The role of the Slovenian Court of Audit in the control of EU funds and cooperation with the Audit A

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The role of the Slovenian Court of Audit in the
control of EU funds and cooperation with the
Audit Authority Ljubljana, 12-13 October 2009
Zoran Mladenovic Deputy President Court of Audit
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Outline

• Mandate - Legal background
• Context of audit of EU funds
• Guiding principles of structure funds reform
• Main objectives of CoA audits of EU funds
• Summary of findings of parallel audit of
  structural funds
• Conclusion

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Legal and professional basis Court of Audit

• Lima Declaration - 1977
• Constitution of Republic of Slovenia
• Court of Audit Act - 2001
• Administrative procedures of the Court of Audit
  Act
• INTOSAI auditing standards
• European guidelines for implementation of INTOSAI
  auditing standards
• International standards on auditing - IFAC

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Constitution of the Republic of Slovenia -
Articles on Court of Audit
Article 150(Court of Audit)The Court of Audit
is the highest body for supervising state budget
and all public spending. The organisation and
powers of the Court of Audit are provided by
law. The Court of Audit is independent in
performance of its duties and bound by the
Constitution and the laws.Article
151(Appointment of Members of the Court of
Audit)Members of the Court of Audit are
appointed by the National Assembly.
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Audit Mandate

• The Court of Audit shall audit the business
  operation of users of public funds
• 1- it may carry out regularity and performance
  audits
• 2- it may audit any act on past operations as
  well as any act on planned business operation of
  any user of public funds.

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Audit Mandate - 2
2) The opinion issued by the Court of Audit on
the business operation of the auditee must be
respected by every state body, local community
body and the relevant user of public funds.
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Audit Mandate 3 - The user of public funds

• The user of public funds under this Act shall
  be1- any legal entity of public law or a unit
  thereof2- any legal entity of private law
  provided that one of the following applies
• it has received financial support from the budget
  of the European Union, state budget or local
  community budget
• it performs public services or provides public
  goods on concession basis
• it is a commercial company, bank or insurance
  company in which the state or a local community
  holds the majority share

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Audit Mandate 4 - The user of public funds

• 3- any physical person provided that one of the
  following applies
• he/she has received financial support from the
  budget of the European Union, state budget or
  local community budget
• he/she performs public services or provides
  public goods on concession basis.

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Audit Mandate 5 - The user of public funds
3) Every year, the Court of Audit must audit1-
the regularity of the implementation of state
budget (the regularity of state activities)2-
the regularity of business operation of the
public institute of health insurance3- the
regularity of business operation of the public
institute of pension insurance4- the regularity
of business operation of a suitable number of
urban and other municipalities5- the business
operation of a suitable number of public
utilities providers6- the business operation of
a suitable number of providers of non-commercial
public services.
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Levels of public finance control in Slovenia
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Reporting to parliament cycle
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Public Finance Control framework
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Context of audit of EU funds (The 4 specials
of EU-funds)

• The context of EU-law
• Requirements to the administration composition
  of formal approach and SFM
• Exposure to the risks of financial corrections
• The audit arrangements

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The context of EU-law
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(No Transcript)
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The Basic Principles

• Direct applicability, direct effect and
  precedence
• Subsidiarity , proportionality and conferred
  powers
• Principle of solidarity
• Principle of same measures

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• Direct applicabilityDoes not have to be
  transferred into national law
• Direct effect
• Gives rights and obligations that can be invoked
  (at national courts)
• Precedence
• EU-law takes precedence over national law

Implication The compliance of with EU-law of
national legislation may have to be considered
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Subsidiarity, proportionality and conferred powers

• The EU institutions have authority only for the
  purpose of pursuing a number of specified
  objectives, which are better achieved at
  community level

Implication If the community has exclusive
competencies national provisions may be
inapplicable EU acts should be read in light of
their overall purpose Careful division of
competencies of control and sanctions
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Principle of solidarity
Member States shall take all appropriate
measures to ensure fulfilment of the
obligations arising out of this Treaty or
resulting from action taken by the institutions
of the Community. They shall facilitate the
achievement of the Community's tasks. They shall
abstain from any measure which could jeopardise
the attainment of the objectives of this Treaty.
(TEC art. 10)
Does also imply Obligation to take appropriate
control measures to protect the financial
interest of the community
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Same measures

• Member States shall take the same measures to
  counter
• fraud affecting the financial interests of the
  Community as
• they take to counter fraud affecting their own
  financial
• interests. (TEC 280,2)

Implication Applies to sanctions as well as
control measures (incl. public auditing?)
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The formalities
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Administrative structure
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Obligations of control

• Ensuring and providing documentation
• Audit trails
• Risk analysis
• Sampling coverage
• Administrative checks / scrutiny of documents
• On the spot checks / physical control
• Cross-checks

