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BOSNIA AND HERZEGOVINA MINISTRY OF FINANCE AND TREASURY FIRST LEVEL CONTROL OPERATIONAL MANUAL Cross Border Co-operation Programmes under shared management mode Version Approved by 2.0, July 2013 Vera Letica, Assistant minister Signature Table of Contents List of Abbreviations 1.PURPOSE OF THE FLCOM………………………………………………………………….2 1.1 Register of modifications……………………………………………………………..3 2. INSTITUTIONAL AND REGULATORY FRAMEWORK……………………………4 2.1 Sharedmanagement……………………………………………………………………..4 2.2 Programme management structures……………………………………………4 2.3 EC Regulations……………………………………………………………………………..7 2.4 BIH Regulations………………………………………………………………………......7 2.5 Programme specific Regulations……………………………………………….….8 3. DESCRIPTION OF FIRST LEVEL CONTROL (FLC) SYSTEM IN BIH……….…9 3.1 System in place………………………………………………………………………….….9 3.2 Internal organisation of the Control Body………………………………….…10 4. PROCEDURES OF VERIFICATION OF EXPENDITURE…………………………..11 4.1 Objective of the FLC………………………………………………………………………11 4.2 Steps of the FLC/Validation process…………………………………………..…12 4.3 Reporting, verification and retention periods and deadlines….…...14 4.4 Desk-based administrative check………………………………………………...15 4.4.1 Staff costs………………………………………………………………………….…18 4.4.2 Overhead………………………………………………………………………….….21 4.4.3 Travel and accomodation…………………………………………………..…22 4.4.4 External expertise………………………………………………………………...25 4.4.5 Meetings and events………………………………………………………….…28 4.4.6 Promotion costs……………………………………………………………….…..30 4.4.7 Equipment……………………………………………………………………………32 4.4.8 Investments………………………………………………………………………….36 4.4.9 Financial charges and guarantee costs…………………………………40 4.5 On the spot checks……………………………………………………………………….41 4.5.1 Definition and purpose…………………………………………………………41 4.5.2 Risk assesment and sampling………………………………………… …..42 4.5.3 On the spot checks activity plan……………………………………….…..46 4.6 Documenting FLC checks………………………………………………………………47 5. SUBSTANTIVE PROCEDURES……………………………………………….……………48 5.1 Checks of completeness……………………………………………………….………49 5.2 Checks of compliance…………………………………………………………………..49 5.3 Checks of plausibility……………………………………………………………………51 5.4 Checks of existence and reality…………………………………………………….52 6. SUB PROCEDURES……………………………………………………………………………54 6.1 Inspection of documents and records…………………………………………..54 6.2 Reconciliation………………………………………………………………………………..55 6.3 Recalculation…………………………………………………………………………………56 6.3 Inquiry and interviews……………………………………………………………………57 6.4 Observation of events and processes…………………………………………….58 6.5 Walk- through………………………………………………………………………………..59 7. IRREGULARITIES………………………………………………………………………………63 7.1. Background, definitions and types of irregularities…………………..63 7.1.1 Background……………………………………………………………………….63 7.1.2 Definitions…………………………………………………………………………63 7.1.3 Types of irregularities…………………………………………..……..…...64 7.1.4 Irregularities by type of infliction………………………………………65 7.1.5 Irregularities by type of impact………………………………………….66 7.1.6 Irregularities by nature………………………………………………………67 7.2 7.2.1 Detection and prevention…………………………………………………67 7.2.2 Reporting irregularities……………………………………………………..68 7.2.3 Recording irregularities…………………………………………………….71 7.2.4 Recovery of funds……………………………………………………………..73 8. PUBLIC PROCUREMENT………………………………………………………………..73 8.1 Rules on public procureemnt……………………………………………………..74 8.2 Basic rules to be respected…………………………………………………………74 8.2.1 Nationality and origin………………………………………………………..74 8.2.2 Language…………………………………………………………………………..75 8.3 Tender procedure walk-through…………………………………………………76 ANNEXIES 3 LIST OF ABBREVIATIONS (IN ALPHABETICAL ORDER) AA Audit Authority AF Application Form AR Activity Report BiH Bosnia and Herzegovina CBC Cross Border Co-operation CFCU Central Financing and Contracting Unit CNP Competitive Negotiated Procedure DEI Directorate for European Integration DVE Declaration on Validation of Expenditure EC European Commission EU European Union FA Financing Agreement FB Final Beneficiary FLC First Level Control FLCO First Level Control Office FR Financial Report FwA Framework Agreement INF Irregularity Notification Form IO Irregularity Officer IPA Instrument for Pre-accession Assistance JMC Joint Monitoring Committee JTS Joint Technical Secretariat KM Konvertible Mark LB Lead Beneficiary MA Managing Authority MED Transnational Mediterranean Programme MIS Management Information System MoFT Ministry of Finance and Treasury NA National Authority NCF National Co-financing NAO National Authorising Officier OP Operational Programme PMCM Programme Management and Control Manual PRAG Practical Guide to contract procedures for EU external actions SEE South East Europe Programme TA Technical Assistance VAT Value Added Tax WD Working day WP Work Package 1. THE PURPOSE OF THE MANUAL The purpose of this manual is to summarise and explain the procedures applicable within Cross Border Co-operation (CBC) Programmes under shared management in which either lead or final beneficiaries from Bosnia and Herzegovina (BiH) participate with respect to the validation of expenditure by the national First Level Control Office (FLCO) of approved projects as well as the handling of irregularities and recoveries. At the time of drafting this manual, programmes implemented under shared management in Bosnia and Herzegovina (BiH) are: IPA Adriatic CBC Programme South East Europe Programme (SEE) Transnational Mediterranean Programme (MED) The manual is designed primarily for use by the staff of the Central Financing and Contracting Unit (CFCU) within the Ministry of Finance and Treasury (MoFT) which has been appointed by means of a Decision by the Council of Ministers (Session 153) on 14 June 2011 and formally announced in the Official Gazette No 66/11 of 22 August 2011. With this decision the CFCU is officially designated as the national First Level Control Office (FLCO) in Bosnia and Herzegovina (BiH) for the above-mentioned programmes. At the same time the manual can be consulted by beneficiaries from Bosnia and Herzegovina (BiH) that are part of a project implemented under any of the three programmes subject to this manual so as to get a better insight into the nature and kinds of checks performed by the First Level Controllers and to be drawn attention to some of the more challenging and potentially problematic areas such as adequate presentation of supporting documentation and public procurement of services, supplies and works. Inherent to the nature of manuals of procedures is the fact that they may become subject to changes. Changes can be either small or substantial. 2 Smaller changes (e.g. a row in a checklist) will be made by the person noticing the need to change it after having obtained prior approval from the Head of the CFCU and without changing the number of the version of the manual. More substantial changes will be discussed in staff meetings and agreed upon, following the final approval of the Head of the CFCU who will nominate and appoint a member of staff in charge of effectuating the change prior to an agreed deadline. The following procedures apply whenever there is a need to modify the manual: Whenever a user identifies the need for a modification of the manual, s/he notifies the Head of the CFCU and prepares a proposal for the change to be implemented in writing. Once the change has been approved by the Head of the CFCU and the change is reflected in the updated manual, the Register of Modifications (as presented below) will be completed. 1.1. REGISTER OF MODIFICATIONS Version Date of Section modified Nature of the change No. change 1.0 Juni 2012 N/A Final version for approval 2.0 July 2013 N/A Final version for approval 3 2. INSTITUTIONAL AND REGULATORY FRAMEWORK 2.1. SHARED MANAGEMENT According to IPA Implementing Regulation1, under component 2 – Cross-Border Co-operation, there are two types of Cross-Border Programmes (CBPs): Programmes between Members States (MSs) and one or more IPA beneficiary countries Programmes between two or more IPA Beneficiary countries. Programmes between IPA Beneficiary countries are managed separately, according to decentralised or centralised management system respectively, whereby each of the participating countries has it’s own Operating Structure (OS) and each of the OSs is responsible for implementation of contracts of beneficiaries from their respective part of the programme area. Programmes with MSs, however, are implemented according to the shared management, whereby authorities in the Member State of the programme bear responsibility for implementation of the crossborder programme as a whole and single contract is signed with Lead Partner/Beneficiary. The rules of these programmes are de facto a modification of ERDF rules and are represented in a separate chapter of IPA Implementing Regulation (Chapter 2, Section 2, Articles 101 – 138). In addition to these two types of cross-border programmes, cross-border cooperation component of IPA programme supports participation of the beneficiary countries in the transnational ERDF programmes under European Territorial Cooperation objective.2 Unlike IPA cross-border co-operation programmes, these programmes are funded by 2 different funding instruments and are hence defined by 2 different sets of regulations (ERDF and IPA). A form of shared management principle is introduced to the transnational programmes (TPs) as of the second term of the financial perspective and with the amended IPA Implementing Regulation in January 20103. Article 86 of IPA Implementing Regulation is rephrased to state: “The rules governing the participation of beneficiary countries in the above programmes shall be established in the relevant programming documents and/or in the relevant financing agreements, as appropriate.” The new version of the regulation thus gives relative flexibility to the participating countries to define the implementing modalities for cooperation in ERDF/IPA transnational programmes, but for all the programmes management by the Member State is introduced. 2.2. PROGRAMME MANAGEMENT STRUCTURES These procedures cover exclusively programmes implemented under the shared management mode and the managing structures involved under shared management usually include: Structure Role and responsibility Responsible for selecting and approving operations 1 Commission Regulation (EC) No 718/2007, Art.86 2 Commission Regulation (EC) No 718/2007, Art.86 3 Commission Reulgation (EU) No 80/2010 amending Regulation (EC) No 718/2007 4 Verifies the effectiveness and quality of the implementation of the Programme Joint Monitoring Committee (JMC) Reviews and approves Annual Implementation Reports Approves amendments to the Programme Is composed of representatives at national, regional and local level of all countries involved in the Programme Overall responsibility for the financial management of the programme and projects Selection of projects Managing Authority (MA) Ensuring compliance with EU and national rules Ensuring programme evaluation Providing information and reporting to the JMC and EC In the case of IPA CBC programmes the MA is located in an EU Member State (EU MS) Receiving payments from the Commission and transferring Certifying Authority (CerAut) funds to Beneficiaries Certifying expenditure Preparation and submission of payment claims to the Commission Recovery of funds In the case of IPA CBC programmes the CA is located in an EU Member State (EU MS) Responsible for the functioning of the management and control systems in accordance with the Programme and European Regulations Ensuring audits are carried out to (i) verify the effective Audit Authority (AA) functioning of the programme’s management and control system and (ii) on specific projects In the case of IPA CBC programmes the AA is located in an EU Member State (EU MS) and supported by a Group of Auditors comprising one representative of each participating country Responsible for the day-to-day management of the Programme Assists the Managing Authority (MA) and all the other Programme structures and bodies in performing their tasks Joint Technical Secretariat (JTS) Normally organises Calls for Proposals (CfP) and receives and assesses the project proposals 5 Monitors the implementation of the Programme In the case of IPA CBC programmes the lead JTS is usually located in the same country as the Managing Authority (MA)and consists of representatives from all participating countries Verification whether expenditure reported is in line with the Subsidy Contract and all relevant EC, national and programme regulations and procedures Checking First Level Control (FLC) the eligibility, regularity and legality of expenditure reported Validation of expenditure reported and issuance of the Declaration on Validation of Expenditure (DVE) Programme management structures can involve additional bodies including national or regional contact points for each country participating in the programme. In Bosnia and Herzegovina the Directorate for European Integration (DEI), Sector for Coordination of EU Assistance, Cross Border Cooperation (CBC) department acts as the National Authority (NA) and is responsible for the provision of support to overall management to the Managing Authority (MA), ensuring publicity and visibility of the programme throughout the eligible areas on the territory of Bosnia and Herzegovina (BiH) and provision of information and advice with respect to the rules of the programme concerned to potential applicants in BiH. The DEI also provides three representatives as members of the Joint Monitoring Committee (JMC). With respect to the programmes subject to these procedures the main management structures are the following: IPA Adriatic CBC South East Europe (SEE) Mediterranean Programme (MED) * National Development Managing Regione Abruzzo Servizio Attivita Agency, Managing Authority Provence Alpes Côte d’Azur Authority Internazionali (Italy) for International Cooperation Région (France) (MA) Programmes (Hungary) Certifying Regione Abruzzo Servizio Autorita Ministry for National Caisse des dépôts et Authority (CA) di Certificazione (Italy) Economy of Hungary – NAO consignations (CDC) Office Audit Regiona Abruzzo Struttura Directorate General for Audit Commission interministérielle de Authority (AA) Speciale di Supporto «Controllo of European Funds (Hungary) coordination des contrôles (CICC) Mrs. Mirjana Vidanovic Mr. Kirill Dimanopoulos Ispettivocontabile» Joint Technical Vanja Bozic 6 Secretariat (JTS) [email protected] 4 ([email protected]) ([email protected]) 5 * In addition there are two liaison offices, one in Valencia and one in Thessaloniki. 2.3. EC REGULATIONS The main EC regulations and documents related to the control system and the verification of expenditure of the IPA Adriatic CBC Programme are: Council Regulation (EC) No 1085/2006 of 17 July 2006 establishing an instrument for preaccession assistance (IPA) Commission Regulation (EC) No 718/2007 of 12 June 2007 implementing Council Regulation (EC) No 1085/2006 establishing an instrument for pre-accession assistance (IPA) Commission Regulation (EU) No. 80/2010 of 28 January 2010 amending Regulation (EC) No 718/2007 implementing Council Regulation (EC) No 1085/2006 establishing an instrument for pre-accession assistance Commission Decision C (2007) 2034 of 24 May 2007 on the rules and procedures applicable to service, supply and works contracts financed by the general budget of the European Communities for the purpose of cooperation with third Countries, with the exclusion of Section II, 8.2 (hereinafter “IPA procurement rules”) and the related EC guide on procurement and contracting procedures and rules which apply to EC external aid contracts “Practical Guide to contract procedures for EU external actions” (PRAG) which fully replaces public procurement rules of participating countries within the limits set out by the decision C (2007) 2034 Council Regulation (EC) No 1083/2006 as General Regulation The Practical Guide to contract procedures for EU external actions (the “PRAG”) the latest version of which (March 2013) which can be found on the following website http://ec.europa.eu/europeaid/work/procedures/implementation/practical_guide/ 2.4. BOSNIA AND HERZEGOVINA REGULATIONS IPA Framework Agreement (FwA) between the European Commission and the Government of Bosnia and Herzegovina signed on 20 February 2008 The main specific national provisions according to legislation in place in BiH and which may have an impact on the financial management, eligibility and verification of expenditure incurred and declared by beneficiaries from BiH are contained in the BIH Control Guidelines developed for each of the three on going cross border co-operation programmes under shared management (i.e. IPA Adriatic CBC programme, South East Europe transnational cooperation programme and the transnational MED 5 For both SEE and MED there is no dedicated representative from Bosnia and Herzegovina on the JTS at the time of drafting these procedures. 7 programme) and which are also published on the website of the Ministry of Finance and Treasury (MoFT). 2.5. PROGRAMME SPECIFIC REGULATIONS The main programme documents specific to the IPA Adriatic CBC Programme are:6 IPA Adriatic Operational Programme (OP) IPA Subsidy Contract applicable under the Call for Proposals (CfP) under which the project is financed IPA Partnership Agreement Application form Programme Management and Control Manual (PMCM) Guidance for First Level Controllers The main programme documents specific to the South East Europe Programme (SEE) are:7 South East Europe Transnational Cooperation Programme approved by the European Commission on 20 December 2007, Decision No. C (2007) 6590 SEE Programme Manual (relevant Call for Proposals) which contains the programme specific rules for the eligibility of expenditure SEE Implementation Manual laying down the programme specific rules for the implementation of the SEE projects SEE Control Guidelines version 3.1 which is the second amendment dated 27 May 2011 to the initial guidelines developed on 10 June 2009 and amended for a first time on 6 July 2009 Information on the Control Systems in the Member States of the SEE Programme Guidance to the Declaration on validation of expenditure in the SEE Partner Report SEE Project Implementation Package SEE Partner Report Tool and Guidelines The main programme documents specific to the MED are8 the MED Operational Programme (OP) 6 Documents can be found at the following link: http://www.adriaticipacbc.org 7 Documents can be found at the following link: http://www.southeasteurope.net/en/downloads_section/programme_related_documents/ 8 Documents can be found at the following link: http://www.programmemed.eu/ 8 Implementation Guide of the Programme (March 2010) Guidelines on First Level Control (July 2011) Communication Plan MED Programme (April 2008) The above list of Community, national and programme specific regulations and documents is not exhaustive and may have to be amended and/or complemented during the implementation of the Programme. 