Analysis of errors in Cohesion Policy
and
Legislative proposals for 2014-2020
Management and Control systems
F. Nikolian
Deputy Head of Unit C1
Audit Directorate
DG Regional and Urban Policy
Commission staff working paper SEC (2011) 1179
5.10.2011 presents an analysis of errors in Cohesion
Policy
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definitions and concepts
where the errors lie, both by type and geography
what actions are being taken to prevent and correct them
how the proposed 2014-2020 legal framework will further
help to reduce errors
… based on the results of audits by the Court of Auditors,
the Commission and the MS Audit Authorities
Methodology
• ECA’s audits give a snapshot of errors in interim
payments in any given year. It cannot take account of
the fact that programmes are subject to various levels of
controls throughout the multi-annual cycle
• ECA classifies errors into quantifiable and nonquantifiable and on the basis of quantifiable errors it
estimates an error rate
• ECA also calculates the frequency of errors indicating
how many transactions are affected by errors of any kind
• For cohesion, on average, the sample consisted of 70%
ERDF/CF and 30% ESF transanctions
Methodology
• In principle, the Commission follows the audit
methodology of ECA. However, when it comes to the
quantification of errors, the approach can be different
• For instance, concerning public procurement, ECA
quantifies errors either at 100% or 0%, while the
Commission and MS apply a proportional approach
when they impose flat rate corrections
Analysis of errors
• Based on the ECA estimated error rate for cohesion
policy since 2007
• Takes into account quantified errors
• Presents outcomes by types of errors and geographic
concentration
• Cross-checks ECA results with COM own audit work
• Presents actions taken in the 2007-2013 period and
proposals for improvement in 2014-2020
Evolution of lower error limit and frequency
DAS 2006-2010
Types of quantifiable errors in DAS audits 2006 - 2010
ERDF/CF
Public procurement 40%
Eligibility 39%
Audit trail 9%
Revenue generating
projects 8%
State aid 2%
Miscellaneous 2%
ESF
Eligibility 59%
Audit trail 34%
Accuracy 7%
Geographical spread
• Each year, programmes in 2-3 MS make up about two
thirds or more of the quantifiable errors
• 2006-2010 about 55% of errors were identified in
programmes in 3 MS (ERDF/CF: ES, IT and UK; ESF:
ES, PT, UK)
• In ES and IT errors are concentrated in certain regional
programmes while others are performing well
NB!
Not all Member States have been audited by the
Court in this period.
DAS 2006-2010, geographical spread
ERDF/CF
DAS 2006-2010, geographical spread
ESF
Member States in which ESF operational programmes were audited in
2006-2010 and the contribution to quantifiable errors (%)
25%
22%
20%
17%
16%
15%
15%
11%
10%
6%
5%
4%
5%
2%
1%
0%
0%
1%
1%
0%
0%
0%
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Commission’s and MS audit work
For 2011, in the Annual Activity Reports for 2007-13 period
• DG REGIO classified 187 (59%) out of 317 ERDF/CF
programmes as providing reasonable assurance.
• DG EMPL classified 93 (79%) of 117 ESF programmes as
providing reasonable assurance.
• The AAR sets out specific actions concerning the
programmes/projects which are under reservation:
Preventive actions taken
• COM participates in programmes monitoring committees
• Organises bilateral and multi-lateral meetings with
Managing and Audit Authorities
• Provides guidance to Managing and Audit Authorities
(i.e.: Public procurement, best practices using simplified
costs, Annual Control Reports, audit of Financial
Instruments, etc.)
Corrective actions
New methodology for Commission's reservations in
2011 AAR
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Error rate <2% - no reservation in the Commission's Annual Activity Report
Error rate >=5% - reservations in the Commission's Annual Activity Report
Error rate 2-5%: New approach as from 2011
• Cumulative approach of risk exposure
• If cumulative residual risk of error >2%, reservations by the Commission
• Reservations can be avoided if MS apply self-corrections to reduce risk
below 2%
- By deducting financial corrections in payment claims
- By sending a formal letter indicating that the correction is already
booked in the accounts
- And by proposing a suitable action plan
Impact for the AAR 2011: EMPL – 13 OPs; REGIO: 26 OPs;
• Reputational reservation: for OPs where there are special qualitative
factors in relation to the system
Corrective actions
• Interruptions/suspensions of payments
Actions concerning specific errors
Public procurement:
• COM prepares to simplify the rules for the future.
• Revision of the guidance note COCOF 07/0037/03 on
flat rates corrections (Commission decision)
• Meanwhile, many capacity building actions; seminars,
thematic training courses
Eligibility:
• introduction and widening of the possibilities to use
simplified costs, eligibility rules set at national level,
Commission assists in simplifying (16 MS in ESF + 7 in
ERDF/CF use them)
Actions concerning specific errors
Retrospective projects:
common and targeted guidelines COCOF 12-0050-01,
awareness raising on-going
Revenue generating projects:
simplification / clarification of legal requirements /
guidance note COCOF 07/0074/09
Audit trail: partial closure introduced (2007-2013)
Guidance note COCOF 08/0043/03
Financial instruments:
Detailed guidance COCOF 10-0014-05 and proposed
common audit framework to AAs
Conclusions
• Cohesion policy delivery system is providing increased
assurance, but weaknesses can be still found.
• In the last three years, the contribution of the ESF to the
error rate in cohesion policy has decreased significantly.
