

INTERREG IVC has launched four calls for proposals and received a total of 1,357 applications for funding. This result is quite unique in ETC programmes. Dealing with such a high number of applications and ensuring the quality of their treatment is a real challenge. The assessment process set up by the programme guarantees the respect of three fundamental principles: equal treatment, accuracy and transparency.

Equal treatment

The application form is the only basis for the assessment. This implies that the same information is requested for all applicants and the same technical requirements are also applied to all.

Accuracy

The assessment of applications is based on a two-step approach.

Eligibility check: application forms are firstly checked against the eligibility criteria to ensure that they fulfil the technical requirements of the programme. To avoid errors in the verification, the check is performed by at least two members of the secretariat for each application. Applicants of non-eligible proposals are informed immediately after this check is carried out why their proposal is ineligible.

Quality assessment: only the applications that satisfy the eligibility criteria are subject to the quality assessment. An elaborated and sound procedure guarantees the most detailed and accurate evaluation, and an equal treatment to all applicants.

Four elements form the core of the assessment process.

1. The 6-eyes principle: as a general rule, each application is assessed by a minimum of 3 officers, i.e. two “main assessors” and a “reviewer”. The first two assessors work in pairs drafting a first version of the assessment form, and a third assessor, a more experienced member of the team, carries out a review of the assessment. Elena Ferrario, Project Officer and one of the reviewers explains: “Internal team meetings are regularly organised to discuss the most complex cases. This ensures the maximum objectivity of the evaluation, as several persons are involved in the process”.

2. The coherence of the evaluation criteria: each application is assessed on the basis of 6 pre-defined criteria (relevance of the proposal; coherence of the proposal; quality of results; quality of management; quality of partnership; budget and finance). Their logical interrelation is as important as the criteria taken individually, and assessors pay a lot of attention to thoroughly verify the coherent links among them. The final score is the result of the different scores per criterion, but it also reflects the overall quality of the application.

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3. Additional checks: further to the first assessment and the review, other officers in the JTS are in charge of carrying out the following verifications on each application form.

Consistency reading: each assessment form is read by a fourth officer who verifies the clarity of the text, and the consistency between the text and the score per criteria.

Review of multiple partners: the presence of the same organisation in more than five project proposals is checked and noted in the assessments. Applications recommended to the Monitoring Committee for approval include a condition for the organisation to demonstrate the feasibility of this arrangement.

Review of non-eligible partners: Member States are also involved during the assessment process. They are asked to verify the eligibility of the organisations applying for ERDF funding.

Resubmissions: starting from the second call for proposals, assessors also check whether an application had been already submitted in previous calls and not approved. When the case arises, the assessors go back to the quality assessment made for the previous application and take into consideration the possible evolutions of the project proposal.

Review of recommended applications dealing with similar issues: the JTS performs verification on recommended applications who tackle a similar topic and, if necessary, conditions are set for all projects involved to look for opportunities to create synergies and share activities /experiences among projects.

Financial review: the applications recommended for approval are subject to a second check made by the finance team of the JTS, who verifies the soundness of their financial arrangements.

4. External expertise: The JTS can ask external experts for advice on topics where guidance of a particular expertise is needed. This was systematically applied in the first two calls, and was replaced with ad hoc interventions in the last two calls.

“You can see why the evaluation process can take some time, especially since we were dealing with 500 applications at a time!” says Elena Ferrario, “but this lengthy process is necessary to guarantee that the final assessment is the result of sound analysis. An applicant may not agree with our decision but we don’t think he could argue on the method used to reach it.”

Transparency

Once the Monitoring Committee has completed the approval process, all applicants receive the full assessment, with the detailed text and the scores per criteria. They have the possibility to ask the programme for further clarifications. The secretariat ensures that each request is thoroughly replied to.

