Financial management and management and control

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Financial management and management and
control
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Presentation

• Outcome of the negotiations on the Financial
  Regulation main changes
• Effect of the changes in the Financial Regulation
  on the CPR
• Designation of authorities
• Submission of accounts and accompanying documents
  by the designated bodies
• Examination and acceptance of the accounts by the
  Commission
• Financial flows

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Outcome of the negotiationson the revision of
the Financial Regulation
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Purpose of the changes in revised FR affecting
cohesion policy (1)

• Clarifying and reinforcing the respective
  responsibilities of the Commission and of the
  Member States under shared management (Art. 317
  TFEU)
• Reinforcing the chain of accountability between
  Member States and the Commission by establishing
  a clearer link between the management and control
  systems of Member States and the annual assurance
  and discharge process at EU level

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Purpose of the changes in revised FR affecting
cohesion policy (2)

• Enabling the Commission to better assume its
  responsibilities for the implementation of the
  budget through a regular examination of the
  accounts, the corresponding management
  declarations and the accompanying documents
• Harmonisation of the management and control
  framework for all policy areas under shared
  management

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Provisions of the revised FR

• 1/ Member State obligations (Art. 56(2))
• Member States shall take all the necessary
  measures to protect the Union's financial
  interests
• ensure that actions financed from the budget
  are implemented correctly and effectively and in
  accordance with sector specific rules
• for that purpose designate bodies responsible
  for the management and control of EU funds and
  supervise these bodies
• prevent, detect and correct irregularities and
  fraud.

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Provisions of the revised FR

• 2/ Designation of bodies responsible for
  management and control and ending this
  designation (Art. 56(3))
• MS shall at appropriate level designate bodies
  responsible for management and control in
  accordance with criteria and procedures laid down
  in sector specific rules (SSR)
• Member States may base their designation on
  whether the management and control systems are
  essentially the same as previously and have
  functioned effectively
• If existing audit and control results show that
  the bodies designated no longer comply with the
  criteria, MS shall take the measures necessary
  including ending the designation in acc. with SSR
• The role of the Commission to be defined in SSR

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Provisions of the revised FR

• 3/ The requirement for the designated bodies to
  submit to the Commission(Art. 56(5))
• their accounts on expenditure made during a
  reference period defined in SSR
• a management declaration
• an annual summary of final audits and controls
• accompanied by an opinion of an independent audit
  body on the accounts (true and fair), the
  legality and regularity of expenditure, the
  proper functioning of control systems and the
  reliability of the management declaration.
• Deadline for submission - 15 February of
  following financial year (exceptionally 1 March)
• MS may provide a declaration signed at an
  appropriate level

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Provisions of the revised FR

• 4/ The Commission shall (Art.56(6))
• Apply procedures for the examination and
  acceptance of the accounts of the designated
  bodies, ensuring that the accounts are "complete,
  accurate and true
• Exclude expenditure in breach of applicable law
• Interrupt payment deadlines and suspend payments
  where provided for in SSR.

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Provisions of the revised FR

• 5/ Financial corrections (Art. 77)
• MS are in the first instance responsible for
  carrying out controls and audits and for
  recovering amounts unduly spent
• As far as MS detect and correct irregularities on
  their own account no financial corrections by
  the Commission
• However, COM shall make financial corrections on
  Member States in order to exclude from Union
  financing expenditure which is in breach of
  applicable law
• Based on identified amounts - where not possible,
  flat rate and extrapolated corrections in acc.
  with SSR
• Taking into account the nature and the gravity of
  the breach and financial implications
• Criteria and procedures may, and methodology for
  extrapolated and flat rate shall, be set out in
  SSR

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Provisions of the revised FR

• 6/ Special provisions for ETC (Art. 56 (6a)
• Sector-specific rules shall take account of
  the needs of European Territorial Cooperation
  programmes as regards, in particular, the content
  of the management declaration, the process set
  out in paragraph 3 designation of bodies and
  the audit function.

