1 Control procedures: EC Audits European Commission RTD.A.4 External audits Maurizio Dal Toso Mira Training Workshop on Audit Tunis 22/10/2010 logo.

1

Control procedures: EC Audits

European CommissionRTD.A.4 External audits

Maurizio Dal Toso

Mira Training Workshop on AuditTunis22/10/2010

logo

2

Topics

EC Audit in FP71. When?

2. Who can carry out an audit

3. What is verified in an audit?

4. How is it verified? Audit Procedures

5. Which are the supporting documents for the audit?

6. Which are the obligations of the beneficiaries?

7. Audit Reports, implementation & follow-up

3

1-Audit : when?• Article II.22 of ECGA – Financial audits and

controls: “The Commission may, at any time during the implementation of the project, and up to five years after the end of the project, arrange for financial audits to be carried out”.

• Article II.23 of ECGA - Technical audits and reviews: “The Commission may initiate a technical audit or review at any time during the implementation of the project and up to up to five years after the end of the project.”

• ….

4DG RTD-A.4

2-Audits: Who?

Audits by EC auditors (RTD-A.04)

• Approx. 1/3 of audits

• Specific audits (follow-up, requests, …)

Audits by Contracted firms (RTD-A.05)

• Approx. 2/3 of audits

• Supervision of the audit by EC services

Article II.22 of ECGA – Financial audits and controls

3. Audits may be carried out by:

• The Commission (its own departments – including OLAF – or by any of its duly

authorised representatives (including external auditors appointed by the Commission).

• The European Court of Auditors (by its own departments or by any of its duly authorised representatives).

5

Audit tools: audit types (1)Selection Purpose

Corrective audits

• Specific risk profiles• Focus on top

beneficiaries (50% of the budget)

• Flexible in view of peculiarities present in the populations of different RDGs/EAs

• Wide audit coverage• Identify and correct errors in the

most cost-effective way possible• ‘Clean’ min. 50% of budget from

systematic material errors• Long-term prevention of issues

found (‘fixing the future’)• Fraud detection and prevention

Other types (system, scientific/technical, FUSION…)

• On request or pre-selected

• Verify compliance with certified methodologies

• Identify and correct systemic problems

• Provide additional assurance on specific parts of the budget

• Complement scientific audits

The FP7 Audit Strategy

6

Audit tools: audit types (2)Selection Purpose

Representative audits

• Monetary Unit Sampling (MUS) methodology (95% confidence level, 2% expected error rate, 5% materiality threshold = sample size 161)

• Financial statements as sampling unit

• Samples from the whole population of each RDG/EA

• Determine the amount of error present in the population

Representative error rate

• Contribute to the Declaration of Assurance of the AOD

* Corrective as well as representative

The FP7 Audit Strategy

7

Topics

EC Audit in FP71. When?2. Who can carry out an audit3. What is verified in an audit?4. How is it verified? Audit Procedures5. Supporting documents for the audit6. Obligations of the beneficiaries 7. Internal strategy concerning audits8. Audit Reports

8

Technical audits – what is verified?

• Technical review is performed at the project level by Project Officers and/or external experts to give external advice to the Commission

• Article II.23 of ECGA - Technical audits and reviews

• …The aim of a technical audit or review shall be to assess the work carried out under the project over a certain period, inter alia by evaluating the project reports and deliverables relevant to the period in question. Such audits and reviews may cover scientific, technological and other aspects relating to the proper execution of the project and the grant agreement.

9

Financial audits – what is verified?

• Article II.22 of ECGA – Financial audits and controls: … “Such audits may cover financial, systemic and other aspects (such as accounting and management principles) relating to the proper execution of the grant agreement.