Project monitoring

Coherent and integrated monitoring system

INTERREG IVC is seemingly quite unique in that it applies a fully integrated monitoring system that is developed directly from the logic of the programme. The indicators used to assess the achievement of the programme objectives are defined in the Operational Programme (the text that describes and defines the programme), and are reflected in the application form of all INTERREG IVC projects and consequently included in the progress reports submitted by these projects. Such a streamlined and coherent system is the basis for a good analysis and demonstration of the programme’s achievements and success.

Monitoring of project activities and results

Every six months, each INTERREG IVC project has to submit a progress report to the secretariat which allows the programme to get an overview of the projects’ activities, outputs and results. In this context, the programme indicators are the main tool to assess the projects achievements and results. Project officers therefore carefully check the information provided. Silke Brocks, Project Officer, explains: “More than half of the time we spend monitoring projects is devoted to checking the indicators and their justification! We don’t just take the information provided for granted so if the justification for core result indicators is insufficient, we get back to the Lead Partners for further clarifications. Only very well justified figures reported for the indicators are accepted”. As a result, almost 80% of the requests for clarification from the project officers are related to the indicators.

A common understanding on the definition of the programme indicators both at Lead Partner and JTS level is necessary in order to allow for comparison and aggregation of the project results. Several tools are established at programme level for this purpose:

• Clear definition of indicators: Taking into consideration the experience gained in monitoring indicators, the programme regularly improves the definition of the indicators in annex 3 of the programme manual.

• Training of Lead Partners: Every Lead Partner is invited to a Lead Partner seminar at the beginning of their project. At this occasion, interactive workshops are organised which include very practical exercises on the core output and result indicators of component 2 (communication & dissemination) and component 3 (exchange of experience). The aim is to raise the Lead Partners’ awareness as early as possible on the importance of the programme indicators and the necessity to precisely understand them.

• Close relationship with Lead Partners: Each officer gives a lot of attention to the establishment of a respectful relationship with each Lead Partner in order to lower the barrier for the Lead Partner to turn to the JTS in case of questions.

• Detailed monitoring checklist: A monitoring checklist with detailed questions on each section and each indicator of the progress report has been set up. It guarantees a streamlined and systematic check of all figures reported by projects.

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Over 100 points monitored in each progress report

• Regular internal discussion: The officers responsible for activity monitoring meet on a weekly basis to exchange on the progress report monitoring. Officers discuss frequently asked questions and recurrent problems in terms of Lead Partner reporting. The most interesting and tricky cases are presented in order to ensure a learning process among the officers regarding how to monitor core achievements.

• 4 eyes principle: The results reported under the two core indicators (i.e. good practices transferred and policies improved) are usually checked by more than one person.

The system put in place constitutes very demanding work, which is however crucial for the quality of the programme’s on-going evaluation.

Communication of project achievements

Besides a careful monitoring and verification of the qualitative project results, much attention is given to their dissemination. For this purpose, one full section of the annual report to the European Commission is dedicated to the qualitative analysis of INTERREG IVC projects. This chapter is updated each year. This annual report is disseminated to the main stakeholders of the programme (Member States, European Commission) as well as to all INTERREG IVC Lead Partners. The latter is important in order to show to Lead Partners that their results significantly contribute to demonstrating the overall success and added value of the programme. This further encourages projects to properly report on interesting results in their progress reports.

Apart from that, the project’s results are illustrated in a table, giving a comprehensive overview on the results achieved per country. This geographical picture of the project results is regularly updated and presented to the Monitoring Committee. It allows Member States to demonstrate the usefulness and practical nature of the outcomes of interregional cooperation in their country.

The programme website – www.interreg4c.eu – provides a mine of information coming from the projects, available for use by any interested party. The aims, achievements and contacts of each project is available in a searchable Approved Project database. In addition, a Good Practice database has been developed, allowing users to search for the specific good practices transferred within projects, to know why they are considered successful, and to contact the person in charge of this good practice directly. As of October 2012, over 550 good practices were available.

