1. EU Funding Workshop Intermediate Body Training
Basic principles and requirements
Welcome
Groupings
Interactive , Practical Examples & Q&As
Domestics
Feedback 1 1 1 1

2. EU Competitiveness Programme
€306m ERDF
Intervention rate 50%
4 Priorities
P1 Competitiveness and Innovation
P2 Enterprise and Entrepreneurship
P3 Improving accessibility
P4 Technical assistance
€306 will reduce to €283m following virement to ESF
P1 €115m
P2 €85m
P3 €80.5
P4 €2.5m 2 2 2 2

3. Financial Flow Impact Financial penalties Reputational Accountability
100% Public Expenditure
Eligible Expenditure input to EU Database
Claim Submitted to EC
Impact
Financial penalties
Reputational
Accountability
50% of Eligible Expenditure Received from EC
EU receipt reimbursed 1 3 3 3 3

4. How is the Programme Managed?
Managing Public Money NI
DFP Guidance (Audit and Financial Management Division)
EU Regulations and Guidance
Programme Documents & Guidance
Guiding principle – ‘Strictest Rules Apply’ 4 4 4 4

5. Players Audit Authority DETI Audit – Jackie Connolly
Managing Authority
DETI EU Support Unit – Maeve Hamilton
Certifying Authority
DETI Accountability – David Conliffe
Intermediate Bodies
DETI / Invest NI / NITB
DARD
DSD – to be formalised
DRD – to be formalised

6. Managing Authority Role
Programme Development
Overall Programme Management
High level approval of activity
Guidance and Operating manual
N+2
Claim initiation
Evaluation
Negotiating Programme changes with EC
Reporting on Progress
Closure
Detailed in the Operating Manual. 6 6 6 6

7. Certifying Authority Role
Validity and accuracy of claims
Certification of claims
Submission of claims to the Commission
Accounting for and disbursing EU receipts
Irregularity and recovery monitoring
Can do own checks but should supplement and not duplicate work of others.
They can also rely on any other work that provides assurance eg Internal Audit, Audit Authority, NIAO, EU, Management checks etc. 7 7 7 7

8. Audit Authority Role Audit Strategy System Audits Audits of Operations
Annual Control Report and Opinion
Closure Declaration
Enhanced role this Programme because of Commission resource issues including new MS accession.
System Audit and Audit of Operations
Better assurance from System Audit = smaller samples and vice versa
Reporting to the Commission and error rate impact 8 8 8 8

9. Defined in the Memorandum of Understanding
IB Role
Selection of operations
Appraisal
Award of funding
Monitoring
Verifying operations and expenditure
Financial accountability
Reporting
Publicising
Maintaining the database
Safeguarding the audit trail
Defined in the Memorandum of Understanding
Everyone - admin or financial/verification has a role
Scoring - Priority objectives and criteria - can be supplemented by more specific criteria.
Operation – project funded under Grant scheme or activity funded through contract 9 9 9 9

10. Key Issues Eligibility of Activity and Expenditure Audit Trail
Procurement
Publicity
This is what will be covered in the next sections. 10 10 10 10

11. Must contribute to the delivery of the relevant Programme Objectives
Eligible Activity
Must contribute to the delivery of the relevant Programme Objectives 11 11 11 11

12. Ineligible Activity Displacement of similar existing activities
Building and renovation of housing
Agriculture, Fisheries and Forestry
Local social welfare facilities
EC Sectoral Restrictions (shipbuilding etc)
Displacement – eg support for a specific retail outlet or service provider.
Housing - exclusion re energy efficiency – capped at 4% of Member State ERDF allocation.
Agri/ Fishery etc.– own Programmes 12 12 12 12

13. Ensuring Activity is Eligible
Selection Criteria
Selection Panels
Appraisal
Casework Committees
Approval Bodies
Letters of Offer/Contracts
Monitoring and reporting against terms and conditions
Letter of Offer – highlight need to be precise. 13 13 13 13

14. Eligible Expenditure Principles
Against approved project activity
Directly attributable to the project
Relates to Northern Ireland
Actually incurred and paid by the final beneficiary between 1 Jan 2007 and 31 Dec 2015
Approved – in the Letter of Offer/Contract
Directly attributable:
Golf Fees
Retirement function
Christmas Tree
Unrelated trip to Monte Carlo NI
Not eligible - Salary costs paid against employees that were based outside Northern Ireland.
Eligible – Trade Mission outside NI 14 14 14 14

