ERDF Financial Control Unit - EU Structural Funds in Ireland

Transcription

ANNUAL
REPORT
2009
ERDF Financial Control Unit
Mission
To provide assurance that EU co-financed
projects are managed effectively and
expenditure is properly reported.
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Contents
Foreword
Page 3
Structure of Unit
Page 4
Section 1: Introduction
Page 5
Section 2: Financial Management 2000-2006
Page 11
Section 3: Financial Management 2007-2013 Page 17
Section 4: Performance of the Unit - 2009
Page 27
Section 5: Audit Findings
Page 37
Appendices Page 49
Appendix A: Annual expenditure declared and verified 2000 - 2009
ERDF Oerational Programmes
Cohesion Fund Projects
Page 50
Appendix B: Organisations visited 2009
2000 – 2006 M5% ERDF Verification Audits
2000 – 2006 ERDF Winding Up Reviews
2000 – 2006 M15% Cohesion Fund Verification Audits
2007 – 2013 Compliance Assessment Reviews
2007 – 2013 Audits of Systems
2007 – 2013 Audits of Operations (Expenditure)
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Staff of the Unit in 2009
Back, left to right: Donal Cahill, Lourda Gleeson, Shay Bourke, Sorsha Foran, Ivor Curran.
Front, left to right: Gerard Doherty, Larry Byrne (resigned March 2009), Dermot Byrne, Paul Herron.
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ERDF Financial Control Unit: Annual Report 2009
Foreward
Foreword
The year 2009 marked a transition for the ERDF Financial Control Unit (ERDF FCU) as work on closure
of the 2000-06 Structural Fund programmes intensified, while, at the same time, the Unit reviewed the
systems specifications and developed audit strategies for submission to the European Commission for
the new 2007-13 programmes. The ERDF FCU, as the Winding Up Body for ERDF programmes, will be
required to complete a declaration (opinion) in relation to each programme prior to the closure deadline
which falls on 30 September 2010.
In line with Structural Fund regulations, the Unit is the Audit Authority for the Ireland Wales trans-national
programme and for the two national ERDF programmes, namely the Border, Midland and Western, and,
the Southern and Eastern, Regional Operational Programmes. The Commission issued its approval of
the compliance assessment reports completed by the Unit and their endorsement of the suitability of the
proposed Irish financial control and audit systems.
During 2010 the Unit is continuing the audit of systems and operations for the new programmes. For the
first time, the ERDF FCU must submit an opinion with the annual control report which the Commission
require by 31 December each year. The sampling of operations will be on a random basis in order to allow
conclusions to be drawn in relation to the full population of projects being co-financed.
This Report aims to provide key information in relation to the financial management and audit environment
for ERDF and Cohesion Fund operations in Ireland. Specifically it covers:
(i) the role and responsibilities of the Unit,
(ii) information in relation to the 2000 - 2006 financial management systems,
(iii) an outline of the regulations and proposed control systems for 2007 - 2013,
(iv) a review of the activities of the Unit in 2009, and,
(v) the nature of the ERDF FCU audit findings to date.
Our hope is that management and staff of organisations involved in the management and audit of
operations co-financed by the Structural Funds will find the information and guidance helpful. The Unit
may also be contacted directly for advice or information in relation to the financial control and audit of
Structural Fund operations.