Finally, thematic capitalisation activities are put in place at programme level. This initiative, established for 12 thematic clusters, also contributes to a better exploitation of programme results from the thematic point of view and allows for a good communication towards the wider public.

Monitoring project finances

The financial monitoring of a project focuses on eligibility of costs and their value for money, in addition to ensuring that the money is spent in a legal way. The provisional budget provided with the project application forms becomes the payment forecast and represents the basis of monitoring the project’s financial performance every six months. It is important that all partners report all expenditure on time, to avoid what is called ‘decommitment’ (see box).

“Of course, projects can only spend what they actually need,” reminds Katja Ecke, Finance Officer, “but we have to pay attention that what is actually spent is quickly reported to the programme to ensure that funds are not lost. The projects understand that it is better to reallocate budget that they won’t use back to the programme so that it can be committed to other projects.” The programme’s financial officers are also available to help find solutions if a project lags behind its payment forecast for whatever reason. Otherwise the project risks having their budget reduced.

Overview of audit and control systemAs with all public funds, auditing how the EU Structural funds grants are spent is an important part of the grant-delivery process. In the INTERREG IVC programme, up to 85% of project costs are financed by the European Regional Development Fund, with the remaining costs coming from local, regional or national public funding. It is unthinkable, therefore, that public funds would be distributed without a clear and accountable audit of how the money was spent. The audit and control system in INTERREG IVC operates on two main levels: the level of each project partner and the project consortium – called First Level Control – and on programme level – known as Second Level Audit.

First Level Control

INTERREG IVC projects operate on a reimbursement basis, i.e. costs incurred carrying out the project activities are reported every six months, and eligible costs are reimbursed by the programme. This means that a first level of control is carried out on each partners’ expenditure, by an independent controller. The costs certified as eligible for reimbursement are confirmed by the controller, and each partner presents the official ‘partner control confirmation’ to the Lead Partner. Without duplicating the work of each project partner, the Lead Partner controller checks that each partner control is in order, and submits the documentation to the programme for payment. As described in the project monitoring section above, the programme’s finance officers verify the claims according to the rules for eligible expenditure, and once completed, a request for payment is made to the Certifying Authority – the body responsible for making payments to the Lead Partner.

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Reporting and Financial Control System

4. CA checks and initiates payment

3. Progress Reports checked by Project Officer and Finance Officer in JTS

2. LP compiles the joint progress report and collects the partner control confirmations. LP-controller checks expenditure

1. Expenditure checked by PP-controllers

Joint Technical Secretariat (JTS)/Managing Authority (MA)

Certifying Authority (CA)

Paym

ent to LP

Payment to PPs

Lead Partner (LP)

Project Partner (PP) Project Partner Project Partner

Paym

ent to PP

s

Payment to PPs

The programme so far has been able to avoid any decommitment and related loss of funds. According to Marie Grardel, Finance Officer, this is due to a joint effort from Member States and all those involved in the control process. “Since the programme was the first ETC programme to have been approved by the EC in September 2007, funds were able to be allocated to projects very quickly afterwards,” she explains. “Project partners, lead partners, their first level controllers, the JTS and the Certifying Authority, also make an important effort on a continuous basis to ensure that the existing expenditure is also reported to the programme and then to the EC.”

The Decommitment Rule (n+3/n+2)Every year, the European Commission allocates a certain ERDF amount to the INTERREG IVC programme. From 2007 to 2010, the ERDF amounts have to be spent within four years (n+3, where ‘n’ is the year of commitment).From 2011 to 2013, the ERDF amounts have to be spent within three years (n+2). Any allocations which are not used by the end of the period will be lost. The reason behind this rule is the need for some spending discipline. The EU wants to ensure that funds are being used or, if not, reallocated in a timely way.