• Specific types of errors persist throughout several years
in eligibility and public procurement.
• Errors stem from breaches of Structural Funds rules but
are also related to breaches of wider EU rules (public
procurement).
Conclusions
• The main errors found are concentrated in a small
number of programmes in a few Member States.
• Tackling these errors requires close co-operation
between Commission and responsible national/regional
authorities.
• Both preventive and corrective action is needed.
• Strict interruption/suspension policy is in place.
• The Commission's proposal for the 2014-2020 legislative
framework puts in place new tools and strengthens
simplification to further decrease errors.
Legislative proposals for 2014-2020
Management and Control systems
Provisions of the revised FR
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Member State obligations – Art 56 (2)
Designation of bodies – Art 56 (3)
Accounts – Art 56 (5)
Commission's supervision – Art 56 (6)
Financial corrections – Art 77
Designation of authorities: alignment of
the CPR
Procedure for the designation
Changes required to Commission proposal of Oct 2011:
• Designation / No accreditation
Designation of the MA /CA (Art 113 bis):
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By formal act/decision by Member State at an appropriate level (no
'accrediting body' required)
• Based on a report & an opinion of an independent audit body
(option of AA) which assesses compliance of MA/CA with criteria
• MS may take into account whether the MCS is the same as in the
previous period and has functioned effectively
• Probation/End of designation
Designation criteria
• Criteria for designation of MA/CA:
(i) Control environment
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Organizational structure
Separation of functions
Delegation of tasks
Recovery procedures
Human resources: staffing, training, recruitment
Sensitive functions policy
(ii) Risk management
(iii) Control activities
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Selection procedures
Management verifications
Payments
IT systems, etc
(iv) Information and communication
(iv) Monitoring
The role of the Commission
• MS submits the formal act to the Commission as soon as
possible after the adoption of the OP and before the submission
of the first payment claim;
• If Union funds > €250m Commission may request, within 2
months, the formal act, the audit report & opinion and the MCS
description and make observations within 2 months.
• Commission will take into account whether MCS is similar, the
effective functioning of the current MCS, and if the MA also has
CA functions
Preparation and submission of accounts
and accompanying documents alignment
of the CPR
Tasks and deadlines
CA responsible for: (Article 115 (b)(c)):
• Accounts for the preceding accounting year
MA responsible for: (Article 114 (4) (e)):
• The management declaration accompanying the accounts
• An annual summary of final audits and controls
AA responsible for: (Article 116 (5) (i),(ii)):
• The audit opinion accompanying the documents set out above
• An annual control report supporting the audit opinion
Timing: Designated body (CA/MA) will submit these documents annually by the
deadline set out in FR Article 56 (5) – 15 February (exceptionally, 1 March).
Timeline for the submission, examination
and acceptance of accounts
Accounting year
July
N-1
Dec
N-1
acceptance of accounts
Jun
N
Dec
N
15
Feb
N+1
Preparation of the
accounts, summary report
on audit results,
management declaration,
audit opinion
31 May 30 Jun
N+1
N+1
Audit and control arrangements
Audit Authority
AA needs to prepare Audit strategy within 8 months of the adoption of the
OP, setting out:
• Audit methodology
• Sampling method:
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Appropriate sample of operations
COM to adopt implementing act laying down modalities of sampling methods
Planning of the audits for the current accounting year and for the two
subsequent accounting years
Audit Strategy to be submitted to COM upon request
Annual update of audit strategy from 2016 to 2022
Audit Authority
• The Audit Authority will need to:
• Carry out audits on systems;
• Carry out audits on operations that contributed to the
expenditure declared in the accounting year;
• Desk review of accounts
• Respect the audit strategy for the audits mentioned above
• Combine results of audits on systems and on operations to
determine the level of assurance;
• Select expenditure from the reference period, i.e. the accounting
year
Audit Authority
Timing and organisation of the audits on operations:
• 12+ Months (1/1/N until 15/2/N+1) to audit operations and
establish the audit opinion
• Consider techniques to reduce workload and spread over
available time (stratification, grouping, confidence levels, subsampling)
• Consider potential impact of technique(s) chosen (e.g.: grouping)
Audit Authority
Audit work on the accounts:
• Completeness, accuracy and veracity of the accounts
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AA analyses the results from systems audits on the CA – tasks related to the accounts
and the debtor's ledger;
AA examines the audit trail when auditing the sample of operations in order to verify
reliability of the accounting systems;
AA performs desk review of an appropriate sample of underlying registered data.
• CA can further adjust the accounts, if necessary, before
certification to the Commission
• National deadlines needed for submission of draft accounts to
AA
Proportional control arrangements
• Single audit concept
• Operations <€100k, only 1 audit by AA or COM prior to
submission of the accounts for accounting year when operation
is completed
• Operations >€100k, 1 audit per accounting year by AA or COM
prior to submission of accounts for accounting year when
operation is completed
• Possible reliance on AA's audit work
• Commission's operations audit work based on risk assessment,
serious deficiencies identified in MCS, during 3 year period in Art
132, and for assessment/re-performance of AA.
NEXT (possible) STEPS
• End of September: revised Presidency text
• 3 October: COREPER
• 16 October: GAC Meeting
• Oct/Nov/Dec: Trilateral meetings EU Parliament /Council
/Commission
Thank you for your attention!
• Frangiscos.nikolian@ec.europa.eu