Dermot Byrne CPFA, MA
Head of Unit
May 2010
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Structure of Unit
Auditor
Lourda Gleeson
Controller
Paul Herron
Auditor
Shay Bourke
Head of Unit
Controller
Auditor
Office Manager
Dermot Byrne
Gerard Doherty
Donal Cahill
Ivor Curran
Auditor
Controller
Sorsha Foran
Vacancy
Auditor
Susanne McCarthy
Head of Unit
Dermot Byrne CPFA, MA Phone: + 353 57 936 3646
E-mail: dermot.byrne@finance.gov.ie
Auditors
Lourda Gleeson CPA
Phone: + 353 57 936 3648
E-mail: lourda.gleeson@finance.gov.ie
Controllers Gerard Doherty BA, ACMA
Phone: + 353 57 936 3628
E-mail: gerard.doherty@finance.gov.ie
Shay Bourke FCCA
Phone: + 353 57 936 3649
E-mail: shay.bourke@finance.gov.ie
Paul Herron CPFA, MA
Phone: + 353 57 936 3629
E-mail: paul.herron@finance.gov.ie
Donal Cahill BBS CPA
Phone: + 353 57 936 3650
E-mail: donal.cahill@finance.gov.ie
Sorsha Foran BComm ACCA
Phone: + 353 57 936 3647
E-mail: sorsha.foran@finance.gov.ie
Susanne McCarthy BA, ACCA
Phone: + 353 1 604 5775
E-mail: susanne.mccarthy@finance.gov.ie
Office Manager
Ivor Curran
Phone: +353 57 936 3651
E-mail: ivor.curran@finance.gov.ie
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SECTION ONE
INTRODUCTION
Background
Objectives of the Unit
Roles and responsibilities
Systems audits 2000-2006
Minimum 5% verification audits 2000-2006
Winding-Up Declarations 2000-2006
Authority and independence
Accountability of the Unit
Audit remit of the Unit
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Section 1: Introduction
Background
The ERDF (& Cohesion Fund) Financial Control Unit (ERDF FCU) was set up by the Department of
Finance in December 1998. The Unit is responsible for the audit of European Regional Development
Fund (ERDF) and Cohesion Fund co-financed operations under the National Development Plan (NDP)
2000-2006. The Unit is now the Audit Authority for the 2007-2013 ERDF programmes in Ireland.
The Unit’s staff complement is nine, namely, the Head of Unit, 3 Controllers, 4 Auditors and an office
manager.
Objectives of the Unit
The Department of Finance’s Statement of Strategy 2008-2010 sets out policy in relation to Structural
and Cohesion funds.
To develop policy proposals and advise the Government on EU Structural Funds, including financial
control and drawdown.
The primary role of the ERDF Financial Control Unit (ERDF FCU) is:
To ensure that Ireland complies with the regulatory requirements of the European Union in relation to the audit of European Regional Development Fund (ERDF) and Cohesion Fund (CF) co-financed operations (2000-2006).
To act as the designated Audit Authority for the European Regional Development Fund for the period 2007-2013 as required by Article 62 of Council Regulation 1083/2006.
To act as the Winding Up Body for the ERDF operational programmes in respect of the programming periods 2000-2006 and 2007-2013, and for Cohesion Fund projects for the period 2000-2006.
To promote best practice in the financial management, control and audit of EU co-financed operations in Ireland.
Roles and Responsibilities
The specific role and responsibilities of the Unit are defined below in terms of the two Structural
Fund programming periods 2000-2006 and 2007-2013 respectively, which are the subject of
separate EU regulations.
2000-2006 programming period
The framework for proper financial management, control and audit in respect of the 2000-2006
programming period is set out in Council Regulation (EC) No. 1260/1999 and Commission Regulation
(EC) No. 438/2001 (Structural Funds) and 1386/2002 (Cohesion Fund):
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carry out audits of expenditure for ERDF and Cohesion Fund operations in order to ascertain compliance with EU eligibility and other regulatory requirements;
ensure that audits of expenditure cover at least 5% of the total eligible expenditure eligible for ERDF aid and 15% for Cohesion Fund aid respectively;
plan and coordinate an annual programme of systems audits performed by internal audit units/
functions within authorities managing and/or carrying out EU co-financed operations;
Section 1 Introduction
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as the designated Winding Up Body for the ERDF and CF, the issuing of Declarations on the winding-up of assistance in line with Article 15 of Regulation 438/2001 (ERDF) and Article 13 of Regulation 1386/2002 (Cohesion Fund);
as required by Article 13 of Regulation 438/2001 (ERDF) and Article 12 of Regulation
1386/2002 (Cohesion Fund), provide annual control reports to the European Commission in
respect of the results of audits of ERDF and CF operations respectively, in particular, identifying
and reporting deficiencies or weaknesses in systems and controls;
reporting irregularities in line with the requirements of Regulation 1681/1994 (Irregularities and the recovery of sums wrongly paid) as amended by Regulation 2035/2005 and making appropriate recommendations thereon;
with the agreement of the Head of Unit, carry out specific audits or reviews as required by management of the Department of Finance.
