1. finance
2. accounting and auditing

How to Prepare the
Winding-Up Declaration
This presentation is a summarisation of a presentation prepared by Marianna MiklósMolnár, Director of Strategy and Methodology, Directorate General for Audit of
European Funds, Hungary. It is used with her permission and she asks that her
intellectual rights be recognised should delegates chose to use any part of it in future.
Barry North (May 2014)
Presentation Outline
1.
Regulatory and methodological framework
2.
Closure Methodology
3.
Results of the audits & Lessons learnt
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1. Regulatory and
methodological framework
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Regulatory framework
Community legislation
• Council Regulation No 1083/2006/EC of 11 July 2006 (Article
62(1)(e))
• Commission Regulation No. 1828/2006/EC of 8 December 2006
(Article 18 (3), Annex VIII)
National legislation
• Government Decree No. 4/2011. (II. 28.)
Methodological regulations
• Commission Decision C(2013) 1573 (20.3.2013)
• „Q&A”
• AA’s Audit Manual
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Directorate General for Audit of European Funds
•
Government Decree No. 210/2010. (VI. 30.) on the Directorate
General for Audit of European Funds
•
Legal successor of the Government Audit Office with respect to
the audit tasks related to projects financed from EU and other
international funds
•
Acts as the audit authority for the period of
2007-2013
•
Performs the audit tasks for assistance received from EU and
other international funds
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Basic methodological principles
• Member states shall guarantee
•
the implementation of projects at an adequate quality;
•
the results and evaluation of activities;
•
sound financial management and controlling it.
• Audit is primarily a member state function
• Member states shall set up their management and control
systems in such a way that the efficient and regular use of
Community resources is ensured
• The report presenting the management and control systems
shall be submitted to the EC
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Verifying the efficiency of the
management and control systems
• The EC shall ensure the smooth functioning of the management and
control systems. For this reason
 it may perform on-the-spot checks or
 ask the Member State to do so.
• At least once a year the EC and the MS jointly examine:
 the results of audits performed;
 the financial impact of irregularities revealed;
 the corrective measures taken or to be taken;
 the changes in the management and control systems (if any).
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Audit functions: 2007-2013 programming period
• Performance of compliance audit;
• Elaboration and revision of audit strategy;
• Preparation of annual audit plan;
• Performance of system audits and audits on operation;
• Compilation of annual control report, issuance of annual opinion;
• Issuance of closure declarations related to partial and final closures;
• Follow-up of the implementation of measures;
• Communication with the European Commission;
• Participation in the work of monitoring committees;
• Participation in the work of groups of auditors (ETC);
• Organisation/ chairing of GoA meetings (where Hungary provides the MA).
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Primary Community legislation
- structural funds Commission Regulation (EC) No. 1828/2006
• Detailed rules for the implementation of Regulation (EC) No.
1083/2006
• requirements for management and control systems in member
states;
• detailed functions of managing authorities;
• certification activity of the certifying authority;
• system audits and audit on operation;
• rules on the closure declaration;
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2
Closure methodology
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Common objective
Closure of operational programmes
financed from the Structural Funds as well
as Cohesion Fund projects
 successfully and
 in due time,
while promoting cooperation and
partnership.
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Preparation for closure: Institutional actors I.
Managing authority/IBs
1. complete management verifications
2. reconcile claim with accounting records
3. verify amount of public contribution paid or due to be paid
4. verify that errors/irregularities were corrected stemming from the results of all
available audits (management checks, system audits or audits on operations,
other national bodies, EU bodies audits)
5. verify correspondence of the all financial information with final implementation
report
NB: Most of these tasks should be carried out on an ongoing basis
during implementation, to avoid problems at closure.
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Preparation for closure: Institutional actors II.
Certifying authority
1. Draw up the application for final balance and the statement of expenditure
2. Ensure that it receives all necessary information from MA and on all audit
results
3. Satisfy itself that all errors/irregularities were corrected either by withdrawal
or by a deduction
4. Draw up the final statement
recoveries/irrecoverable amounts
on
withdrawn/recovered/pending
Important: CA should submit its work to AA on time to allow sufficient
time for the AA to carry out its work for the closure declaration
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Preparation for closure: Institutional actors III.
Audit authority
• Complete audit work on system audits and audits on operations on the
expenditure declared during the programming period
(Last ACR will cover expenditure declared until 2014)
• Verify if MA, IBs work for closure is complete and reliable in particular on
management verifications, errors/irregularities, information on the way treated
audit results.
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The closure process
• Definition: The closure of an operational programme is the
financial settlement of any outstanding EU budgetary
commitments towards the programme, through payment of the
final balance due to the Member State, by cancellation of the
remaining budgetary commitments relating to any unused
balance (decommitment), or by recovery of any amount unduly
paid. (ECA)
• 3 documents to be submitted to EC for each OP:
 final implementation report (MA);
 application for payment of the final balance and a statement of
expenditure (CA)
 closure declaration supported by a final control report
(conclusions of audit carried out during the programming period
and assessing the validity of the application for final payment and
the regularity of the transactions)
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Closure declaration I.
• The declaration shall be submitted by the audit authority
independent from
- the managing authority;
- the unit responsible for certification of the certifying
authority;
- the intermediate bodies;
• Audits shall be carried out in accordance with approved
international audit standards.
• All necessary information and access to evidences and
records necessary for issuing the declaration to be provided
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Closure declaration II.
• The declaration shall be based on the following:

examination of the management and control systems;

findings of performed audits;

results of additional audits based on a sample of operations if
necessary.
• The AA shall examine whether statements of expenditure are
correct, and the underlying transactions legal and regular.
• The declaration shall be accompanied by a report including

all relevant information needed for justifying the declaration;

the findings of national and Community audits to which the AA has
had access.
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Closure declaration III.
The AA shall perform all examinations necessary to obtain reasonable
assurance that the statement of certified expenditure is adequate and that
the underlying transactions are legal and regular, and the projects have been
implemented in line with the OPs and project objectives.

Issuance:
OPINION
 Cohesion Fund-after the closure of each project
 structural funds-in respect of each operational programme at the end of
the programming period (in the 2007-2013 period, the issuance of partial
closure declarations is allowed)
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Closure declaration IV.
3 possible conclusions:
• Unqualified opinion: the examination did not reveal hindering
factors, low frequency of errors, each problem has been
adequately addressed
or
• Qualified opinion (except): some hindering factors found,
however, the frequency of errors is not significant, some
problem have not been adequately addressed
or
• No opinion can be stated: significant obstacles have arisen,
significant frequency of errors (regardless of how these have
been addressed)
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Methodology
• The closure methodology

gives an overview of the institutional system, and the closure tasks of
each institutional unit,

determines the types of closure documents to be prepared by the
various organisations, and their content and the relevant deadlines