3. DESCRIPTION OF THE FIRST LEVEL CONTROL (FLC) SYSTEM IN BIH 3.1. FLC SYSTEM IN PLACE In line with Article 108 of Commission Regulation (EC) No 718/2007 of 12 June 2007 implementing Council Regulation (EC) No 1085/2007 establishing an instrument for pre-accession assistance (IPA) each participating country shall set up a control system in order to validate expenditure at national level. Each participating country shall designate the controllers responsible for verifying the legality and regularity of the expenditure declared by each Beneficiary participating in the operation.9 Bosnia and Herzegovina has opted to use a centralised control system at national level through a public administrative body for ensuring First Level Control (FLC). To this end the body designated as the national First Level Control Office (FLCO) in BiH is the Central Financing and Contracting Unit (CFCU) within the Ministry of Finance and Treasury (MoFT). This decision was taken by the Council of Ministers (Session 153) on 14 June 2011 and formally announced in the Official Gazette No 66/11 of 22 August 2011. Since FLC function is assured by means of a centralised control system at national level by a public administrative body, the costs related to FLC in BIH are not borne by the beneficiaries. The Head of the CFCU, who is also Assistant Minister, is the sole responsible person for the formal issuance of the Declarations on Validation of Expenditure (DVE) whereas the actual verification will be carried out by a number of his/her staff as determined by him/her whereby each controller will be assigned the responsibility for the verification of a dedicated number of projects. The BiH First Level Controllers are civil servants and their salaries are paid out of the national budget. Other costs related to the execution of first level control (such as those related to on-the-spot checks, participation of controllers in training/seminars either within the territory of BiH or abroad, participation in events organised by Interact in Vienna etcetera may be financed out of the budget allocated by means of the Technical Assistance (TA) Subsidy Contract. 9 Whenever the terminology “Beneficiary” is used, reference is made to either “Lead Beneficiary” or “Final Beneficiary”. 9 3.2. INTERNAL ORGANISATION OF THE CONTROL BODY Head of CFCU (1) Quality Control Advisers (2) Expert Adviser (2) Department for Management of Programmes and Projects of EU Assistance (8) Head of Unit * Administrative/Technical Officer (1) Department for Finance and Accounting (4) Head of Unit * Expert Adviser (1) Expert Adviser (1) * Senior Specialist (1) * Senior Specialist (3) * (2) Specialist (3) * (2) Specialist (1) * From the above it can be seen that there are ten (10) members of staff of the CFCU that are currently involved in first level control (FLC) with regard to cross border co-operation (CBC) programmes under shared management. The profile of first level controllers foresees that they should posses at least the following qualifications: university or college degree working experience in financial / project management at least one (1) year working experience in a similar field knowledge of the relevant EU and national regulations knowledge of English (at least intermediate level) Their job descriptions provide for the following activities (non-exhaustive list): ensure the formal registration of all relevant documents in the programme level management information systems and in the internal registry of the Ministry of Finance and Treasury (MoFT) perform desk-based administrative and on-the-spot checks whereby s/he checks: o the delivery of services and products in accordance with the Subsidy Contract 10 o the soundness of the expenditure declared for operations (or parts of operations) implemented in Bosnia and Herzegovina (BiH) o the compliance of such expenditure and or related operations (or parts of operations) with Community, programme and national rules and legislation validating expenditure incurred by the Beneficiary by means of the preparation of Declarations on the Validation of Expenditure (DVE) and submission to the Head of the CFCU for control and signature drafting checklists and reports on the controls performed according to the templates contained in the programme documents / Control Guidelines at national level continuous liaison with the relevant programme bodies (Managing Authority – MA, Joint Technical Secretariat – JTS) and national bodies (National Authority – NA) use of the relevant templates, management information systems and control guidelines keeping track of changes in programme documentation and relevant legislation and reflection of such in this Manual and the Control Guidelines at national level accordingly when required 4. PROCEDURES FOR VERIFICATION OF EXPENDITURE 4.1. OBJECTIVE OF FLC The primary objective of First Level Control (FLC) is to guarantee that expenditure reported and claimed by Beneficiaries is justified, substantiated, real, actual and incurred and in line with the provisions of the Subsidy Contract / Partnership Agreement concerned and are in line with all legal provisions governing the Programme (EC, national and programme specific – see 2 “Legislative and Regulatory Framework” above). In view of that Controllers shall: check the regularity and legality of expenditure incurred and declared by Beneficiaries from Bosnia and Herzegovina (BiH) by conducting desk-based administrative and on-the-spot checks validate the expenditure incurred by Beneficiaries from Bosnia and Herzegovina (BiH) validate the content of both the activities and the finances of the partner report draft a report and a checklist on the control performed (templates are usually developed at programme level) sign and issue a Declaration on Validation of Expenditure (DVE) keep complete files on the validation process in lien with both programme as well as national requirements FLC is the most extensive level of control whereby 100% of the expenditure is checked. 11 FLC is the first step in the expenditure certification / validation process and is performed prior to EC reimbursement of validated expenditure. This means in effect that Beneficiaries incur costs before being reimbursed from Programme funds. FLC requires a 100% check of expenditure declared. Verifications comprise 2 key elements: Administrative verification, i.e. desk-based verifications (in principle of 100% of project expenditure) On-the-spot verifications (potentially of a sample of operations). 4.2. STEPS OF THE FLC/VALIDATION PROCESS Submission of Activity Report (AR) and Financial Report (FR) by A national Beneficiary in electronic version through the programme specific information system and hard copy to the national First Level Control Office (FLCO) Desk-based administrative check of Activity Report (AR) and Financial Report (FR), including all supporting documentation by the national FLCO If the project is included in the on-the-spot check activity plan (or otherwise decided on a case by case basis), an on-the-spot check visit will be performed by the national FLCO Establishment of the eligible costs and approval of the Beneficiary’s report by the national FLCO Issuing the Declaration on Validation of Expenditure (DVE) by the national FLCO The project partner from BiH prepares a Progress Report (PR) in the defined format as per the specific programme and as per the time schedules laid down for each particular programme specifying activities (Activity Report) and the related costs (Financial Report) incurred during the period covered by the report. The Progress Report is uploaded electronically in the Management Information System (MIS) developed for each specific programme and a hard copy of the report, together with all original supporting documentation proving the expenses, is submitted for validation to the designated body in charge of first level control of the expenditure declared which in the case of BiH is the Central Finance and Contracting 12 Unit (CFCU) within the Ministry of Finance and Treasury (MoFT) located at the following address and with the following contact details: Trg BiH 1 Sarajevo Bosnia and Herzegovina Tel: +387 33 70 30 24, +387 33 70 25 Fax: +387 33 70 31 28 Each project is assigned by the management of the CFCU to a designated First Level Controller who will be in charge of validating expenditure under the projects assigned to him / her. The First Level Control Office, i.e. the CFCU, will perform an administrative desk-based check of 100% of the expenditure declared, both in terms of form and content on the basis of the control guidelines developed for each particular programme, and, in addition, will perform on a regular basis on-the-spot checks (see also section 6.3.1 above). Once the checks (either administrative desk-based check alone or an administrative desk-based check followed up by an on-the-spot check) have been completed, the CFCU in its role as FLCO will determine the amount of the eligible costs and validate the eligible expenditure in the MIS by means of issuing of a “Declaration on Validation of Expenditure (DVE)” expressed in euro. The DVE is supported by several annexes which are: additional information concerning the administrative check and on-the-spot check, if any as well as irregularities determined during the period covered by the report (see section 8 below) summary of costs according to the individual budget lines and work packages. Under normal circumstances the FLCO is given a predetermined period from the receipt of the hard copy of the report to complete the validation process. Beneficiaries are drawn attention to the fact however that this initial period can be interrupted or suspended if outstanding issues are identified during the verification process and in which case a letter will be sent to the Beneficiary by the FLCO requesting for clarification(s) and / or additional documentation. FLC checks are being performed on the basis of control checklists agreed on programme level and which are contained in the guidelines for first level control and/or implementation manuals developed for each specific programme and which can be downloaded from the respective programme’s website. 13 4.3. REPORTING, VERIFICATION AND RETENTION PERIODS AND DEADLINES The work of the FLCO involves a continuous process which normally starts with the receipt of a hard copy of a signed Progress Report (consisting of an Activity Report as well as a Financial Report) submitted by a beneficiary, the check and verification of 100% of the expenditure incurred and declared by means of a desk-based administrative check (see Section 4.4 below) and on-the-spot checks on a sample basis (see Section 4.5 below) and which results in the issuing of a Declaration on Validation of Expenditure (DVE) while constantly monitoring projects with respect to irregularities, fraud and corruption. The deadlines for the submission of reports by Beneficiaries, the time allocated to perform and finalise the first level control checks, the time given to Beneficiaries to submit clarifications or additional documentations, if any, to the FLCO and the period during which all documentation related to expenditure and the FLC process needs to be retained as per the programme rules established for each of the three programmes covered by these procedures is presented in the table below: IPA Adriatic CBC Reporting by Beneficiary quarterly (i.e. by 31 st SEE MED six-monthly six-monthly (by 31 October st th th January, by 30 April, by th 30 June, by 31 October) Time allowed for Controllers and 30 April) st 10 3 months 60 days 20 – 30 calendar days 14 calendar days (i.e. 10 14 calendar days (i.e. 10 8 calendar days 11 to issue the Declaration on Validation of Expenditure (DVE) Time allowed to Beneficiaries to submit additional documentation or clarifications upon working days) working days) 13 12 specific request by FLCO Retention deadline of FLC documentation by Beneficiaries / Controllers the 3 years after the official 31 December 2022 31 December 2021 closure of the programme (see Partnership Agreement Article 3.3) 10 This is according to Section 6.1.1.2 “Timing for Reporting” of the Programme Management and Control Manual (PMCM) developed specifically for the IPA Adriatic CBC Programme which also specifies that “Beneficiaries may report expenditure whenever they are ready given that at least the spending forecasts planned in the Application Form will be respected”. 11 In line with the “Guidelines for First Level Control for the MED programme of July 2011. 12 There is no such deadline given in the programme rules and this time period has therefore been set by the BiH national FLCO. 13 In line with the “Guidelines for First Level Control” for the MED programme of July 2011. 14 i.e. 31 December 2021 On average an initial desk-based administrative check takes between five (5) and fifteen (15) working days and depends on the complexity of the project, the value and nature of the expenditure declared, the number and quality of the supporting documentation, the experience of the first level controller and the fact whether or not discrepancies (e.g. between the Activity and Financial Report) are discovered and whether clarifications are required from the Beneficiary. In addition the process may be substantially slowed down if Beneficiaries are slow in providing the additional information requested by the first level controller. On average an on-the-spot check takes maximum five (5) working days and includes activities related to planning, preparation, travel, the actual on-the-spot check and reporting. The templates to be used for reporting purposes by the Beneficiaries are published on the programme websites and are contained in the Control Guidelines developed for each programme. 4.4. DESK-BASED ADMINISTRATIVE CHEKS As soon as the First Level Control Office (FLCO), and more in particular the First Level Controller within the Central Finance and Contracting Unit (CFCU) assigned to the project concerned, has received the hard copy of the Activity Report (AR) and the Financial Report (FR) including all necessary supporting documentation from the Beneficiary, a desk-based administrative check is initiated.14 This check is performed at the premises of the FLCO (i.e. CFCU). The First Level Controller first checks the completeness of the documentation submitted and the conformity with standard templates and formats developed for the specific Programme. In this respect it is to be noted that the Application Form (AF) as approved by the Joint Monitoring Committee (JMC), the IPA Subsidy Contract and the Partnership Agreement (including all annexes) needs to be attached to the first report submitted by the Beneficiary. Subsequently the First Level Controller continues to perform the following formal checks and judges whether or not there is satisfactory evidence that: ITEM / ISSUE TO BE CHECKED DOCUMENTS USED / CHECKED Expenditure reported is real and incurred and is Original invoices, receipts or accounting documents supported by accurate and acceptable documents as of equivalent probative value to their form and content Services or products have been actually delivered Timesheets and outputs (e.g. reports) of project and are in line with the approved Application Form staff (both employees of the Beneficiary as well as 14 The time period within which FLC has to be completed determined at programme level starts to counts as of the receipt by the FLCO of the hard copies of all due reports. 15 and the Subsidy Contract external staff) Acceptance documents for supply or work components Approved Application Form Subsidy Contract Activity Report Financial Report Expenditure reported is in line with the eligibility Programme Management and Control Manual rules of the EU, specific Programme and national (PMCM) legislation Guidance for First Level Controllers Programme Implementation Guide / Programme Management and Control Manual EU and national legislation Eligibility period of the reporting period / project (start and end date) Eligible area of the Programme Subsidy contract (where the approval date, start and end date of the project are given) Expenditure reported can be traced back / linked to Comparison of expenses with activities described in activities reported in the Activity Report the Activity Report Expenditure incurred in local currency (KM) is InforEuro exchange rate correctly converted into € IPA Adriatic CBC: InforEuro exchange rate of the month in which the report was submitted by the Beneficiary to the national FLCOI SEE: InforEuro exchange rate of the last month of the reporting period (for SEE) 15 MED: InforEuro exchange rate of the month in which the invoice was paid or the of the month in which the costs were reported to the Lead Partner or 6-months average of the InforEuro exchange rate or market exchange rate of the day the invoice was paid or market exchange rate of the last day of the reporting period (Note: in those cases where the beneficiary has sent their figures to the Lead Partner in their national currency and it is the Lead Partner that converts these figures into euro then the Lead 15 As the KM is pegged to the euro, the fixed exchange rate is € 1 to KM 1.95583. 16 Partner must use the average monthly exchange rate set by the EC of the last month of the reporting period or the market exchange rate of the last day of the reporting period properly Approved Application Form (should, whenever communicated and deducted from the eligible possible, contain an estimate of revenues if expenditure declared foreseen) Net revenue, if any, has been Calculation method by Beneficiary to report net revenues Statement by the Beneficiary that the project does not generate revenues Recoverable Value Added Tax (VAT) has been deducted from the eligible expenditure declared 16 Check VAT status of Beneficiary in the Section on VAT of Activity Report Expenditure is charged to the correct Work Package Approved Application Form (WP) and correct budget line and budgets by WP and IPA Subsidy Contract budget line have been respected Original Double financing is avoided invoices / receipts / accounting documents are voided (stamped) by FLCO upon approval The Beneficiary maintains either a separate accounting system or an adequate accounting code EU requirements concerning publicity are respected information and This will be normally subject to verification during on-the-spot checks Materials produced by the Beneficiary (e.g. brochures, leaflets, press releases, …) comply with EU visibility and information rules Supportive documents to the reported expenditure provided by BIH project partner are accompanied with the necessary copies together with the list of expenditures to the controller, verified by signatures and stamps in relevant cases. If the project partner has filled the reporting materijals inadequately, documentation is missing or instructions have not been followed, First Level Controller should ask the project partner to correct the mistakes or clarify the unclear issues. The First Level Controller will then perform an in-depth check of the expenditure claimed under the various budget lines. These are per programme: 16 If at any time during the implementation of the project the FLC reveals that the project is generating revenues which are not declared by the Beneficiary and thus not deducted from the eligible expenditure, this is considered an irregularity and the irregularity procedure and recovery procedure need to be initiated (see Section 8 below). 