To fulfil the above responsibilities, the Unit undertakes the following functions:
the planning and coordination of an annual programme of systems audits, performed by the ERDF FCU and Internal Audit Units, to comply with Article 10.1(a) of Regulation 438/2001 and Article 9.1(a) of Regulation 1386/2002;
ensuring that audits performed by the ERDF FCU verify a minimum 5% of eligible expenditure required by Article 10.1(b) of Regulation 438/2001 for the ERDF and a minimum 15% of eligible expenditure required by Article 9.1(b) of Regulation 1386/2002 for the Cohesion Fund.
2007-2013 programming period
The Unit is required to comply with the requirements of EU Council Regulation 1083/2006 (General
Regulation) and European Commission Regulation 1826/2006 (Implementation Regulation):
act as the designated Audit Authority in Ireland for the European Regional Development Fund (ERDF);
as the designated Compliance Assessment Body for the ERDF in Ireland, to complete an assessment of the adequacy of financial management systems, including a review of the system descriptions for the key authorities (Certifying Body, Managing Authorities, Intermediate Bodies);
ensure that audits are carried out to:
verify the effective functioning of management and control systems, and,
on an appropriate sample of operations, to verify expenditure declared;
the sample of operations to be audited, and the conclusions drawn each year, shall be based on a random statistical sampling method which takes account of internationally accepted auditing standards;
present and update as necessary an audit strategy to the European Commission and to the Audit Committee outlining bodies carrying out audits and sampling methods used;
by 31 December each year, submit to the Commission an annual control report setting out the findings of audits carried out during the previous 12 months period ending on 30 June of the year concerned and the rate of errors found;
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provide the Commission with an annual audit opinion, on the basis of audits carried out, as to whether the management and control systems function effectively so as to provide reasonable assurance that the statements of expenditure declared are correct;
submit to the Commission a closure declaration in respect of each operational programme and a final control report (by 31 March 2017).
Systems Audits 2000 - 2006
Since April 2003, the ERDF FCU has coordinated annual programmes of systems audits which are
carried out by internal audit units throughout the cascade structure.
The Unit has drawn up a Guideline Terms of Reference for internal auditors carrying out systems
audits. The Guideline follows the audit approach taken by the ERDF FCU and outlines the
requirements of the audit and the key checks which should be carried out. However, the expenditure
verified during these audits is not counted towards the minimum 5% requirement of Commission
Regulation No. 438/2001.
Minimum 5% Verification Audits 2000 - 2006
Article 10.2 of Regulation 438/2001 requires that at least 5% of the total eligible expenditure for an
Operational Programme (OP) should be subject to audit prior to the winding up of the Programme. A
minimum of 15% of eligible expenditure applies to Cohesion Fund projects. The ERDF FCU’s audit
strategy is to rely only on audits carried out by Unit staff to achieve the respective 5% and 15%
targets.
In order to spread the audit coverage evenly over the OP period, our aim is to audit a minimum of
5% of the annual eligible expenditure declared for each ERDF co-financed Programme. This period of
eligible expenditure runs from the year 2000 to 2008. A report of progress to date is at Section 4 of
this Report.
Winding-Up Declarations 2000 - 2006
In April 2003, the Unit was designated as the body responsible for issuing Declarations on the
Winding-Up of the assistance under Article 15 of Regulation 438/2001 in relation to ERDF operations.
Similarly, the Unit is the designated Winding Up Body for Cohesion Fund projects as required by
Article 13 of Commission Regulation 1386/2002.