The programme also monitors that the expenditure which has been reported has been checked by an independent controller. This process is fully described in the next section on control and audit. Mahesh Bhardwaj, the programme’s Financial Control and Audit Officer, explains: “We understand that some partners might find it cumbersome to go through a control process every six months, since they are sure that they have spent their money correctly. However, we have an obligation to the European tax-payer to prove in an independent way that this is the case. We want to identify weaknesses before they risk becoming an irregularity in future audits.” The current error rate of the programme is well below 2% – the maximum threshold for errors in EU spending – proving that the system is effective.

In order to support the Lead Partners and their first level controllers in the reporting and control process, the JTS works mainly along two axes:

1. Common documents The secretariat has made a template for a control report including a control checklist available from

the beginning of the programme. This template provides the minimum requirements to ensure that the same quality standards apply across projects, partners and countries and gives the projects and controllers reassurance about the scope of the control.

2. Training The JTS regularly organises training seminars on financial reporting with very practical advice and

case studies. Alongside tackling common issues with control and reporting, the seminars also allow the Lead Partners and controllers to build a network for exchanges afterwards. With 2200 project partners involved in 204 projects, the programme targets the Lead Partner level following the ‘train the trainers’ principle. It is the Lead Partner’s role to drive the project implementation process, to function as trouble-shooter and also filter and relay the information between partners and the JTS.

In addition to the trainings offered by the JTS, many programme Member States organise their own training seminars, targeting the national partners directly. “We very much appreciate these initiatives taken by Member States and try to support them as much as we can,” remarks Petra Geitner, Senior Finance Officer. “They allow partners from a certain country understand how to interpret and comply with the rules in their specific administrative context. For example, while the principles of calculating partners’ staff costs are the same across countries, the salary sheets may differ greatly and the interpretation of which parts are eligible may require some explanation. These explanations are best provided within the country”.

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Peter Kovacs, of the Central Control Unit of the Hungarian First Level Control (VÁTI), gives some insight into the role and responsibilities of a first level controller.

What does your work as a first level controller entail?For each project with a Hungarian partner, my unit receives the progress report and all invoices in two copies – one original and one copy. I carry out several

checks. First that the Hungarian partner activity matches what was described in the application form and approved in the subsidy contract. Secondly, that the requested payments are within the budget lines of the approved application, comparing the projects’ expenses with the activities reported. Thirdly, I control the invoices themselves, that the expenditures are eligible and paid out, and that the invoices conform to Hungarian regulations. Once all checks have been carried out, I declare the total amount of eligible expenditure for the Hungarian partner and issue the ‘partner control confirmation’ (a document submitted to the Lead Partner as proof of control). Only once I am fully satisifed that all checks have been positively completed will I stamp each original invoice with the VATI approval.

Are there any differences if the Hungarian partner is lead partner of a project?If the Hungarian partner is leading the project, then further checks are required on the documentation submitted by partners from other countries. This includes checking that an authorised person has signed the submitted partner control confirmations, that the submitted partner expenditure is appropriate and that supporting documents relating to ERDF expenditure are available.

What are some of the difficulties you come across in controlling expenditure?The main issues our unit comes across when verifying project expenditure mainly relate to the ‘document trail’. We check for example that staff costs are justified, with time sheets showing the hours worked by the employee on the project and how this time has been calculated. For travel expenses claims, we check for the original supporting documents, such as boarding passes, invitation and minutes. Difficulties are most often linked to the absence of proof of payments, or supporting documents that justify the calculation of expenditure.

How do you rate the efficiency of the INTERREG IVC first level control procedures?Compared with systems in other programmes, such as transnational, the INTERREG IVC system is as efficient as possible given that it has 29 member countries. We appreciate the smooth communication with the programme secretariat, and with the information made available by them.

National control systems

In a pan-European programme it is not possible for a secretariat to verify the correctness of the expenditure at central level. It is impossible to know all the different languages necessary to read the invoices and other accounting documents, the administrative specificities and national or internal rules. This requires control bodies as close as possible to the partners.

