Presentation of the REA ex-post Audit processes Marie Curie Monitoring Action and Information Days Barcelona, June 9th-11th 2010 Rita, BULTYNCK-LEPOUDRE Unit A.2 - Finance Presentation of the REA ex-post Audit processes

Today’s agenda Presentation REA Audit processes and procedures Preparation Execution Follow up Presentation about Marie Curie Actions financial rules General financial rules for Marie Curie Actions Details on actions Questions & Answers

Ex-post Audit of grants beneficiaries The REA may, at any time, during the contract, and up to five years after the end of the project, arrange for audits to be carried out. Technical review Technical scientific audit Financial audit Audits may be carried out either by REA staff or by private audit firms mandated by the REA. An Annual Audit Plan has been established in line with the FP7 general audit strategy. Technical Audits can be performed at the same time as financial audits 3

Aims The aim of the ex-post financial audits is verifying contractor’s compliance with the financial contractual provisions, assessing the legality and regularity of the transaction, underlying the implementation of the Community budget. reviewing of some relevant systems of internal controls of the Contractor in order to assess whether it is adequate and sufficient to ensure that costs incurred by the Contractor on EC-research funded projects are correctly allocated to those specific projects and recorded as such in the accounting records.

Contracted audit firms Ex post Audits by REA auditors Audits: In-house / Outsourced Ex post Audits by Contracted audit firms Approx. 80% of audits i.e. representative selection and audits of top beneficiaries Supervision of the audit process by REA services Consistency with Research family audits Ex post Audits by REA auditors Approx. 20% of audits Mostly used for risk based audits, for which a specific audit programme tailored to the identified risks is required Specific audits (follow-up, requests, …) Consistency with Research family audits AUDIT ON REQUEST: Performed by auditors on Operational units requests Could be triggered by irregularities during project implementation

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

Preparation: audit of selected beneficiary Selection of Grant agreements Based on various criteria Creation of audit file Gathering of info from: - REA operational services - external sources; e.g. internet 7

Preparation: Audit on-the-spot Initial contact by the responsible auditor approx. 1-2 month before examination on site to agree on dates and logistics Formal letter to announce the audit including detailed annex on information and documentation to be provided

Planning & Preparation: Information requested Detailed annex to announcement letter includes precise list of information to be provided either Prior to the audit examination on site (by mail) At the time of the audit examination Most relevant information in the early preparation are the detailed project accounts matching the total as claimed in the financial statements (Form C) Exact information requests to be provided in advance also depending on the individual project (s) and audit scope

Usually within 4-5 working days (one week) 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) (…) 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 Interviews

Reporting and Closure of the Audit Transmission of Draft audit report (after internal consultations and quality control) for comments by the audited organisation Usually based on the preliminary conclusions Delay (30 days) to provide comments to the draft Consideration of comments and finalisation of the audit report Closure of the audit by formal letter indicating – where appropriate - the further procedures on the implementation of audit results

Implementation of Results: Cases No findings (Only) qualified recommendation 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

Follow-up: liquidated damages Financial penalty due for overstatement of expenses, unjustified financial contribution received from the Commission/REA Only due for the reporting period under question When due, has to be paid together with the unjustified financial contribution Will be claimed by the mean of Recovery orders issued by REA

A long process (up to 2 years) The extrapolation A long process (up to 2 years) Initiation Decision Management Launch Implementation Follow-up Monitoring 45 days / 3 months + additional deadline Final Audit report The auditor submits the extrapolation request ESC meeting Extrapolation decision Eventual follow-up audit Audit closing phase Contract selection Audit closure Letter of conclusions sent Extrapolation start Reception of revised cost statements & supporting documents Adjustments Recoveries

Main findings leading to extrapolation (FP6) 1 VAT included in the cost charged VAT 2 Other taxes included on a systematic basis Taxes 3 Incorrect calculation of overheads Overhead 4 Other Ineligible items included (like sales/marketing costs/bonuses) Ineligible 5 Average vs. actual costs Average vs Actuals 6 Budgeted, standard, estimated or fixed rates used instead of actual costs Budgeted/standard/estimated 7 Adjustment in productive hours calculation Prod. Hours 8 Unreliable/missing timesheets/ alternative evidence used Timesheets 10 Wrong depreciation method used/no depreciation applied Depr. Method 11 Wrong calculation method used Calc. Method 12 Unjustified change in direct costs model Change Ind. Costs 13 Other reasons (i.e. double charging, no supporting docs, not for project, outside project period) Other 14 Wrong exchange rate Exch. Rate 15 Owner manager costs estimated/not substantiated Owner Mgr. 16 Marie Curie flat rates vs. actual cost issue MC flat rates 17 Lack of reconciliation of costs claimed/weaknesses internal control No reconciliation 18 Non declaration of interest on pre-financing Interest Pre. Financ.

Muchas Gracias ! Rita Lepoudre - Bultynck Head of Unit Finance  Research Executive Agency COV2  15/132,  1049 Brussels ( +32-2-29613407)  Rita.bultynck@ec.europa.eu