defines the detailed

closure tasks of the AA

deadlines for closure tasks

focus and criteria of audits prior to closure
• Detailed checklist for all criteria mentioned in the EU Commission
Guidelines regarding the issuance of closure declarations for the
operational programmes financed from the structural funds.
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Additional audits
• Scope and findings of previous audits
• Implementation of recommendations
• Criteria for selecting a Representative Sample
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Previous
audits
Operational
Programme
Checking of findings at previous
audits and the formal requirements and
figures in the documentation of actions
taken
Closure Declarations
Documentation for the
application for the
payment of the final
balance
Single error
Actions upon irregularity reports
Additional audits
Determination of
the error rate
Sample checks of projects
Systemic error
Audit of final certificate of
expenditure and closure declaration
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Audits preceding closure in Hungary
(2004-2006)
System audit- phase 1:
•
preparation for programme closure by all institutions
concerned,
•
monitoring system for audits,
•
follow-up of previous audits and the implementation of
action plans,
•
regularity of the records and handling of irregularities,
and the handling of claims
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Audits preceding closure I.
Documents audited in Phase 1:
• rules of procedure, internal rules and audit trails;
• reports on all system audits and project audits carried out earlier
in respect of the given programme;
• documents related to previous audits carried out by other audit
bodies (European Court of Auditors, European Commission,
State Audit Office), such as :
 audit reports
 action plans
 internal audits
• reports on the implementation of actions and supporting
documents;
• irregularity reports sent to OLAF
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Audits preceding closure II.
System audit – Phase 2:
• testing of the adequate operation of the management and
control system
• reasonable assurance about the validity of the final statement
of expenditure and the legality and regularity of the
underlying transactions,
• implementation of the audited programme in accordance with
the provisions of legal regulations, internal rules of procedure
and the audit trail,
• fulfilment of objectives and indicators defined in the OPs,
• repeat check of the monitoring system and the handling of
irregularities
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Audits preceding closure III.
Documents audited in phase 2:
• description of the management and control systems;
• annual and final implementation reports prepared by the
managing authorities, and related lists of projects and
irregularities;
• documentation connected to the application for the payment
of the final balance;
• documents related to financial corrections, if any;
• supporting documents needed to check the implementation of
recommendations formulated during the system audit in
phase 1.
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Timetable
1. 2005-2009: annually performed system audits and
sample checks of projects
2. 2009: phase 1 of system audit preceding closure
3. 2010: phase 2 of system audit preceding closure
and supplementary sample checks
4. August – September 2010: preparation and
issuance of the winding-up declaration and the final
audit report
5. Deadlines met (ROP: 31 March 2010, ARDOP,
ECOP, EPIOP, HRDOP, EQUAL: 30 Sept 2010)
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3. Lessons and results of audits
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General lessons I.
• documentation for the final implementation report and the
application for the payment of the final balance was prepared
with delay
• the content of documents changed constantly, follow-up,
several checks to ensure consistency of data
• audit work vs. time pressure
• significant amount of additional audit capacity needed
• risk in terms of closure tasks
• significant additional workload on the institutional system
• issuance of closure declarations simultaneously for all OPs
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General lessons II.
• IT
• “only” 2004-2006 for Hungary
• schedule: detailed but modified several times
 AA and CA are the end of the closure process
 payment deadlines of IB to beneficiaries and suppliers were also included
• absorption, cost overrun
• irregularities, reporting withdrawal, recoveries, pending recoveries
• continuous update of already submitted data
• special reports on irrecoverable amounts (bad debts)
• corrections needed
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General lessons III.
• Organisational changes
• Turnover of staff
• Timing
• Planning activities-float time
 reconciliation among Member States
 correction of errors
 necessary actions
• coordination tasks, harmonisation of the closure tasks of various
OPs
• closure working groups
• consultation, communication, cooperation among organisations,
motivation
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General lessons IV.
• preparation (methodology, trainings)
• resource planning
• review of closure processes in advance
• provision of precise and detailed methodological guidelines
• avoidance of delays compared to the planned timetable
• incorporation of float time
• coordination and strengthening of closure working groups
• strengthening of consultation, communication and cooperation
among organisations
• ongoing cooperation and consultation with the audit authority
and the Commission
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Specific lessons of audits (OPs)
•
•
•
•
testing of eligibility
technical assistance
follow-up of earlier recommendations and actions
delay in the completion of irregularity procedures (failing to
meet deadlines)
• application for the payment of the final balance (correction of
statements of expenditure)
• correction of data in the monitoring system
• deficiencies of the documentation (separate accounting
records)
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The Future (Closure of 2007-2013)
Challenges:
• The new programming period is already running during
the closure period
• Simultaneous workload and need for human resources
• 2007-2013: excessive workload on a yearly basis
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General Time Schedule
Source: Partick Wamper, Homologue Group meeting Bucharest 30/09 – 01/10/2013
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Closure of 2007-2013
Challenges:
• The new programming period is already running during
the closure period
• Simultaneous workload and need for human resources
• 2007-2013: excessive workload on a yearly basis
Opportunities:
• Exchange of experiences, knowledge
• Publication of case studies
• Joint audit work (among MSs, between MS and COM,
etc.)
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Challenges faced
• Management of workload and time
• Methodological issues
• ECA, COM and MS sometimes get to different conclusions;
• Quality and availability of data
• Overlapping programming periods – new framework set up
before the old one could have been assessed;
• Programming periods relatively long (10 years) –
programmes and regulations need to be adopted several
times  changes affect institutions + organisational changes
and turnover of staff
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Good practices and conclusions
• Good communication with the COM, feedback for questions;
• Good cooperation between actors
 Institutions within MS;
 MS and COM
• Focus should be laid on results instead of procedures;
.
• Clear methodology provided in due time (March 2013)
Adequate preparations for closure start with
smooth programme implementation!
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QUESTIONS?
Barry North
+44(0)7762786309
[email protected]
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