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Designation of authorities alignment of the CPR
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Procedure for the designation

• Changes required to Commission proposal of Oct
  2011
• No need for Article 64 (mainly duplicates the FR
  rest to SSR)
• No accreditation - relevant elements of Art 117
  to be reformulated as the procedure for
  designation (new Article 113 bis)
• Designation of the MA /CA
• by formal act by Member State at an appropriate
  level (no 'accrediting body' required)
• based on a report an opinion of an independent
  audit body (option of AA) which assesses
  compliance of MA/CA with criteria
• MS may take into account whether the MCS is the
  same as in the previous period and has functioned
  effectively.

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Criteria for designation

• Adopted by the Commission by way of delegated
  acts (currently Article 117 (1) CPR)
• Criteria for designation of MA/CA (from Art.
  64.2)
• (i) Control environment
• Staffing, training, recruitment
• Sensitive functions, conflict of interest
• Ethics and integrity policies
• Management and control system description
• (ii) Risk management
• (iii) Control activities
• Programme management (computerised systems
  accounting monitoring)
• Appropriate selection procedures
• Financial management and control
• Management verifications
• (iv) Info communication
• (v) Monitoring

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The role of the Commission

• The proportionate role of the Commission to be
  maintained as initially proposed
• MS submits the formal act to the Commission
  within 6 months of the adoption of the OP
• If Union funds gt 250m Commission may request,
  within 2 months, the formal act, the audit report
  opinion and the MCS description and make
  observations within 2 months
• Commission will take into account whether MCS is
  similar, the functioning of the current MCS, and
  if the MA also has CA functions

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Issues to clarify in the CPR (SSR)

• Supervision by the Member State based on existing
  audit and control results
• Introduction of a period of probation to avoid a
  situation where non-compliance with criteria
  leads to an automatic ending of the designation
• Procedure for the designation of a replacement
  authority

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Existing audit and control results
Supervision, the period of probation and ending a
designation
The designated authority no longer complies with
the criteria underpinning designation
MS ends the designation of the authority and
informs the COM
MS determines a period of probation for the
authority to undertake remedial actions
MS informs the COM of the period of probation
MS designates another authority based on the
applicable rules and informs the COM

• Necessary remedial action is taken
• MS lifts the probation
• MS informs the COM

• Necessary remedial action is not taken
• MS ends the designation
• MS informs the COM

MS designates another authority based on the
applicable rules and informs the COM
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Preparation and submission of accounts and
accompanying documents alignment of the CPR
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Tasks and deadlines

• CA responsible for (Article 115 (b)(c))
• Accounts for the preceding accounting year
• MA responsible for (Article 114 (4) (e))
• The management declaration accompanying the
  accounts
• An accompanying report including the annual
  summary
• AA responsible for (Article 116 (5) (i),(ii))
• The audit opinion accompanying the documents set
  out above
• An annual control report supporting the audit
  opinion
• Designated body (CA/MA) will submit these
  documents annually by the deadline set out in FR
  Article 56 (5) 15 February (exceptionally 1
  March).

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Timeline for the submission, examination and
acceptance of accounts
Examination and acceptance of accounts
Compulsory interim payment application
Accounting year
15 Feb (1 Mar) N1
Dec N
30 Jun N
Dec N-1
31 May N1
1 Jul N -1
30 Jun N1
Preparation of the accounts covering the
accounting year, management declaration
accompanying report incl. annual summary, audit
opinion annual control report
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Content of the accounts

• By priority axis (and, where relevant, broken
  down by category of region)
• The total amount of eligible expenditure entered
  into the accounts of the CA as having been paid
  by beneficiaries, the corresponding eligible
  public support which has been paid, and the total
  amount of public support incurred
• Amounts recovered and withdrawn, amounts to be
  recovered and the irrecoverable amounts
• Amounts of pre-financing related to Financial
  Instruments (Art. 56.5.a) FR)
• List of operations completed (ERDF/CF)
• Reconciliation of expenditure stated in accounts
  with amounts declared in interim payment
  applications explanation of differences
• Where applicable, identification of any
  expenditure covered by the 5 provision.

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Examination and acceptance of accounts alignment
of the CPR
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Examination and acceptance of the accounts (1)

• The Commission
• examines the accounts and the accompanying
  documents submitted by the MS by 15 February
  (exceptionally 1 March)
• requests further information for clarification
  purposes from the MS, if necessary
• informs the MS, by 31 May, whether it accepts
  that the accounts are complete, accurate and
  true, without prejudice to any issues relating to
  legality and regularity of the underlying
  transactions.