15. Eligible Costs for Capital
Land
10% of the total eligible expenditure
Valuation
Land/Buildings – no national or EU grant within 5 years
Prelim –site surveys, environmental appraisals - NB still must be incurred within the programme period.
Professional Fees – Value/Procurement
Leasing – costs less than purchase
Retention – MPMNI and relevant DAOs). If in doubt ask!!
Purchase and/or development of Land
Purchase or development of Real Estate
Preliminary Expenditure
Professional Fees
Purchase/lease of plant and equipment 15 15 15 15

16. Eligible Staff Costs Basic Salary Statutory Contributions
Pension Contributions
Training Costs
Recruitment Costs
Non-statutory Sick/Maternity Pay
Holiday Pay
Commission
Shift allowance
Taxable Benefits
Basic salary - can include contracted increments in salary.
Statutory - National insurance and Inland Revenue
Reasonable pension contribution
Contract – holiday pay, maternity, sick pay, statutory holiday entitlement
Training costs - If directly required for project
Recruitment - if project involves taking on additional staff.
Maternity/Sick/Holiday Pay – where defined in a contract of employment or an organisation’s general employment conditions.
Benefits – if a private company contract of employment includes taxable benefits such as commission, health insurance, company car etc. these are eligible, subject to any ceilings set by the Intermediate Body or scheme conditions. For public bodies, these types of cost are generally ineligible.
Must be defined in T&Cs of employment
Private companies only 16 16 16

17. Part-time Staff Costs Time Records How is the hourly rate calculated?
% of time – records for 100% of time showing project time elements so that percentage can be verified
Variable hours – timesheet detailing the time spent working on project activity
Timesheets must be signed, dated and authorised (either electronically or physically) 17 17

18. Daily/Hourly Rate Calculation
Basis
Example
Actual salary for claim period (ERNI, pension and additional taxable contracted costs elements)
£5,000
Contracted working days per week 5
Multiply by period covered by claim e.g. 13 weeks 65
Subtract contracted leave pro rata for claim period (e.g. 20 days/4 = 5) 60
Subtract contracted statutory holidays pro rata for claim period (e.g. 10 days/4 = 2.5)
57.5
Gives daily rate of £5,000/57.5 =
£86.96
Divide by contracted daily hours (e.g. £86.96/8 hours =
£10.87 18 18 18 18

19. T&S Mileage Accommodation Meals Air/rail/bus/other travel
Mileage - (actual) capped at the public sector rate per mile
Accommodation – again subject to public sector ceilings
Meals – receipted actuals and reasonable - against public sector subsistence rates
Air/Rail/Bus - Public transport unless justified
Travel outside of the EU would need additional justification. 19 19 19 19

20. Other Eligible Costs Hospitality Professional/Consultancy Fees
Accommodation
Consumables
Marketing/Promotion
Other (insurance, depreciation, maintenance etc)
Hospitality – GN issued by the Managing Authority
Professional – Procured & re-tendered every 3 years
Accommodation - rent, rates, electricity, water, heating, telephone, ICT, cleaning and security
Apportionment - if only part of the premises is used
Consumables – not exceed 20% of total eligible cost – raw materials would be classified differently.
Marketing/Promotion – adherence to publicity
Insurance/maintenance – within period
Depreciation – if the item was not previously funded 20 20 20 20

21. Ineligible Expenditure – Common Errors
Payment against scale or unit costs
Notional costs
Time records incomplete or missing for part-time staff
Recoverable VAT
Missing or incomplete audit trail
Expenditure outside Programme/LoO period
Some of these are not eligible under Government accounting rules either.
Unpaid voluntary work has been ruled out as it is too difficult to verify the ‘real’ cost and the audit effort is therefore disproportionate.
Notional costs – council charging for a room in a building owned by them and not normally rented out. 21 21 21 21

