Management verifications Franck Sbert European Commission DG Employment

Management verifications Franck Sébert European Commission DG Employment, Social Affairs and Equal Opportunities

Commission guidance note Management verifications – Issued in April/May 2008 and finalised 21 May in COCOF – To assist managing authorities (MA) and their intermediate bodies (IB) – Key control requirement to prevent errors and fraud

Legal basis - Council regulation Management verifications § Article 60 of Regulation (EC) N° 1083/2006 details the functions of the managing authority § Art. 60 (b) part 1: “The managing authority (MA) shall be responsible (…) for verifying that the cofinanced products and services are delivered and that the expenditure declared by the beneficiaries for operations has actually been incurred and complies with Community and national rules (…). ”

Legal basis-Implementing rules Management verifications Article 13 (2) of Regulation (EC) N° 1828/2006: The verifications (…) shall cover administrative, financial, technical and physical aspects of operations, as appropriate.

Legal basis-Implementing rules Article 13 (2) of Regulation (EC) N° 1828/2006: Management verifications Verifications shall ensure that the expenditure declared is real, that the products or services have been delivered in accordance with the approval decision, that the applications for reimbursement by the beneficiary are correct and that the operations and expenditure comply with Community and national rules. They shall include procedures to avoid double-financing of expenditure with other Community or national schemes and with other programming periods.

Legal basis-Implementing rules Article 13 (2) of Regulation (EC) N° 1828/2006: Management verifications Verifications shall include the following procedures: (a) administrative verifications in respect of each application for reimbursement by beneficiaries (b) on-the-spot verifications of individual operations

Legal basis-Implementing rules Management verifications Article 13(3) of Regulation (EC) N° 1828/2006: Where on-the-spot verifications (…) are carried out on a sample basis (…) the managing authority shall keep records describing and justifying the sampling method and identifying the operations or transactions selected for verification.

Main themes Management verifications General observations on the objective, scope and organisation of management verifications Administrative verifications On-the-spot verifications European Territorial Cooperation (ETC)

Main themes Management verifications General observations on the objectives, scope and organisation of management verifications Administrative verifications On-the-spot verifications European Territorial Cooperation (ETC)

Scope of management verifications Management verifications Should cover administrative, financial, technical and physical aspects of operations Include verifications on the reality, substance and effectiveness of projects: - products or services delivered in accordance with approval decision, - outputs are checked against specifications… Verification of compliance with Community and national rules

Scope of management verifications Management verifications Specific issues including respect of compliance with Community policies detailed in section 3 of guidance note 3. 1 3. 2 3. 3 3. 4 3. 5 3. 6 3. 7 3. 8 Public Procurement Environment State aid schemes State aid Financial engineering instruments Revenue generating projects Durability of operations Equality and non-discrimination

Organisational aspects Management verifications vs - selection of operations - implementation of operation as beneficiary Distinct from audits under/by Audit Authority Require appropriate staff level and expertise for both administrative and on-the-spot verifications May be outsourced but with strict supervision

A strategy to manage risks Management verifications Strategy for controls - PREVENTIVE ACTIONS - DOCUMENTARY VERIFICATIONS - ON THE SPOT VERIFICATIONS 4 aspects covered as appropriate NOT ZERO ERROR BUT RISKS UNDER CONTROL

Main themes Management verifications General observations on the objective, scope and organisation of management verifications Administrative verifications in respect of each application for reimbursement by beneficiaries On-the-spot verifications European Territorial Cooperation (ETC)

Administrative verifications – Desk-based, documentary verifications Management verifications – All payment applications (interim / final) have to be verified – Before declaring expenditure to level above and before certification of expenditure to Commission by CA – Some horizontal aspects checked once for all (in first claims or at closure of operation)

Administrative verifications Examination of progress report Management verifications Examination of expenditure claim Examination of requested supporting documentation : – – (lists of) receipts / invoices lists of outputs lists of participants and timesheets etc.

