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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Risk of Error on 2000-06 Closure
Ljubljana, 12-13 October 2009
Graeme Waterhouse ESF Audit Authority for England & Gibraltar Risk Assurance Division Department for Work & Pensions
Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Introduction
Our experience of trying to shut the 2000-06 programmes.
• • • • How we will communicate to the Commission: Frequency of error Materiality Whether there is a high/low frequency of error Financial impact Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Background
• • • 12 programmes to shut in England & Gibraltar by 31 March 2010 ESF is delivered by the Department for Work & Pensions De-centralised system – delivery and A10 checks through 9 regional Government Offices • • • Central coordinating bodies: Managing Authority in ESF Division Paying Authority in ESF Division Risk Assurance Division (for A10 & A15) Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Approach
• Apply the Commission’s Guidelines on the Closure of Assistance for 2000-06 • Apply professional standards • Explore options • Minimise any potential financial damage • Keep it simple Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Guidance
Low frequency
=
“financial implications fall below a level of materiality considered appropriate by the independent body”
High frequency
= “
confidence in entire management system is seriously affected and therefore no opinion can be given. To determine frequency a distinction must be drawn between the different categories of error”.
Materiality
= “
The materiality level should generally not exceed 2% in order to be consistent with the methodology of the ECA. Specific justification should be provided in case a higher level is applied”.
If high we must estimate the financial impact
Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Frequency of Error
Article 10 Purpose: To provide an independent assessment of the effectiveness of the management and control systems operated by the Managing Authority & Implementing Bodies for European Structural Funds Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Frequency of Error
CALCULATE TWO ERROR RATES • • • • Programme Error Rate: Error that exists in the Managing Authority’s control environment Before any audit intervention Includes results of random & risk-based Article 10 checks & other Community & national controls.
Cannot be used for extrapolation • • Representative Error Rate: Based on randomly selected Article 10 controls Can be used for extrapolation Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009 A10 – Risk Sample
Programme Error Rate
Population/ Sample (£/Є) Error Rate Weighting
40 10% 40
Weighted Error Rate 0.8%
Other Community & National Controls A10 – Random Sample
PROGRAMME ERROR RATE
10 10% 10
0.2%
50 2.5% 50 + 400= 450
500
Representative of the unchecked population Ljubljana, 12-13 October 2009
2.25% 3.25%
10% x (40/500)
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Programme Error Rate
Conclusion.
• The programme error rate is 3.25%
Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Representative Error Rate
Based on randomly selected Article 10 checks only.
• • • • •
Representative:
Geographic spread Time (annual coverage) Type/size Measure Randomly selected Can be used for extrapolation as it reflects the error that exists in the unchecked population Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Representative Error Rate
A10 – Risk Sample
Population/ Sample
40
Error Rate
10%
Weighting Weighted Error Rate
40
0.8%
Other Community & National Controls A10 – Random Sample
PROGRAMME ERROR RATE
10 10% 10
0.2% 50
500
2.5%
50 + 400= 450
2.25% 3.25%
Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Representative Error Rate
Conclusion.
• The representative error rate is 2.5%
Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Materiality
Materiality
= “
The materiality level should generally not exceed 2% in order to be consistent with the methodology of the ECA. Specific justification should be provided in case a higher level is applied”.
•
Conclusion: The level of error in the programme is material if the value of errors remaining in the claim exceeds 2% of the final claim value (total population)
Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Financial Impact
A
Population (final claim value)
B
Less A10, national & Community controls
C
Unchecked population
D
Representative Error Rate
E
Financial impact
(CXD) F
Materiality Level
(AX2%) G
Material Impact
(E-F)
£500 £100 £400
2.5%
£10 £10 £0 Ljubljana, 12-13 October 2009
The checked population has already been corrected so no error remains The value of error in the Final Claim Are the errors in the final claim material?
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Conclusions
• The programme error rate is 3.25% • The representative error rate is 2.5% • The value of the errors that remain in the final claim is within the Commission’s 2% materiality level
Conclusion – there is a low frequency of error
Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Another Example
A
Population (final claim value)
B
Less A10, national & Community controls
C
Unchecked population
D
Representative Error Rate
E
Financial impact
(CXD) F
Materiality Level
(AX2%) G
Material Impact
(E-F)
£500 £100 £400
3.5%
£14 £10 £4 Ljubljana, 12-13 October 2009
The checked population has already been corrected so no error remains The value of error in the Final Claim Are the errors in the final claim material?
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Conclusions
• The representative error rate is 3.5% • The value of the errors that remain in the final claim exceeds the Commission’s 2% materiality level
Conclusion – there is a high frequency of error
Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Other Considerations
• Stratifying the population?
• Unrepresentative Samples • Off-Setting Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Stratifying
• Basis of stratification must be set from the start of the programme • Different strata types give different overall results • Consistency across programmes • Sample sizes often too small Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Unrepresentative Samples
•
Our definition:
An Article 10 check where the audit trail is completely lost (100% error) as a result of insolvency or natural disaster (fire/flood).
•
Implication:
These can be removed from error rate and financial impact calculations • •
Assumptions:
These are circumstances beyond the Managing Authority’s control The audit trail did exist at the time the project operated and the likely level of error is in line with the representative error rate.
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European Union Republika Slovenija Homologues Group Meeting
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Off-Setting
Off –setting of positive and negative financial impacts Argument: 1)Commission may make corrections based on the Article 15 body’s estimated financial impact 2)The corrections should take account of the Managing Authority's control environment as a whole (i.e. across all programmes) Ljubljana, 12-13 October 2009
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European Union Republika Slovenija Homologues Group Meeting
Slovenia, October 2009
Thank you for your attention!
Email: [email protected]
Tel: (0044)113 2324777
Ljubljana, 12-13 October 2009
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