22. Ineligible Expenditure – some of the rest
Bank charges or fees on accounts
Mandatory training under statutory provision
Fines, financial penalties and litigation costs
Dividends
Set up/contribution to private pension schemes
Not going to cover all but focus on key ones.
Bank charges are ok when relate directly to set up and maintenance of a separate account required as a condition of funding but excludes fees etc due to poor management, Charges for financial transactions, foreign exchange commissions and losses.
Mandatory training under statutory provision – particularly relevant for those funding companies for training activities.
Entertainment – different from the modest hospitality allowed under the hospitality guidance. 22 22 22 22

23. Management Verification23

24. Who conducts Management Verification?
Finance staff
Programme managers
Technical staff
Grant inspectors
Managing Authority
Intermediate Body
Programme staff - monitoring progress
Technical Staff – QS etc
Managing Authority – reinforce MoU role v direct verification and spot checks 24

25. Management Verification
Can encompass:
Claim checks
Contract monitoring
Project Visits
Board Meetings/Project Launches
Formal Article 13 on-site verification
Claim checking - (desk or on-site) – to original audit trail documents
Contract monitoring checks – milestones etc
Visits – Technical or normal monitoring;
Board Meetings – often review project progress and also verify existence of the project/asset.
Launches – verify existence but also publicity requirements
Formal A13 25 25 25 25

26. Management Verification – Key Issues
Timing
Common sense
No expenditure – no point in a financial inspection
Foundations being dug - no point in QS visit
Rule of thumb as soon as practical and with opportunity to rectify
Frequency
One off event – at the time
Larger or multi-annual projects - at least once per annum
Asset retention issue – remember to monitor post project
Nature
Depends on the project
Capital build - need technical site visits frequently
Largely programme delivery then on-the-spot
Records – Who, where, what, when.
Database
All activity recorded
Used by EC and CA and AA to identify gaps.
NIAO issue – 30/9/2010 – record input or all projects included in drawdowns.
Timing
Frequency
Nature
Keeping adequate records
Database entries 26 26 26 26

27. Audit Trail Covered in the coming slides
Key area of risk and irregularities 27 27

28. What is the Audit Trail
The comprehensive set of documents which provide a complete history of a project and provide evidence that proper procedures were applied and outcomes achieved. 28 28 28

29. Audit Trail Documents Application forms Selection/Appraisal records
Contract/Letter of Offer
Management and control records
Payment records
Monitoring reports
Closure documents
Everything that supports the administration and management of the project and its expenditure.
Contract Docs - reference CPD.
Payment – covered in next slides 29 29 29 29

30. Audit trail – How long, in what format and where?
Period
Programme
Spend to 2015
Closure documents submitted 2017
Commission undertaking to close within 2 years – 2019
3 years from last payment to MS
2022 is used but in some cases 2021 – may need to be updated
Format – original, copy, micro-fiche, electronic (scanned) - readable, updated as technology changes, accessible, traceable. For government bodies additional infosec standards apply. For wholly automated transactions (Easyjet/banking on-line) ISO/BS Security standards apply.
Location – Project v Intermediate Body - risks.
Bankruptcy cases – no longer considered irregularities but audit trail must be complete
Highlight schemes with high levels of businesses failing – high risk – think about system (IB could retain copies of audit trail docs).
Period – 2022
Format
Location 30 30 30 30

31. Payment Audit Trail
May differ depending on the nature of the expenditure but in general will include:
Proof of commissioning of the goods/service
Proof of receipt of the goods/service
Proof of payment
Will cover in detail some of the key issues:
However in general all payment audit trail documents will provide proof of purchase, proof of service/delivery and proof of payment.
Regulation expects 100% vouch but sampling approach recognised in COCOF guidance. Sampling methodology also part of the audit trail. 31 31 31 31

32. Personnel Costs Contract of Employment Payroll records Time records
Breakdown of contributions (statutory and any company specific elements)
Proof of Payment
Contract of employment –KEY!!!!
Full time - payroll records – P11, Sage etc
Part-time - time records - show 100% of time and are signed off.
Breakdown - ERNI, pension etc to check eligible;
Supporting docs - HMRC etc.
Issues
Real salary cost - not a scale/unit cost
Note issues re self employed.
What to do if access denied. 32 32 32 32

33. Equipment/Consumables
Invoices
Lease/rental agreements
User logs
Procurement documentation as appropriate
Proof of payment
Asset Register
Invoices;
Lease/ rental contract and inventory list
User logs– e.g. franking/fax machines;
Evidence of adherence to relevant procurement rules;
Proof of payment;
Asset Register records including disposal arrangements. 33 33 33 33

