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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
The role of the Slovenian Court of Audit in
the control of EU funds and cooperation
with the Audit Authority
Ljubljana, 12-13 October 2009
Zoran Mladenovič
Deputy President
Court of Audit
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Outline
1.
2.
3.
4.
5.
Mandate - Legal background
Context of audit of EU funds
Guiding principles of structure funds reform
Main objectives of CoA audits of EU funds
Summary of findings of parallel audit of
structural funds
6. Conclusion
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Legal and professional basis – Court of Audit
•
•
•
•
Lima Declaration - 1977
Constitution of Republic of Slovenia
Court of Audit Act - 2001
Administrative procedures of the Court of
Audit Act
• INTOSAI auditing standards
• European guidelines for implementation of
INTOSAI auditing standards
• International standards on auditing - IFAC
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Constitution of the Republic of
Slovenia - Articles on Court of Audit
Article 150
(Court of Audit)
The Court of Audit is the highest body for supervising state budget
and all public spending.
The organisation and powers of the Court of Audit are provided by law.
The Court of Audit is independent in performance of its duties and
bound by the Constitution and the laws.
Article 151
(Appointment of Members of the Court of Audit)
Members of the Court of Audit are appointed by the National Assembly.
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Republika Slovenija
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Audit Mandate
1) The Court of Audit shall audit the business operation
of users of public funds:
1- it may carry out regularity and performance
audits;
2- it may audit any act on past operations as well
as any act on planned business operation of
any user of public funds.
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Homologues Group Meeting
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Audit Mandate - 2
2) The opinion issued by the Court of Audit on
the business operation of the auditee must be
respected by every state body, local
community body and the relevant user of
public funds.
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Audit Mandate – 3 - The user of public funds
The user of public funds under this Act shall be:
1- any legal entity of public law or a unit thereof;
2- any legal entity of private law provided that one of the
following applies:
•it has received financial support from the budget of the
European Union, state budget or local community budget;
•it performs public services or provides public goods on
concession basis;
•it is a commercial company, bank or insurance company in
which the state or a local community holds the majority
share;
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Republika Slovenija
Homologues Group Meeting
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Audit Mandate – 4 - The user of public funds
3- any physical person provided that one of the following
applies:
•he/she has received financial support from the budget
of the European Union, state budget or local community
budget;
•he/she performs public services or provides public
goods on concession basis.
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Audit Mandate – 5 - The user of public funds
3) Every year, the Court of Audit must audit:
1- the regularity of the implementation of state budget (the regularity of
state activities);
2- the regularity of business operation of the public institute of health
insurance;
3- the regularity of business operation of the public institute of pension
insurance;
4- the regularity of business operation of a suitable number of urban and
other municipalities;
5- the business operation of a suitable number of public utilities providers;
6- the business operation of a suitable number of providers of noncommercial public services.
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Homologues Group Meeting
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Republika Slovenija
Levels of public finance control in Slovenia
Parliament
Public Accounts Committee
Investigation Committees
Court of Audit of Republic of
Slovenia
MoF – Budget Supervisory Office
Budgetary inspection
Supervision over Inter..aud dept.
Auditing and certifying body
Systems of internal oversight
Government of
Govt.
offices
Republic of
Slovenia
Ministry x
Ministry x
INTER.
AUDIT
INTER
AUDIT
...
