REPUBLIC OF BULGARIA
NATIONAL AUDIT OFFICE
REPORT
on the results of the completed performance audit
of Projects BG 0103.09 “Improving the management of EU funds”, BG 2002/000.585 “Horizontal Programme preparing candidate countries for Extended decentralisation (EDIS) in the management of pre-accession funds in Bulgaria” and 2002/BG/16/Р/РА/003 “Technical Assistance to the preparation of the National Fund, ISPA Implementing Agencies and Public Internal Financial Control Agency to implement the Extended Decentralised Implementation System (EDIS) in Bulgaria”, in the Central Finance and Contracts Unit and the National Fund in the Ministry of Finance during the period
1 January 2002 - 30 September 2004
The audit was carried out pursuant to an Order of the Head of Department VIII of the National Audit Office and in compliance with the Annual Audit Programme of the National Audit Office for year 2004.
The Audit Report No. 0800000304 was presented to the Minister of Finance on 22 December 2004 and was adopted with a decision at the Board Meeting of the National Audit Office on 13 January 2005.
The audit objective was to analyse the implementation of the project activities, to assess the efficiency of the management decisions and the effectiveness of the achievement of the set aims.
The audit covered the project implementation activities of the Central Finance and Contracts Unit (CFCU) and the National Fund (NF) during the period 1 January 2002 – 30 September 2004 with regard to the:
· performance with a view to achieving the aims, set out in the Financing Memoranda, including comparison between the actual and the expected results;
· management system, including the procedures developed for implementation monitoring and control;
· compliance with the rules, procedures and requirements of the documents, regulating the organisation and completion of the tender procedures, the awarding of contracts, the utilisation of and reporting on the funds granted under PHARE and ISPA projects.
The analysis and assessment of the implementation of the projects were carried out on the basis of criteria, set in advance and agreed with the CFCU and NF in their capacity of Implementing Agencies.
As a result of the completed audit the following main findings were identified:
Projects BG 0103-09, BG 2002/000-585 and 2002/BG/16/Р/РА/003 are aimed at strengthening the administrative capacity of the NF, the CFCU, the Implementing Agencies and the other institutions involved in the management of the pre‑accession funds under the PHARE and ISPA Programmes in order to prepare them for the introduction of the Extended Decentralised Implementation System (EDIS) of PHARE and ISPA Projects. The transition to EDIS is carried out in compliance with the “Road Map to EDIS of PHARE and ISPA”, prepared by the European Commission (EC) and includes the following four procedural stages:
· Stage I – Gap Assessment;
· Stage II – Gap Plugging (preparation for EDIS);
· Stage III – Compliance Assessment;
· Stage IV – Preparation for Commission Decision.
Project BG 0103-09 “Improving the Management of EU Funds”, which covers the activities in the first procedural stage, was implemented within the PHARE 2001 Financing Memorandum (FM).
The general objective of this Project is to improve the management of the EU funds and the funds from the national co-financing during the preparation for Extended decentralisation (ED) of PHARE Projects.
The Implementing Agency for this Project is the CFCU, and the NF is the Project Implementation Unit (PIU).
The beneficiaries of the Project are: the NF and the CFCU in the MoF; the PHARE Implementing Agency (IA) in the Ministry of Regional Development and Public Works (MoRDPW). The Director of the NF – Silvia Indjova, is responsible for the day-to-day management and co‑ordination of the Project in her capacity of the Senior Programme Manager (SPM).
1,870,000 Euros were granted for the Project (1,800,000 Euros from the EU budget under the PHARE Programme and 70,000 Euros from the national co‑financing). They were allocated between the two main components of the Project in the following way:
· institutional strengthening – 1,590,000 Euros from the PHARE Programme;
· investment support for supply of equipment – 210,000 Euros from the PHARE Programme and 70,000 Euros from the national co‑financing.
The tender procedures for selecting contractors under the two components of the Project have been carried out in compliance with the requirements, set out in the Practical Guide to PHARE, ISPA and SAPARD Contract Procedures.
For the first component a contract for consultancy services was awarded. Under this contract the Stage I activities for transition to EDIS were completed. A Gap Assessment Report was prepared and Terms of Reference for the implementation of Stage II were developed. The consultant failed to meet the deadlines for presenting the report and ToR, envisaged in the Inception report.
For the second component contracts for supply of hardware and office equipment and for adapting the specialised software and training were awarded. The contract conditions were met. The supply was made within the set deadline. The hardware and equipment of the beneficiaries were improved, and an appropriate hardware base was developed for long-term use without the need to incur costs for additional equipment. The configuring of the specialised software for improving the management of the EU funds and the funds from the national co-financing with different profiles for the different programmes – PHARE, ISPA and SAPARD was completed. The system was tested in order to check the compatibility (interfacing) between the individual modules.
The funds under both components of the Project were utilised and reported on in compliance with the rules, procedures and requirements, set out in the regulation documents.
All payments were made as intended in accordance with the agreed stages and deadlines for implementation of the project activities.
Project BG 2002/000-585 “Horizontal Programme preparing candidate countries for Extended decentralisation (EDIS) in the management of pre-accession funds in Bulgaria”, which covers the activities in the second and third procedural stages, was implemented within the PHARE 2002 FM.
The general objective of this Project is to provide technical assistance to develop adequate administrative capacity within the National Fund, the Implementing Agencies, and other involved in the management of PHARE pre-accession funds institutions to meet EDIS requirements. The support is directed to the improvements in the key institutions and procedures required to implement the recommendations, set out in the Gap Assessment Report, so that the authorised national authorities, responsible for the financial management of the Community instruments, are able to determine whether the pre-conditions are fulfilled for formal application for EDIS.