17 Budget line IPA ADRIATIC CBC SEE MED No. 1 Staff costs Staff costs Staff costs 2 Overheads Overheads Durable goods 3 Travel and accommodation Travel and accommodation Consumable goods 4 External expertise External Travel and accommodation expertise and services 5 Meetings and events Equipment Services (other than external expertise) 6 Promotion costs Small scale investments 7 Equipment Financial charges External expertise and Promotion, information and guarantee costs publications 8 Investments N/A Overheads 9 Financial charges and guarantee N/A Other costs From the above it can be noticed that the structure of the budgets of the subsidy contracts slightly differs from programme to programme and that sometimes particular costs are eligible under a given programme whereas for others this is not the case (e.g. no investment component under the MED programme). The sections below contain general information regarding each individual major budget line, the nature of costs that can be claimed, the kind of supporting documentation that is required and the nature of the checks that will be performed by the First Level Controllers. More detailed information including specific requirements according to relevant legislation in Bosnia and Herzegovina are contained in the Control Guidelines at national level developed separately for each of the three programmes (IPA Adriatic CBC, SEE and MED). 4.4.1 Staff costs The first budget line is entitled “staff costs” and covers the salaries (i.e. gross salary including possible salary for overtime, sickness, holidays plus any other benefit, reward, bonus payment plus all legal provisions such as insurance, health and social security charges paid by both the employee and the employer) of the staff of the Beneficiary working either on a full-time or part-time basis on the project, as indicated in the Application Form. Typically personnel working on these kinds of projects are personnel such as a Project Coordinator, a Project Manager, an Assistant, a Financial Manager etc) and it is compulsory for the Beneficiary to prove 18 that members of staff for which salaries are claimed under the project are directly employed by the Beneficiary organisation on the basis of a regular work contract or any similar type of contract according to the national rules (e.g. service contract of predefined duration as a self-employed person). Staff costs should be calculated in hourly rates and presented as such. First Level Controllers will inter alia verify whether staff costs are claimed in accordance with the envisaged work of the different employees on the project as indicated in the Application Form (e.g. ensure that no full salaries are claimed for staff envisaged to work only part-time on the project) as well as reconcile the information provided on the timesheets with the proof of payment of salaries (e.g. if the timesheet reveals that a person worked 120 hours i.e. 8 working days on the project in a given month then only a fraction – 120/176 or 68.18% - of that staff member’s salary can be charged to the project.17 This cost category normally makes up the largest part of the overall project budget and expenditure claimed in each individual report and therefore the necessary attention and care should be allocated in verifying the eligibility and acceptability of claim under this budget line. Checks related to claiming staff costs include18: ITEM / ISSUE TO BE CHECKED Information is available concerning expenditure DOCUMENTS USED / CHECKED claimed for all staff working in the project Full list of staff working in the project is attached / included in the first report stating as a minimum: name of the employee, qualification, position in the project, percentage of work allocated to the project, gross salary, indicative costs to be funded under the project’s budget Employment contracts / job descriptions stating as a minimum: tasks, start and end date, indication whether full-time or part-time Payslips / proof of payment (e.g. bank statements) Monthly timesheets (stating as a minimum name of the employee, date, time, detailed description of activity) and signed by both employee and employer or activity reports 17 As a general rule the EC uses 22 working days per month as an average. Salary calculations should however be based on the real number of working days in a given month e.g. February 12 only has 21 working days whereas May 2012 has 23 working days. 18 For all expenditure claimed, proof of payment should be provided (in the form of e.g. bank statement, not transferable at-sight checks, bank checks, payment orders, daily book for cash payment, …). 19 Calculation method for calculating hourly rates / total staff costs (based on real costs and excluding any fringe benefits and for time exclusively worked on the project) Declaration by the responsible person within the employer institution for overtime performed To further proof and substantiate the costs claimed for salaries, beneficiary organisations from Bosnia and Herzegovina may be requested by the FLCO to provide their internal book of rule (“pravilnik o platama”) or equivalent. The basic calculation principle to charge staff costs against the project’s budget is: monthly gross salary + social charges _______________________________ X hours worked on the project in the given month total working hours in the given month Staff costs are based on the normal remuneration the employee receives when not working on the project and no ad-hoc salary increases or arbitrary hourly rates for project purposes are possible. Below is an example of the various elements making up a gross salary and the method for calculation for both the Federation (FBIH) as well as the Republika Srpska (RS): PIO iz ld 17% FBIH ZDRAVSTVENO NEZAPOSLENOST iz OSIG. Iz ld 12,5% ld 1,5% 265.54 195.25 BRUTO PLATA RS 1658.38 BRUTO DOPRINOSI 547.26 23.43 BRUTO PLATA PIO na ld 6% 1562.00 OSNOVICA ZA POREZ POREZ 10% 1111.11 111.11 ZDRAVSTVENO OSIG. na ld 4% 93.72 NEZAPOSLENOST na ld 0,5% 62.48 PIO 17% 281.92 7.81 ZDRAVSTVENO OSIG. 12% 199.01 POREZ OD ELEMENT. NEP. 0,5% 5.00 POREZ 10% 77.78 ZAPOŠLJAVANJE 1,5% NETO PLATA 24.88 1000.00 NETO PLATA ISPLATA 1000.00 1731.01 ISPLATA 1616.92 20 4.4.2 Overheads The second budget line concern “Overheads“ by which reference is made to expenditure such as utilities or office costs including electricity, heating, lighting, water, cleaning, administrative costs such as telephone, fax, internet, mailing/postal/courier services, stationary, office supplies and bank costs/charges for NATIONAL financial transactions related to the normal bank account of the organisation (i.e. in case a separate dedicated account was NOT opened for the project): For more information on other kinds of bank costs / charges (e.g. for the ones related to a specific dedicated account which was opened for the project or costs / charges related to INTERNATIONAL financial transactions – see 6.3.1.9 below). There are two categories of overheads for which there are different reporting and calculation requirements: (i) direct general costs (overheads directly allocated to the project): This method is to be applied when it is possible to allocate overheads directly to the project or in other words where it is possible to determine those overheads derived exclusively from the project. In this case no lump sums, estimations or arbitrary keys are allowed. (ii) Indirect general costs (overheads allocated proportionally to the project): This method is to be applied when overheads cannot be directly allocated to the project and when actual cost is shared with organisational non-project related costs. In this case overheads must be allocated proportionally to the project and calculated, using a duly justified fair and equitable method, on flat rates, not exceeding 25% of those direct costs of an operation that can affect the level of overheads, based on average costs. In those cases where apportionment is used, the method for calculating and allocating overheads to the project should be clearly stated and explained in the first Progress Report and can be reviewed yearly. Depending on the type of cost claimed, the basis for apportionment could be any of the below three: number of people working for the project divided by the number of people working in the organisation number of hours worked on the project divided by the total number of hours worked in total in the organisation (i.e. including work on other activities than the particular project) surface used by the personnel working for the project divided by the total surface of the organisation (most suitable for costs of utilities such as heating, lighting, electricity, water etc) Checks related to the overheads budget line include19: ITEM / ISSUE TO BE CHECKED DOCUMENTS USED / CHECKED 19 For all expenditure claimed, proof of payment should be provided (in the form of e.g. bank statement, not transferable at-sight checks, bank checks, payment orders, daily book for cash payment, …). 21 Information is available concerning expenditure claimed for overheads incurred during the In case of direct general costs, the costs show a direct link to the project’s activities, are based implementation of the project on actual costs and can be verified (no lump sums, estimations or arbitrary keys are allowed) Method for calculating overheads including a list of the cost items – in case of indirect general costs - is clearly stated in the first Progress Report (if changes to this calculation method, then explained and substantiated in any of the next reports bearing in mind that the calculation method can only be reviewed yearly) Proof of payment (e.g. invoices, receipts, postal account bulletin, debit note, telephone bill with clear indication which calls were project related providing as a minimum person/institution called and reason for the call) Overheads claimed are in line with the eligibility rules governing the Programme It is important to note that the Beneficiary should make the calculation method available to the First Level Controllers (FLC) in a way that is easy to understand and the calculation method may be subject to verification at the Beneficiary’s premises during an on-the-spot check. 4.4.3 Travel and accommodation This cost category refers to the travel and accommodation costs of the employees of the Beneficiary (note: travel and accommodation costs of external experts participating in the project have to be charged against the budget line “External expertise” – see section 6.2.1.4 below). Expenditure claimed should be carefully checked to assess whether they are reasonable, had been foreseen, are approved internally within the Beneficiary, are in line with the organisation’s internal rules, occurred in eligible areas covered by the Programme etc…20 The basic rules governing this budget line are: 20 Travel outside the Programme eligible area must have been previously authorised by the Managing Authority (who will inform the national FLCO accordingly). 22 economy of transport: the cheapest way / most economical way of transportation should be used (demonstrated on the basis of an assessment by the Beneficiary) and this would normally be public transport (bus, train, boat, plane) whereby business or first class tickets are ineligible (even if this is allowed by the internal rules of the Beneficiary). Exceptions, if any, must be duly justified in each case only travelling and accommodation costs of “project staff” is eligible reasonability of board and lodging costs: the accommodation and costs of meals should be reasonably priced and higher price ranges must be duly justified in each case reporting method: costs should be reported in line with national rules or specific internal regulations of the Beneficiary assignment of costs: costs should be borne by the Beneficiary and thus proof of direct payment by the employee is insufficient. If costs are paid by the employee on the basis of an advance paid by the Beneficiary to him / her then there should be proof of the advance paid and the balance reimbursed by the employee to the Beneficiary at the end of the mission. duration: the duration of the travel should be reasonable and should normally start the day before the event / meeting / reason for travelling until the day after So-called daily allowances/per diems (fixed daily rates / flat rates for meals; accommodation, local travel) can be eligible provided these are foreseen in the national rules as the only way of reimbursement of such costs. According to national legislation in place the amounts eligible for the countries participating in the three programmes concerned are (effective June 2012): Country State level Federation Republika Srpska Albania 130 KM 90 KM 20 € Austria 145 KM 140 KM 45 € BiH 25 KM 25 KM 25 € Bulgaria 108 KM 90 KM 25 € Croatia 121 KM 100 KM 20 € Cyprus 117 KM 110 KM 40 € France 143 KM 140 KM 45 € 23 Greece 126 KM 110 KM 40 € Hungary 117 KM 100 KM 30 € Italy 140 KM 130 KM 45 € 109 KM 90 KM 20 € Malta 117 KM 110 KM 40 € Moldova 114 KM 100 KM 35 $ Montenegro 113 KM 90 KM 20 € Portugal 117 KM 110 KM 40 € Romania 119 KM 110 KM 25 € Serbia 113 KM 100 KM 20 € Slovak Republic 117 KM 100 KM 30 € Slovenia 117 KM 100 KM 30 € Spain 134 KM 110 KM 40 € Ukraine 130 KM 110 KM 40 $ United Kingdom 148 KM 140 KM 45 € The former Yugoslav Republic of Macedonia Checks related to the travel and accommodation budget line include21: ITEM / ISSUE TO BE CHECKED All necessary information is available concerning DOCUMENTS USED / CHECKED Analytical documentation / itemised list of expenditure claimed for travel and accommodation travel and accommodation costs effectively costs incurred during the implementation of the incurred by the employee accompanied by all project; travel is directly related to the project and receipts occurred within the programme eligible area expenditure stated (e.g. bus/train/metro tickets, / bills / invoices proving the meal receipts, plane ticket with boarding passes, car rental invoice, …) Calculation sheet prepared according to 21 For all expenditure claimed, proof of payment should be provided (in the form of e.g. bank statement, not transferable at-sight checks, bank checks, payment orders, daily book for cash payment, …). 24 national or institutional rules for travel by company/own car stating at least the distance, unit rate and total cost and accompanied by additional proof documents such as highway tickets/stamps Invitation, agenda, list of participants, minutes etc. of the event are available and from which the name of the participant and date, reason and place of the mission can be seen Mission report duly signed by the person(s) who travelled Class of car (maximum class C) in case of travel by rental car Proof of payment: either paid directly by the Beneficiary or reimbursement of costs incurred to the employee One can notice from the above that the First Level Controller will often have to use personal judgment or carry out a small market research in order to be able to assess whether the costs claimed are indeed going rates which do not exceed going market rates. To further proof and substantiate the costs claimed for travel and accommodation, beneficiary organisations from Bosnia and Herzegovina may be requested to provide to the FLCO their internal book of rule (“pravilnik o sluzbenim putovanjima”) or equivalent. 4.4.4 External expertise This budget line includes costs paid for professional services of an external expert, consultant or supplier exclusively engaged for the project purposes to perform certain activities / tasks outside the knowledge base of the Beneficiary (examples include financial management, project management, legal advice, notarial fees, studies, researches, surveys, translation…).22 The following primary conditions have to be met: the work of the external expert(s) is essential to the project 22 Translation can only be charged against the budget line «External expertise» if they are not related to any other particular budget line. Whenever reproduction or translation of project documents is linked to specific events, the related costs shall be charged against the budget line entitled “Meetings and events”. 25 rates charged are reasonable and in relation to the level of expertise and experience Project Partners cannot be contracted as external experts or subcontractor The same person already charged under the budget line “Staff costs” cannot be contracted under the budget line “External expertise”. Recruitment of external experts / consultants needs to fully respect the relevant procurement rules under the programme concerned. Usually the procurement procedures to be used are the rules and procedures applicable to service, supply and works contracts financed by the general budget of the European Communities for the purposes of cooperation with third countries (see Article 121 “Procurement” of the IPA Implementing Regulations). In effect this means that the provisions of the “Practical Guide to contract procedures for EU external actions (PRAG)” need to be consulted by the Beneficiaries whereby PRAG templates are encouraged to be used albeit that it is not obligatory.23 In addition Interact Point Vienna has produced a document entitled “Public procurement in IPA crossborder cooperation programmes with EU Member States in shared management” which can also be consulted by Beneficiaries.24 It has to be noted however that Beneficiaries are not obliged to use any standard formats or templates contained in any of the documents mentioned above but the public procurement needs to respect the basic underlying philosophies (e.g. transparency, equal treatment, non-discrimination, fair competition, open competition, impartiality, best value for money, nationality and origin). Furthermore national public procurement rules may be used and this would be in fact the normal way of proceeding (in fact they have to be used whenever they are more restrictive than the PRAG or Interact rules). The Law on Public Procurement provides in Article 5.1.c however that, in those cases where the project is (co)funded by international donors, the latter’s procurement rules may be used. The link to the Public Procurement Agency of Bosnia and Herzegovina where the Public Procurement Law can be found is stated in the footnote below.25 The First Level Controller (FLC) will judge on a case by case basis whether there is sufficient written evidence that the evaluation of the offers and the award of the contract was carried out in a professional, objective, fair and transparent manner and therefore will check the existence of basic documents justifying the choice of the selected service provider or supplier and the most important of which are Technical Specifications (supplies) / Terms of Reference (services), information about the potential Tenderers approached, request for offer to several potential service providers or suppliers, offers received, evidence of the evaluation of the offers (members of the Evaluation Committee, evaluation report), contract with the selected supplier / service provider (making clear reference to the project and the programme), outputs etc. 23 The document can be found on: http://ec.europa.eu/europeaid/work/procedures/implementation/practical_guide/ 24 The document can be found on: http://www.interacteu.net/ipa_interact_publications/interact_ipacbc_documents/319/4867 25 http://www.javnenabavke.ba/index.php?id=10zak&zak=1&jezik=en 26 The days and hours of work of the external expert shall be fixed on the basis of the laws, regulations and customs of Bosnia and Herzegovina more details of which can be found in the Control Guidelines developed for each individual programme. In case the days and work of the external expert are not regulated by any means, the number of working days (WD) that usually can be worked by an external expert is limited to a maximum of 220 working days per year. If the number of days worked is less (e.g. if the expert is only employed for a fraction of a year) then the fees should be calculated on the basis of a maximum of 20 working days per month. It is important that the First Level Controller (FLC) uses his / her own judgment to ascertain that rates charged and paid are in line with going market rates in Bosnia and Herzegovina (BiH) for such services and fee rates are in line with the level of experience, expertise and competence of the service provider selected (e.g. a daily fee of 1,000 KM should be seriously questioned). Difference is made between fee-based service and global price contracts whereby the latter can (exceptionally) be used where the work of the external expert leads to a clearly defined specific outcome (e.g. studies). Checks related to the external expertise budget line include26: ITEM / ISSUE TO BE CHECKED All necessary information is available concerning DOCUMENTS USED / CHECKED Services delivered by external experts are expenditure claimed for external expertise incurred directly related to the project and activities are during the implementation of the project explicitly foreseen in the latest approved Application Form Evidence of compliance to procurement rules (i.e. it is clear on what basis the external expert has been selected and the following basic documentation is available: Technical Specifications (supplies) or Terms of Reference (services), information about external experts approached to submit an offer, request for offer, offers received, evaluation report /grid, members of the Evaluation Committee, …) External experts are not already employed by the Beneficiary as regular staff Rates charged by the external expert are conform to going market rates and in line with 26 For all expenditure claimed, proof of payment should be provided (in the form of e.g. bank statement, not transferable at-sight checks, bank checks, payment orders, daily book for cash payment, …). 