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Control procedures: EC Audits

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1 Control procedures: EC Audits
Horizon 2020 Tallinn 1/12/2011 European Commission RTD.M.1 External audits Maurizio Dal Toso

2 Topics EC Audit in FP7 When? Who can carry out an audit
What is verified in an audit? How is it verified? Audit Procedures Which are the supporting documents for the audit? Which are the obligations of the beneficiaries? Audit Reports, implementation & follow-up

3 1-Audit : when? Article II.22 of ECGA – Financial audits and controls: “The Commission may, at any time during the implementation of the project, and up to five years after the end of the project, arrange for financial audits to be carried out”. Article II.23 of ECGA - Technical audits and reviews: “The Commission may initiate a technical audit or review at any time during the implementation of the project and up to up to five years after the end of the project.”

4 Audits by EC auditors (RTD-M.01) Audits by Contracted firms (RTD-M.02)
2-Audits: Who? Audits by EC auditors (RTD-M.01) Approx. 1/3 of audits Specific audits (follow-up, requests, …) Audits by Contracted firms (RTD-M.02) Approx. 2/3 of audits Supervision of the audit by EC services Article II.22 of ECGA – Financial audits and controls 3. Audits may be carried out by: • The Commission (its own departments – including OLAF – or by any of its duly authorised representatives (including external auditors appointed by the Commission). • The European Court of Auditors (by its own departments or by any of its duly authorised representatives). Clashes DG RTD-A.4

5 Audit tools: audit types (1)
Selection Purpose Corrective audits Specific risk profiles Focus on top beneficiaries (50% of the budget) Flexible in view of peculiarities present in the populations of different RDGs/EAs Wide audit coverage Identify and correct errors in the most cost-effective way possible ‘Clean’ min. 50% of budget from systematic material errors Long-term prevention of issues found (‘fixing the future’) Fraud detection and prevention Other types (system, scientific/ technical, FUSION…) On request or pre-selected Verify compliance with certified methodologies Identify and correct systemic problems Provide additional assurance on specific parts of the budget Complement scientific audits The FP7 Audit Strategy

6 Audit tools: audit types (2)
Selection Purpose Representative audits Monetary Unit Sampling (MUS) methodology (95% confidence level, 2% expected error rate, 5% materiality threshold = sample size 161) Financial statements as sampling unit Samples from the whole population of each RDG/EA Determine the amount of error present in the population Representative error rate Contribute to the Declaration of Assurance of the AOD * Corrective as well as representative The FP7 Audit Strategy

7 Topics EC Audit in FP7 When? Who can carry out an audit
What is verified in an audit? How is it verified? Audit Procedures Supporting documents for the audit Obligations of the beneficiaries Internal strategy concerning audits Audit Reports

8 Technical audits – what is verified?
Technical review is performed at the project level by Project Officers and/or external experts to give external advice to the Commission Article II.23 of ECGA - Technical audits and reviews …The aim of a technical audit or review shall be to assess the work carried out under the project over a certain period, inter alia by evaluating the project reports and deliverables relevant to the period in question. Such audits and reviews may cover scientific, technological and other aspects relating to the proper execution of the project and the grant agreement. Is performed at beneficiary level, to assess the performance of one or more beneficiary (ies) within one (or more) specific work package(s) described in the work plan (DoW), Can be performed by POs and/or external experts, in agreement with Art II.23 of the FP7 Grant Agreement and Art II.29, Annex II of the FP6 Contract, Is always done on the spot, Should (preferably) be done during the lifetime of the project but can be done up to five years after the end of the project, Is not performed on a planned periodic basis but rather following a PO's request based on his/her assessment of risks and/or a technical review recommendations , Performed with the desk assistance of the UAF and where appropriate with the 'support of' or 'jointly with' the external financial audits unit. It should be noted that, in the regular follow-up of a project, the PO will monitor its progress essentially with the following tools: 1. Assessment of periodic project reports and complementary documents if appropriate. 2. Assessment of results presented during project meetings and clarified in direct discussions between the beneficiaries and the coordinator. 3. Where appropriate through the project technical review. 4. Any other relevant information gathered through other channels.

