1. Ministry of Finance Compliance assessment of the management and control systems of the managing authorities under the Operational programmes. Conclusions and recommendations Hristina Simeonova Director Audit of EU Funds Directorate Ministry of Finance 20 June 2008 Second Monitoring Committee NSRF

2. AEUFD’s position and functions in the process of implementation NSRF’s goals and priorities  AEUFD in its capacity of compliance assessment body should verify the existence and the right functioning of the management and control systems under the OPs in compliance with the requirements set in Art. 58-62, EC Regulation 1083/2006. This is to ensure:  achievement OPs’ goals;  guarantee for compliance with Community’s policies and legislation;  the effective functioning of the OPs and achievement of their goals in the framework of the NSRF’s priorities with accent to reinforce Bulgarian economy’s competitiveness, improvement of the basic infrastructure, balancing regional development.

3. Legislative framework of the AEUFD as a compliance assessment body AEUFD is appointed to be a compliance assessment body (Art. 71(2), EC Regulation 1083/2006  Council of Ministers Decree No 94/ 25.04.2006, which states that the AEUFD is appointed to be the Audit Authority under the Structural Funds and the Cohesion Fund in Bulgaria;  Council of Ministers’ Protocol decision No 33/ 17.08.2006 – appoints AEUFD as a compliance assessment body under the European Regional Development Fund (ERDF), European Social Fund (ESF), and European Cohesion Fund (ECF) with the aim to give reasonable assurance that the management and control systems function in compliance with the requirements set in Art. 57-62, EC Regulation 1083/2006;  Minister of Finance’s Ordinance No 7 for the order and way of performing coordination and harmonization of the specific audit activities under EU funds and programmes.

4. AEUFD’s Functional Independence MINISTRY OF FINANCE AUDIT OF EU FUNDS DIRECTORATE STRUCTURAL FUNDS European Social Fund European Regional Development Fund COHESION FUND TransportEnvironment 3 Intermediate Bodies 1 Intermediate Body 1 Intermediate Body BENEFICIARIES MINISTER OF FINANCE Human Resources Development MLSP Administra- tive Capacity MSAAR Certifying Authority, NF, MF Regional Develop- ment, MRDPW Competitive- ness MEE Transport MT Certifying Authority, NF, MF Environment MoEW Technical Assistance, MF

5. Requirements in relation to the compliance assessment of the OPs  The compliance assessment audit is carried out on the basis of Minister of Finance’s order. All the checks related to the compliance assessment audit should finish by 31.07.2008.  Compliance assessment report should be submitted to the European Commission before the submission of the first interim application for payment or at the latest – within 12 months period from the approval of each OP.

6. Criteria for performing compliance assessment  The criteria used for assessing the management and control systems’ design are as follows: administrative capacity; project selection; assessment of the Internal Audit Units’ functions; verification; eligibility of expenditure; IT system; information and publicity measures; audit trail; irregularities and reimbursement; accounting system. They are set in compliance with:  EC Regulation 1083/2006, setting general regulations for the ERDF, ESF and the CF;  EC Regulation 1828/2006, for the order and the way of implementing EC Regulation 1083/2006;  Regulation 1080/2006 of the European Parliament and the European Council for the ERDF.

7. Planning the compliance assessment audit of the seven OPs in Bulgaria  In the AEUFD’s Strategic plan for the period 2007- 2009, performance of compliance assessment of the management and control systems of the seven OPs is set. It is to be performed in the period 2007-2008. An audit strategy for each OP is to be elaborated in the same period as well;  In the AEUFD’s Annual plan actual performance of the compliance assessment audits of the seven OPs is set for the period January-July 2008, as well as the elaboration of audit strategies.

8. Planning the compliance assessment audit of the seven OPs in Bulgaria  Goal – to perform compliance assessment of the management and control systems of the managing authorities’ (MA’s) and Intermediate Bodies’ (IBs’) under the seven OPs and the Certifying Authority (CA). It will be performed in compliance with the requirements set in Art. 58-62, EC Regulation 1083/2006;  Scope – check of the management and control systems’ design with the purpose to issue a report and opinion for compliance with the requirements set in Art. 58-62, EC Regulation 1083/2006.