27 the expert’s level of expertise, experience and competence The contract concluded with the external expert is available and reference is made to the project and the programme and states as a minimum a description of the services provided, total price, deadlines for the delivery of outputs, names of the experts, …) Evidence of the work is available (timesheets, outputs) Deliverables / outputs respect EU visibility and publicity requirements applicable under the programme under which they are financed 4.4.5 Meetings and events This budget line includes costs related to the organisation of conferences, seminars, meetings, workshops or events directly related to the project and traceable from the latest approved Application Form. Examples of eligible costs include: renting of equipment for above-mentioned events interpretation at events translation of documents linked to specific events printing of materials directly related to eventsµ catering expenses speaker’s fees costs of external participants Eligibility of costs under this budget line is subject to the full respect of both the prevailing procurement rules and publicity rules (see also above under 6.3.1.4 “External expertise” and 6.3.1. 7 28 “Equipment” below). In other words it should be clear from the supporting documentation submitted by the Beneficiary on what basis the service provider has been selected (request for offer to several potential service providers, offers received, evidence of the evaluation of the offers received (members of the Evaluation Committee, evaluation report etc), the contract between the Beneficiary and the service provider (making clear reference to the event, the project and programme) should be available at the FLCO. It is important to ensure that the most cost-efficient option has been selected (value for money). In addition for each event where the participation of external experts was required and for which costs are declared, the following information should be readily available: purpose agenda location duration list of participants minutes copy of the materials produced directly linked to the event number of languages for which translation has been provided, if any In order to further substantiate the occurrence of these types of events, beneficiary organisations are encouraged to take pictures or make videos of the event which can be subsequently checked by the First Level Controllers (FLC). Checks related to the meetings and events budget line include27: ITEM / ISSUE TO BE CHECKED All necessary information is available concerning DOCUMENTS USED / CHECKED Services delivered are directly related to the expenditure claimed for meetings and events project and activities are explicitly foreseen in incurred during the implementation of the project the latest approved Application Form Evidence of compliance to procurement rules (i.e. it is clear on what basis the service provider has been selected and the following basic documentation is available: Technical Specifications (supplies) or Terms of Reference (services), information about service providers approached to submit an offer, request for 27 For all expenditure claimed, proof of payment should be provided (in the form of e.g. bank statement, not transferable at-sight checks, bank checks, payment orders, daily book for cash payment, …). 29 offer, offers received, evaluation report /grid, members of the Evaluation Committee, …) Evidence of compliance to EU publicity and visibility rules Evidence that the most cost-efficient option has been chosen (“value for money”) The contract concluded with the service provider is available and reference is made to the project and the programme All material proving that the event was actually carried out (including list of participants, agenda, minutes, location, duration etc) is available 4.4.6 Promotion costs28 This budget line includes costs related to information and communication activities related to the project. Examples of eligible costs include: brochures leaflets newsletters press releases inserts / advertisements in newspapers design and maintenance of a website for the project publication costs related to the project and not linked to specific events (such as display panels, commemorative plaques, banners, promotional items, photographs, audio or video production) 28 Under the Transnational Mediterranean Programme (MED) this budget line is referred to as “Promotion, information and publications”. 30 If an external service provider is used to carry out promotion activities, the FLCO will have to ensure that the prevailing procurement and visibility rules have been respected (see also 6.3.1.4 “External expertise” and 6.3.15 “Meetings and events” above and 6.3.1.7 “Equipment” below). Checks related to the promotion costs budget line include29: ITEM / ISSUE TO BE CHECKED All necessary information is available concerning DOCUMENTS USED / CHECKED Promotion costs are directly related to the expenditure claimed for promotion costs incurred project and are explicitly foreseen in the latest during the implementation of the project approved Application Form Evidence of compliance to procurement rules (i.e. it is clear on what basis the service provider has been selected and the following basic documentation is available: Technical Specifications (supplies) or Terms of Reference (services), information about service providers approached to submit an offer, request for offer, offers received, evaluation report /grid, members of the Evaluation Committee, …) Evidence of compliance to publicity and visibility rules The contract concluded with the service provider is available and reference is made to the project and the programme All material proving that the promotion costs were actually carried out (e.g. copy of brochures, leaflets etc or existence of the website) is available 29 For all expenditure claimed, proof of payment should be provided (in the form of e.g. bank statement, not transferable at-sight checks, bank checks, payment orders, daily book for cash payment, …). 31 4.4.7 Equipment30 This budget line includes costs related to: purchase of equipment rent of equipment lease of equipment Examples of eligible costs include: IT equipment (computer, printer, software) office furniture machineries All purchase of equipment needs to respect fully the procurement procedures established for the programme concerned as well as the publicity rules (see also section 6.3.1.4 “External expertise”, 6.3.1.5 “Meetings and events” and 6.3.1.6 “Promotion costs”). The FLCO will pay attention to whether or not the most economic option (“value for money”) has been chosen. All equipment purchased must have been clearly foreseen in the last updated version of the Application Form (AF) and if this is not the case, the equipment purchased must have been approved by the Managing Authority (MA), the Joint Technical Secretariat (JTS) and or the Joint Monitoring Committee (JMC) beforehand. The FLCO will regularly verify the existence of equipment by means of on-the-spot checks. The FLCO will also check whether: the equipment has not already been financed by other subsidies (e.g. EU, national, regional) the equipment has not already been completely depreciated the equipment is not claimed in another budget line (e.g. overheads costs) 30 Under the Transnational Mediterranean Programme (MED) this budget line is referred to as “goods” and broken down between “durable goods” and “consumable goods” 32 With respect to the purchase of second hand equipment the situation is the following for the three programmes: IPA ADRIATIC CBC SEE MED Ineligible Eligible Eligible Where second hand equipment is purchased the following provisions apply: price of the equipment is in line with its market value and less than the price of similar new equipment the equipment has the technical characteristics necessary for the project depreciation costs are only eligible if the equipment has not yet been already completely amortised Depending on the option selected to acquire the equipment (i.e. purchase, rent or lease) the following must also be respected: a) Purchase of equipment Where equipment is purchased exclusively for use under the project: either 100% full cost can be charged to the project or the equipment will be depreciated 100% full cost can be charged to the project where: the equipment is of low-cost value and thus not depreciable the period from the date of purchase until the end date of the project is longer than (or equal to) the normal depreciation period the period from the date of purchase until the project closure is shorter than the normal depreciation period but: o the equipment is used for the same purpose at least 5 years after the end of the project o the equipment is part of a specific goal of the project (e.g. office furniture of one of the objectives of the project is to set up an office that will provide services for the target group also after project completion) Note: In both the two above-mentioned cases the Beneficiary should submit a declaration to the FLCO that this is the case. This can be done with the submission of the first Progress Report (and then full price can be reported) or if the declaration is submitted at a later stage, then only the depreciation amounts can be reported until the submission of the declaration). 33 Depreciation method should be used whenever the full purchase price is not charged to the project. Depreciation refers the decrease in value of assets over time and the allocation of the cost of those assets to periods in which the assets are used. The depreciation method and the way of calculation should respect fully the provisions of the legislation in force in the entity in which the beneficiary is located. In view of that reference is made to the following laws and provisions: For the Republika Srpska (RS): Law on tax on profit of legal entities (Official Gazette RS nr. 25/2001, 80/2002, 43/2003, 84/2004 and 18/2010 Manual of methods of classifying fixed assets according to group and method of determining depreciation for tax purposes (Official Gazette RS nr. 116/2004 and 99/2010) For the Federation of Bosnia and Herzegovina (FBiH): Law on tax on profit of enterprises (Official Gazette FBIH nr 32a/97) Decision on the amount and method of calculating depreciation and the revaluation of fixed assets that are recognised as expenditures in tax balance (Official Gazette FBiH nr. 27/98) The main difference in the treatment of depreciation between the entities is the allocation of depreciation which in RS is done on a regressive basis whereas in FBiH the straight line method is used. The depreciation allowances have to be charged proportionally in each Progress Report until the end of the project and the depreciation costs can of course never exceed the initial purchase price. The Beneficiary needs to demonstrate to the FLCO which depreciation method has been used for each piece of equipment and show that this is in line with the prevailing accounting regulations / tax legislation of Bosnia and Herzegovina. Where the equipment purchased is not used exclusively for the purpose of the project, the costs should be charged on a pro-rata basis also as far as depreciation is concerned. In other words, only a part of the purchase price (or depreciation rate) can be allocated to the project. 34 b) Rent of equipment This is only possible provided that renting is the most economic and cost-effective way of obtaining the equipment (this will have to be proven by the Beneficiary). c) Leasing of equipment This is only eligible if the total cost of leasing does not exceed the cost of renting. Checks related to the equipment budget line include31: ITEM / ISSUE TO BE CHECKED All necessary information is available concerning DOCUMENTS USED / CHECKED Equipment purchased, rented or leased is expenditure claimed for equipment incurred during necessary for the implementation of the project the implementation of the project and is explicitly foreseen in the latest approved Application Form If equipment is rented then this should be the most cost-effective way (i.e. cheaper than purchase or lease) If equipment is leased the total leasing fee should not exceed that of rental for the same period. Kind of equipment is eligible according to the Programme rules and guidelines (e.g. Programme Management and Control manual if such exists) Evidence of compliance to procurement rules (i.e. it is clear on what basis the supplier has been selected documentation and the following is available: basic Technical Specifications (TS), information about potential suppliers approached to submit an offer, request for offer, offers received, evaluation report /grid, members of the Evaluation Committee, contract…) 31 For all expenditure claimed, proof of payment should be provided (in the form of e.g. bank statement, not transferable at-sight checks, bank checks, payment orders, daily book for cash payment, …). 35 Evidence of compliance to publicity and visibility rules The contract concluded with the selected supplier is available and reference is made to the project and the programme Evidence of the existence of the equipment (e.g. inventory) is available Purchase price is in line with market value If the economic lifetime of the equipment goes beyond the duration of the project, only depreciation costs are reported and the calculation method is available and correct If the economic lifetime of the equipment goes beyond the duration of the project, a separate declaration by the Beneficiary that it undertakes to avoid any substantial change to the equipment for at least 5 years following project completion If equipment is NOT used exclusively for the purpose of the project, only a share of the actual cost can be allocated pro rata to the project calculated using a fair, justified and equitable method. Changes in the quantity of equipment: have to be confirmed by the Lead Beneficiary Changes in the type of equipment: have to be approved by the Managing Authority 4.4.8 Investments32 This budget line refers to small scale investments with a demonstrated transnational impact approved in the Application Form and includes costs related to: 32 This budget line is referred to as “Small scale investments” under the South East Europe Programme (SEE). 36 construction works (either from the beginning or adaptation of something which already exists purchase of land33 When awarding contracts for the realisation of works the procurement procedures established for the programme concerned need to be fully respected as well as the publicity rules (see also section 6.3.1.4 “External expertise”, 6.3.1.5 “Meetings and events” and 6.3.1.6 “Promotion costs”). The FLCO will pay attention to whether or not the most economic option (“value for money”) has been chosen. All construction works realised must have been clearly foreseen in the last updated version of the Application Form (AF) and if this is not the case, they must have been approved by the Managing Authority (MA), the Joint Technical Secretariat (JTS) and or the Joint Monitoring Committee (JMC) beforehand. The FLCO will regularly verify the existence of construction works by means of on-the-spot checks. Depending on the nature of the investment, the respect of environmental policies (e.g. feasibility study, environmental impact assessment, building permission etc) needs to be ensured. Costs related to this needed prior to realisation of the investment and delivered during project implementation should be allocated to the budget line “Investments”. Beneficiaries should possess a valid construction permit prior to signing the IPA Subsidy Contract and the owner of the permit should be a partner in the project. a) Construction works These can take the form of construction from scratch or reconstruction, expansion or renovation of already existing buildings or infrastructure. For these kinds of costs either the full cost may be eligible or a share of the actual cost to be allocated pro-rata to the project depending on the use. 1. 100% full cost can be charged to the project where: The construction work is used exclusively for the project’s purpose and will remain In use for the same purpose for at least 5 years after project completion without any substantial modification. 2. Share of the actual cost allocated pro rata to the project where: The construction work is NOT exclusively used for the project’s purpose. 33 Up to a limit of 10% of the total project budget. 