9 Financial audits – what is verified?
Article II.22 of ECGA – Financial audits and controls: … “Such audits may cover financial, systemic and other aspects (such as accounting and management principles) relating to the proper execution of the grant agreement.”

10 Topics EC Audit in FP7 When? Who can carry out an audit
What is verified in an audit? How is it verified? Audit Procedures Supporting documents for the audit Obligations of the beneficiaries Internal strategy concerning audits Audit Reports

11 Audit Cycle Audit Strategy & Selection Implementation of Audit Results
Planning & Preparation Reporting & Audit Closure Examination on site

12 Audit Cycle - Timeline Audit Strategy & Selection
3 months 3-4 months Planning & Preparation Examination on site Reporting & Audit Closure Strategy and selection – multiannual / annual planning Implementation of results – started with audit closure (duration depends on findings) Implementation of Audit Results

13 Audit on-the-spot – Preparation
Selection of Agreements Initial contact by the responsible auditor approx. 2 month before examination on site to agree on dates and logistics Collection of audit information (internal and external) Formal Announcement including detailed annex on information and documentation to be provided: prior to the audit examination on site at the time of the audit examination 13

14 Different legislation administrative culture
Examination on site Opening meeting Analysis of Systems in place Test of systems and substantive evidence Closure meeting Assessment after on site visit Usually within 4-5 working days (one week) (…) Different legislation General info on: organisation projects financial administration internal control system Clarification on audit agenda for further days Analysis of documents and explanation received and collection of audit evidence Discussion of preliminary findings and observations Indication of further audit procedure Differences in administrative culture Assessment after on site visit = additional documents to be handed in; complex cases to be analysed (read ..) Audit Process Handbook

15 5-Supporting documents for the audit
Article II.22 of ECGA – Financial audits and controls In order to permit a complete, true and fair verification that the project and the grant are (have been) properly managed and performed, beneficiaries are required to: keep the originals, or in exceptional cases, where the national legislation accepts or contemplates this possibility, duly authenticated copies – including electronic copies – of all documents relating to the grant agreement for up to five years from the end of the project. ensure that the Commission's services, and/or any external body(ies) authorised by it, have on-the-spot access at all reasonable times, notably to the beneficiary's offices where the project is being carried out, to its computer data, to its accounting data and to all the information needed to carry out those audits, including information on individual salaries of persons involved in the project. They shall ensure that the information is readily available on the spot at the moment of the audit and, if so requested, that data be handed over in an appropriate form. make available directly to the Commission all the detailed data that it may request, ensure that the rights of the Commission and the European Court of Auditors to carry out audits are extended to the right to carry out any such audit or control on any third party whose costs are reimbursed in full or in part by the EC contribution, on the same terms and conditions. Which documents should the beneficiary prepare for the auditor? The beneficiary should prepare the most up-to-date classification grid, together with the criteria for classification of employees (based on experience, qualifications, salary, department, etc.). The information should be sufficient to unambiguously categorise each of the researchers in the sample, and to verify that the rates used were those applicable for the period to which the claim refers. Thus, it may be necessary to consult the payroll/human resources system in details, and the beneficiary should be able to extract this information. (guidelines for project auditors

16 6-Beneficiaries' obligations
Article II.22 of ECGA – Financial audits and controls In order to permit a complete, true and fair verification that the project and the grant are (have been) properly managed and performed, beneficiaries are required to: keep the originals, or in exceptional cases, where the national legislation accepts or contemplates this possibility, duly authenticated copies – including electronic copies – of all documents relating to the grant agreement for up to five years from the end of the project. ensure that the Commission's services, and/or any external body(ies) authorised by it, have on-the-spot access at all reasonable times, notably to the beneficiary's offices where the project is being carried out, to its computer data, to its accounting data and to all the information needed to carry out those audits, including information on individual salaries of persons involved in the project. They shall ensure that the information is readily available on the spot at the moment of the audit and, if so requested, that data be handed over in an appropriate form. make available directly to the Commission all the detailed data that it may request, ensure that the rights of the Commission and the European Court of Auditors to carry out audits are extended to the right to carry out any such audit or control on any third party whose costs are reimbursed in full or in part by the EC contribution, on the same terms and conditions.