10

Topics

EC Audit in FP71. When?2. Who can carry out an audit3. What is verified in an audit?4. How is it verified? Audit Procedures5. Supporting documents for the audit6. Obligations of the beneficiaries 7. Internal strategy concerning audits8. Audit Reports

11

Audit CycleAudit Strategy & Selection

Planning & Preparation

Examination on site

Reporting &Audit Closure

Implementationof Audit Results

12

Audit Cycle - Timeline

Audit Strategy & Selection

Planning & Preparation

Examination on site

Reporting &Audit Closure

Implementationof Audit Results

3 months 1-3 months

131313

Audit Audit on-the-spoton-the-spot – Preparation – Preparation

• Selection of ContractsSelection of Contracts• Initial contact by the responsible auditor

approx. 2 month before examination on site to agree on dates and logistics

• Collection of audit information (internal and external)

• Formal Announcement Formal Announcement including detailed annex on information and documentation to be provided:– prior to the audit examination on site– at the time of the audit examination

14

Examination on site

Openingmeeting

Analysis of Systems in place

Test of systemsand substantive

evidence

Closuremeeting

Assessmentafter on site

visit

Usually within 4-5 working days (one week) (…)

General info on:

• organisation

• projects

• financial administration

• internal control system

Clarification on audit agenda for further days

Analysis of documents and explanation received and collection of audit evidence

Discussion ofpreliminary findings andobservations

Indication of further audit procedure

Audit Process Audit Process HandbookHandbook

15

5-Supporting documents for the audit

Article II.22 of ECGA – Financial audits and controls

In order to permit a complete, true and fair verification that the project and the grant are (have been) properly managed and performed, beneficiaries are required to:

• keep the originals, or in exceptional cases, where the national legislation accepts or contemplates this possibility, duly authenticated copies – including electronic copies – of all documents relating to the grant agreement for up to five years from the end of the project.

• ensure that the Commission's services, and/or any external body(ies) authorised by it, have

• on-the-spot access at all reasonable times, notably to the beneficiary's offices where the project is being carried out, to its computer data, to its accounting data and to all the information needed to carry out those audits, including information on individual salaries of persons involved in the project. They shall ensure that the information is readily available on the spot at the moment of the audit and, if so requested, that data be handed over in an appropriate form.

• make available directly to the Commission all the detailed data that it may request,

• ensure that the rights of the Commission and the European Court of Auditors to carry out audits are extended to the right to carry out any such audit or control on any third party whose costs are reimbursed in full or in part by the EC contribution, on the same terms and conditions.

16

6-Beneficiaries' obligationsArticle II.22 of ECGA – Financial audits and controls

In order to permit a complete, true and fair verification that the project and the grant are (have been) properly managed and performed, beneficiaries are required to:

• keep the originals, or in exceptional cases, where the national legislation accepts or contemplates this possibility, duly authenticated copies – including electronic copies – of all documents relating to the grant agreement for up to five years from the end of the project.

• ensure that the Commission's services, and/or any external body(ies) authorised by it, have on-the-spot access at all reasonable times, notably to the beneficiary's offices where the project is being carried out, to its computer data, to its accounting data and to all the information needed to carry out those audits, including information on individual salaries of persons involved in the project. They shall ensure that the information is readily available on the spot at the moment of the audit and, if so requested, that data be handed over in an appropriate form.

• make available directly to the Commission all the detailed data that it may request,• ensure that the rights of the Commission and the European Court of Auditors to

carry out audits are extended to the right to carry out any such audit or control on any third party whose costs are reimbursed in full or in part by the EC contribution, on the same terms and conditions.

17

Topics

EC Audit in FP71. When?2. Who can carry out an audit3. What is verified in an audit?4. How is it verified? Audit Procedures5. Supporting documents for the audit6. Obligations of the beneficiaries 7. Audit Reports, implementation & follow-up8. Audit strategy

181818

Quality controlQuality control

• Quality check on audit report forQuality check on audit report for– CoherenceCoherence– CompletenessCompleteness– CorrectnessCorrectness– Compliance with the Audit HandbookCompliance with the Audit Handbook

• Audit Steering CommitteeAudit Steering Committee

19

Reporting and Closure of the Audit

• Transmission of Draft audit report (after internal consultations) for comments by the audited organisation

– Usually based on the preliminary conclusions

– Delay (30 days) to provide comments to the draft

– Letter of representation

• Consideration of comments and finalisation of the audit report

• Closure of the audit by formal letter indicating the further procedures on the implementation of audit results

END OF THE AUDIT

20

Implementation of Audit Results

21

General

• Financial adjustments administred by the operational EC service in charge of the project management (decentralised)

• Besides adjustments, possibility of liquidated damages

• Consideration of serious audit findings (i.e. high adjustments) in future project and contract negotiations

22

Implementation of Results: Cases

No findings

Financial Adjustment

(Only) qualified recommendation

Non-systematicfinding identified

Systematicfinding identified

Implementation finalised

Correction of future payments or recovery by the responsible financial services

Extrapolationof audit results

Follow-up Audit

23

Implementation of Results – Systematic Finding

• The implication of this type of error is that the contractor is not complying with his contractual obligation in a systematic way.