37 b) Land purchase Land not yet built on can be purchased and be eligible under four conditions: 1. There should be a clear direct link between the land purchase and the project’s objectives 2. The cost does not exceed 10% of the project’s total budget 3. Certificate from an independent qualified assessor (or duly authorised official body) confirming that the price does not exceed the market value. 4. Copy of draft sales contract showing that the land is free of any burden (to be submitted before signing the IPA Subsidy Contract). Checks related to the investments budget line include34: ITEM / ISSUE TO BE CHECKED All necessary information is available concerning DOCUMENTS USED / CHECKED The investment (i.e. construction works or expenditure claimed for investments incurred during purchase of land) is explicitly described in the the implementation of the project Application Form Nature of the investment is eligible according to the Programme rules and guidelines (e.g. Programme Management and Control manual if such exists) Evidence of compliance to procurement rules (i.e. it is clear on what basis the works contractor has been selected and the following basic documentation is available: Tender Dossier, information about potential works contractors approached to submit an offer, request for offer, offers received, evaluation report /grid, members of the Evaluation Committee, contract…) The contract concluded with the selected works contractor is available and reference is made to the project and the programme 34 For all expenditure claimed, proof of payment should be provided (in the form of e.g. bank statement, not transferable at-sight checks, bank checks, payment orders, daily book for cash payment, …). 38 Evidence of the existence of the construction / renovation (e.g. documentation of the works at community and / or national level, photographs) is available If construction will NOT be used exclusively for the purposes of the project, then only a share of the actual cost can be allocated pro rata to the project using a fair, justified and equitable method A valid and legal construction permit (or other document required by community / national law) is available and the owner of the permit is beneficiary in the project If owner is not a beneficiary in the project, proof of ownership of the real estate (which could be state-owned) is available If the real estate is owned by private legal or natural persons (companies or individuals) the partner has submitted a long-term hiring or lease agreement with a minimum validity of 5 years upon completion LAND PURCHASE If land is purchased, up to 10% of the eligible expenditure of the operation is used at the moment of project closure If land is purchased, contract is available Evidence is available that the price of the land is in line with market values (certificate from independent qualified assessor or duly authorised official body) Copy of sales contract showing that the land is free of any other burden is available 39 4.4.9 Financial charges and guarantee costs This budget line includes costs related to: charges for transnational financial transactions bank charges for opening and administering the accounts where the implementation of an operation requires (a) separate account(s) to be opened cost of guarantees provided by a bank (or other financial institutions) to the extent that such guarantees are required by national or Community legislation cost of guarantee requested from the private Lead Beneficiary up to the same amount of the cost of the guarantee covering the amount of the pre-financing a) Financial charges In case of separate bank accounts opened specifically for project purposes, the bank charges paid by the Beneficiary for setting up and administering the account are eligible. Bank charges which are eligible include: periodical or lump sum fees registration costs for each entry annual costs for cash dispenser management bank statement or communication despatch costs costs for (periodical) closure Charges related to a bank account not specifically opened for the purposes of the project (e.g. where the Beneficiary has decided to use an existing account) cannot be charged against the budget line “Financial charges and guarantee costs” but should instead be reported under the budget line “Overheads”. b) Guarantee costs Costs related to guarantees provided by a bank (or other financial institutions) are eligible to the extent that they are required by national or Community legislation. In the framework of some programmes, private Beneficiaries may be required to provide a financial guarantee prior to the signature of the IPA Subsidy Contract. In these cases, the cost of the guarantee is eligible only up to the cost of the guarantee covering the amount of the pre-financing. 40 Checks related to the financial charges and guarantee costs budget line include35: ITEM / ISSUE TO BE CHECKED DOCUMENTS USED / CHECKED All necessary information is available concerning Costs are real and directly related to the project expenditure claimed for financial charges and Costs have not been declared under other guarantees incurred during the implementation of budget lines the project If charges for opening and administering a bank account are declared, a dedicated bank account for the specific purpose of the project has been opened (Note: if an existing account of the Beneficiary is used, then charges should be reported under “Overheads”) If costs of guarantees are claimed, such guarantee is required by national or Community legislation The costs claimed for guarantees is up to the amount of the pre-financing 4.5. ON THE SPOT CHECKS 4.5.1 DEFINITION AND PURPOSE The above-described desk-based administrative checks are complemented by so-called on-the-spot checks carried out by the First Level Control Office (FLCO). On-the-spot checks make it possible for the First Level Controller (FLC) to get better acquainted with the project and to verify in real life the existence and realities of the project and thus are of added value to the checks performed on the basis of the documents in the FLCO premises. In addition, on-the-spot checks make it possible for the First Level Controller (FLC) concerned to ensure that the activities as stated in the Activity Report (AR) have been in effect carried out, that the outputs of such activities have in effect been delivered (e.g. equipment purchased can be located at the premises of the Beneficiary, construction works are undergoing etc…) and to have a general discussion with the Beneficiary on planned activities during the next reporting period, problems encountered so far and how to avoid them in the future etc. 35 For all expenditure claimed, proof of payment should be provided (in the form of e.g. bank statement, not transferable at-sight checks, bank checks, payment orders, daily book for cash payment, …). 41 It is good practice for the FLCO to perform regular on-the-spot checks but it is of course impossible to systematically visit all projects and therefore they are done on a sample basis (for further information on risk assessment and sampling strategy see section 6.3.2.3 below). However the FLCO should strive to visit a maximum of projects at least once during the project’s lifetime and for projects that have an investment component, it is recommend paying at least two visits (one at an appropriate point of time during the implementation period of the project and one close to the end). During an on-the-spot check the FLC in charge will verify at least: the reality of the operation existence and / or proof of delivery of services / equipment / investments declared compliance with publicity and visibility rules applicable to the programme under which the project is financed a more in-depth check of all documentation related to the respect of the public procurement procedures (for further information see section 6.3.2.2 below) the adequacy of all sorts of supporting documentation and the existence of an adequate audit trail the existence and effective functioning of an accounting system (either a separate system dedicated to the project or an analytical system that allows tracking of expenditure back to the project) On-the-spot checks should be planned and prepared for in advance so as to render them as effective as possible. Generally sufficient notification should be given to the Beneficiary (e.g. two weeks) to ensure that the relevant staff and documentation will be available to the FLC. It is nevertheless left at the discretion of the FLC to perform an unannounced on-the-spot check. 4.5.2 RISK ASSESSMENT AND SAMPLING First Level Controllers will perform at an early stage (i.e. as soon as possible after a contract is signed and the project implementation period starts) a risk assessment of the projects for which they are responsible and risk factors that will be taken into account include inter alia: the type of beneficiary i.e. is the Beneficiary a public institution, a relatively big municipality, a small municipality, a NGO, a private company etc the size of the Beneficiary i.e. a large institution with major resources and high capacity or a small organisation with limited resources and small capacity the type of contract e.g. projects containing a lot of public procurement, value of contract, value of investments 42 the complexity of project operations, activities and environment i.e. is the project routine to the Beneficiary, are many implementation problems expected (e.g. number of participants in project events, number of external stakeholders, legal and regulatory framework of the project) the experience of the Beneficiary’s employees i.e. do key staff members (e.g. Managing Director, Financial Manager or Accountant, …) have had prior experience with the implementation of similar projects funded by the international donor community the internal control systems of the Beneficiary i.e. do they exist and are they adequate previous experience with the Beneficiary i.e. has the Beneficiary implemented projects in the past for which FLC was performed by the CFCU, have there been any problems detected during previous on-the-spot checks, have irregularities, fraud or corruption been identified in the past The information to be gathered can arise from discussions with other people / institutions that have experience with the Beneficiary (e.g. the Delegation of the European Union to Bosnia and Herzegovina) or consulting different sources of information including media such as Internet, newspapers, government databases etc and the Beneficiary itself. The risk factors are then given a risk level coefficient ranging from low over average to high and given a weighting and based on the results of the risk assessment exercise a final selection of projects to be visited on-the-spot will be made and an on-the-spot checks activity and time plan will be developed, ideally for each calendar year (“annual on-the-spot checks plan” – see below). The risk assessment exercise will culminate in a risk assessment table, an illustrative example of which is presented below: 43 RISK ASSESSMENT TABLE (illustrative example) (Period: from … / …. / …. to …. / …. / …..) Project Code / Project Acronym / Name of Beneficiary RISK LEVEL RISK FACTORS RISK COEFFICIENT LOW 1 2 MEDIUM 3 4 HIGH 5 0.2 0.4 0.6 0.8 1.0 WEIGHT ∑=100% ADJUSTED for Year 1 Cumulative Risk Coefficient 10% 12.5% 5.0 10% 12.5% 2.5 10% 12.5% 12.5 10% 12.5% 7.5 10% 12.5% 10.0 1. Type and size of final beneficiary: Type Size X X 2. Contract characteristics: Value of contract Total of procurement and investments X X 3. Complexity of a particular project operations and environment X 4. Experience of staff involved: Experience of Final Beneficiary employees X 10% 12.5% 12.5 Experience of First level controllers X 10% 12.5% 12.5 10% 12.5% 5.0 5. Internal control systems of the Final beneficiary X 6. Previous experience with the beneficiary 36 On-the-spot checks carried out during the previous year and current year 10% Any significant irregularities previously detected 10% - 100% 100% Total - 67.5 Value in money (in €) 100,000 Monetary value adjusted to risk level 67,500 36 Please note that during the first year of performance of on-the-spot checks, this criterion should be disregarded. The respective weighting should be distributed to other categories. 44 A final result of the risk assessment is a so-called risk ranking table, an illustrative example of which is presented here: RISK RANKING TABLE – BASIS FOR SAMPLING FOR ON-THE-SPOT CHECKS (illustrative example) (Period : from … / … / …. to …. / ….. / ….) Beneficiary Value (€) Risk coefficient Value adjusted to risk level Ranking Preliminary on-the-spot 37 scheduling Q1 1 Organisation XYZ 100,000 2 NGO ABC 50,000 3 Municipality QPR 70,000 4 ... 5 .... 67.5 38 67,500 H 82.5 41,125 M 50 35,000 L Q2 Q3 Q4 39 X X X X There are several criteria for scheduling certain projects for testing by means of on-the-spot checks. The key criterion is value of the project adjusted to risk level. However, attention needs to be paid and use only value of the project that is according to the project budget falling within the period under review.40 Additional criteria include foreseen end date of the project, the number of controllers and their availability, readiness of beneficiary to prepare necessary documentation and provide assistance etc. Based on the Risk Ranking Table above an annual on-the-spot check activity plan will be prepared, the template of which is provided in the following section: 37 At this stage a preliminary schedule for on-the-spot checks should be prepared i.e. it should be decided which projects will be visited in which quarter of the current year. 38 See Risk Assessment Table 39 For projects that due to high risk level have priority in terms of early scheduling of on-the-spot check, additional follow-up visits should be tentatively scheduled. However, this will also depend upon the results of the first on-thespot checks. 40 If a project has a budget of 3 million that is evenly spread over 3 years, and if our period of review is 1 year, value used for risk assessment should be € 1 million. 45 4.5.3 ON-THE-SPOT CHECK ACTIVITY PLAN Illustrative example for calendar year 2012 as per 09/02/2012 Project Project Beneficiary FLC in Project value Risk level (L acronym code from BiH charge (budget of BiH / M / H) First on-the-spot check Second on-the-spot check beneficiary) Planned Date of date execution Findings Planned Date of date execution (month / (month / quarter) quarter) ABC 123 AAA Ms. AB € 213,111.20 M 01/2012 06-08/01/2012 see report DEF 456 BBB Mr. CD € 134,765.89 L Q4/2012 Q2/2013 GHI 789 CCC Ms. EF € 74,982.15 H Q2/2012 Q1/2013 Findings Q2/2013 … Notes: (i) The above table caters for two on-the-spot checks to be carried out per project; however for those projects where more than two on-the-spot checks are warranted by the project situation more columns can be added. (ii) If the execution date differs substantially from the planned date for the on-the-spot check, the reasons for such should be explained. (iii) The on-the-spot check activity plan will be updated on a monthly basis. 46 4.6. DOCUMENTING FLC CHECKS Experience has shown that sometimes controllers perform excellent work but fail to document the work carried out in a way that would enable audits at a later stage to fully understand and demonstrate what was done at the time. It is important to realise that auditors normally have neither experience nor prior knowledge of the project, the beneficiary or the controller and therefore need to have access to as much information as possible to get a clear picture of the project situation in its entirety. In view of that First Level Controllers should systematically keep sufficient and well-organised documentation and records, in electronic version and/or paper copy, of (i) the various controls performed (ii) the results and evidence obtained by means of these controls and (iii) the conclusions and corrective measures taken. Such documentation and records include as a minimum: approved Application Form (copy) signed Subsidy Contract and its amendments, if any (copy) signed Partnership Agreement and its amendments, if any (copy) original signed paper version and electronic version of each Declaration on Validation of Expenditure (DVE) including the control report and control checklist Beneficiary report in hard copy (original) and electronic version copy of each invoice and/or accounting document of probative value (originals are sent to the FLCO by the Beneficiary for verification purposes, voided by the FLCO and sent back to the Beneficiary and a copy is kept at the FLCO) copy of each supporting document included in the Beneficiary report (e.g. payslips, bank statements, public procurement documentation, contract with external service providers, suppliers etc) project deliverables (i.e. all materials produced during the project period) control checklists filled in and signed by the Controller (original) control reports personal notes taken by the FLC during the administrative desk-based or on-the-spot check personal memos by the first level controller correspondence with beneficiaries on clarifications / missing information requested (letters sent by postal service / courier service, email) (copy) copies of the beneficiary’s main documents (contracts, agreements, invoices, promotional brochures, training material etc) photographs taken 47 all documentation related to any on-the-spot check carried out audit reports, if any … The verification of expenditure (‘”first level checks”) is to be documented by the Controllers and the work records are to be retained for audit purposes for at least three years after the date of closure of the programme concerned and in practice this means that all documents need to be kept until the dates specified below: IPA Adriatic CBC Programme December 31, 2021 South East Europe Programme (SEE) December 31, 2022 Transnational Mediterranean Programme (MED) December 31, 2021 It is recommended to store documents during the programme implementation period at the premises of the Controllers and after that to be archived for audits until the dates specified above.41 Records should state the work done, the results of the verifications as well as the measures taken in case of irregularities and errors. 5. SUBSTANTIVE PROCEDURES The key procedures that underlie checklists and control reports are: Check that costs are supported by all necessary documents (e.g. for Check of completeness staff costs items such as time sheets, employment contracts, calculation methods that demonstrate the (part of the) salary charged against the project Check of compliance Check that costs comply with all relevant legislation and rules governing the programme / project Check of plausibility (acceptability) Check that costs are credible and probable (e.g. for staff costs issues such as: hours worked and related outputs generated, rates) Check that costs declared have been incurred in reality and relate to Check of existence and reality existing and verifiable outputs (e.g. for staff costs: verify during an onthe-spot check that project staff exist in reality) 41 The official archiving procedure of the Ministry of Finance and Treasury (MoFT) will be respected. 