1. State of play audit issues
Jiri Plecity, Head of Unit H1,
Relations with Control Authorities, Legal Procedures, Audit of Direct Management and EGF
ESF TWG, Rome, 15/10/2014

2. Outline: Annual Activity Report
Overview: interruptions and suspensions
DAS 2013 and 2014
Ongoing and upcoming Special Reports ECA
Some new issues for the period

3. Annual Activity Report
36 ESF Operational Programmes (OPs) of the programming period were subject to a reservation in the 2013 AAR:
25 quantified (8 partial);
11 reputational (5 partial)
11 Member States concerned (BE, CZ, FR, DE, IE, IT, PL, RO, SK, ES, UK)
Compared to 2012 reservations: 27

4. Interruptions&Suspensions I
Following reservations, OPs are subject to:
Interruption of payment deadlines;
Warning letters in case no payment requests;
(pre)suspension procedures.

5. Interruptions&Suspensions II
Out of the 36 OPs in reservation:
11 had been suspended and 2 pre-suspended prior to the AAR
After the AAR 2013, pre-suspension letters have been sent for 11 additional OPs (+4 additional letters for already suspended OPs)
pre-suspension letters for another 6 OPs are being considered/prepared
For 6 OPs, audit problems were solved and reserves closed without any procedure being launched

6. Interruptions&Suspensions III
Interruptions/warnings today
18 interruptions of payment deadlines concerning 11 OPs (in , whole 2013 – 25 interruptions)
Current interrupted amount: € million
11 warning letters sent in 2014
Amount of unpayable claims – cca 1 billion €
Interruption/warning letters sent for 4 OPs which were not in reservation

7. Interruptions&Suspensions IV
Suspensions today
12 OPs suspended, of which 5 partially (1 suspension decision was adopted after 2013 AAR)
11 OPs are pre-suspended + 4 additional pre-suspension letters have been sent extending the scope of existing procedures (of 3 suspensions and 1 pre-suspension)
4 additional OPs are in the process being pre-suspended
Decision on pre-suspending (or not) 4 additional OPs is being taken

8. DAS I
The estimated error rate for DG EMPL will be around or slightly below that of last year (which was 3.2)
This means that the ECA error rate will be well within the range estimated in EMPL AAR ( ).
Most of the errors concern again ineligible expenditure (15% of all audited transactions, 93% of the error rate)
Rest is public procurement (7%)
Numerous failures to comply with procedural requirements and seemingly excessive costs also identified, but not included in the error rate.

9. DAS II
Insufficient reliability of management verifications – national authorities could have detected and corrected the error in cases which account for 1.3 percentage points of the error rate.
Again, no error detected in operations using SCOs.
Thank you for your cooperation - individual follow-up delayed until final analysis received from ECA.

10. Some specific recommendations:
DAS III
Some specific recommendations:
Follow-up with MS of weaknesses in 1st level checks (identified in DG EMPL risk-based thematic audit of management verifications).
Confirm that COM has carried out appropriate checks on the residual error rate (i.e. that it is based on accurate, complete and reliable information on financial corrections).
Ensure when approving OPs that MS use all simplification possibilities provided by the ESIF regulations.

11. DAS 2014
17 payments sampled for 15 OPs in 12 Member States; 7 more payments to be sampled;
Most audit missions are still ongoing; Commission attending as observer whenever resources allow;
No Statements of Preliminary Findings received so far;
Cooperation between COM and MS from early stages of the process needed.

12. ECA Special Reports I
Ongoing: on EU Microfinance initiatives, which include:
ESF grants and financial engineering instruments for potential micro-entrepreneurs;
the European PROGRESS Microfinance Facility (EPMF) providing additional capital to microfinance institutions (MFIs); and
JASMINE, an instrument managed by DG REGIO allowing selected MFIs to receive technical assistance.

13. ECA Special Reports II Audit missions in DE, EL, PL, RO, IT;
All statements of preliminary findings received and replies from the Commission and all MS sent. Draft report expected before the end of the year.
Main criticism of the Court relates to lack of ESF-funded microfinance activities in some MS and the slow implementation of the PROGRESS microfinance guarantee instrument.

14. ECA Special Reports III
Ongoing: on Youth Guarantee and Youth Action Teams
Focused on Commission supervision.
Field work already carried out and SPFs to be sent shortly.
The Court intends to perform a follow-up audit at Member State level next year.

15. ECA Special Reports IV Ongoing: on Public Procurement, which includes:
Errors in ERDF, ESF and Cohesion Fund projects from relating to non-compliance with public procurement rules.
Actions taken by the Commission and the Member State for addressing these problems.
Specific MS not confirmed yet, but preliminary visits organized in IT,ES,UK and CZ.

16. ECA Special Reports V
Ongoing: on Greek Adjustment Programmes, which includes:
4 areas: labour market institutions, tax reform, public administration reform and business environment.
Design, Implementation, Monitoring and Results of the Adjustment Programme.

17. ECA Special Reports VI Upcoming:
Education – initially focused on education infrastructures but the Court is now more interested in ESF and education strategies; audit scope to be confirmed;
Roma Integration - at preliminary stage; audit scope expected to focus on ESF/ERDF financing; information requested from several MS with the purpose of identifying which will be included in the audit;
State aid – at very preliminary stage; audit scope not clear yet.

18. Some audit issues for
Will ECA rethink its approach to the annual report to reflect the new system of annual examination of accounts?
How to build assurance on regularity of expenditure for multifund OPs?
Audit implications of the new performance-related requirements

19. ECA approach to the DAS
How to take into account the retention of 10% of each payment request to cover possible irregularities?
How to take into account the annual acceptance of accounts by 31 May and payment of the final balance?
Single audit principle – is another approach to the DAS possible?

20. The case of multifund OPs
Regulation requires assurance per OP (article 127.1), but conclusions are drawn per fund.
Lack of specific assurance per fund may lead to unecessary blocking of "low risk" spending and excessive financial corrections
ESF risks being negatively affected in view of lower error rates in recent years
Up to the Member State to conclude on the basis of a "risk" or "cost/benefit" analysis

21. Audit and performance Auditors will have to:
Assess the quality, integrity and ability of the data management and computerised system to store, collect, aggregate and report the data.
Give assurance on the reliability of the reported performance data and of their aggregation.
And determine the necessary improvements or/and the needed corrective measures, if any.

22. Thank you for your attention! Questions?