1. 1 INTERREG IIIB 2000 - 2006 “ATLANTIC AREA” Weaknesses identified within the UK financial management and control systems EUROPEAN COMMISSION SPAIN – FRANCE – IRELAND – PORTUGAL – UNITED KINGDOM Avec la participation de l’ Union Européenne Programme cofinancé par le FEDER

2. 2 “Systems audit – June 2006” General assessment of UK system- key points 1 The outsourcing mechanism (for article 4 checks) does have several weaknesses : Possibility of using the partner’s internal auditors where they are outside the project funded and they have the necessary diplomas There are no procedures for ensuring that auditors are aware of the certification guide produced by the national authority

3. 3 “Systems audit – June 2006” General assessment of UK system- key points 2 Additions are necessary to certification guidelines Reminder of the principle of comprehensive controls and the implementation of a procedure for informing the NC and/or the Managing Authority of the implementation of sampling. Need for a control on any revenue resulting from the project

4. 4 “Project audits 2006/2007” Main weaknesses identified on project level SDEA (Spain, France) Expenditure audited 520 000 Euros Ineligible expenditure 1 000 Euros Irregularity rate = 0% Relating exclusively to insignificant allocation errors

5. 5 “Project audits 2006/2007” Main weaknesses identified on project level CULTUR*AT (Spain, France, Portugal, United Kingdom) Expenditure audited 1 980 000 Euros Ineligible expenditure 39 500 Euros Irregularity rate = 2% A few points for possible improvement: On-site control, Payment control, Income control

6. 6 “Project audits 2006/2007” Main weaknesses identified on project level RED TELECEM (Spain, United Kingdom) Expenditure audited 379 000 Euros Ineligible expenditure 56 000 Euros Irregularity rate = 15% Ineligible expenditure mainly relating to the defective audit trail of one partner (UK)

7. 7 “Project audits 2006/2007” Main weaknesses identified on project level ICREW (France, Ireland, Spain,United Kingdom) Expenditure audited 6 800 000 Euros Ineligible expenditure 2 290 000 Euros Irregularity rate = 34% Ineligible expenditure mainly relating to the lack of audit trail and insufficient expenditure documentation (UK) One case of suspected fraud (FR)

8. 8 “ICREW Dysfunctions in the control system 1” Weak audit trail and several cases of insufficient expenditure documentation Article 4 control not formal enough which precludes confirming that the due care was actually taken No control over expenditure payment in far too many cases Non-rationalised discrepancies between the coordination costs of the Lead Partner adjudged against the partners and those deducted from the Lead Partner's eligible expenditure One fraudulent declaration

9. 9 “ICREW Dysfunctions in the control system 2” no payment dockets due to a grouped business card system which prevents required payment traceability no documentation on salaries paid no explanation on structural charges calculations general difficulties in providing invoices due to a defective archiving system and numerous changes in personnel in charge of the project

10. 10 “Key Figures” Total of 24 partners audited (Irl, Fr, Sp, Pt, UK) Total of 6 UK partners audited (25% of total) Total ineligible expenditure 2 435 000 euros Total UK ineligible expenditure 2 311 000 euros (95% of total)

11. 11 “Consequences” 1 - Suspension of all payments to UK partners 2 - New audits on project level will specifically target UK partners to check that improvements have been introduced 3 - If this is not demonstrated then ERDF repayment requests may be issued to all UK partners 4 – Possible flat-rate penalty by the European Commission