Each member country of the INTERREG IVC programme had to designate, at the beginning of the programme, which kind of control system they would put in place. Two main possibilities were envisaged: a centralised system, where the member state would designate and approve a pool of first level controllers for use by the project partner organisations; or a decentralised system, where the project partner organisation would contract its own first level controller, and submit this profile for approval by the member state. In this programme, about half of the countries have chosen a centralised system, and half a decentralised system. Depending on the system of government within a country, both systems can be found in one state. Belgium, for example, devolves the choice of system to the regions, so the Walloon Region has chosen a centralised system, while Flanders and Brussels-Capital have selected the decentralised option. Similarly, the UK operates a decentralised system, except for Northern Ireland, whose system is centralised.

What is important is that the system is able to deliver reliable results within a short period of time to allow the programme to report to the European Commission at regular intervals.

Erwin Siweris, Deputy Programme Director for INTERREG IVC, explains: “The control system has to be flexible enough to fit to each member states specificities. Depending on the size of the country, its administrative culture, the number of partners participating in EU projects, or their previous experience with managing EU funds, their needs and requirements will be different.” At the same time, the programme has to ensure that equal standards of quality are applied across the different systems. It does this through harmonisation of the control framework. “The programme provides a coherent set of documents that must be used by each controller,” continues Erwin Siweris.

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Comparative advantages: centralised vs decentralised

To understand the workings of each system, and how the decision was made to go for one system or another, two Member States provide their analysis of their choice.

Stephen Blair, of the South-East Regional Assembly in Ireland, and Monitoring Committee representative for this country in INTERREG IVC, provides an insight into the Irish centralised system.

Why did Ireland choose a centralised system for First level control?There were a number of considerations which influenced Ireland to choose a centralised system of First Level Control (FLC). The first was that within the two Regional Assemblies, we had in-house expertise which could be deployed to fulfil in an efficient and effective way the FLC requirements. Secondly there were advantages to having all the programme representatives, such as National Contact Points, Monitoring Committee members and FLC employed in the same two organisations. While functional separation is of course maintained, experience and knowledge is shared across the organisations. Thirdly, having a centralised

FLC system allows us to internalise some of the control costs, which means that the actual costs to the project partners for FLC are lower than they would have been had we opted for a decentralised system. Finally we were attracted by a centralised system which allows us to ensure consistency of standards and interpretation across all first level controls.

How does it work in practice?There are two NUTS II Regions in Ireland. Depending on where the Irish project partner organisation is located, they contact their respective Regional Assembly office, who advises them on the procedures to be followed for FLC. Each project partner has direct access to the designated Controller, and they can communicate directly with the controller by phone and email prior to and during the FLC on the partner claims.

How do you ensure a consistent level of service?All of the FLC staff has received appropriate training, and each of the designated controllers attend annual events and seminars organised by the Joint Technical Secretariat for the Programme.

Have there been any unforeseen issues arising as a result of this system?There were some minor teething problems at the start of the programming period, largely arising from project partners’ unfamiliarity of new (at the time) certification procedures. In particular the quality of the documentation submitted for first claims was generally of a poor standard, but this has greatly improved as partners have become more familiar with the new system. This has meant that the delays in processing claims in the early years of the programme have now been largely overcome.

Will this system be modified for the next programming period?While no definitive decision has been taken with regard to the FLC systems for the new programming period, we are satisfied that the current centralised FLC system in Ireland is operating well, and does not require any significant modifications.

Betina Bredvig Hansen of the Danish Business Authority is member of the INTERREG IVC’s Monitoring Committee representing Denmark. She explains the decentralised process in place in Denmark.

Could you describe the first level control system in place in Denmark?Depending on the programme concerned, both centralised and decentralised systems are in place in Denmark. For the INTERREG IVC programme, a decentralised system was chosen as a continuation of the system Danish partners were familiar with under the previous programme, INTERREG IIIC. The main difference is that a centralised ‘Approbation Body’ confirms the choice of the controller. How does this work in practice?When a Danish partner has been notified that the INTERREG IVC Monitoring Committee has approved the project with their participation, he proposes an independent external controller on the basis of country-specific guidelines.