9. Performance of compliance assessment of the seven OPs  1 st stage – in the period January - March 2008: Performance of management and control systems’ compliance assessment at the end of March (AEUFD prepared interim reports for compliance assessment setting end of April 2008 as a deadline for implementation of the recommendations given).  2 nd stage – in the period May – June 2008: External auditors take part in the compliance assessment audit as a result of a government decision;  “Grant Thornton” Ltd. – independent audit company which is executor under a contract signed within MF after a public procurement procedure was carried out. According to the contract signed, the executor elaborates and presents to the AEUFD a compliance assessment report in compliance with the requirements set in Art. 58-62, EC Regulation 1083/2006. “Grant Thornton” Ltd.'s and AEUFD’s engagements and responsibilities in relation to the compliance assessment are strictly set in the signed contract.

10. Performance of compliance assessment of the seven OPs  3 rd stage – in July 2008: Auditors from AEUFD will perform checks on the implementation of recommendations given in the previous two stages of the audit and the implementation of the action plans prepared by the MAs under the OPs.

11. Reporting the compliance assessment of the seven OPs in Bulgaria  Reporting – Elaboration of final compliance assessment reports on the seven OPs will be done after performing follow up of the implementation of recommendations given. It will be made observing the deadline set in Art. 71, EC Regulation 1083/2006.  Two months period for reviewing the documents presented and receiving comments by the EC;  Taking actions in relation to the EC’s comments.

12. Results from preliminary reports presented by “Grant Thornton” Ltd. to the AEUFD Unqualified opinion Areas in which weaknesses are found Systems for accounting, monitoring and financial reporting in computerized form Administrative capacity Public procurement procedures Audit trail Eligibility of expenditures rules Setting out functions for management and control and delegation of duties in the MA’s structure Observance of the principle for separation of duties in the MA’s structure Reporting and Monitoring system in cases when the organization has delegated performance of tasks to another organization Procedures for proving validity and regularity of expenditures under the OP Verification of products’ and services’ delivery and eligibility of expenditure Proper account recording of sums which are to be reimbursed Certifying expenditures Engagements in relation to the audit on the functioning of the systems

13. General conclusions as a result from the audit reports Main conclusions are brought to two riskier areas:  Administrative capacity;  Monitoring and financial reporting in computerized form.

14. General conclusions as a result from the audit reports  1 st conclusion – not sufficiently reinforced administrative capacity. The administrative capacity should be build in a way that it could be able to guarantee the effective and efficient performance of the functions and activities of the MAs, IBs and MF’s directorates which are involved in the management, certification and audit of EU funds;  2 nd conclusion – up until the moment of performance of the compliance assessment of the OPs, a partial compliance with the requirements set in Art. 58(g) EC Regulation 1083/2006 is found. At the MF a sufficiently secure and reliable IT and communication environment is build in which SAP/R3 is installed in. This systems corresponds to the requirements for organizing the account records in a computerized environment. The necessary measures and actions are taken for building a monitoring and financial reporting system.

15. Actions taken in relation to the main conclusions  In relation to the administrative capacity;  Interinstitutional working group is established. It elaborated measures for reinforcing the administrative capacity in the structures involved with EU funds management, certification and audit (additional positions were open in the structures of the relevant directorates); a bonus system was elaborated for financial stimulation of the officials; training programmes and transparency measures in the process of management, certification and audit of EU funds are approved;  In relation to the IT system for management and monitoring of the EU Structural instruments in Bulgaria – a public procurement procedure has been started at the MF with the purpose to further develop the monitoring and reporting software and a schedule for its implementation was approved. In the MA’s procedure manuals it is necessary specific procedures to be set which would describe what kind of software will be used for monitoring, managing and reporting purposes until the system’s implementation.

16. Ministry of Finance THANK YOU FOR YOUR ATTENTION! Hristina Simeonova Director Audit of EU Funds Directorate Ministry of Finance