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Further obligations

• Obligation of recovery All legal means within
  the national system should be used to recover
  funds lost due to irregularities or negligence
  (no discretion!)
• Obligations of information to the Commission
• Irregularities and fraud

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Financial corrections
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Financial corrections

• Financial corrections by type of body
• Financial corrections by Member States
• Financial corrections by the Commission
• Financial corrections by nature
• For non-compliance with the rules on public
  procurement
• Financial correction for non-respect of
  additionality

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The audit arrangements
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Control, control and more control
European Court of Auditors

• Commission
• Internal audit function within the Commission

Audit authority
Supreme Audit Institutions
National administration - Internal audit function
within the national administration
Certifying Body
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TEC Article 248 (3)
In the Member States the audit shall be
carried out in liaison with national audit bodies
or, if these do not have the necessary powers,
with the competent national departments. The
Court of Auditors and the national audit bodies
of the Member States shall cooperate in a spirit
of trust while maintaining their independence.
These bodies or departments shall inform the
Court of Auditors whether they intend to take
part in the audit.
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Whats up for the period 2007 2013 (Structural
funds reforms guiding principles)

• Concentration
• Simplification
• Proportionality
• Decentralisation

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Concentration (geographical)
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Concentration (thematic)

• Research and technological development (RTD),
  innovation and entrepreneurship
• Information society
• Transport
• Energy
• Environmental protection and risk prevention
• Adaptability of workers and firms, enterprises
  and entrepreneurs
• Access to employment and sustainability
• Social inclusion of less-favoured persons
• Human capital

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Simplification of what used to be a complex
regulation
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Part 1 Structural funds - The context

• Regional disparities
• 10 of EU27 population living in the most
  prosperous regions (19 of total EU-27 GDP)
• 1.5 of GDP for the 10 of population living in
  the least wealthy regions
• Convergence regions 12.5 total share in EU27
  GDP with 35 population share
• several regions in Romania and Bulgaria with GDP
  per head below 25 of the EU average GDP

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Part 2 Structural funds - The legal basis

• The Treaty
• Article 2 EC TREATY "promote economic and social
  progress as well as a high level of employment,
  and to achieve balanced and sustainable
  development"
• (Art. 158 of the Treaty ) "in particular, the
  Community aims to reduce the disparities between
  the levels of development of the different
  regions and the backwardness of the least
  favoured regions or islands, including rural
  areas"

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Part 2 Structural funds -The legal basis- 2

• Structural Funds legislation
• General Regulation n1083/2006
• Regulations for each Fund
• ERDF Regulation n1080/2006
• ESF Regulation n 1081/2006
• Cohesion Fund Regulation n 1084/2006
• Commission Implementing regulation n 1828/2006
• (IPA Regulation n 1085/2006, EGTC Regulation n
  1082/2006)

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The regulatory framework
Council by unanimity, assent EP ERDF, ESF
Co-decision Cohesion Fund assent
EP Co-decision
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Part 3 The method

• Objectives, Structural Funds and instruments
  2007-2013

Objectives
Structural Funds and instruments
ERDF
ESF
Cohesion Fund
Convergence
Regional Competitiveness and Employment
ERDF
ESF
European territorial Cooperation
ERDF

• A General Regulation (No 1083/2006)
• European Regional Development Fund (ERDF)
  Regulation (No 1080/2006)
• European Social Fund (ESF) Regulation (No
  1081/2006)
• The Cohesion Fund (No 1084/2006)
• The European Grouping of territorial co-operation
  (EGTC) (No 1082/2006).

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Proportionality
The financial and administrative resources shall
be proportional to the total amount of
expenditure allocated to an operational programme
for...

• Choice of indicators for output and results
• Evaluations
• Reporting and monitoring in case of
  sub-delegation
• Arrangements for auditing the functioning of the
  systems, and
• Annual and final report on implementation.

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Decentralisation
...one of the key objectives is to clearly
delimit the framework, the nature, and the
division of responsibility between the different
actors concerned by the execution of the
Community budget. These include the Member States
and the implementing bodies, on the one hand, and
the Commission, on the other.
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Audit of EU funds in Court of Audit
Court of Audit
?
?
?
Regularity audit
Performance audit
overlapping?
Audit of state budget
Stand alone audits
Audit of individual transactions with prime
objective of the audit to issue an opinion.
Audit of systems to improve its capacity and
readiness to manage EU funds.
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Organisational structure
Department for Audit of EU funds
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Members of the court
and supreme state auditors

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Relationships of the Court of Auditat audit of
EU funds
Administration
Audit authority
Co-operation among EU SAIs
Court of Audit
Commission
European Court of Auditors
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General framework (1)

