1. Annual Examination Meeting Audit Authority 13 September 2011

2. Contents 1.Structure of MCS 2.Implementation of recommendations of EC audit missions in June 2011 3.Audits of operations 4.Audits of Financial engineering instruments 5.Horizontal audits - plans for 2012 2

3. 3

4. EC audit missions in June 2011 (1) Recommendations implemented: 1. Public procurement audit checklists updated 2. Audits of the key bodies will be finalized until 30.09: –Managing Authority –Certification Authority –Public Monitoring Bureau 3. AA started direct reporting to OLAF 4

5. 4. Role of opinions provided by the Public Monitoring Bureau (PMB) – assessed during system audit: national legislative framework in force Impact of not considering PMB opinions binding for projects under the Ministry of Transport Action plan for other issues is under preparation 5 EC audit missions in June 2011 (2)

6. EC audit missions in June 2011 (3) Planned activities: Withdrawal of the irregularities identified by AA will be checked during the audit in the Certification and Paying Authority (State Treasury) Follow up audit in Ministry of Transport – before ACR AA will assess the impact of deficiencies identified by EC auditors and potential systemic nature of them 6

7. AA is going to discuss with EC auditors essence of the following issues: Selection procedure (MoT) Justification of the estimated price and selection criteria (MoEPRD) Additional services in the absence of unforeseen circumstances (MoT) Eligibility date (MoT) Exclusion of lowest bid (Riga City Council) 7 EC audit missions in June 2011 (4)

8. EC audit missions in June 2011 (5) We very appreciate that audit report contains very detailed and useful recommendations and suggestions which we can use to improve our audit work and especially audit checklists of procurement procedure. 8

9. Audits of operations (1) Expenditures 1st semester 2010 Results of audit work - 2nd semester of 2010 5 recommendations with financial corrections: 3 recommendations are implemented 1 recommendation is cancelled by AA on the basis of additional information received 1 recommendation will be implemented until 30.11.2011. 9

10. Audits of operations (2) Expenditures 2nd semester 2010 Results of audit work – 1st semester of 2011 8 recommendations with financial impact - all agreed (accepted) by intermediate bodies Final report prepared and sent in 9 September 2011 Error rate for expenditure 2010 – 1,76% 10

11. Audits of operations (3) One case sent to prosecution office and reported to OLAF directly (1,04 milj.LVL) One recomendation rejected by MA – systemic weakness (publicity, procurement, storage of documents, tracebility of project selection) – without financial impact 11

12. Audits of Financial engineering instruments – LGA and LMLB (1) Audit reports sent to EC via SFC 2007: 1.Latvian Guarantee Agency (LGA) 2.Latvian Mortgage and Land bank(LMLB) Presentation of results of audits in Brussels 19.07.2011 Implementation of recommendations - resolution of the Minister of Finance and State secretary of 08.08.2011 - all recommendations should be implemented and MA has to prepare the action plan – done 09.09.2011 12

13. Audits of Financial engineering instruments – LGA and LMLB (2) Problems: 1)How practically irregularities can be withdrawn? Possible solutions: irregular amounts can be reallocated to other loans and guarantees within the same instrument and within the same beneficiary Financial correction should be withdrawn from the project and reallocated to other project (reducing of share capital) Irregular amounts can be covered by national budget and not withdrawn from the companies 13

14. Audits of Financial engineering instruments – LGA and LMLB (3) 2) Implementation of action plan and ACR 2011 Latvian Authorities informed us that they have sent the information about all 6 our identified non-compliant companies supported from LMLB to DG COMP to be sure that methodology applied by AA is not too restrictive. Reply of DG COMP will be used by Managing Authority in preparation of methodology and in implementation of our recomendations. How consultation of DG COMP can be used by us in preparation of annual opinion? 14

15. Horizontal audits in 2011/2012 Audit periodAudit 01.11.2011.30.01.2012. EU funds procurement system 14.11.2011.30.01.2012. Supervision of compliance with state aid rules system 01.11.2011.30.01.2012. Management Information System 15

16. Thank you for your attention! 16 Nata Lasmane Head of Audit Authority Director of EU Funds Audit Deparment Phone +371 67095669 Nata.Lasmane@fm.gov.lv