34. Contract Expenditure Procurement documentation & the contract
Monitoring/management documentation
Invoice and evidence of any 3rd party costs included on a real cost basis
Proof of payment
Proof of compliance with procurement rules.
Contract documents;
Contract management documentation –reports / meetings etc.
Invoices;
Proof of payment; 34 34 34 34

35. Travel and Subsistence
Claim form signed, dated and approved
Receipts/invoices
Supporting evidence of the event
Proof of payment
Travel claim form, appropriately authorised;
Invoices/receipts;
Reports, records, minutes, presentations, photos, attendance sheets
Proof of payment; 35 35 35 35

36. Payment Audit Trail Indirect Costs/Overheads Invoices
Accounting records
Apportionment data
Proof of payment
Regardless of actual v flat rate there is a need to keep a trail which for real costs is all the supporting docs and for flat rate is the docs used to arrive at the flat rate.
These include:
Original invoices and documentation to support the full actual cost to the organisation;
Accounting records – can be based on management accounts but should ultimately be verified to the formal audited accounts
Apportionment data – floor space diagrams, headcount etc.
Proof of payment; 36 36 36 36

37. Procurement
European Commission requires adherence to both EU and National rules
DFP (CPD) set NI thresholds and rules
Area of focus for EC Auditors in particular 37 37

38. Procurement – Public v Private
Rules apply to Public Bodies
VFM for private companies
Reasonableness test for private companies
If in doubt refer to CPD
Mandatory only for public bodies
Private company - economic appraisal and casework test VFM.
Check reasonableness – laptop costing £5000 or buying a porsche
If in doubt refer to CPD as they are the national experts. 38

39. Common Procurement issues
Not adhering to threshold requirements
Insufficient advertising
Evaluation criteria in ToR not used in assessment
Extensions to contract
Incomplete supporting documentation / audit trail
Payments not in line with agreed payment schedule
Activity not verified in line with contract terms
3rd Party costs not appropriately verified
Unapproved single tender actions 39 39 39 39

40. Publicity
European Commission requires adherence to both EU and National rules
DFP (CPD) set NI thresholds and rules
Area of focus for EC Auditors in particular 40 40

41. Publicity Letters of Offer / contract documents Brochures / leaflets
Invitations
Advertisements
Web-pages
Promotional items
Billboards & Plaques
Publications and press releases
Presentations
Conferences/exhibitions/training/events
MANDATORY
Letters of Offer
Billboards for infrastructure projects
Press releases announcing the funding.
JUDGEMENT
Company A receives grant to develop website – logo and wording must be on website
Company B receives grant for R&D – website does not need it but research published must carry the publicity
EXAMPLE – no premises then common sense – use a website or do a press release 41 41 41 41

42. Publicity – general principles
Logo and strap line
Front of material
Equal prominence
Readable
Proportionate and appropriate
Size – recommended that it takes up a proportional size of the material (rule of thumb 25%) 42 42 42 42

43. Consequences of non-compliance
Activity
100% of expenditure on the activity
Expenditure
100% of the error value
Audit trail
Up to 100%
Publicity
Up to 10% of the total grant
Tendering
Dependent on the nature of non-compliance anything from 5% to 100% of contract value.
Recovery - MA on IB. IB to clawback from beneficiary.
Audit Trail
No excuses accepted re timeliness of audit or the amount of previous verification activity.
This is also applicable where access to audit trail documents is denied or restricted.
Publicity - 10% of total grant – Sparta airport example
Tendering
5%-10% - failure to advertise in papers perceived to relate directly to a particular section of the community.
25% - one quote less than required at the threshold
100% - failure to advertise. 43 43 43 43

44. Ensuring Compliance Strong risk awareness and management
Strong financial controls
Training and Documentation
Early stage education of funding recipients
Verification activity
To summarise – key is avoiding non-compliance.
The fallout from which ranges from adverse publicity, damage to reputation, PAC through to financial sanctions.
This is one of a number of steps to try to ensure that everyone involved has a grounding in the key principles.
Implication for audit authority sample sizes etc and the likelihood of EC audit scrutiny. 44 44 44 44

45. Guidance and Assistance 45 45 45 45