The partner must propose a controller with experience in controlling Structural Funds and with knowledge of English. The proposed controller has to be a certified public accountant.

The Danish Business Authority – in its role of Approbation body – authorises the controller after having checked that he is sufficiently independent from the project activities and finances as well as qualified to carry out the control of an INTERREG IVC project. The Approbation Certification is sent to the Danish partner and the Lead Partner. If the necessary checklist has been correctly filled in, the authorisation time is approximately one week.

What issues may impact on the next programming period?No major issues have been identified so far with the use of this system. Some Danish partners consider the system to be relatively expensive. An evaluation of the system will of course be the basis for choosing the system in the next programming period. There has been no reason so far to doubt the quality of the control, regardless of the system used.

Quality checks

Interview with Marie-Hélène Sperber, European Programmes Unit, Caisse des Dépôts et Consignations INTERREG IVC Certifying Authority (CA)

The Certifying Authority is responsible for certifying the overall reliability of declared project expenditure before making the payment. What is your institution doing to ensure accurate statements of expenditure?According to current ERDF regulations, the role of the Certifying Authority (CA) is to ensure and certify that 100% of the expenses declared by a programme are eligible according to the laws and regulations in force.

Of course its action takes place at the end of a control chain that starts with first level controllers. For this reason, the certification function consists essentially in assessing the reliability of the existing control system. This point is essential because it differentiates our mission significantly from other levels of control: the CA is not a second level of control but aims to obtain a reasonable assurance on the quality of the whole control chain: the CA checks a process. The certification checks may give rise to withdrawals of expenditure but also to recommendations to prevent irregularities or to improve the audit trail before the statement to the EC.

In order to fulfil this task, the Caisse des Dépôts, French CA of the INTERREG IVC programme, developed two separate and complementary processes: consistency controls and sample audits.

Besides checking project-related documents on a regular basis whenever you make a payment, you also carry out additional measures of quality assurance. What are these measures? What are these measures and why are they necessary?In addition to checking 100% of the payment claims submitted to us, the CA carry out detailed audits called “Certification quality checks” in order to have a concrete vision of the quality of the programme control system. These checks take place at least twice a year per programme. Each time, one project is selected according to relevant criteria: location and nature of the partner (in order to maximise the coverage), nature of the reported expenses (for instance: high proportion of expertise or staff costs), specific risk factor identified during consistency controls.

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The purpose of these checks is also to have a preventive value, being an ‘audit before the audit’ because, unlike any other audits, they are performed on expenditures which have not already been certified to the EC. The quality check contributes to reducing the error rate of the programme since the irregularities detected, unlike the ones detected by the audits performed by the audit authority, are corrected before certification to the European Commission. They are also meant to be ‘pedagogical’ for the projects controlled and aim to correct before any other audit processes that can be imprecise or erroneous. What have they shown so far?In general, and besides some minor errors such as reporting mistakes or occasionally missing justifying documents, the main cause for irregularities are:- an incorrect method of staff costs calculation;- a lack of justification of conformity with public procurement rules.

But errors may also occur because of the complexity of the eligibility rules and because cooperation programmes have their own inherent characteristics, such as strong decentralisation of First Level Control, heterogeneity and high number of co financed activities implying a multiplicity of partners, sometimes taking part in the project on a modest scale.

The errors detected so far on the INTERREG IVC Programme remain minor and the irregularity rate resulting from the quality checks is very low (on average less than 1%), demonstrating the very solid reliability of the programme, in spite of its large size and very wide coverage.

What are the challenges for a French institution to carry out quality checks in 29 European countries?The first challenge is of course the different languages used in the partners’ documents: at the Caisse des Dépôts we try to mobilise the language skills of the whole team in order to be able to cover as many countries as possible. A ‘passive knowledge’ of languages from the same linguistic family is often sufficient for financial audits.