48 5.1. CHECKS OF COMPLETENESS These intend to verify whether the information provided by the Beneficiary is complete and can relate, for instance, to the completeness of the documents attached to the financial report but also to the completeness of revenues deducted, if any. They are commonly used during the desk-based administrative check and to a lesser extent during the on-the-spot checks. What do controllers check in terms of completeness? Examples include: verification that all expenditure items listed in the List of Expenditure and declared in the financial report are supported by invoices or documents of equivalent probative value check whether there is an adequate audit trail check whether there is an adequate filing system in place check whether the Beneficiary maintains an accounting system How can the checks be documented? The checks can be documented by ticking the foreseen box in the checklist (e.g. “document sent by the Beneficiary are complete”) and, if necessary, including comments on missing documents or documents which do not meet the minimum criteria set by either the Programme, Community or national rules or legislation. 5.2. CHECKS OF COMPLIANCE These intend to verify whether the Beneficiary complies with all relevant legislation, both on Programme, Community as well as national / entity level governing the project. Many compliance checks are straightforward with a clear control objective, a clear outcome and immediate effects on eligibility (e.g. expenditure was incurred during the eligible time period). Other compliance checks can be less straightforward such as those related to horizontal issues (e.g. “equal opportunity and non-discrimination”) or more complex rules or legislation (e.g. “public procurement”). What do controllers check in terms of compliance? Examples include: correctness of the application for reimbursement 49 verification that expenditure relates to the eligible period verification that the expenditure relates to an approved operation (or part of an operation) compliance with programming documents including, where applicable, compliance with the approved co-financing rate compliance with EC and/or national procurement rules respect of rules on visibility and publicity Sometimes it is not necessary, or impossible, to draw a clear line between compliance and other kinds of checks as ultimately all checks refer to rules, regulations and legislation. In a centralised control system (such as the one in place in Bosnia and Herzegovina) it may be useful for the Controller to cross-check different projects implemented by the same Beneficiary whereby the Controller will pay special attention to staff costs (as this generally makes up the biggest cost of any project) and more specifically cross-checking of timesheets of employees working for more than one project. It can also be useful to use Internet search engines (such as Google) to inspect information about a Beneficiary (e.g. field of expertise, other projects and funding sources) or management personnel (e.g. their activities in other organisations, roles in other projects). This can be an effective means to get a better understanding of the beneficiary and to detect, for instance, potential cases of double financing. The number of projects implemented by a Beneficiary should also be included in the risk assessment prepared to select projects that will be subjected to an on-the-spot check. How do controllers check compliance? They often use sub-procedures such as inspections, interviews, observations or walk-trough (for more information see section 3.2 below). Controllers could verify that all the conditions outlines in the Subsidy Contract are complied with by inspecting relevant documentation and records, by inspecting project evidence (e.g. deliverables or outputs) or by interviewing project personnel. How can the checks be documented? Compliance checks are very definite by nature and a well developed first level control (FLC) system includes compliance checks in its checklists, especially those related to compliance with EU and national / entity legislation and programme rules. Therefore tick marks on the checklist or control report and references to the legislation concerned can be sufficient. Checks performed can be then documented by making a copy of the rule / regulation / legislation concerned which are kept on file. 50 5.3. CHECKS OF PLAUSIBILITY These kinds of checks verify whether expenditure incurred and declared are plausible or, in other words, credible and probable. Basically any check involving professional judgment on the side of the controller such as checking value for money or the allocation method for overheads is a plausibility check. In addition almost every check whether or not an expense was economically justified is a plausibility check and usually Controllers will check during an on-the-spot check (by means of interviews) what exactly people work on to get an idea of the plausibility of staff costs declared. Plausibility checks are used in both desk-based administrative checks as well as during on-the-spot checks and may involve inspections, reconciliations, recalculations or interviews. What do controllers check in terms of plausibility? It is neither necessary nor possible to check every Beneficiary and report in terms of every single potential plausibility aspect. Instead controllers apply professional judgment and decide which plausibility checks are especially required or useful for a given project and Beneficiary based on the risk assessment carried out at the beginning of the project. As an example controllers could decide to make certain plausibility checks on staff costs for those employees that have very high projectrelated costs. Examples include: plausibility of project outputs in relation to staff hours claimed plausibility of hours worked on the project in relation to other assignments / tasks of that staff plausibility of overheads charged to the project in relation to the time spent by the Beneficiary on the project Controllers do not check the quality of project activities and outputs in principle as the role of FLC is not to evaluate the project and there are quite often limitations for the Controller to assess results, especially with regard to specialist areas or studies (e.g. environmental impact assessments, training curriculae). How do controllers check plausibility? Controllers often need to rely ion their experience and apply professional judgment in order to come to a conclusion. There are three approaches to plausibility checks: 51 (i) checks within the project itself (e.g. comparing the expenditure incurred and declared to the overall progress of the project and outputs generated) (ii) checks with respect to other activities of the Beneficiary (e.g. comparing the allocation of overheads across the various projects the Beneficiary is involved in) (iii) checks in relation to what is usual / common on the market (e.g. comparing costs with benchmarks, maximum / average costs i.e. what is an average or maximum salary in the country for the type of personnel / expert employed, what is an average cost of renting an office in a particular town etc) Examples of checks include: interview with the project accountant inspection of timesheets: check if time worked on the project as indicated on the timesheets equals the hours claimed and whether or not they exceed daily working hours inspection of pay slips: check if payment of salaries contain ineligible expenditure (e.g. bonuses) compare salaries with what is typical in the sector taking into account the job description, the position, work experience etc How can the checks be documented? For checks requiring substantial professional judgment it can be useful to prepare a memo and in case the check involved the review of specific documents, it is also useful to include these documents in the working papers. 5.4. CHECKS OF EXISTENCE AND REALITY The objective of these kinds of checks is checking if the Beneficiary, the project, products or services as described in project reports exist in reality. They can also helpful in gaining a better understanding and insight of the project as well as the organisation that implements the project and its environment and to identify potential risks. They are mostly used during on-the-spot checks but can also be used during the desk-based administrative checks (e.g. verification of the existence of written outputs generated such as studies). What do controllers check in terms of existence and reality? 52 The EC guidance on management verifications highlights the importance of checks of existence and reality during on-the-spot checks in particular where operations are intangible and where little or no physical evidence remains upon completion (e.g. training courses). Depending on the kind of Beneficiary, the nature of the project and the controller’s own risk considerations, potentially useful checks of existence and reality can include: the overall situation of the Beneficiary i.e. office environment, staff, organisational structure, its legal environments the role of the Beneficiary in the overall project the Beneficiary’s financial management systems including audit trail and filing and archiving systems purchased goods written outputs such as studies, manuals, … information on project activities such as trainings, seminars, conferences, information events, press conferences etc How do controllers check existence and reality? Checks of existence and reality aim at comparing a written or oral statement (a “plan”) to the actual reality. Therefore controllers will always look at the “plan” first and then compare it to the actual situation. The “plan” may include for instance obtaining and inspecting an inventory of purchased goods which then will be counter checked during an on-the-spot check. How can the checks be documented? Controllers often document existence and reality by including evidence in the working papers such as: evidence of the project site such as plans of the project office, photos of the project office copies of project outputs (e.g. studies, manuals) other evidence such as training materials, attendance lists of meetings / workshops / seminars, press releases, photos of project events evidence of goods purchased (e.g. inventory which is ticked off) or photos of equipment In cases where serious issues are detected such as no evidence of the project being implemented, fake evidence, double financing) it can become necessary to draft a separate memo on the situation to be included in the controller’s working papers. 53 6. SUB PROCEDURES A set of sub-procedures underlie the above-stated substantive procedures: Inspection of documents and records Reading and understanding of any relevant document, electronic record or print out of an electronic record Double check of figures to ascertain that what is stated in one Reconciliation document is identical with the same figure included in another document Verification whether a figure was calculated correctly, i.e. a re- Recalculation performance of a calculation executed by the beneficiary is undertaken Inquiry and interview Documented discussions with beneficiary staff (extensive inquiries are usually referred to as interviews) Observation of processes events and Watching people while they execute project-related activities either at the premises of the beneficiary or any other site where projects activities take place Walk-through Tracing of a specific process or transaction step by step (e.g. tender process) The first three sub procedures are normally undertaken during the administrative desk-based checks whereas the last three would normally be performed during on-the-spot checks but they can also be used interchangeably. 6.1. INSPECTION OF DOCUMENTS AND RECORDS This is referred to as the reading and understanding of any relevant document, electronic record or print out of an electronic record and are an essential part of substantive procedures such as checking completeness, plausibility ort compliance and are used both during desk-based administrative checks as well as during on-the-spot checks. What do controllers inspect? Controllers will check for each payment claim whether the supporting documentation includes as a minimum: a list of expenditure showing the individual cost items and a total amount of expenditure 54 references of underlying invoices or documents of equivalent probative value, date of payment and payment reference number copies of invoices / receipts proof of payment for expenditure items However the above minimum requirements are considered insufficient in CBC programmes under shared management and it is common practice to inspect a much wider set of documents including relevant contracts, documentation of public procurements, written project outputs, publicity material, travel documents, calculation schemes (e.g. for the calculation of overheads), documentation of project meetings and events etc. Standard checklists outline a minimum set of documents and thus provide certainty that key documents are covered. However although some checklists are quite comprehensive and lengthy, no list can ever be complete and cover all potential cases and therefore controllers have to decide on a case-by-case basis whether or not certain additional documents (not included in the checklist) should be inspected. How can the inspections be documented? Checklists usually require information that cannot be obtained without inspection of the relevant documents and records. E.g. “checking whether all expenditure is directly related to the project and necessary for the development of the project” requires the inspection of invoices, Application Form, Subsidy Contract etc. Although the basic method is simple, inspections can easily become quite demanding and time consuming and some inspections may also require specific technical expertise that may not be readily available. It is very useful to inform Beneficiaries (e.g. by incorporating this into the letter announcing the onthe-spot check) in advance about the documents that should be prepared for inspection as this helps saving time during the on-the-spot check. 6.2. RECONCILIATION This is a basic check whether or not a figure included in one document is identical with the same figure included in another document (e.g. amounts stated in the Financial Report should be exactly the same as the ones stated in the Activity Report – see also the Section 6.1.2.2 “Financial Report” of the Programme Management and Control Manual – PMCM – developed for the IPA Adriatic CBC Programme). Usually when reconciling figures, Controllers do not stop just there but continue by re-calculating figures to ensure that they are mathematically correct (see below). 55 If figures cannot be reconciled, Controllers either reject the figure or ask the Beneficiary to submit a clarification. What do controllers reconcile? In principle each single figure included in the Financial Report should be substantiated with supporting documents and Controllers usually reconcile all these figures with the relevant supporting documentation. Examples include: reconciling the Financial Report with invoices and other supporting documents reconciling the Financial Report with the list of expenditure, the bank account statements and the Beneficiary’s accounting system reconciling staff costs with timesheets, hourly rates, payslips etc reconciling overheads with overhead calculation methods reconciling depreciation allocated to the project with the national rules in this respect Some reconciliations (e.g. the reconciliation of the Financial Report with the list of expenditure) are usually done during the desk-based administrative checks whereas others, such as the reconciliation of declared costs with the Beneficiary’s accounting system will be carried out during on-the-spot checks. How can reconciliations be documented? Some checklists include questions related to reconciliations like “do lists of expenditure and Financial Report match”? Controllers then indicate on the checklist which reconciliations were carried out and what were the results. In case of complicated reconciliations, Controllers may decide to include a memo in the working papers. 6.3. RECALCULATION This aims at verifying that a figure was calculated correctly and is thus arithmetically correct. Therefore a re-calculation is a re-performance of a calculation done by the Beneficiary in order to calculate eligible expenditure for a specific cost item. If figures cannot be re-calculated, Controllers either reject the figure or ask the Beneficiary for a clarification. Re-calculation often follows reconciliation as a logical next step. 56 Examples include: re-calculation of the sum of items included in the list of expenditure re-calculation of staff costs (hourly rates, sums in time sheets etc) re-calculation of overheads (way of allocation to the project) re-calculation of depreciation allocated to the project re-calculation of revenues generated, if any How can re-calculations be documented? Some checklists include questions related to re-calculation e.g. “are staff costs calculated correctly”? Controllers can then document in the checklist which checks were done and what were the results. In case of complicated re-calculations, Controllers may decide to include a memo in the working papers. Regularly inexperienced Beneficiaries have problems providing controllers with calculation schemes or methods and they leave it essentially up to the controller to come up with the calculated figure. However it is the responsibility of the Beneficiary to provide a traceable and verifiable calculation scheme / method for any cost allocated to the project. 6.4. INQUIRY AND INTERVIEWS These are documented discussions with Beneficiaries. They can be either short and relate to a specific outstanding issue or be quite extensive (e.g. so as to get a better understanding of the accounting process, procurement) and then they are often called interviews. Inquiries and interviews are mostly used during on-the-spot checks but can also be part of the deskbased administrative checks for instance in cases where Beneficiaries are invited to the premises of the controller to discuss the project. What do controllers inquire about? Controllers can inquire about any subject they consider relevant for FLC purposes. During an on-the-spot check it is quite normal and useful to conduct a general opening interview and a closing interview with the key personnel in order to obtain general information and to gain a better 57 understanding of the project (the project set-up, its process and progress), the Beneficiary (legal status, organisational set-up, staff, internal processes and controls, responsible persons with regard to accounting, public procurement etc) and the project environment (industry or sector activity, legal and organisational relations to other entities e.g. framework contracts with specific suppliers, outsourced personnel, funding sources including other projects co-financed by EU or national sources etc). It is good practice to start an on-the-spot visit with an interview on how the project progresses. Additional specific interviews with a view on obtaining information on specific (e.g. high risk) issues or transactions (e.g. specific public procurement) and discuss these with the person in charge. In order to do efficient and focused interviews, a list of questions prepared in advance and based on inter alia findings from preceding controls and audits can be very helpful. Controllers should identify and contact the persons to be interviewed in advance so as to ensure that they will be present during the on-the-spot check. How are inquiries and interviews conducted? Even though inquiries and interviews sometimes directly lead to the detection of an error, they are often not sufficient in itself and need to be complemented by further control procedures. Controllers may decide to first hold interviews with key personnel so as to better understand the project and then continue to verify whether the information obtained is true by applying other control procedures such as the inspection of documents, re-calculation etc… How can inquiries and interviews be documented? Controllers can prepare a memo of an inquiry and interview and include it into the working papers. In those cases where someone explained a specific document it could be sufficient to include this document in the working papers and put a short handwritten notice on it indicating the person that has been asked the question and the information obtained. 