The Declarations must be completed in respect of the final report and final statement of expenditure at
the closure of each operational programme. The purpose of the Declaration is to give an independent
conclusion as to the validity and correctness of the claim for the final balance of assistance.
As required by Regulations 438/2001 and 1386/2002, the Declarations should be based on an
examination of the management and control systems and on the findings of checks already carried
out. Given that the Unit is the independent audit unit responsible for management and/or performance
of audits of ERDF and Cohesion Fund operations, the Department of Finance decided that it was
appropriate that it also take responsibility for the Winding Up Declarations.
The Unit has legal right of access to financial records and EU co-financed assets in all public or private
bodies which manage or receive ERDF or Cohesion Fund assistance.
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Section 1 Introduction
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Authority and Independence
The Unit operates with the direct authority of the Minister for Finance, in line with the terms
of Statutory Instrument No. 482/2003 and under the general supervision and guidance of the
Department of Finance Audit Committee. It is empowered to audit all systems and activities within
the Department of Finance (Paying Authority), Managing Authorities, Intermediate Bodies, Final
Beneficiaries and Final Recipients as provided for in the Statutory Instrument. It has unrestricted access
to all records, reports, personnel, IT systems and assets in these bodies for audit purposes.
The Unit is independent of the activities that it audits. It has sole responsibility for the planning and
selection of projects to be audited and the manner in which the audits are conducted. The Unit may,
if deemed appropriate by the Head of Unit and the Audit Committee, or if requested by management,
advise on financial control and audit issues or review systems under development without prejudice to
its right to subsequently audit such systems.
Accountability of the Unit
In March 2003, following consultation with the Unit, the Department of Finance decided that the Unit
should report to the Department of Finance Audit Committee in relation to the planning and execution
of its audit remit. The Department of Finance is the designated Paying Authority for the ERDF and the
Cohesion Fund in Ireland. The major proportion of the Unit’s audit remit relates to other Departments
and public bodies involved in the management of Structural Funds. The Audit Committee takes
account of this when monitoring and reviewing the role, responsibilities and plans of the Unit.
A charter, signed by the Head of Unit, the Chair of the Audit Committee and the Secretary General of
the Department of Finance, sets out the Unit’s role and responsibilities, the scope of audit activities to
be undertaken and its reporting arrangements in relation to the Audit Committee of the Department of
Finance.
The Unit also reports to the Technical Assistance OP Monitoring Committee and updates the
Committee on progress in relation to key performance indicators (e.g. percentage of expenditure verified
to date for each Operational Programme/Cohesion Fund project, number of organisations visited,
number of audit reports). The Unit is 50% co-financed by the European Union under the Technical
Assistance OP.
Audit Remit of the Unit
2000-2006
The annual audit remit of the Unit for the 2000-2006 programming period is outlined below:
ERDF - Operational Programmes:
Economic and Social Infrastructure
Productive Sector
PEACE Programme
Southern & Eastern Region
Border, Midland and Western Region
CSF Technical Assistance
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ERDF - Community Initiatives:
INTERREG III (Ireland/Wales) *
INTERREG IIIB (North West Europe) *
URBAN Ballyfermot
* The Department of Finance is not the Paying Authority for these Community Initiatives.
Cohesion Fund projects
M1 Cloghran – Lissenhall (Stage 2)
M1 Lissenhall – Balbriggan
M50 South Eastern Motorway (Stage 2)
N18 Ennis By-Pass
Heuston Station & South West Rail Corridor Development (Stage 1)
Cork Main Drainage (Stage 3)
Limerick City and Environs Main Drainage (Stage 3)
Dublin Region Waste Water Treatment (Stage 5)
Dublin Region Solid Waste Management Infrastructure (Stage 1).