Administrative verifications Management verifications Aim to verify (inter alia): – Correctness of claim – No double funding – Eligibility period of expenditure declared – Compliance with grant decision / contract – Existence of adequate audit trail – Compliance with eligibility rules, publicity requirements, EC policies…

Efficient & effective verifications Management verifications Efficient only if grant decision / contract absolutely clear : clear definition of operation, expected outputs, financing plan, eligibility rules, administrative (reporting) obligations of beneficiary… Training for verification staff on risk factors, methodology, legal and accounting principles, eligibility rules… Verifications should be documented in each operation file : checklists duly completed and signed by staff

Efficient & effective verifications Management verifications – All claims / all key documents to be verified – Huge volume of supporting documents held by beneficiary? Possibility to focus verifications on samples of items, based on risk factors: • • type of beneficiary / of operation value / type of expenditure items type of physical progress indicators past experience … – Can be complemented by random sample – Good practice to register risk factors and methodology in writing (can be part of checklist)

Efficient & effective verifications Management verifications MA may also modulate the extent of its own administrative verifications by taking into account control procedures in place at beneficiary level (public organisations / audit certificates) BUT does not replace / substitute MA/IB verifications

Main themes Management verifications General observations on the objective, scope and organisation of management verifications Administrative verifications in respect of each application for reimbursement by beneficiaries On-the-spot verifications of individual operations European Territorial Cooperation (ETC)

Objectives of on-the-spot verifications Management verifications Reality of operations, delivery of products or services in accordance with terms of reference, physical progress as reported Technical and physical aspects of operation Administrative capacity of beneficiary and/or project infrastructure (eg training infrastructure)

Objectives of on-the-spot verifications Management verifications Compliance with publicity requirements Expenditure declarations against accounting reality (but not a complete financial audit) Existence of adequate audit trail

Management verifications Organisation of on-the-spot verifications Sampling - risk oriented, complemented by random Sampling method documented and records of selected operations and transactions kept (Short) written report in the operation file

Timing of on-the-spot verifications Management verifications Normally when project well under way (physical and financial progress) Operations of intangible nature (ESF type): during project implementation to attest reality of activity Multiannual operations : at various occasions, with initial visit to ensure preventive effect; final visit after completion of investment With / without prior notice to beneficiary

Main themes Management verifications General observations on the objective, scope and organisation of management verifications Administrative verifications in respect of each application for reimbursement by beneficiaries On-the-spot verifications of individual operations European Territorial Cooperation (ETC)

European Territorial Cooperation Management verifications – Complex structure involving combinations of Member States / Regions and / or non. Member States – Controllers appointed in each MS to carry out verifications / each MS responsible – Good practice - sharing results with lead beneficiary controller

Management verifications, Audit Trail and link with certification of expenditure

Provide adequate information to CA for purpose of certification Management verifications MA basic source of information for certification MA to keep a complete audit trail for each operation, as defined in article 15 of regulation No 1828/2006 Single file per operation reflecting this full audit trail Files ready at any moment for verifications by CA or audits by AA, ECA

Provide adequate information to CA for purpose of certification Management verifications At start up MA to inform CA on description of control systems, procedures, manuals and check lists used; strategy to monitor risk, risk analysis, methodology for sampling (on the spot verifications )

Provide adequate information to CA for purpose of ceritification Management verifications Then Periodical report to CA on procedures effectively operated by MA and IB Report may include list of checks, coverage, detected irregularities and types, corrections made through administrative and on-the-spot verifications Keep lists of operations declared for partial closure

Relations MA / CA Management verifications – Good practice: formal declaration by MA to CA at each expenditure claim – Need for full cooperation and transparency with CA; respect decision of CA not to certify expenditure at this stage – Accompany each claim of expenditure by information requested by CA – If claim sent back in full or partially, provide timely information requested by CA

Management verifications KEY POINTS FOR MANAGING AUTHORITIES

KEY POINTS Carry out programme risk assessment, develop a strategy for managing risks. This is the reference point for Management intensity of verifications, sampling. . . verifications Focus on actions to prevent errors – information and advice to beneficiaries, access to information, capacitybuilding and training for beneficiaries, clear defined operations and financing plans, training. . . Focus on outputs and not just procedures – monitor and review results of control system – is there evidence of good management of risk?

KEY POINTS Provide guidance, information, technical support and Management advice to staff in charge of management verifications – verifications standardised manuals and checklists - training – create information networks Do the same for intermediate bodies Carry out regular self-assessment and regularly review work performed by IB (quality review) Document all control activity in individual files for perfect audit trail