The Key Objectives of Audits at Member State Authorities and at Final Beneficiaries/Final

Appendix 1

The key objectives of audits at Member State authorities and at final beneficiaries/final recipients

This appendix sets out the audit objectives and the detailed questions which may be addressed during audits of Member State authorities and of final beneficiaries/final recipients. In this context, it should be noted that the questionnaires have been prepared in a modular format, whereby specific objectives and questions may be selected for use according to the particular objectives of the audit. The appendix provides a structure for the audits, including the criteria which should be used to assess compliance with regulations and other requirements.

Note that where a question asks whether there are procedures to ensure a particular action or activity, the answers to these questions will be provided both through documentation of systems and through tests of controls and/ or substantive tests to determine whether the system actually operates effectively in practice.

Where questions concern key elements of the system[1], they have been highlighted in bold. They have not been given a specific position in order to ensure that the questions follow the audit trail of an application, i.e. from submission of application to actual payment of grant.

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Audits of Member State authorities

The following audit objectives and sub-questions are detailed below :

Audit objectives

(1) Whether functions have been clearly allocated, authorities designated, and separation of duties ensured.

(a) Have the authorities/bodies been designated ?

(b) Have functions been clearly allocated ?

(2) A) Whether there are adequate arrangements to ensure that procedures for grant applications, appraisal of applications and selection for funding comply with the relevant rules[2], are in accordance with the needs of the area in question[3], and that decisions by the authority are fully documented.

(a) Are there adequate arrangements to ensure that the call for applications reflects the assessed overall needs of the area, i.e. is in accordance with the programme procedures and programme complement?

(b) Are there satisfactory arrangements to ensure that applications are invited from all potential project managers / operators ?

(d) Are all applications for support evaluated on the basis of consistent and relevant criteria ?

(e) Does the authority require potential project managers / operators to set out clear and measurable objectives, linked to a sound financial plan ?

(f) Are decisions on actions to be supported taken by an appropriate authorised individual or individuals and is it ensured that those actions comply with the relevant rules ?

(g) Are there adequate arrangements to ensure that successful applicants are fully informed of their entitlements and responsibilities as regards the provision of funding ?

B) Whether there are adequate arrangements to ensure that selection of contractors/suppliers comply with public procurement rules[4].

(3) Whether there are adequate procedures to verify the delivery of products and services, and of reality and eligibility of expenditure.

(a) Is the content and frequency for the provision of information adequately specified ?

(b) Does the managing authority and/ or intermediate bodies receive and obtain sufficient information on the physical activity of the actions to make an accurate assessment of progress ?

(c) Does the managing authority and/ or intermediate bodies receive sufficient financial information on the actions to make an appropriate assessment of progress ?

(d) Are there adequate arrangements to ensure that action is taken when actions do not appear to be proceeding according to plan ?

(e) Are there suitable arrangements to ensure that project managers / operators submit suitable payment requests and that these are in the appropriate form ?

(f) Are payment requests received by the appropriate person ?

(g) Do payment requests contain appropriate information on expenditure, an sufficient justifying documents ?

(h) Are there adequate checks to ensure that payment requests are appropriate, and that they are approved by an appropriate person ?

(i) Has the authorities / intermediate bodies introduced suitable payment arrangements ?

(4) Whether systems are adequate to provide reliable financial and statistical information on implementation.

(a) Is the IT system set up appropriate to provide reliable information ?

(b) Does the system provide all the information required by Annex IV of Regulation 438/2001[5] ?

(d) Are there adequate procedures to protect data in the system ?

(e) Are there adequate procedures for data transfer to the Commission ?

(5) Whether checks are carried out on a sample basis, which are representative and based on risk analysis, and cover at least 5 % of the total eligible expenditure ?

(a) Are there appropriate arrangements to ensure that Art. 10 of Regulation 438/2001 is fully implemented and coordination of controls is obtained?