Ministry x
INTER
AUDIT
INTER
AUDIT
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Republika Slovenija
Homologues Group Meeting
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Reporting to parliament cycle
Upon the completion of audit
procedures - Auditor General
issues a final Audit report
Court of Audit
Audit report
Court of audit sends
an audit report to the
auditee, to the person
responsible
in prior mandate and
parliament
PAC holds a session and
adopts a decrees and request
response from government
n corrective action taken
Parliament
Auditee
Managing
person
responsible in
prior period
Public Accounts Committee
PAC ruling
/decrees
Government
Government
reviews the request from
PAC and report (give
feedback on corrective
action taken)
Government
Response
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Republika Slovenija
Homologues Group Meeting
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Public Finance Control framework
MANAGEMENT
(CONTROLS)
BUDGET
SUPERVISORY
OFFICE
COURT OF
AUDIT
(EXTERNA
L
AUDIT)
FRAUD
PREVENTION
COMISSION
INTERNAL
AUDIT
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Republika Slovenija
Homologues Group Meeting
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Context of audit of EU funds
(The 4 ”specials” of EU-funds)
• The context of EU-law
• Requirements to the administration – composition
of formal approach and SFM
• Exposure to the risks of financial corrections
• The audit arrangements
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The context of EU-law
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Republika Slovenija
Homologues Group Meeting
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The Basic Principles
• Direct applicability, direct effect and
precedence
• Subsidiarity , proportionality and conferred
powers
• Principle of solidarity
• Principle of ”same measures”
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Direct applicability
Does not have to be transferred into national law
Direct effect
Gives rights and obligations that can be invoked (at
national courts)
Precedence
EU-law takes precedence over national law
Implication :The
compliance of with EU-law of national
legislation may have to be considered
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Subsidiarity, proportionality and
conferred powers
The EU institutions have authority only for the purpose of
pursuing a number of specified objectives, which are better
achieved at community level
Implication:
If the community has exclusive competencies national provisions
may be inapplicable
EU acts should be read in light of their overall purpose
Careful division of competencies of control and sanctions
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Republika Slovenija
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Principle of solidarity
” Member States shall take all appropriate measures […] to ensure
fulfilment of the obligations arising out of this Treaty or resulting from
action taken by the institutions of the Community. They shall facilitate
the achievement of the Community's tasks.
They shall abstain from any measure which could jeopardise the
attainment of the objectives of this Treaty.” (TEC art. 10)
Does also imply:
Obligation to take appropriate control measures to protect
the financial interest of the community
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Republika Slovenija
Homologues Group Meeting
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“Same measures”
“Member States shall take the same measures to counter
fraud affecting the financial interests of the Community as
they take to counter fraud affecting their own financial
interests.” (TEC 280,2)
Implication:
Applies to sanctions as well as control measures (incl.
public auditing?)
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The formalities
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Administrative structure
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Obligations of control
•
•
•
•
•
Ensuring and providing documentation
Audit trails
Risk analysis
Sampling – coverage
Administrative checks / scrutiny of
documents
• On the spot checks / physical control
• Cross-checks
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Republika Slovenija
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Further obligations…
• Obligation of recovery: All legal means within
the national system should be used to recover
funds lost due to irregularities or negligence
(no discretion!)
• Obligations of information to the Commission
• Irregularities and fraud
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Republika Slovenija
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Financial corrections
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Financial corrections
•Financial corrections by type of body :
– Financial corrections by Member States
– Financial corrections by the Commission
•Financial corrections by nature
–For non-compliance with the rules on public
procurement
–Financial correction for non-respect of additionality
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Republika Slovenija
Homologues Group Meeting
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The audit arrangements
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Republika Slovenija
Homologues Group Meeting
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Control, control and more control…
European Court of Auditors
Commission
- Internal audit function within the Commission
Audit authority
National administration
Supreme Audit Institutions
- Internal audit function within the national
administration
Certifying Body
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
TEC Article 248 (3):
[…]
In the Member States the audit shall be carried out in
liaison with national audit bodies or, if these do not have
the necessary powers, with the competent national
departments. The Court of Auditors and the national
audit bodies of the Member States shall cooperate in a
spirit of trust while maintaining their independence.
These bodies or departments shall inform the Court of
Auditors whether they intend to take part in the audit.