17 Topics EC Audit in FP7 When? Who can carry out an audit
What is verified in an audit? How is it verified? Audit Procedures Supporting documents for the audit Obligations of the beneficiaries Audit Reports, implementation & follow-up Audit strategy

18 Quality control Quality check on audit report for
Coherence Completeness Correctness Compliance with the Audit Handbook Audit Steering Committee

19 Reporting and Closure of the Audit
Transmission of Draft audit report (after internal consultations) for comments by the audited organisation Usually based on the preliminary conclusions Delay (30 days) to provide comments to the draft Letter of representation Consideration of comments and finalisation of the audit report Closure of the audit by formal letter indicating the further procedures on the implementation of audit results END OF THE AUDIT

20 Implementation of Audit Results

21 General Financial adjustments administred by the operational EC service in charge of the project management (decentralised) Besides adjustments, possibility of liquidated damages Consideration of serious audit findings (i.e. high adjustments) in future project and agreement negotiations

22 Implementation of Results: Cases
(Only) qualified recommendation No findings Financial Adjustment Non-systematic finding identified Systematic finding identified Extrapolation of audit results Correction of future payments or recovery by the responsible financial services Implementation finalised Follow-up Audit

23 Implementation of Results – Systematic Finding
The implication of this type of error is that the beneficiary is not complying in a systematic way with his agreement obligation . Assumption: Can imply that all currently open and closed agreements under the same framework program (FP) are affected and might need to be (retrospectively) adjusted Impact: Beneficiaries will be asked to reconsider all financial statements handed in under the same FP and where necessary recalculate and revise the statements

24 Implementation of Results – Extrapolation procedure I
Common decision of all Research DGs which are concerned by having agreements with the organisation audited. However, decentralised follow-up of implementation of results Detailed formal Letter of Closure of the Audit indicating procedures to be followed and including a list of agreements subject to extrapolation (consolidated for all Research DGs) Delay to hand in revised financial statements or appropriate explanations on the listed agreements Follow-up audits

25 Implementation of Results – Extrapolation procedure I
Common decision of all Research DGs which are concerned by having contracts with the organisation audited. However, decentralised follow-up of implementation of results Detailed formal Letter of Closure of the Audit indicating procedures to be followed and including a list of contracts subject to extrapolation (consolidated for all Research DGs) 3 months delay to hand in revised financial statements or appropriate explanations on the listed contracts Follow-up audits

26 Audit tools: extrapolation
NON Systematic errors Audit closure Implementation by operational directorates Systematic errors Extrapolation Steering Committee RDG common decision Joint RDG projects list Audit closure Extrapolation process start Implementation by operational directorates FP7 Audit Strategy

27 RTD Audits Framework Contractor Sum of Audited costs
Sum of Adjustments % Extrapolation FP5 F ,87 ,55 -28,91% I 23.778,00 ,07 -100,00% FP5 Total ,87 ,62 -36,44% FP6 A ,03 77,00 0,01% B ,89 18.257,86 10,34% C ,08 -6.431,99 -1,14% D ,84 63.304,20 0,17% E ,00 7.637,00 1,60% ,98 ,74 -2,01% X G ,12 31.327,55 1,85% H ,00 0,00 0,00% ,15 ,97 -2,07% J 55.616,67 -2.313,41 -4,16% K ,53 708,93 0,04% L ,71 1.517,39 0,14% M ,38 -30,82 -0,01% N ,92 13.012,02 0,70% O ,67 252,49 0,02% FP6 Total ,97 31.800,51 0,05% FP7 P ,67 -1.808,06 -0,17% FP7 Total Grand Total ,51 ,17 -0,09%

28 ADDITIONAL INFORMATION
Guidance notes on FP7 audit certification FP6 / FP7 Audit certification policy website FP7 Certification FAQs ftp://ftp.cordis.europa.eu/pub/fp7/docs/faq-certification_en.pdf And in case of doubts, don't forget: RESEARCH HELPDESK

29 Questions?

30 Thank you for your attention!
The End Thank you for your attention! DG RTD-A.4

31 Topics EC Audit in FP7 When? Who can carry out an audit
What is verified in an audit? How is it verified? Audit Procedures Supporting documents for the audit Obligations of the beneficiaries Audit Reports, implementation & follow-up Audit strategy


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