1. 29 March 2011 Audit Authority Audit Department Ministry of Finance 1

2. Contents 1.Functional independence 2.Capacity 3.The Annual Control Report and Opinion for the period from 1 July 2009 to 30 June 2010 4.Audit Strategy and Risk Assessment 2011 5.System Audits 2011 6.Audits of Operations 7.External Quality Assessment 2

3. 1. Functional independence 3

4. Changes in 2010-2011 1.1. Already done 4 Centralization The CoM Regulations No 1153 of 21.12.2010 approved centralizing all functions of the Audit Authority in the Ministry of Finance. Audit Committee Lliquidated with the MoF Decree No 699 of 15.12.2010. Authorization of Audit Opinion Reports of the Audit Authority are signed by the Head of Audit Authority in compliance with the MoF Decree No 679 of 02.12.2010.

5. 5 Functional Independence of the Audit Authority

6. Changes in 2010-2011 1.2. Planned: 6 Separation from IA The Audit department of Ministry of Finance as of 01.01.2012 will be splitt - Audit Authority function will be separated from the internal audit and CHU function. Reporting line The changes in the «Law On Management of European Union Structural Funds and the Cohesion Fund» are initiated in order to approve at the legislation level rights of the Head of the Audit Authority to report on significant issues directly to the CoM (via minister of finance).

7. 2. Human Resource Capacity of the Audit Authority 7

8. Changes in 2010-2011 2.1. Already done: Internal separation of function Starting from 01.09.2010 functions of the Audit authority are concentrated in 3 divisions: –EU Funds and Foreign Financial Assistance System Audit Division performs system audits; –EU Funds and Foreign Financial Assistance Financial Audit Division performs audits of certified expenditure; –EU Funds and Foreign Financial Assistance Audit Policy Planning Division performs the rest of the Audit Authority functions. Detailed resource plan: The Audit Authority’s capacity is enough to cover all the EU funds institutions in 2011 8

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11. Full time staff for system audits6 Number of institutions to be audited20 Man-days per 1 institution65 Necessary man-days in total (20x65)1300 1 auditor should work on system audits days per year (1300 / 6) 217 In addition: part time auditors available, if necessary 22 11

12. Changes in 2010-2011 2.2. Planned: Reallocation of resources after 01.07.2011 Employees involved in Winding-up of Cohesion fund 2004-2006 will be available for the system audits as of 01.07.2011. Additional staff 2 extra staff units will be available in EU Funds and Foreign Financial Assistance Audit Policy Planning Division. 12

13. 3. The Annual Control Report and Opinion for the period from 1 July 2009 to 30 June 2010 13

14. 3.1. Preparation of the Annual Control Report and Opinion 1.Horizontal and system audits: 80% of key requirements covered by AA of MoF 2.Other Internal Audit Units’ work: 20% of key requirements covered 3.Quality Review – the Audit Authority reviewed files of Internal Audit Units 4.The additional audit : on procurement system in the Ministry of Transport was performed 5.The training of the AA staff was provided by the international auditor companies KPMG and PWC on International Standards on auditing 6.External expert contracted to consult the AA on preparation of Opinions 14

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17. 3.2. Summary of Audit Opinions 17 Operational programme Audit Opinion Scope Limitation LVL Quantification of deficiencies/ Irregularities LVL Error rates from audits of operations % 2007LV151PO001 (ESF) Unqualified - 24 211,06 0,15 2007LV161PO001 (ERDF) Qualified77 905 279,03129 628,680,08 2007LV161PO002 (ERDF/CF) Unqualified - 25 503,010,08

18. 3.3. Assessment of the management and control system 18 Institution Management and control system assessment Management Authority 2 Intermediate Bodies 2 Certification Authority 1 Paying Authority 1 Public Procurement Bureau 2

19. 3.4. Coverage from audits of operations 19 Period Operational Programme Expenditure Population, LVL Sample,LVL % 2009 2007LV151PO001 (ESF) 16 632 92214 992 72490% 2007LV161PO001 (ERDF) 76 445 01170 832 17793% 2007LV161PO002 (ERDF/CF) 110 434 02781 976 524 74% Total 203 511 960167 801 42582%

20. 4. Audit Strategy and Risk Assessment 2011 20

21. Audit Strategy and Risk Assessment 2011 The main improvements Risk assessment: per Operational Programmes and per Institutions Audit Plan»: for 2011 foresees to cover all Institutions involved in EU funds administration System audit report one per one institution including all key requirements 21

22. 5. System Audits 2011 22

23. System audits 2011 Basic standard for methodology: IFAC issued International Standards on Auditing (reporting:ISA 800) Sample selection Audits in process : –Ministry of Health, –Health Economics Centre, –Ministry of Transport, –Ministry of Environmental Protection and Regional Development, –State Regional Development Agency 23

24. 6. Audits of Operations 24

25. 6.1. Further approach to Audits of Operations Updated methodology and more detailed checklists regarding: –expenditure eligibility; –public procurement (evaluation of selection criteria and evaluation of too cheap offers); –Risk of double accounting and double financing; –State aid issues; –checklist made referring to national legal acts and EC directives and regulations Audit field work and on-the-spot checks – checks are made upon documents original available at beneficiary Updated coverage and computation of error rate 25

26. 6.2. Sample for 2010 II half 26 Period Operational Programme Expenditure Certified, LVL Sample,LVL % 2010 II half 2007LV151PO001 (ESF) 144 185 474,0670 761 536,1349,08%

27. 6.3. Preliminary results of Audits of Operations (2010 I half) Systemic errors found regarding: Transparency; Storage of accounting documents; Public procurement. 27 Period Operational Programme Expenditure Error rate Certified, LVLSample, LVL % 2010 I half 2007LV151PO0 01 (ESF) 54 953 831.0831 635 796.1957.57 1,87% 2007LV161PO0 01 (ERDF) 11 595 569.023 691 090.6831.83 2007LV161PO0 02 (ERDF/CF) 100 561 980.2626 527 193.5126.38

28. 7. External Assessment of Audit Authority 28

29. External Assessment of Audit Authority (carried out by Ernst & Young) 29 Key requirementsEvaluation 1Clear definition, allocation and separation of functions2 2 Adequate systems audits 2 3 Adequate audits of operations 2 4Adequate annual control report and audit opinion 2

30. Thank you for your attention! 30 Nata Lasmane Head of Audit Authority Director of Audit Deparment Phone +371 67095669 Nata.Lasmane@fm.gov.lv