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
What’s up for the period 2007 – 2013
(Structural funds reform’s guiding principles)
• Concentration
• Simplification
• Proportionality
• Decentralisation
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Republika Slovenija
Homologues Group Meeting
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Concentration (geographical)
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Republika Slovenija
Homologues Group Meeting
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Concentration (thematic)
•Research and technological development (R&TD), innovation and
entrepreneurship
•Information society
•Transport
•Energy
•Environmental protection and risk prevention
•Adaptability of workers and firms, enterprises and entrepreneurs
•Access to employment and sustainability
•Social inclusion of less-favoured persons
•Human capital
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Simplification of what used to be
a complex regulation
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Republika Slovenija
Homologues Group Meeting
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Part 1: Structural funds - The context
• Regional disparities
– 10% of EU27 population living in the most prosperous
regions (19% of total EU-27 GDP)
– 1.5% of GDP for the 10% of population living in the least
wealthy regions
– Convergence regions: 12.5% total share in EU27 GDP
with 35% population share
– several regions in Romania and Bulgaria with GDP per
head below 25% of the EU average GDP
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Part 2: Structural funds - The legal basis
• The Treaty
– Article 2 EC TREATY "promote economic and social
progress as well as a high level of employment, and to
achieve balanced and sustainable development"
– (Art. 158 of the Treaty ): "in particular, the Community
aims to reduce the disparities between the levels of
development of the different regions and the
backwardness of the least favoured regions or islands,
including rural areas"
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Republika Slovenija
Homologues Group Meeting
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Part 2: Structural funds -The legal basis- 2
• Structural Funds legislation
– “General Regulation n°1083/2006
–
Regulations for each Fund :
• “ERDF Regulation” n°1080/2006
• “ESF Regulation” n° 1081/2006
• “Cohesion Fund Regulation” n° 1084/2006
– Commission Implementing regulation n° 1828/2006
– (IPA Regulation n° 1085/2006, EGTC Regulation n° 1082/2006)
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
The regulatory framework
General Regulation
on the ERDF, the ESF
and the Cohesion Fund
Council by unanimity,
assent EP
ERDF Regulation
ESF Regulation
Cohesion Fund Regulation
ERDF, ESF: Co-decision;
Cohesion Fund: assent EP
Regulation establishing a
European grouping of
territorial co-operation (EGTC)
Co-decision
Commission Regulation on
Implementation
Information, Publicity, Financial
control and Financial corrections
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New: General Regulation applies to the Cohesion Fund; a new Rural Development
Fund and Fisheries instrument now outside Cohesion Policy; one Commission regulation
instead of five on specific aspects; eligibility rules simplified.
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Part 3: The method
• Objectives, Structural Funds and instruments
Objectives
2007-2013
Structural Funds and instruments
Convergence
ERDF
ESF
Regional Competitiveness
and Employment
ERDF
ESF
European territorial
Cooperation
ERDF
infrastructure,
innovation,
investments
etc.
environmental and•
transport infrastructure,
renewable energy
vocational
training,
employment
aids etc.
all Member States and regions
Member States with a
GNI/head below 90%
Cohesion
Fund
A General Regulation (No 1083/2006)
–
–
–
–
European Regional Development Fund
(ERDF) Regulation (No 1080/2006) ;
European Social Fund (ESF) Regulation (No
1081/2006) ;
The Cohesion Fund (No 1084/2006) ;
The European Grouping of territorial cooperation (EGTC) (No 1082/2006).
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Homologues Group Meeting
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Proportionality
The financial and administrative resources shall be
proportional to the total amount of expenditure
allocated to an operational programme for...
•Choice of indicators for output and results;
•Evaluations;
•Reporting and monitoring in case of sub-delegation;
•Arrangements for auditing the functioning of the
systems, and
•Annual and final report on implementation.
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Decentralisation
...one of the key objectives is to clearly
delimit the framework, the nature, and the
division of responsibility between the
different actors concerned by the execution of
the Community budget. These include the
Member States and the implementing bodies,
on the one hand, and the Commission, on the
other.
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Homologues Group Meeting
Slovenia, October 2009
Republika Slovenija
Audit of EU funds in Court of Audit
Court of Audit



Regularity audit
Audit of state budget
Audit of individual transactions
with prime objective of the audit
to issue an opinion.
Performance audit
overlapping?
Stand alone audits
Audit of systems to improve its
capacity and readiness to manage
EU funds.
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Organisational structure
Department for
Audit of EU funds
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Republika Slovenija
Homologues Group Meeting
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Members of the
court
and supreme state
auditors
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Republika Slovenija
Homologues Group Meeting
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Relationships of the Court of Audit
Audit authority
at audit of EU funds
Administration
Co-operation among
EU SAIs
Court of Audit
Commission
European Court
of Auditors
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
General framework (1)
European Court of Auditors (ECA)
• external auditor of the EU accounts
• audits the European Commission
• also audits in the Member States
Court of Audit of Republic of Slovenia
• audit how Slovenia carries out its responsibilities
• also how we implement our EU obligations
(including spending and collecting of EU funds)
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
General Framework (2)
Co-operation among EU SAIs
• Court of Audit of Slovenia assist the ECA with their
audit missions in our country
• Discuss matters of common interest in the Contact
Committee (CC) of the Heads of EU SAIs / at the
meetings of Liaison Officers
• Carrying out common activities in the CC Working
Groups
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
The aim of audit activities of Court of Audit of
Republic of Slovenia as regards EU funds
• First, we provide the policy makers and those responsible for
managing funds at EU and national level with reports and
opinions which provide “health checks” of the state of financial
management. We add value by identifying problems, by
making recommendations, and by reporting on progress.