• European Court of Auditors (ECA)
• external auditor of the EU accounts
• audits the European Commission
• also audits in the Member States
• Court of Audit of Republic of Slovenia
• audit how Slovenia carries out its
  responsibilities
• also how we implement our EU obligations
  (including spending and collecting of EU funds)

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General Framework (2)

• Co-operation among EU SAIs
• Court of Audit of Slovenia assist the ECA with
  their audit missions in our country
• Discuss matters of common interest in the Contact
  Committee (CC) of the Heads of EU SAIs / at the
  meetings of Liaison Officers
• Carrying out common activities in the CC Working
  Groups

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The aim of audit activities of Court of Audit of
Republic of Slovenia as regards EU funds

• First, we provide the policy makers and those
  responsible for managing funds at EU and national
  level with reports and opinions which provide
  health checks of the state of financial
  management. We add value by identifying problems,
  by making recommendations, and by reporting on
  progress. We are part of the solution not the
  problem.
• Secondly, like doctors, we work together, as a
  community of professionals, to share experiences
  and develop our skills, standards and practices.
  Over time this helps us to improve the quality of
  our advice and ultimately the outcomes for our
  stakeholders.

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Results of our audit activities as regards EU
funds-1
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Results of our audit activities as regards EU
funds-2
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Results of our audit activities as regards EU
funds-3
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Results of our audit activities as regards EU
funds-4
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Parallel audit on the processes for identifying,
reporting and following up on Irregularities
By the working group of Contact Committee on
Structural funds
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Parallel audit main findings-1

• Significant differences between Member States in
  the levels of understanding and compliance
• Lack of consistency of performance within some
  Member States particularly those who operate a
  decentralized system that involves several
  Managing Authorities and/or Intermediate Bodies.

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Parallel audit main findings-2

• Although the Commission has issued several
  Regulations and additional guidance, the review
  identified a general lack of understanding within
  the majority of Member States as to how those
  Regulations and guidance should be interpreted.
  This has led to significant disagreements between
  the Commission and the Member States as to
  exactly what constitutes an irregularity (as
  opposed to a simple error) and what should be
  reported to the Com-mission.

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Parallel audit main findings- 3

• To support the Commission guidance, national
  authorities have issued additional guidance but
  in most cases this has not had the desired effect
  of effectively clarifying the requirements for
  recording or reporting, or guaranteeing
  consistent interpretation of the Regulations.

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Parallel audit main findings- 4

• Whilst Member States recognized the need to
  comply with EU Regulations and guidance, several
  Member States voiced concern over the
  administrative burden placed upon them by the
  detailed recording and reporting requirements.
  Member States were also critical of the seeming
  lack of use made by the Commission/OLAF of this
  detailed information and of the lack of feedback.

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Parallel audit main findings-5

• In general, the review concluded that the
  processes in place for the initial identification
  of potential irregularities within Member States
  were adequate. Significant weak-nesses were
  identified, however, with the subsequent decision
  making processes as to how those irregularities
  should be further investigated, and whether or
  not they are required to be reported to OLAF.

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Parallel audit main findings-6

• The review also identified deficiencies in the
  mechanisms of the reporting to OLAF.
• The majority of Member States were still not
  using the OLAF Anti Fraud Information Sys-tem
  (AFIS) link in part due to the technical
  incompatibilities between Member States own
  systems and AFIS.

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Parallel audit main findings-7

• Although Article 39 of Council Regulation No.
  1260/1999 required the charging of interest on
  late payment of amounts to be recovered, some
  national authorities did not charge interest.

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Concluding toughts-1
Management and control of EU funds from auditors
perspective

• Implementation under shared management of EU
  funds appears to be rather complex

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Concluding toughts-2
Structural funds audit - experiences and issues

• Member states make the regulatory framework more
  complex than it could be reasonably justified
• Delays in implementation of programmes
• Issue of performance audit approach in the area
  of SFM
• Dilemma between performance objectives and
  spending objective
• Focus on admin. capacity, ex-ante evaluation,
  monitoring systems

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Concluding toughts-3

External auditing issues in the EU funds area

• Constitutional and legal framework of the EU
  provides following division of duties
• system control as established by the Commission
• external audit ECA in cooperation with
  national SAIs (trust, ISAs)
• No obligation for national SAIs to audit EU
  funds, it is optional and there are some
  individual initiatives
• In any case CoA will report the results of the
  work to our national parliament only
• The latest initiatives has raised following
  concerns
• Independence of the external auditor
• Reliance on work of internal auditor (or other
  external auditor?)
• Access to the audit work-papers of other SAIs

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• Thank you for your attention!
• Email zoran.mladenovic_at_rs-rs.si
• Tel[phone]