(b) Do the designated body /bodies undertake system audits ?

(d) Do the authorities have systems in place to ensure that by 30 June 2001 and annually thereafter they provide reports to the Commission on the implementation of Art. 10 to 12 of Regulation 438/2001, including information on any necessary completion or updating of the description of their management and control systems ?

(e) Is appropriate action taken when errors are found in payment requests, and when errors or irregularities are found during on the spot checks ?

(6) Whether the bodies taking part in the management and implementation of the assistance maintain either a separate accounting system or an adequate accounting code for all transactions relating to the assistance ?

(a) Has the managing authority and / or intermediary bodies established a sound financial accounting system in which all of the relevant transactions are recorded ?

(b) Have the authorities established suitable arrangements to ensure the accurate documentation of the audit trail ?

(c) Have the authorities established arrangements to ensure that Community funds are separately identifiable from those of the Member State ?

(d) Does the accounting system enable the relevant final recipients, and the reasons for payments to be identified ?

(e) Are there arrangements in place to ensure that the managing authority or paying authority keep a debtors’ ledger ?

(7) Whether there are procedures to ensure that certified declarations made to the Commission are accurate, result from accounting systems based on verifiable supporting documents, and that they only include expenditure that has been actually effected, incurred in operations selected for funding under the assistance, and for which State Aid has been approved by the Commission.

(a) Has the paying authority established procedures to ensure the completeness and accuracy of all expenditure declarations to the Commission?

(b) Is it ensured that declarations at winding-up for each form of assistance are prepared by a functionally independent organisation or person, and that these statements are presented to the Commission no later that the time of the final payment request ?

(c) Are there arrangements to ensure that the appropriate exchange rates are used where statements of expenditure are made in Euro[6] ?

Audit objective

1. Whether functions have been clearly allocated, authorities designated, and separation of duties ensured.

Note : This should always be the starting point of a systems audit unless the replies to the following sub-questions are already known.

Sub-questions

a) Have the authorities/bodies been designated?

Assessment criteria / Specific questions
· A managing authority and a paying authority must be clearly designated 99R1260 A9.
· Intermediate bodies acting under the responsibility of the managing or paying authorities should be clearly identified. 01R438 A2(2)
· The body(ies) carrying out the checks in accordance with Art. 10 of Regulation 438/2001 should be identified.
· The functionally independent body / person to provide the winding up certificate should be designated. 01R438A15
· The managing authority must designate one or more persons to be responsible for information and publicity 00R1159 Annex / 1. Has the Managing Authority been formally designated ?
2. Has the Paying Authority been formally designated ?
3. Has the person /department within the paying authority who draw up the certificates of statements of interim and final expenditure been designated ?
4. Have all intermediate bodies acting under the responsibility of the managing or paying authorities been identified and formally allocated functions ?
5. Has the body(ies) carrying out the systems audits and the 5 % sample checks been identified and formally allocated these functions ?
6. Has the Art. 15 body been formally designated ?
7. Has the person or persons responsible for information and publicity been designated ?

Audit objective

1. Whether functions have been clearly allocated, authorities designated, and separation of duties ensured.

Sub-questions

b) Have functions been clearly allocated ?

Assessment criteria / Specific questions
· It should be clear which bodies perform which functions under the responsibilities of the managing or paying authorities 01R438 A3 / 1. Is it clear which Member State authority / body will be responsible for issuing guidance ? 01R438 A2
2. Are there clear instructions as to which functions should be carried out by the Managing Authority ?
3. Is it clear which functions are to be carried out by each intermediate body ?
4. Are there clear instructions as to which functions should be carried out by the Paying Authority ?
5. Has it been established which body will carry out payments to final beneficiaries and / or final recipients ?
6. Has it been established which person or department will ensure that Art. 4 checks are carried out ?

Audit objective

1. Whether functions have been clearly allocated, authorities designated, and separation of duties ensured.

Sub-questions

c) Is an adequate separation of functions ensured ?