6.5. OBSERVATION OF EVENTS AND PROCESSES These involve watching people while they execute project-related activities such as an event or an internal process at the premises of the Beneficiary or at any other site where project activities take place. They are particularly useful if no “hardcopy” outputs of a process or event exists. 58 What do controllers observe? Controllers make individual decisions on what to observe on the basis of information obtained (e.g. during a desk-based administrative check) and / or own risk considerations related to the project (e.g. projects with many training events). Examples include: observation of a project event (e.g. seminar, conference, training etc) observation of an internal process (e.g. the execution of a payment)42 Observations may or may not be announced in advance. How can observations be documented? Observations can be documented in a memo describing the event or internal process that was observed. It can be useful to include copies of outputs or other evidence of the event or process observed (e.g. pictures) in the working papers. In cases where dates of project events are not made publicly available or are not indicated in project documentation, controllers can ask the beneficiary for a list of such planned events and respective dates and venues. It is also good practice that controllers request the beneficiary to inform them about planned tenders. Controllers can then decide to participate in evaluation meetings (as observer) or can request a copy of the Tender Dossier so as to check compliance with the prevailing procurement rules. These are considered pro-active checks which contribute to the prevention of serious problems during the implementation of the project. 6.6. WALK-THROUGH During a walk-through controllers trace a specific transaction or process of the Beneficiary step by step (e.g. a particular public procurement). A walk-through can be useful in order to gain a better understanding of the Beneficiary’s processes and internal controls and identify potential error sources or risks. 42 This can be an effective method to detect potential error sources and to learn how the process is performed by the Beneficiary. 59 What do controllers “walk through”? A walk-through can be very time consuming and controllers therefore have to make own professional judgment about whether or not to use the walk-through procedure and to what extent. An option regularly used in the FLC community is to perform a walk-through of the most risky transactions only (e.g. the major public procurement under a given project). Another option is the walk-through of a single expense of each cost category (e.g. staff costs of one employee, overheads of a given reporting period) or to simply trace one invoice through the beneficiary’s accounting system from receipt to payment. Examples include: tracing of one or more public procurement processes from the decision on the procurement procedure to be used to the conclusion of the contract tracing of one or more salary payments from the filling in of the time sheets by the employee to the payment to the employee’s account tracing of travel costs from the handing in by the employee to reimbursement by the organisation tracing depreciation from the calculation of the eligible depreciation costs chargeable to the project to the inclusion in the accounting system How do controllers conduct a walk-through? An example of a basic walk-through for public procurement contains the following steps: conduct a specific interview on public procurement with the person responsible within the Beneficiary’s organisation (e.g. how do you usually perform public procurement?) and inspect related documents (e.g. internal manual on public procurement if existing) select one public procurement as a sample and walk through in chronological order together with the Beneficiary and obtain all documents and records related to it (e.g. request for offers, offers received, evaluation, selection, contract) document the walk-through (e.g. in a memo) if material deviations from the processes (as identified during the interview or internal manual) are discovered, discuss these issues with the Beneficiary and where applicable define the error(s) and determine the financial effects 60 How can a walk-through be documented? A walk-through is basically a comparison between a planned process and an actual process. Therefore as a first step the controller can document the planned process by documenting the interview in a memo clearly describing the individual steps of the process and their expected outputs. The memo should be included in the working papers. As a second step the controller will document the results of the walk-through in a memo on the basis of the description of the planned process (as identified during the interview mentioned above) and the actual findings. An example of documentation of a walk-through of a procurement process related to services (single tender) may look like this: 61 Information obtained during the interview with the person responsible for public Documentation of the steps of the process that have been subjected to a walk-through procurement within the Beneficiary’s organisation Process step Output Planning of the services required Documentation on preliminary research and and decision on the procurement decision on the selection of the procurement procedure to be applied procedure to be used Initiation of the tender procedure Clear description of the services (e.g. Terms of (description Reference – ToR) of the services requested and definition of the Clear, unambiguous and non-discriminatory evaluation and selection criteria) evaluation and selection criteria have been Output available? Output correct? Y/N Y/N Controller notes defined Launch of the tender procedure Letters to potential service providers Receipt of offers Offers have been duly received and filed Evaluation of the offers Offers have been evaluated on the basis of the pre-agreed evaluation matrix Information to successful and All Tenderers that submitted a bit have been unsuccessful Tenderers informed about the result Signature of contract Signed contract 62 7. IRREGULARITIES AND RECOVERIES 7.1 BACKGROUND, DEFINITIONS AND TYPES OF IRREGULARITIES 7.1.1 Background The provisions with respect to the detection, reporting and ensuring the necessary follow-up measures with respect to suspected or actual irregularities in using EU funds, in combination with the recovery of amounts unduly paid, are laid down in a number of legal texts: Commission Regulation (EC) No. 1828/2006 of 8 December 2006 setting out rules for implementing Council Regulation No. 1083/2006 laying down general provisions on the ERDF, ESF and Cohesion Fund and Council Regulation No. 1080/2006 on the ERDF Council Regulation (EC, Euratom) No. 2185/1996 of 11 November 1996 concerning on-the-spot checks and inspections by the Commission to protect EC financial interests Council Regulation (EC, Euratom) No. 2988-95 on protection of EC financial interests Council Regulation (EC, Euratom) No. 1073-1999 concerning investigations conducted by the European Anti-Fraud Office (OLAF) Framework Agreement between Bosnia and Herzegovina and the Commission of the European Communities on the rules for cooperation concerning EC financial assistance to Bosnia and Herzegovina in the framework of the implementation of the assistance under the Instrument for Pre-accession Assistance (IPA) Council Regulation (EC) No. 718/2007 implementing Council Regulation (EC) No. 1085/2006 establishing an instrument for pre-accession assistance (IPA) and more in particular Article 114 and Article 138 of the IPA Implementing Regulations (IPA IR) Commission Regulation (EU) No. 80/2010 of 28 January 2010 amending Regulation (EC) No. 718/2007 implementing Council Regulation (EC) No. 1085/2006 establishing an instrument for pre-accession assistance (IPA) Basically the above-mentioned legal provisions state that participating countries shall be responsible for the management and control of cross-border programmes in particular preventing, detecting and correcting irregularities and recovering amounts unduly paid together with interest on late payment (if applicable). Beneficiary countries are obliged to notify such irregularities to the Commission and keep the Commission informed of the progress of administrative and legal proceedings. 7.1.2 Definitions IRREGULARITY - Any infringement of a provision of Community and/or national law resulting from an act or omission by an economic operator which has, or would have, the effect of prejudicing the general budget of the Communities by reimbursing an unjustified item of expenditure. 63 FRAUD - Any intentional act or omission relating to: (i) the use or presentation of false, incorrect or incomplete statements or documents which has as its effect the misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities (ii) non-disclosure of information in violation of a specific obligation with the same effect (iii) the misapplication of funds for purposes other than those for which they are originally granted43 CORRUPTION Active: deliberate action of whosoever promises or gives, directly or through an intermediary, an advantage of any kind whatsoever to an official for himself or for a third party for him / Her to act or to refrain from acting in accordance with his / her duty or in the exercise of his / her functions in breach of his / her official duties in a way which damages or is likely to damage the financial interests of the European Communities Passive: deliberate action of an official who, directly or through an intermediary, requests or receives advantages of any kind whatsoever, for himself or a third party, or accepts a promise of such advantage, to act or to refrain from acting in accordance with his/her duty or in the exercise of his / her functions in breach of his / her official duties in a way which damages or is likely to damage the financial interests of the European Communities 7.1.3 Types of irregularities Irregularities can take different forms and shapes and may be caused by a variety of reasons. They can be: Technical: arise due to the supply of material or workmanship of a lower quality than that specified in the contract (most especially for supplies and works types of contracts). Quality control should be ensured in the first place by the Beneficiary and double checked by the FLC when exercising on-the-spot checks. Contractual: arise due to an incorrect application of the contractual legal rules. A thorough knowledge and understanding of the contract is essential to avoid this kind of irregularities. Contractual irregularities include: 43 Whenever fraud is suspected it gives rise to the initiation of administrative of judicial proceedings at national level. Remember that fraud is a crime and therefore it is the relevant court that will qualify it as such. 64 - an incorrect delegation of powers and duties - incorrect site instructions - incorrect presentation of addenda / variation orders - failure to respect deadlines - incomplete or lack of supporting documentation - total lack of or insufficient accounting records Financial: can arise from fraud or error whereby financial irregularities are caused by fraudulent application or theft of funds which may include corrupt practices and are caused by mistakes in the processing of financial transactions resulting in erroneous movement of EU funds or a threat to the financial interests of the European Communities. The below is a non-exhaustive list of examples of financial irregularities, whether intentional (fraudulent) or unintentional (error): - costs declared which had not been foreseen in the original or revised (and approved) budget - expenditure which is apportioned to the project in an incorrect way - disrespect for the ratio between EU and national co-financing - revenue generated by the project but not declared by the Beneficiary Note: The FLC will use professional judgment and following an in-depth analysis of the issue concerned decide on a case-by-case basis whether the deviation from what should have been correct is serious enough to be taken to a higher level and to be put into the irregularity reporting system and recovery procedure mechanism. Please note in this respect as well that the FLC’s main role and responsibility is to control and validate expenditure declared PRIOR to reimbursement by the programme concerned so expenses rejected at the level of FLC result in non-payment anyway and therefore the financial interests of the European Communities are not damaged as such. Administrative: arise from non-compliance with applicable rules established under the programme concerned and quite often concern matters of incorrect presentation of documentation (e.g. not using the standard formats / templates agreed at programme level). 7.1.4 Irregularities by type of infliction Intentional: arise from actions of any player / institution involved in the overall process (Lead Beneficiary, Final Beneficiary, First Level Control Office - FLCO, National Authority – NA, National Fund - NF, 65 Joint Technical Secretariat – JTS, Managing Authority – MA, Certifying Authority – CerAut, …) in order to enrich himself or any other person and which is in conflict with the contract between the Beneficiary and the Managing Authority (MA). Examples include: - invoices issued for undelivered services, goods or works (fictitious invoices, dummy contracts) - invoices issued by non-existent firms - (original) invoices issued in duplicate (whereby one is charged to a given project and the duplicate to another with a view on obtaining reimbursement twice i.e. double-financing) - falsification or manipulation of accounting records and/or supporting documentation - transfers of funds to accounts not related to the project With respect to public procurement some of the most common irregularities that may be encountered include (non-exhaustive list): - artificial split of the envisaged services / supplies / works so as to be able to use the lesser demanding procedure given the lower threshold - proven conflict of interest between the Beneficiary and the Tenderer / Contractor - failure to state all the selection and award criteria in the tender notice / tender dossier - application of unlawful / discriminatory contract award criteria Unintentional: arise from actions of any player / institution involved in the overall process (Lead Beneficiary, Final Beneficiary, First Level Control Office - FLCO, National Authority – NA, National Fund – NF, Joint Technical Secretariat – JTS, Managing Authority – MA, Certifying Authority – CA, …) caused by negligence and resulting, in most cases, from an infringement of approved procedures. 7.1.5 Irregularities by type of impact With financial impact: those irregularities which have already resulted in the payment of unjustified expenditure to the Beneficiary (Note: one of the most important roles of the FLCO is avoiding validating unjustified expenditure) and which should be claimed back from the Beneficiary by means of the procedures in place (Note: if repayment by the Beneficiary cannot be ensured for whatever reason, the recovery procedure mechanism as explained below will be initiated). 66 Without financial impact: those irregularities which are identified prior to the reimbursement of unjustified expenditure to the Beneficiary (i.e. those expenses rejected and declared ineligible by the FLCO) 7.1.6 Irregularities by nature Systemic: arise from a fundamental weakness in the management and control systems and have a high probability of re-occurrence and can therefore occur in more than one project. Attention needs to be given to the fact that notwithstanding the fact that initially systemic irregularities may arise unintentionally, the system weakness can be eventually be exploited for fraudulent purposes. One-off: occur only in a specific project, are not system related and arise out of specific project situations and should, in principle, not occur throughout the system or in other projects if the management and control systems in place are properly functioning 7.2 DETECTION, PREVENTION, REPORTING AND RECORDING OF IRREGULARITIES AND RECOVERY FUNDS 7.2.1 Detection and prevention Irregularities can occur at any stage in the lifecycle of a project / programme and systems established for the detection and prevention of irregularities must therefore cover the entire project / programme life cycle. Main preconditions to prevent as much as possible irregularities include: strong commitment from top management transparent, comprehensive and easy to use written procedures segregation of duties thereby ensuring lack of conflict of interest effective internal control system independent audit function a well-functioning monitoring and evaluation system regular on-the-spot checks based on adequate risk assessment comprehensive system for filing and archiving of all documents (electronic as well as paperbased) proper procedures for reporting of irregularities 67 The FLC has a crucial role regarding the detection of irregularities since they are the only body performing 100% check of project expenditure. At the same time they have an important role in the prevention of irregularities by proposing improvements, through the Joint Technical Secretariat (JTS), the Managing Authority (MA) or the Working Group of First Level Controllers, to the financial management and control system and to assist, to a certain extent, the beneficiaries with their financial implementation issues and reporting duties. Irregularities can be detected on the basis of the verification of supporting documentation during the administrative desk-based checks or by means of findings during an on-the-spot check or a combination of the two (e.g. information provided on paper does not match the situation found in reality on site). 