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

2. Commission guidance note
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

3. Legal basis - Council regulation
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 co-financed 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 (…).”

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

5. Legal basis-Implementing rules
Article 13 (2) of Regulation (EC) N° 1828/2006:
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.

6. Legal basis-Implementing rules
Article 13 (2) of Regulation (EC) N°1828/2006:
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

7. Legal basis-Implementing rules
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.

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

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

10. Scope of 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

11. Scope of management verifications
Specific issues including respect of compliance with Community policies detailed in section 3 of guidance note
3.1 Public Procurement
3.2 Environment
3.3 State aid schemes
3.4 State aid
3.5 Financial engineering instruments
3.6 Revenue generating projects
3.7 Durability of operations
3.8 Equality and non-discrimination

12. 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

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

14. Main themes
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)

15. Administrative verifications
Desk-based, documentary 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)

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

17. Administrative 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…

18. Efficient & effective 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

19. Efficient & effective 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)

20. Efficient & effective 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

21. Main themes On-the-spot verifications of individual operations
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)

22. Objectives of on-the-spot 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)

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

24. 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

25. Timing of on-the-spot 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

26. Main themes European Territorial Cooperation (ETC)
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)

27. European Territorial Cooperation
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

28. Management verifications, Audit Trail and link with certification of expenditure

29. Provide adequate information to CA for purpose of certification
MA basic source of information for certification
MA to keep a complete audit trail for each operation, as defined in article 15 of regulation No1828/2006
Single file per operation reflecting this full audit trail
Files ready at any moment for verifications by CA or audits by AA, EC, ECA

30. Provide adequate information to CA for purpose of certification
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 )

31. Provide adequate information to CA for purpose of ceritification
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

32. Relations MA / CA
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

33. KEY POINTS FOR MANAGING AUTHORITIES

34. KEY POINTS
Carry out programme risk assessment, develop a strategy for managing risks. This is the reference point for intensity of verifications, sampling...
Focus on actions to prevent errors – information and advice to beneficiaries, access to information, capacity-building 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?

35. KEY POINTS
Provide guidance, information, technical support and advice to staff in charge of management 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