European Union Cohesion Policy Management verifications Michael Ryan (michael.ryan1@ec.europa.eu) Axel Badrichani (axel.badrichani@ec.europa.eu) “Train the trainers” European Commission seminar for managing and certifying authorities 9 June 2009

To assist managing authorities (MA) and intermediate bodies (IB) Commission guidance note Issued in June 2008 To assist managing authorities (MA) and intermediate bodies (IB)

Background One of the 7 Key Requirements related to the MA – see EC guidance on systems evaluation issued in June 2008 This key requirement was further developed into 28 questions in the “self assessment tool” sent to the MAs. Guidance document on a common methodology for the assessment of management and control systems in the Member States (2007-2013 programming period) The 7 key requirements are: Key requirement 1: Clear definition, allocation and separation of functions between and within the managing authority / intermediate body/ies Key requirement 2: Adequate procedures for the selection of operations Key requirement 3: Adequate information and strategy to provide guidance to beneficiaries Key requirement 4: Adequate management verifications Key requirement 5: Adequate audit trail Key requirement 6: Reliable accounting, monitoring and financial reporting systems in computerised form Key requirement 7: Necessary preventive and corrective action where systemic errors are detected by the audit authority The key requirement related to management verification is essential with regard to the regularity of expenditure and the proper functioning of the relevant authority

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 (…).” The managing authority has overall responsibility for these tasks. It can choose to entrust some or all of these tasks to intermediate bodies. However, it cannot delegate the overall responsibility for ensuring that they are properly carried out. Therefore, where certain tasks have been entrusted to other bodies, the managing authority should, in its supervisory capacity, obtain assurance that the tasks have been properly carried out

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

Menu Legal basis What are management verifications ? Types of verifications (Admin / on the spot) How much should be done ? Intensity Efficient and effective verifications

What are management verifications ? Day to day management checks to ensure the legality and regularity of the expenditure Verification of the administrative, financial, technical and physical aspects of operations Verification of compliance with Community and national rules Management verifications are part of the internal control system of any well managed organisation. They are the normal day to day controls made by management within an organisation to ensure that the processes for which it is responsible are being properly carried out.

Compliance with Community and national rules Section 3 of guidance note Public Procurement Environment State aid schemes State aid Financial engineering instruments Revenue generating projects Durability of operations Equality and non-discrimination See our guidance note for more specificities. The guidance note is available in all community languages and is available on CIRCA. It can also be given on request.

Types of verifications Administrative verifications On the spot verifications

Administrative verifications Desk-based documentary verifications of ALL of payment claims (interim & final) Examination of supporting documentation (list of) payments / invoices – audit trail lists of participants and timesheets (ESF) Examination of progress reports WHEN ? - Before declaring expenditure to level above and before certification of expenditure to Commission by CA See EC guidance note on management verifications (see section 2.5): the nature of the documents to be submitted with the payment claims should be determined by the managing authority taking account of the overall control system and in particular the level of on-the-spot verifications. As a minimum it is recommended to include at least a list and description of the invoices which support the claim, and a list of the contracts awarded. Section 2.7 of the guidance note : Best practice would require all relevant documentation to be submitted with the beneficiary's application for reimbursement. This would allow for all documentary checks to be carried out during the verifications, thus reducing the need to verify these documents on-the-spot. The supporting documentation should, at a minimum, include a schedule of the individual expenditure items, totalled and showing the expenditure amount, the references of the related invoices, the date of payment and the payment reference number. Ideally, copies of invoices and proof of payment should be provided for all expenditure items.

Administrative verifications Aim to verify (inter alia): Correctness of claim Expenditure declared is within eligible period Expenditure complies with grant decision Existence of adequate audit trail Compliance with eligibility rules, publicity requirements, public procurement Possibility to check supporting documents on a sample basis if huge number of supporting documents (case for ESF invoices / participants detailed records etc)

On the spot verifications Aim to verify (inter alia): Reality of operations (incl. costs) 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 Compliance with publicity requirements Existence of adequate audit trail The scope of the on the spot verifications depends on what has been checked during the administrative verifications In some cases for which it might be time consuming to go on the spot, the MA could increase the scope of its administrative verifications by requesting additional documents

On the spot verifications - Intensity Intensity depends on Nature of operation (tangible/ intangible) Sampling - risk oriented, complemented by random sample Amount and type of documentation available for desk based checks Computerised management information system On-the-spot verifications may be carried out on a sample basis. size of the sample: to be determined by the managing authority. Objectif: achieve reasonable assurance as to the legality and regularity of the expenditure Risk approach: type of beneficiaries and type of operations E.g. For large infrastructure projects implemented over several years, three or more on-the-spot verifications are likely to be required during implementation and at completion. Where a particular beneficiary is responsible for a number of operations, at least one should be subject to on-the-spot verification. The risk analysis should take into account the results of the management verifications. It is recommended that it is revised on a annual basis. On the spot controls intensity varies also with length of project implementation (annual projects vs short term projects)

Documenting verifications Use Checklists Record sampling methodology Checks carried out and documentation reviewed (Short) written report of on the spot verification All management verifications should be documented. The records should state the work performed, the date of any on-the-spot verifications, the results of the verifications, including the overall level and frequency of the errors detected, a full description of irregularities detected with a clear identification of the related EC or national legal rules infringed and the corrective measures taken. Follow up action might include the submission of an irregularity report and / or a procedure for recovery of the grant. For more straightforward verifications such as checking the sum of a list of transactions, a simple tick beside the total figure would suffice to record the work done. The name and position of the person performing the verifications and the date they were carried out should always be recorded. Documenting the checks: the documentation of checks (check lists, visit reports) should be in the project file (so that all levels of control have access to all related info). How many persons should carry out an on the spot check ? the right expertise should be made available for conducting the on the spot check. An on the spot check could be in some cases carried out by only one person.

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… To check compare to a baseline Clear instructions to beneficiaries are essential Crucial verification, it is extremely important that the verification staff has the appropriate knowledge (not always the case e.g. public procurement…)

KEY POINTS FOR MANAGING AUTHORITIES

KEY POINTS Day to day checks to ensure the eligibility of expenditure and compliance with Community and national rules Balance between administrative and on the spot checks Need to understand and assess the specific programme risks Develop a strategy for managing risks. This is the reference point for intensity of verifications Develop a preventive approach by providing information and advice to beneficiaries and training for those carrying out verifications Document verifications

KEY POINTS MAs are recommended to carry out a self assessment (see “self assessment tool”) Will allow the MA to detect the areas which need to be strengthened and to take the appropriate remedial actions Presentation 2008 webstream http://ec.europa.eu/regional_policy/conferences/manauth/programme_en.htm (Session 1 - 44 min. on) The self assessment tool is available in FR, EN and DE. It was tested by two MA (Portugal and Czech Republic) and improved following their comments.