7.2.2 Reporting irregularities Whenever a First Level Controller (FLC) identifies, or suspects, an irregularity, s/he immediately informs the Irregularity Officer (IO) appointed within the CFCU.44 The IO is responsible for: acting as a focal point for the collection of any information regarding suspected and / or actual cases of fraud, corruption or malpractice which may arise during the implementation of a CBC programme under shared management collect all required documentation both from within as well as outside his / her organisation record the data in the Register of Irregularities (see below) establish a single file per suspected or actual irregularity provide active and unrestricted assistance to any authorised body investigating a suspected or actual irregularity (e.g. internal / external auditors, financial police, economic crime department, OLAF, …) participate in monitoring visits and on-the-spot checks, as required review and improve, if necessary, the existing system on the detection, prevention and reporting of irregularities The IO within the CFCU will examine each individual case submitted to him / her and if considered necessary draw up an “Irregularity Notification Form (INF) in the format provided below. 44 Suspicion is the situation in which there are indications that an irregularity has occurred but not all facts and circumstances are clear yet. 68 IRREGULARITY NOTIFICATION FORM (INF) DETAILS ABOUT THE PROJECT Programme title: …………………………………………………………………… Programme number: ……………………………………………………………………. Priority: ……………………………………………………………………. Measure: ……………………………………………………………………. Project title: ……………………………………………………………………. Project acronym: ……………………………………………………………………. Contract number: ……………………………………………………………………. Contract signature date: …. / …. / …. Contract duration: ….. months Contract end date: …. / …. / …. DETAILS ABOUT THE BENEFICIARY Name: …………………………………………………………………….. Address: …………………………………………………………………….. Contact person: ……………………………………………………………………... Email: ……………………………………………………………………… Tel / fax: ……………………………………………………………………… DETAILS ABOUT THE IRREGULARITY Date of detection: …. / …. / …. Project stage: ……………………………………………………………………….. How was the irregularity detected? ………………………………………………………………. Description of irregularity: ……………………………………………………………….. List of documents proving and substantiating the irregularity: (i) …………………………………………………………………….. (ii) …………………………………………………………………….. (iii) …………………………………………………………………….. Name of person initiating the irregularity procedure: …………………………………. Date of initiating the irregularity procedure: …. / …. / …. Signature: …………………………………. 69 At the same time the IO within the CFCU will register the actual or suspected irregularity in the so-called “Register of Irregularities”: REGISTER OF IRREGULARITIES FOR PROGRAMME ………………………………… Last updated: …. / …. / …. (to be updated on a monthly basis by the IO within the CFCU) Project Project No acronym Beneficiary Date Date Type of Source of Body / Amount affected by Amount to be irregularity irregularity irregularity information person that irregularity recovered was was detected committed detected irregularity IPA NCF Total IPA NCF Total Amount recovered IPA NCF Remarks Total 70 The IO within the CFCU then submits the Irregularity Notification Form (INF) to the IO appointed within the office of the National Authorising Officer (NAO) / National Fund (NF) who will analyse it and ultimately determine whether any further action is required. The IO within the office of the NAO will immediately inform the NAO who will decide on the most appropriate course of action which could entail as a first recourse either a further unplanned on-thespot check by the FLC in charge of the project, accompanied by both the IO of the CFCU and the IO of the NAO, to further investigate the case or a request to internal auditors to perform an audit mission. Based on the outcome of the additional checks, the NAO may decide to report the irregularity to the Managing Authority (MA), in the format designed under the specific programme and who will make a final decision. Upon receipt of all required information from the NAO, the MA in close cooperation with the Commission, decides whether or not the case requires further action in the form of e.g. judicial proceedings. Depending on the situation and following instructions from the MA and / or the Commission, the national irregularity and recovery procedure will be initiated which ultimately will lead to a request issued by the European Commission (EC) to the Government of Bosnia and Herzegovina (BiH) to refund the programme. The procedure related to detection and reporting of irregularities can be presented in a schematic way as follows: Action Description of the action Person responsible Deadline Audit trail / document Detection of the suspected / actual FLC Upon Irregularity Notification Form (INF) and No. 1 irregularity 2 Compilation of evidence / supporting detection FLC 5 WDs documents 3 Notification to Irregularity Officer within Register of Irregularities (RI) Supporting documentation in electronic version / hard copy FLC 1 WD Email all of the above IO CFCU 5 WDs INF / RI + supporting documentation IO NAO / NF 5 WDs INF + RI + supporting documentation the CFCU (IO CFCU) 4 Review of irregularity file and decision on further action (if further action required notification to Irregularity Officer within NF / NAO office) 5 Review of irregularity file and decision on further action (if further action required notification to the Managing Authority of the programme concerned) 7.2.3 Recording irregularities Upon detection of an irregularity, the person in charge of irregularities (IO) within the CFCU / FLCO must ensure that an “Irregularity File” is opened. Such files will be available to any auditing body investigating the irregularity. The purpose of the “Irregularity File” is to: 71 provide a history of the irregularity and the way in which it was treated provide information and evidence which might be needed in the case of e.g. criminal proceedings provide information in a consistent way if the details of the irregularity need to be communicated to relevant and authorised persons or institutions As a minimum the following data have to be recorded in irregularity files: project acronym project code project title priority measure (number and title) name of Lead Beneficiary country of Lead Beneficiary contact details of responsible person within Lead Beneficiary name of beneficiary from Bosnia and Herzegovina contact details of responsible person within beneficiary from Bosnia and Herzegovina budget managed by beneficiary from Bosnia and Herzegovina overall project budget First Level Controller in charge of the project type of irregularity reference to laws or other legal provisions which have been broken date when the irregularity occurred date when the irregularity was detected source of information on the basis of which the irregularity was detected irregularity has a financial impact (i.e. expenses had been validated and paid already) date when the irregularity was reported to the Irregularity Officer within the CFCU / FLCO date when the irregularity was reported to the Irregularity Officer within the office of the NAO date when the irregularity was reported to the Managing Authority date when the irregularity was reported to the European Commission information on any previous irregularities committed by this beneficiary, if applicable actions taken to resolve and eliminate the irregularity information about the progress and result of any action initiated to recover funds that have already been validated and paid out date on which the funds were recovered and the details of the account on which they were received 72 date of receipt of the recovery order from the European Commission deadline for repayment to the European Commission date on which the funds were transferred to the European Commission 7.2.4 Recovery of funds In addition Article 114 of the IPA IR states that it is the responsibility of the Certifying Authority (CerAut) of the programme concerned to ensure that any amount paid as a result of an irregularity is recovered from the Lead Beneficiary (LB). Final Beneficiaries shall repay the Lead Beneficiary the amounts unduly paid in accordance with the agreement existing between them. If the Lead Beneficiary does not succeed in securing repayment from a Final Beneficiary, the participating country on whose territory the relevant Final Beneficiary is located shall reimburse the Certifying Authority (CerAut) the amount unduly paid to that Final Beneficiary (FB). According to Instruction of the Minister of finance and Treasury No 08-02-1-9583-1/12 from November 11, 2012 ; Point 8., the recovery of funds is been regulated as follows: “If the MA of CBC Programme submits a request for a reimbursement of unduly paid out amounts to the MFT, the Ministry shall, in accordance with the Financial agreement between BIH, EC and the MA of that CBC Programme repay the requested amount from the budgetary position: Direct transfers - Funds appropriated for the withdrawal of IPA, a part of unallocated funds for projects. The Ministry shall take all actions in accordance with the laws of Bosnia and Herzegovina in order to compensate the reimursed funds from the BIH project beneficiary/project partner/LB. A claim for the executed recovery will be recorded in the Treasury General Leger.“ 8.PUBLIC PROCUREMENT 8.1 RULES ON PUBLIC PROCUREMENT The purchase of goods and services, as well as the ordering of works is subject to obligatory procurement rules as followes: IPA Adriatic CBC South East Europe (SEE) Mediterranean Programme (MED) PRAG is SUGGESTED 45 PRAG PRAG Public procurement in the IPA cross-border cooperation programmes with EU Member 46 State in shared management by Interact BIH Public procurement legislation 47 45 http://ec.europa.eu/europeaid/work/procedures/implementation/practical_guide/index_en.htm) 46 http://www.interact-eu.net/downloads/1909/Public_procurement_in_IPA_crossborder_ cooperation_programmes_with_EU_Member_States_in_shared_management.pdf 47 http://www.javnenabavke.ba/index.php?id=10zak&zak=1&jezik=en 73 8.2 BASIC RULES TO BE RESPECTED 8.2.1 Nationality and origin Nationality : grants are made to beneficiaries according to programme rules and the territorial eligibility for applicants is usually specified in the programme documents such as Calls for Proposals. This restriction does not apply to experts (external expertise) recruited under a specific grant contract as they may be of any nationality. Origin: all supplies and materials purchased under the IPA Subsidy Contract must EITHER originate in one of the 27 Member States of the European Union (EU MS) Austria Finland Latvia Romania Belgium France Lithuania Slovakia Bulgaria Germany Luxembourg Slovenia Czech Republic Greece Malta Spain Cyprus Hungary Netherlands Sweden Denmark Ireland Poland United Kingdom Estonia Italy Portugal OR in one of the countries eligible under the programme that provides the financing and as this is the Instrument for Pre-accession Assistance (IPA) equipment can be purchased also from the following countries: Any country that is beneficiary of the Instrument for Pre-accession Assistance (IPA): Serbia including Kosovo former Yugoslav Republic of Macedonia Turkey Montenegro Albania Bosnia Croatia and Herzegovina Any country that is beneficiary of the European Neighbourhood and Partnership Instrument (ENPI): Algeria Georgia Moldova Tunisia 74 Armenia Israel Morocco Ukraine Azerbaijan Jordan Palestinian Authority of Russian Federation the West Bank and Gaza Strip Belarus Lebanon Libya Syria Egypt Any country that is a Member State of the European Economic Area (EEA): Iceland Liechtenstein Norway International organisations: international public-sector organisations set up by intergovernmental agreements and specialised agencies set up by such organisations the International Committee of The International Federation of The European Investment Bank the Red Cross (ICRC) National Red Cross and Red (EIB) Crescent Societies Investment Fund (EIF) and the European For unit purchases exceeding € 5,000 the beneficiary should be able to submit proof of the origin of the equipment (to be obtained from the contractor). However In exceptional cases a derogation from the rule of origin can be obtained from the Contracting Authority (i.e. the Managing Authority in the case of CBC programmes under shared management) but this has to be duly justified and substantiated and such derogation has to be obtained prior to initiating the procurement procedure as normally no retroactive approvals are granted48. 8.2.2 Language It is recommended to use English wherever possible (accompanied if required by a translation into the local language). 48 Exceptional circumstances include (i) unavailability of services or products in eligible countries (ii) extreme urgency (iii) the realisation of the project or action will be impossible or exceedingly difficult if no derogation is obtained. 75 Expenditure related to public procurement of services, supplies and / or works that do not comply with the requirements prescribed may be considered ineligible by the First Level Controllers (FLC) and may give rise to, given the nature of the activity, the opening of an irregularity investigation and in the worst case scenario to a need for recovery of substantial amounts wrongly paid. 8.3 TENDER PROCEDURE WALK-THROUGH Given the fact that public procurement of services (external expertise), supplies (e.g. IT equipment) and works (e.g. infrastructure) needs to respect the procurement rules applicable under the programme concerned and in all cases must respect the basic principles of fair competition, transparency, equal treatment and non-discrimination, the First Level Controllers will systematically carry out additional checks (complementary to the desk-based administrative check of all documentation submitted by the Beneficiary) on any tender procedures carried out by the Beneficiary during the implementation of the project. In view of that the following “tender walk through” procedure will be executed by the First Level Controllers during an on-the-spot check (non-exhaustive list of checks): STEPS IN THE TENDER NATURE OF CHECKS BY FLC DOCUMENTS USED PROCESS 1. PROCUREMENT PLANNING Definition of needs The tender process is related to an Approved Application Form activity in the project as it was approved Modifications to the Subsidy Contract Procurement plan Estimated budget and sources of Budget limitations are respected Subsidy Contract financing Modifications to the Subsidy Contract Identification of and adherence All legal preconditions are fulfilled and Relevant to the regulatory framework respected (e.g. the correct procurement legislation rules Programme documents have been used, permits/licences/documents Choice of tender procedure any proving Manuals, EU and national guidelines and ownership etc have been obtained) instructions Correct tendering procedure according Approved Application Form to type (services, supplies, works) and Subsidy Contract amount (e.g. local open tender, single Modifications to the Subsidy 76 tender etc) was chosen Contract Procurement plan Tender Dossier 2. PREPARATION OF TENDER DOCUMENTATION Preparation of Non-discrimination Tender Dossier Principle of origin observed Clarifications Formal requirements related to Equal treatment, non-discrimination, fair Tender Dossier submission of bids by Tenderers competition principles observed Clarifications Equal treatment, non-discrimination, fair Tender Dossier competition principles observed Clarifications Equal treatment, non-discrimination, fair Tender Dossier financial) competition principles observed Clarifications Award criteria (best value for Equal treatment, non-discrimination, fair Tender Dossier money, competition principles observed Clarifications documentation Reference tender (Terms – ToR, of Technical Specifications- TS etc) (standard templates, deadline, language, packaging etc) Eligibility criteria nationality, (origin, grounds for exclusion) Selection criteria (technical, economically most advantageous offer, lowest price) 3. LAUNCH OF TENDER Decision to launch the tender and Launch of the tender procedure was Approved Application Form nomination formalised Decision Timing corresponds to the schedule of Procurement plan of Evaluation Committee (see also below) activities Publication of Procurement Notice / Invitations to Tender Tender was properly advertised Procurement Notice Minimum number of Tenderers invited Invitations to Tender according to the procedure 4. SUBMISSION AND RECEIPT OF BIDS Period of preparation of offers Required minimum period for the Publication / Invitations preparation of offers by Tenderers is Tender respected Register of offers received to Proofs of receipt Additional information during the Additional information was provided to Requests for clarification from bid preparation period all (potential) Tenderers and within the (potential) Tenderers 77 time limits set by the procedure Replies to (potential) Tenderers concerned. No illegal modifications to the tender conditions occurred Deadlines were respected Deadline for the submission of Tenders submitted before the deadline Publication / Invitations bids were accepted and those submitted Tender after the deadline have been rejected Register of offers received to 5. TENDER EVALUATION Evaluation Committee An Evaluation Committee was appointed Order for the nomination of the consisting of the minimum number of Evaluation Committee voting members possessing over the CVs of the members of the necessary skills and competence Evaluation Committee Declarations of Impartiality and Confidentiality Tender Opening Session and Public opening of offers (if applicable) Tender Opening Report Clarifications do not amend tender Requests for clarification and conditions replies received Eligibility and selection criteria were Evaluation Report formal check Clarifications Administrative compliance check observed Evaluation of technical and Award criteria were observed Evaluation Report financial offers Conclusions of the Evaluation Procedure Committee transparent and objective way and Evaluation was carried out in a Evaluation Report Report 6. CONTRACTING Contract with successful A contract was Tenderer successful Tenderer Letters to unsuccessful Tenderers Unsuccessful signed Tenderers with the Letter to successful Tenderer Contract were duly Letters to unsuccessful Tenderers notified about the result and the reasons for not awarding the contract to them 78 ANNEXIS: 1. ORGANIGRAMME OF THE MINISTRY 2. INTERNAL PROCEDURES OF THE FLCO BIH (LOCAL LANGUAGE) BIH Control Guidelines IPA Adriatic, Ver. 2, September 2013 BIH Control Guidelines for SEE, ver. 3 – July 2013 http://cfcu.gov.ba/ BIH Control Guidelines for MED, Ver. 1 from September 4, 2013 Interna procedura o kontroli javnih nabava, Ver. 1.8.2013. (LOCAL LANGUAGE) 3. Instruction on how to return the funds, reimbursement of funds and recording in the General Ledger paid less grant funding from the EC, endorsed by the Minister of Finance and Treasury, No 08-02-1-9583-1/12 from November 11, 2012 (LOCAL LANGUAGE) 79
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