The Implementing Agency for this Project is the CFCU.
The beneficiaries of the Project are: the NF, the CFCU and the “Management of EU Funds” Directorate in the MoF; the PHARE Implementing Agencies (IA) in the Ministry of Regional Development and Public Works (MoRDPW), Ministry of Labour and Social Policy (MoLSP) and the Ministry of Economy (MoE); and PIFCA.
800,000 Euros were granted for the Project – all from the EU budget.
The tender procedures for Stages II and III have been carried out in compliance with the requirements, set out in the Practice Guide to PHARE, ISPA and SAPARD Contract Procedures.
The Project implementation is connected with the completion of the Stage I activities for transition to EDIS under Project BG 0103-09. Because of delays in the completion of Stage I for reasons, outside the control of the IAs, and because the EC Delegation delay in approving the Tender Dossiers for Stages II and III, by the end of the audited period (30 September 2004) no contracts had been signed for the implementation of the Project.
The Contract for consultancy services for the implementation of Stage II with a value of 638,400 Euros was signed on 29 October 2004.
None of the companies invited to participate in the tender for the Stage III activities, submitted a bid. That is why the tender procedure was cancelled.
The deadlines for contracting of Stages II and III, envisaged in the FM, did not take into account the sequence of the implementation of the activities in the two stages.
The Project budget, set in the FM, is insufficient for the implementation of the planned activities to be carried out during the two stages.
Project 2002/BG/16/Р/РА/003 “Technical Assistance to the preparation of the National Fund, ISPA Implementing Agencies and PIFCA to implement the Extended Decentralised Implementation System (EDIS) in Bulgaria”, which covers the activities in the first, second and third procedural stages of the implementation of EDIS in the PHARE Programme, was implemented within the FM for measure 2002/BG/16/Р/РА/003.
The general objective of this measure is to increase the efficiency of the ISPA Programme and to prepare Bulgaria for the future management of the Structural and Cohesion Funds.
The Implementing Agency for this Project is the Monitoring and Assessment Department of the NF Directorate.
The beneficiaries of the Project are: the NF; the ISPA IAs in the Ministry of Environment and Waters (MoEW), the MoRDPW and the “Roads” Executive Agency; PIFCA; and the ISPA Co‑ordination unit in the “Management of EU Funds” Directorate.
892,555 Euros were granted for the measure from the EU budget for the ISPA Programme, of which: 159,500 Euros for Stage I; 630,000 Euros for Stage ІІ; and 103,055 Euros for Stage ІІІ.
During the audited period only the tender procedure for choosing the contractor for the Stage I activities was completed. A Contract for consultancy services was awarded. It was completed within the set deadline. A Gap Assessment Report, including recommendations for the required improvements, was prepared and Terms of Reference for the implementation of Stage II were developed.
The tender procedure for awarding a contract for technical assistance for the implementation of Stage II started within the deadline, envisaged in the FM. However, because the EC Delegation delayed the approval of the Tender Dossier, the tender was not completed as at 30 September 2004.
It is envisaged that the implementation of Stage III will start in April 2005.
The funds granted for the implementation of Stage I were utilised and reported on in compliance with the, procedures and requirements, set out in the documents regulating the implementation of ISPA Projects.
An advance payment amounting to 60% of the contracted amount was made. Because of errors and inconsistencies in the supporting documents, the claim for final payment, presented by the consultant, was withheld by the NF. As at 30 September 2004 the corrected documents were still not submitted to the NF and for this reason the final payment was not made.
The findings lead to the following main conclusions and assessments:
1. The CFCU and the NF have achieved effectiveness in the implementation of the Projects. The objectives related to the completed components and stages of the Projects, set out in the Financing Memoranda, have been achieved. The actual results from the completed activities correspond with those envisaged.
2. The management structure for PHARE and ISPA Projects has been developed in compliance with the requirements, set out in the regulation documents, and has ensured that effective management decisions were made with regard to the implementation of the activities.
3. The established system for reporting, monitoring and evaluation of the implementation of the project activities has provided timely information for taking the necessary action for overcoming the critical moments arising.
4. The tender procedures for implementation of the projects have been carried out in compliance with the requirements, set out in the Practice Guide to PHARE, ISPA and SAPARD Contract Procedures. The Contracts have been laid out and signed in compliance with the rules for providing services and supplies, funded with EU funds.
5. The delays in the implementation of the projects compared to the deadlines, envisaged on the Financing Memoranda, resulted from the delayed approval of the Tender Dossiers by the EC Delegation. This has created a risk of failure to implement the activities, related to the implementation of EDIS, within the planned deadlines.
6. The project funds have been utilised and reported in accordance with the principles of sound financial management.
CFCU and NF have achieved an effective management and efficient implementation of the project activities and have taken the necessary action for overcoming the delays in the implementation of the individual stages of the preparation for the implementation of EDIS.
Pursuant to Article 41, paragraph 1 of the National Audit Office Act, the National Audit Office makes the following recommendations to the Minister of Finance:
· To undertake the necessary steps for providing financial support for the implementation of the activities, falling within Stage III of the introduction of EDIS of the PHARE Programme.
· To make the necessary arrangements, so that the activities, related to the preparation for the introduction of EDIS of PHARE and ISPA, are implemented in line with the updated deadlines for the implementation of the Concept Paper for Introduction of EDIS in the PHARE and ISPA Projects.
Pursuant to Article 42, paragraph 1 of the National Audit Office Act, by 31 March 2005 the Minister of Finance shall inform in writing the National Audit Office on the actions, taken in response to the recommendations.
Katina KRASTEVA
Member of the National Audit Office and
Head of Department VIII “Performance Audit”
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