A bigger challenge is actually the different national laws that we have to be familiar with, particularly regarding public procurement rules and VAT. To cope with this challenge, we rely on 3 main principles:

- in these matters, the European legislation is quite harmonised and in every European country the same main principles apply. With experience, and because we certify eight ETC programmes, it becomes easier to detect where there may be some risk of irregularities and to start an adequate legal research to check this risk.

- during quality checks, we always try to be in a constructive process with projects partners: so when the legal research we perform does not remove the doubts we have, we ask the partners to justify the processes applied by them with their national legal references.

- when we fundamentally disagree with the partner over a particular legal point, we can resort to the expertise of the national First level controller approbation body or national centralised First level controller to settle the question. Caisse des Dépôts can also rely on its legal department.

Finally a third challenge is to take into account the conclusions of all quality checks on eight ETC programmes with the objective to prevent irregularities and participate in the harmonisation of rules and processes.

Marie-Hélène Sperber (4th from left) and the Certifying Authority team of the Caisse des Dépôts et Consignations

How do you rate the efficiency of the INTERREG IVC procedures that aim to ensure the quality of the projects?In comparison to other programmes, and mainly due to its size and the extremely large number of projects involved, the INTERREG IVC programme has very focused procedures where double-checks are reduced to the minimum and to the most sensitive points.

This solution allows the programme to solve the apparent contradiction between reducing the error rate, coping with the size of the programme and preventing excessive complexity.

Considering this and the fact that the irregularity rate on the programme is very low (both for quality checks and for audits performed by the Audit Authority), as Certifying Authority, we consider the INTERREG IVC procedures as very efficient and organised in a cost-efficient and result-oriented way.

Are there any procedures that should be improved during the next programming period?In our view, the reliability of the INTERREG IVC control system is based on the qualification and skills of first level controllers and lead partners. Training sessions are already organised by the programme on a regular basis but to maintain the good quality of the projects and to ensure that they always apply the rules in force, we think it is important to keep up with these efforts.

All the authorities of the programme could also aim to disseminate even further best practices or warnings, and to favour the harmonisation of the programme rules and procedures so as to contribute to their understanding by the beneficiaries and first level controllers.

Second level audit

Apart from individual project expenditure control, the programme is required to put a system in place that verifies the efffective functioning of the management and control system, including audits of projects. This is known as ‘second level audit’ and is the responsibility of the Audit Authority, in this case the French Interministerial Committee for the Coordination of Controls regarding European Structural Funds (Commission Interministérielle de Coordination des Contrôles des actions cofinancées par les Fonds Structurels (CICC)).

The head of the Audit Authority (until end of January 2012), Jean-Pierre Jochum, describes some of the particularities of a system designed for national contexts. “The particularity of INTERREG IVC is to adapt the European regulation to a programme with 29 member countries. This is a huge task when you think of each different national audit system, never mind the 22 or so different languages involved.”

The important elements of this control system is that it is flexible enough to incorporate the specific characteristics of different member states, such as the size of the country, its administrative culture, the number of partners that country has participating in the programme, or their experience with structural funds. At the same time, equal quality standards must be ensured across the programme. This is managed through a harmonised control framework, where the programme supplies templates and guidance documents detailing the minimum requirements.

To manage these complications, the CICC contracted a private audit firm to carry out the auditing in each member state and to prepare the annual report for the European Commission. In addition, the CICC created a Group of Auditors, made up of a representative from each country, which discusses and reacts on the report.

A further challenge for the programme was to define a method of sampling to select projects for auditing. A minimum of 800 projects is required for a statistical sample to be possible, but there simply aren’t so many interregional cooperation projects. A random selection had to be put in place that is verified for coverage so that over two years, all countries will have been audited. The lead partner and one partner from each project selected is audited, to cover both the controls on national level (of a partner) and the role of the lead partner in compiling all partner control confirmations.