Assessment criteria / Specific questions
· A clear separation of functions should exist between Managing Authority and Paying Authority. 99R1260 A9 & 01R438 A9
· Separation of tasks between Art. 10 checks and implementation or payment procedures concerning operations must be ensured. 01R438 A10
· The person or department designated to issue declarations on winding-up of the assistance must be functionally independent. 01R438 A15 / 1. If the same body has been designated as Managing Authority and Paying Authority has a strategy to achieve separation of functions been adopted and implemented ?
2. If an intermediary body carry out functions for both the Managing and Paying Authority has separation of these functions been achieved ?
3. Are there procedures in place to ensure that the person or department within the Paying Authority that draw up certificates of statement of expenditure to the Commission is functionally independent of any service that approves claims ? 01R438 A9(1)
4. Has an appropriate separation of tasks been ensured between the body(ies) / staff carrying out the Art. 10 checks and any service involved in implementation and payment ?
5. Has the functional independence of the body / staff providing the Art. 15 certificate been ensured ?

Audit objective

2A.Whether there are adequate arrangements to ensure that procedures for grant applications, appraisal of applications and selection for funding comply with the relevant rules, are in accordance with the needs of the area in question, and that decisions by the authority are fully documented.99R1260 A 34(1) (b) and (g) , 01/438 A7 and Annex I and guidelines on application of financial corrections.

Sub-questions

a) Are there adequate arrangements to ensure that the call for applications reflects the assessed overall needs of the area, i.e. is in accordance with the programme procedures and programme complement?

Assessment criteria / Specific questions
· The Member State should provide to the Commission a description of the proposed measures and indicators, bodies involved and financial plan 99R1260 A18(3)
· Calls for applications for funding should accurately reflect the assessment of needs / 1. In advance of the application of Structural Fund assistance, did the authority provide a description of the proposed measures and indicators, the bodies involved and the proposed financial plan?
2. Are there arrangements to ensure that studies of needs forming the basis of the above description are carried out by competent authorities?
3. Is there a clear link between the activities undertaken and the relevant Commission policies?
4. Is each call for applications approved at an appropriate level within the authority?
5. Are there controls to ensure that the objectives set out for actions comply with those originally approved by the Commission?
6. Does the authority have procedures to ensure that EC funds are addressed towards priority areas?

Audit objective

2A. Whether there are adequate arrangements to ensure that procedures for grant applications, appraisal of applications and selection for funding comply with the relevant rules, are in accordance with the needs of the area in question, and that decisions by the authority are fully documented.

Sub-questions

b)Are there satisfactory arrangements to ensure that applications are invited from all potential project managers/ operators?

Assessment criteria / Specific questions
· The authority should make the availability of support accessible to all potential project managers/ operators, including those unfamiliar with the procedure, so that they obtain as wide as possible selection of potential project managers/ operators;
· The authority should ensure that regional and local authorities, trade organisations and business circles, economic and social partners and non-governmental organisations are informed as well00R1159 annex
· The advertisements of calls must be in accordance with EU rules on publicity;00R1159
· The advertisement of calls must be in accordance with public procurement rules;
· All applicants must have an equal chance to submit applications and equality of treatment and non-dicrimination must be ensured where public procurement directives are not applicable.
· Calls for applications should be made in good time to give potential project managers/ operators sufficient time to prepare bids for support. / 1. Are there procedures to ensure that calls for proposals are published in an accessible way?
2. Has the authority established a suitable timetable for the receipt of all applications?
3. Does the timetable for applications allow sufficient time for responses to be prepared and received?
4. Are there procedures to ensure, where appropriate, that calls for funding are advertised in the OJ/ other relevant media?
5. Are there procedures to ensure that public procurement rules are followed where appropriate ?
6. Are records kept of all bodies which have requested further information on the proposed action?

Audit objective