We are part of the solution not the problem.
• Secondly, like doctors, we work together, as a community of
professionals, to share experiences and develop our skills,
standards and practices. Over time this helps us to improve
the quality of our advice and ultimately the outcomes for our
stakeholders.
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Results of our audit activities as regards EU funds-1
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Results of our audit activities as regards EU funds-2
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Results of our audit activities as regards EU funds-3
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Republika Slovenija
Homologues Group Meeting
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Results of our audit activities as regards EU funds-4
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Republika Slovenija
Homologues Group Meeting
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Parallel audit on the processes for identifying,
reporting and following up on Irregularities
By the working group of
Contact Committee on
Structural funds
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Parallel audit –main findings-1
• Significant differences between Member
States in the levels of understanding
and compliance
• Lack of consistency of performance
within some Member States; particularly
those who operate a decentralized
system that involves several Managing
Authorities and/or Intermediate Bodies.
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Parallel audit –main findings-2
• Although the Commission has issued several
Regulations and additional guidance, the review
identified a general lack of understanding within the
majority of Member States as to how those
Regulations and guidance should be interpreted.
This has led to significant disagreements between the
Commission and the Member States as to exactly
what constitutes an irregularity (as opposed to a
simple error) and what should be reported to the
Com-mission.
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Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Parallel audit –main findings- 3
• To support the Commission guidance,
national authorities have issued
additional guidance; but in most cases
this has not had the desired effect of
effectively clarifying the requirements for
recording or reporting, or guaranteeing
consistent interpretation of the
Regulations.
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Parallel audit –main findings- 4
• Whilst Member States recognized the need to
comply with EU Regulations and guidance,
several Member States voiced concern over
the administrative burden placed upon them
by the detailed recording and reporting
requirements. Member States were also
critical of the seeming lack of use made by
the Commission/OLAF of this detailed
information and of the lack of feedback.
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European Union
Republika Slovenija
Homologues Group Meeting
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Parallel audit –main findings-5
• In general, the review concluded that the
processes in place for the initial identification
of potential irregularities within Member
States were adequate. Significant weaknesses were identified, however, with the
subsequent decision making processes as to
how those irregularities should be further
investigated, and whether or not they are
required to be reported to OLAF.
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Parallel audit –main findings-6
• The review also identified deficiencies in the
mechanisms of the reporting to OLAF.
• The majority of Member States were still not
using the OLAF Anti Fraud Information System (AFIS) link: in part due to the technical
incompatibilities between Member States´
own systems and AFIS.
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Parallel audit –main findings-7
• Although Article 39 of Council
Regulation No. 1260/1999 required the
charging of interest on late payment of
amounts to be recovered, some national
authorities did not charge interest.
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Concluding toughts-1
Management and control of EU funds from auditor’s
perspective
• Implementation under shared management of EU
funds appears to be rather complex
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Republika Slovenija
Homologues Group Meeting
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Concluding toughts-2
Structural funds audit - experiences and issues
• Member states make the regulatory framework more
complex than it could be reasonably justified
• Delays in implementation of programmes
• Issue of performance audit approach in the area of SFM:
– Dilemma between performance objectives and
“spending” objective
– Focus on admin. capacity, ex-ante evaluation,
monitoring systems
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Concluding toughts-3
External auditing issues in the EU funds area
• Constitutional and legal framework of the EU provides following division of
duties:
– system control as established by the Commission
– external audit – ECA in cooperation with national SAIs (trust, ISA’s)
• No obligation for national SAI’s to audit EU funds, it is optional and there
are some individual initiatives
• In any case CoA will report the results of the work to our national parliament
only
• The latest initiatives has raised following concerns:
–Independence of the external auditor
–Reliance on work of internal auditor (or other external auditor?)
–Access to the audit work-papers of other SAI’s
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European Union
Republika Slovenija
Homologues Group Meeting
Slovenia, October 2009
Thank you for your attention!
Email: [email protected]
Tel:+386 1 478 5833
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