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Examination and acceptance of the accounts (2)

• The examination and acceptance of accounts by the
  Commission concerns the completeness, accuracy
  and the veracity of accounts (Art. 56.6.a) FR)
• The audit authority provides separate opinion on
• the accounts - complete, accurate and true
• the legality and regularity of expenditure and on
  the proper functioning of management and control
  systems

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Examination and acceptance of accounts (3)
MS submits the accounts and accompanying documents
Qualified audit opinion on the accounts
Unqualified audit opinion on the accounts
COM has no information contradicting the audit
opinion
COM examines the reasons for the qualified audit
opinion to determine how these affect the
accounts and the action to be taken

• COM
• accepts the accounts
• calculates the annual balance
• clears the annual pre-financing
• treats any legality and regularity issues

COM notifies the MS of the actions that must be
undertaken or of additional enquiries
Possible launch of a financial correction
procedure
Adequate additional action is taken
Adequate additional action is not taken
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Consequences of acceptance of accounts

• The annual balance
• the difference between the amount the COM has
  paid in the accounting year (annual pre-financing
  and interim payments) and the amount due on the
  basis of the expenditure included in the
  certified accounts
• Any balance in favour of MS is paid with the next
  interim payment (without prejudice to the
  treatment of legality and regularity issues)
• Any balance in favour of the COM is recovered
  (not a financial correction)

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Consequences of non-acceptance of accounts

• Where the COM is not in a position to accept the
  accounts by the deadline
• The annual balance is not paid/recovered
• The COM shall notify the MS of the actions to be
  undertaken to remedy the situation
• If it is determined that accounts submitted are
  not complete, accurate and true
• MS makes the necessary corrections (i.e.
  adjustments in the accounts)
• MS does not make the necessary corrections -
  launch of a financial correction procedure under
  Articles 136 and 137 of CPR

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Financial corrections

• Net financial corrections arise in cases
• where irregularities are detected by the COM or
  ECA audits after the submission of the accounts
• where a Member State detects irregularities but
  fails to make the necessary corrections, and a
  financial correction is applied by the
  Commission.
• Financial corrections by the Commission are
  applied following the procedure set out in
  Article 137 of CPR

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Other adjustments

• "Rolling closure may be re-examined, but
• Important to keep the mechanism for limiting the
  retention period of supporting documents for
  beneficiaries by the link to the list of
  completed operations included in the accepted
  accounts for the ERDF and CF/the expenditure
  included in the accepted accounts for the ESF.

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Main changes for alignment

• Main changes required to Commission proposal of
  Oct 2011
• Art. 75 not needed (mainly duplicates the FR
  rest to SSR)
• Art. 76 paragraph 1 to be adapted paragraph 2
  not needed
• Art. 114.4.e) to be adapted
• Art.116.5.i) to be adapted
• Art. 128 to be completed
• Art. 129 to be adapted and completed
• Art. 130 to be adapted and completed

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Financial flows
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Financial flows Pre-financing

• Initial pre-financing 4 paid in 3 instalments,
  cleared at the end of the programming period
• Annual pre-financing paid before 1 July (to
  ensure suffient liquidity in the context of the
  10 retention)
• 2 in 2016
• 2,5 in 2017-2022
• Annual pre-financing cleared as a result of the
  examination and acceptance of accounts

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Financial flows Interim payments

• Regular submission of interim payment
  applications with an obligatory application at
  the end of the accounting period (by 31 July,
  with the cut-off date of 30 June)
• Payment by Commission limited to 90 of amount
  due to a MS for each interim payment
• Remaining balance to be paid/recovered after the
  acceptance of accounts

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Objective

• Take account that the cycle of controls by
  MA/CA/AA is not complete when interim payment
  applications are submitted
• Remove misalignment between timing of ECA
  conclusions for annual discharge and timing of
  COM assurance on expenditure reimbursed
• Ensure that Member States have sufficient
  liquidity to make payments to beneficiaries

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THANK YOU!