1. 24 March 2011 Management and control system 1

2. Contents 1.Changes in the management and control system in 2010 2.The progress of the control/audit activities in 2010 3.Information on irregularities detected in 2010 4.Information on withdrawals/recoveries in 2010 2

3. Changes in the management and control system in 2010 (1) 3 Reorganization in the institutions involved in the administration of EU funds elimination of the Construction, Energy and Housing Agency reorganization of the Ministry of Regional Development and Local Government and the Ministry of Environment These changes have no impact on the management and control system of the operational program „Human Resources and Employment” as reorganized institutions are not involved in the management of this operational program.

4. Changes in the management and control system in 2010 (2) 4 Changes in the Audit Authority According to the initial Latvian framework, the system audits were delegated to 18 internal audit units of the bodies involved in the management of EU funds. The Audit Authority was performing horizontal system audits and audits of operations. The main change: Audit Authority is responsible for the performance of all system audits instead of delegating this task to the internal audit units. However the work of the other internal audit units will continue to be used (as an additional source of information).

5. Changes in the management and control system in 2010 (3) 5 Action plan for the improvement of the management system of EU funds The Managing Authority has elaborated an action plan to improve the Structural Funds and Cohesion Fund management and control system: 1. double financing controls; 2. management verification; 3. public procurement pre-controls; 4. coordination and supervision of compliance with the State Aid rules. Within the action plan it is planned to improve MA’s methodology for carrying out management verifications of projects co-financed by the Structural Funds and Cohesion Fund for the 2007- 2013 programming period.

6. The progress of the control/audit activities in 2010 (1) 6 By the Audit Authority there are performed three management and control system audits in 2010, such as: EU funds management information system effectiveness and security; EU funds procurement system; EU funds irregularities system.

7. The progress of the control/audit activities in 2010 (2) 7 Intermediate Bodies’ Internal audit structural units are performed 15 management and control system audits in 2010 in the field of: EU funds management and control system in the Certification Authority and in the Paying Authority; Adequate information and strategy to provide guidance to beneficiaries, quality and security of information; Identifying and reporting system of irregularities; Supervision of implementation of ESF activities; Check and approval of payment requests and Preparation and approval of expenditure declarations; On-the-spot checks.

8. The progress of the control/audit activities in 2010 (3) 8 Overall the audited system works, but some improvements are needed. Deficiencies were found regarding public procurement and publicity and non-systemic deficiencies regarding expenditure compliance. Found deficiencies have an insignificant impact on the functioning of the system.

9. Information on irregularities detected in 2010 9 In 2010, in total 38 irregularities were identified within the I OP, however, they were minor from the financial perspective and mainly related to different errors, misapplication of public procurement regulations and other factors. The types of irregularities identified within ESF activities: Errors ~35%; Suspicion of fraud ~1%; Insolvency and bankruptcy ~10%; Possible conflict of interest ~ 2%; Procurement and competition ~ 6%; Other irregularities ~ 46 %.

10. Information on withdrawals/recoveries in 2010 10 The total amount of irregularities found within I OP in 2010 that have been reported to OLAF is 61 840 LVL (ESF contribution), and this amount or irregular expenditure has been fully recovered by withdrawing the respective amounts from the current payment declarations. The main types of recoveries: Recovery ~ 8%; Write off (up to 85 LVL) ~1%; Reporting to the Cabinet of Ministers (if not possible repayment or write off in the cases of state budget institutions) ~ 70% in ESF; Withheld from the current/next payment ~11% in ESF; Not possible to recover (insolvency, bankruptcy, other ~10% in ESF.

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