So far, the error rate for the programme has been below 2% – the threshold for acceptable error rates as set by the EC. “Either we have been lucky in the selection, or there really isn’t a problem in control!” concludes Mr Jochum. The main sources of errors in project audits relate to insufficient documentation of internal costs or staff costs, overheads, and documenting public tender procedures. The programme has made a concerted effort to draw attention to these issues during dedicated financial seminars for project financial managers and auditors.

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less than 2% error rate = no problems with control

EvolutionsConsidering the control processes described previously, the programme is regularly monitoring any actions that could be simplified to reduce the burden on project partners. One such improvement has been agreed during the current programme – to apply a flat rate for administration costs reported per project. Many errors occur due to the lack of supporting evidence for calculating the part of administration costs such as overheads for specific projects. The 29 participating countries in INTERREG IVC therefore managed to come to an agreement on a fixed percentage of staff costs that would be calculated as administration costs. This removes the need for projects to report and document actual costs linked to administration. This procedure is in place for projects approved during the fourth round of project funding.

For Programme Director, Michel Lamblin, the future should build on the current system which has proved its ability to function effectively. “A large community is now fully trained in these procedures, and this should be consolidated.” This does not exclude reflection on further simplification in reporting requirements or frequency, for example.

According to Jean-Pierre Jochum, there is little more that can be simplified within the current framework. “It is already a great achievement that the programme managed to come to an agreement on one flat rate for administration costs across 29 member states”, he remarks, “but the other possibilities that could be considered really are not suitable for territorial cooperation projects”. Referring to various proposals that would see lump sums paid to projects, or the definition of standard costs, all require the definition of a reference cost, which would be difficult to define on an EU level for all countries.

The European Commission has made some proposals for simplification in the draft regulation for the 2014-2020 period. These include removing the role of the Certifying Authority, and having their tasks carried out by the Managing Authority. Mr Jochum is unsure of the level of simplification that will ultimately be achieved. “Firstly, it is important that each period builds on the successful processes that have been put in place previously. If the rules change each time a new regulation is drafted, there is no continuity, and new procedures have to be developed from scratch.” He continues: “The function of Certifying Authority is proposed to be removed, but the tasks this body carried out still need to be completed. The Managing Authority will need to ensure that all tasks are completed, and that the necessary division of powers are in place.”

The EC have incorporated some of the procedures developed by the CICC for the INTERREG IVC programme into the general regulation. For instance, setting up a Group of Auditors with representatives from each member state was first established by Mr Jochum, and has now become part of the draft regulations for Structural Funds. However, further adaptation will be required by all programme bodies based on the current draft regulation.

ConclusionThis booklet tries to show the often complex machinery behind the monitoring of interregional cooperation projects. Processes, procedures and people are all equally important elements in ensuring that the EU funds are not only well-spent and tracked, but also that they have been invested in worthwhile activities.

The measures put in place by INTERREG IVC described in this publication go far beyond the simple ‘money trail’. The coherent indicator system which drives the whole programme goes beyond what many other cooperation programmes have put in place. This makes the programme particularly proud, but there is still some way to go in improving the system.

In matters of capturing the full impacts interregional cooperation has on public policy, and therefore on the public, serious reflection is underway on the most relevant set of indicators that could be used in the 2014-2020 programming period.

It is sure that the future interregional cooperation programme has a very solid foundation to build on.

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CreditsThe programme would like to thank all contributors for their input, in particular those who took the time to be interviewed – representatives from Ireland, Denmark, the Managing Authority, the Certifying Authority, Audit Authority and colleagues from the Joint Technical Secretariat.

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Joint Technical Secretariat

Région Nord-Pas de Calais

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T: +33 (0)3 28 14 41 00 • F: +33 (0)3 28 14 41 09

info@interreg4c.eu • www.interreg4c.eu

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