• Assumption:– Can imply that all currently open and closed contracts under the

same framework program (FP) are affected and might need to be (retrospectively) adjusted

• Impact:– Contractor will be asked to reconsider all financial statements

handed in under the same FP and where necessary recalculate and revise the statements

24

Implementation of Results – Extrapolation procedure I

• Common decision of all Research DGs which are concerned by having contracts with the organisation audited.

– However, decentralised follow-up of implementation of results

• Detailed formal Letter of Closure of the Audit indicating procedures to be followed and including a list of contracts subject to extrapolation (consolidated for all Research DGs)

• 45 days delay to hand in revised financial statements or appropriate explanations on the listed contracts

• Follow-up audits

25

Implementation of Results – Extrapolation procedure I

• Common decision of all Research DGs which are concerned by having contracts with the organisation audited.

– However, decentralised follow-up of implementation of results

• Detailed formal Letter of Closure of the Audit indicating procedures to be followed and including a list of contracts subject to extrapolation (consolidated for all Research DGs)

• 3 months delay to hand in revised financial statements or appropriate explanations on the listed contracts

• Follow-up audits

26

Audit tools: extrapolation

Systematic errorsSystematic errors

Extrapolation Steering Extrapolation Steering CommitteeCommittee

RDG common decisionRDG common decision

Joint RDG projects listJoint RDG projects list

Audit closureAudit closure

Extrapolation process startExtrapolation process start

Implementation by Implementation by operational directoratesoperational directorates

NON Systematic errorsNON Systematic errors

Audit closureAudit closure

Implementation by Implementation by operational directoratesoperational directorates

FP7 Audit Strategy

27

RTD Audits 16 Contractors have been audited:

Framework Contractor Sum of Audited costs Sum of Adjustments % Extrapolation

FP5 F 200.794,87 -58.058,55 -28,91%  

  I 23.778,00 -23.778,07 -100,00%  

FP5 Total   224.572,87 -81.836,62 -36,44%  

FP6 A 661.099,03 77,00 0,01%  

  B 176.552,89 18.257,86 10,34%  

  C 562.917,08 -6.431,99 -1,14%  

  D 36.598.253,84 63.304,20 0,17%  

  E 477.664,00 7.637,00 1,60%  

  F 2.521.365,98 -50.785,74 -2,01% X

  G 1.690.028,12 31.327,55 1,85%  

  H 6.732.540,00 0,00 0,00%  

  I 2.160.783,15 -44.731,97 -2,07% X

  J 55.616,67 -2.313,41 -4,16%  

  K 1.930.900,53 708,93 0,04% X

  L 1.079.204,71 1.517,39 0,14%  

  M 291.948,38 -30,82 -0,01%  

  N 1.870.556,92 13.012,02 0,70%  

  O 1.205.981,67 252,49 0,02% X

FP6 Total   58.015.412,97 31.800,51 0,05%  

FP7 P 1.038.087,67 -1.808,06 -0,17%  

FP7 Total   1.038.087,67 -1.808,06 -0,17%  

Grand Total   59.278.073,51 -51.844,17 -0,09%  

28

ADDITIONAL INFORMATION

FP6 / FP7 Audit certification policy websitehttp://cordis.europa.eu/audit-certification/home_en.html

FP7 Certification FAQs

ftp://ftp.cordis.europa.eu/pub/fp7/docs/faq-certification_en.pdf

http://ec.europa.eu/research/enquiries

And in case of doubts, don't forget:

RESEARCH RESEARCH HELPDESKHELPDESK

Guidance notes on FP7 audit certificationhttp://cordis.europa.eu/fp7/find-doc_en.html#guidance

29

Any Questions?

at least one……..!!!!!

30

The EndThe End

DG RTD-A.4

31

Topics

EC Audit in FP71. When?

2. Who can carry out an audit

3. What is verified in an audit?

4. How is it verified? Audit Procedures

5. Supporting documents for the audit

6. Obligations of the beneficiaries

7. Audit Reports, implementation & follow-up

8. Audit strategy