Structural Funds in Ireland

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• Structural Funds in Ireland
• Financial Control and Audit
• - eligibility rules, weaknesses and
  irregularities

ERDF Financial Control Unit Department of
Finance Border, Midland Western Regional
Assembly Seminar Autumn 2006
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ERDF Cascade Structure
Ireland
Department of Finance
Regional Assembly or Government Department
Government Department or Agency
Local Authority or State Agency
Private firm receiving grant aid
3
Regulation 438/2001Article 4 v
Article 10

• Audit function
• Independent verification of
• (a) Management Control Systems
• (b) Expenditure declarations
• in order to give an opinion/assurance
• on the effectiveness of (a) MC Systems
• and (b) accuracy of expenditure
• declarations supporting records.
• ex-post
• Systems audits
• Minimum 5 verification (audit)
• (Article 10 audits)

Management Control Systems Systems (structures
procedures) to ensure the delivery of products
and services co-financed by EU, ensure
compliance with national and Community rules
(eligibility, public procurement etc). Systems
should include on-the-spot checks. ex-ante aut
horisation, segregation of duties, accounting,
physical, Including written procedures
(Article 4 on-the-spot checks)
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ERDF (and Cohesion Fund) Financial Control and
Audit
MANAGEMENT CONTROL SYSTEMS
AUDIT
Financial controls including Management Verificati
ons (Article 4)
Systems Audit (Article 10)
EX-POST (after EU claim)
EX-ANTE (before EU claim)
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ERDF (and Cohesion Fund) Audit Structures
IA Systems audits
FCU Audit M5 Verification
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Financial Control Unit Structure and Key
Activities

• Functionally independent of organisations audited
• Underpinned by Statutory Instrument (S.I. 123 of
  1999)
• Carries out M 5 (ERDF) and M15 (Cohesion Fund)
• Responsible for management of Systems Audits by
  Internal Audit Units (ERDF CF)
• Article 15 Body designated to issue declarations
  on winding up
• Administrative Agreement with European Commission

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• Summary - audit objectives

• Auditor seeks assurance in relation to
• Audit trail complete and accurate supporting
  documentation at all levels
• Compliance with Eligibility Rules
• Compliance with Procurement rules
• Adequate monitoring / cost control (Article 4
  spot checks)
• Publicity / information requirements are met
• Comprehensive Procedures Manuals (including EU
  regulatory requirements)

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• Financial Control Unit
• Summary of Findings To Date

• Audit Trail
• Difficulty reconciling
• Form B1 to accounting records of final
  beneficiary
• Form B2 to Form B1 (intermediate body to final
  beneficiary)
• Adjustments not adequately documented
• No timesheets to support payroll costs
• Documents/information to support previous years
  declarations not retained
• Confirmation of grant recipient expenditure (e.g.
  Rural Water schemes)
• over-reliance on audit certificates
• Need for accompanying schedule of payments
• Spot checking of schedule required

9

• Financial Control Unit
• Summary of Findings To Date

• Eligibility Rules - 12 Rules, only some relevant
  to Ireland
• Expenditure actually paid out
• Accounting treatment of receipts
• Financial and other charges and legal expenses
• Purchase of land
• Purchase of real estate
• VAT and other taxes and charges
• If ineligible expenditure declared on Form B1 gt
  Irregularity report

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• Financial Control Unit
• Summary of Findings To Date

• Eligibility
• Expenditure outside of eligibility period
• Inclusion of accruals / unpaid invoices in claims
• Advances treated as expenditure
• Repayable grants recommend a deduction (B1) in
  respect of grant refunds
• Unsustainable allocation of percentage overheads
  and mark-ups
• In general we recommend
• Claim direct costs of project (contract, labour,
  materials, plant hire)
• Exclude indirect costs (administration /
  overheads / mark-ups)
• Ensure costs are at market price (best tender
  prices / quotations)
• if in doubt, leave it out

11

• Financial Control Unit
• Summary of Findings To Date

• Public Procurement
• Public Procurement Guidelines Competitive
  Process (2004) www.etenders.gov.ie
• Tender opening procedures
• Inadequate record of tenders received and opened
  (name price)
• Recommend stamp tenders with date of receipt /
  register of tenders
• Post-contract alterations or extensions without
  new tender competition
• Ensure tax clearance certificate are sought,
  received and recorded

12

• Financial Control Unit
• Summary of Findings To Date

• Information publicity
• During 2005, we found few cases of deficient
  signage/publicity
• Signage (temporary and permanent)
• Invitations to tender should have appropriate EU
  logos and text
• Possible 2 correction for non-compliance
• 
  

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• Financial Control Unit
• Summary of Findings to Date

• Management verifications / On-the-spot checks
  (Article 4)
• Inadequate records of
• Desk checks
• On-the-spot checks/inspections
• Must be ex-ante (prior to submission of EU claim)
• Spread checks over life of long term projects
  (not just at end)
• Checks necessary - within organisation and on
  organisations below
• (FB-gtFR IB-gtFB MA-gtIB PA-gtMA)
• We recommend
• Report or checklist to record nature and scope of
  check
• Reconciliations of records from one level to the
  level above

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• Financial Control Unit
• Summary of Findings to Date

• Documented procedures
• In general for 2005, we found procedures manuals
  satisfactory.
• Inadequate / incomplete / no procedures manuals
• Lack of detail for EU element of control
  procedure
• 
  
• We recommend
• Manuals should be prepared / updated to record
• control procedures
• the responsible officials (e.g. organisation
  chart)

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• Irregularities

• Regulation 1681/94 as amended by 2035/05
  (December 2005)
• Definition
• Irregularity means any infringement of
  Community law resulting from an act or omission
  by an economic operator which has, or would have,
  the effect of charging an unjustified item of
  expenditure to the Community budget
• Threshold for reporting any amount in excess of
  10,000 (EU contribution)
• Exceptions
• Cases where the irregularity consists solely of
  the failure to execute an operation due to the
  bankruptcy of the final beneficiary and/or the
  final recipient. However, irregularities
  preceding a bankruptcy and cases of suspected
  fraud must be reported
• 
  

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• Irregularities

• Exceptions (continued)
• cases brought to the attention of the
  administrative authority by
• - the final beneficiary
• or
• - the final recipient
• spontaneously or before detection by the
  relevant authority either before or after the
  payment of the public contribution
• cases where the administrative authority finds
  a mistake regarding the eligibility of the
  financed project and corrects the mistake before
  payment of the public contribution
• 
  

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• Financial Control Unit
• Closure of OPs

• Key information required for closure
• Irregularity reports by Measure
• Expenditure to date by Measure
• Information on results of Article 4 on-the-spot
  checks
• Recoveries, material corrections material
  adjustments
• Details of any system weaknesses identified.
• Annual implementation reports
• Amendments to programme complements
• Information on achievement of programme
  objectives / physical progress
• Monitoring Committee minutes/reports

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• Contact the FCU at

ERDF Financial Control Unit Department of
Finance Central Business Park Tullamore Co
OffaIy Phone [phone] Fax [phone]
3633 E-mail eucontrol_at_finance.gov.ie Annual
Report 2005 available at www.ndp.ie
(publications/annual reports)