2007-2013
The audit remit of the Unit for the new programming period, 2007-2013, is outlined below. Nationally,
Ireland will have three Structural Fund Operational Programmes, two regional ERDF programmes and a
national ESF programme. As the designated audit authority for ERDF, the Unit will be responsible for the
audit of the two ERDF programmes. In addition, the ERDF FCU is the Audit Authority for the Ireland Wales
INTERREG Programme which is co-financed under the European Territorial Co-operation (ETC) objective.
Section 3 of this Annual Report outlines Ireland’s plans for the period in more detail.
Compliance Assessment Body
Completion of the compliance assessment exercise in relation to the key components of the proposed
financial management system for the ERDF Regional Operational Programmes. This comprised reviews
of the Certifying Authority (Dept. of Finance), Managing Authorities, Intermediate Bodies, Structural
Funds IT system and the national eligibility rules. A similar exercise was undertaken for the Ireland Wales
INTERREG Programme.
Audit Authority for the following Operational Programmes:
Border, Midland and Western Operational Programme
Southern and Eastern Operational Programme
IVA Ireland / Wales INTERREG Programme
Member of the ‘Group of Auditors’ for the following INTERREG programmes
The ERDF FCU will participate on the Group of Auditors for the following European Territorial Cooperation
programmes that have Irish project partners.
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IVA Ireland/Northern Ireland/Scotland
IVB North West Europe (NWE)
IVB Atlantic Area
IVC Inter-regional
IVB Northern Periphery
Systems Audits
Planning and coordination of systems audits to be performed on Certifying Authorities, Managing Authorities and Intermediate Bodies.
Winding Up Declarations
Issue of Declarations on the winding-up of assistance for ERDF Operational Programmes at the closure of the programmes.
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SECTION TWO
FINANCIAL
MANAGEMENT
2000 - 2006
Introduction
Payment to Final Beneficiaries
Financial Corrections
Closure of 2000-2006 Operational Programmes
Management verifications
Web Site
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Section 2: Financial Management
Introduction
The 2000-2006 operational programmes are now in the process of being closed. Although spending
is effectively ended at the date of this Report, there is still considerable work being carried out by
authorities to finalise spending programmes and submit expenditure declarations to the Commission.
The work of completing final reports and final statements of expenditure for each Measure within
Operational Programmes is a complex and time-consuming task.
The Paying and Managing Authorities are also reviewing expenditure in order to identify any ineligible
expenditure and/or any system weaknesses which may require action prior to closure. The Financial
Control Unit is continuing to carry out audit work on the various operational programmes in order to
complete its programme of Article 10 audits and prepare for the issue of winding up declarations for
each of the programmes. Work on closure of the programmes is likely to continue up to the end of
2010.
Payment to Final Beneficiaries
Generally, in the case of ERDF and Cohesion Fund projects, financing is initially provided by the
Exchequer as part of the national budget process - for example, via the Department of Transport and
the National Roads Authority to local authorities. In other words, projects are financed by national
exchequer advances which may include funding for elements of a project or operation which do not
qualify for European co-financing.
When the expenditure is incurred and certified, expenditure declarations are completed and returned
via the Managing Authority to the Paying Authority, which in turn submits a summarised expenditure
declaration in a claim to the Commission for re-imbursement of the co-financed element of the
operation / project. Instalments of the ERDF aid from the Commission are then held in the Exchequer.
Since the process of declaring expenditure does not have any impact on cash flow, there is a risk that
bodies might not give adequate attention to the process of completing expenditure declarations. The
absence of a penalty for inefficient procedures or errors further reduces the incentive to carry out the
process efficiently. In cases where there is a fundamental failure to meet planned project objectives or
where serious errors or system weaknesses occur, Ireland withdraws the EU funding from the project
and the Exchequer ultimately bears the cost of the project.
Financial corrections
Background
Commission Regulation (EC) 448/2001 provides the legal basis and sets out the procedures for
making financial corrections regarding assistance granted under the Structural Funds. The European
Commission has established a number of principles with regard to determining financial corrections. If
the applicable rules and regulations are respected, and all reasonable measures are taken to prevent
and detect fraud and irregularity, no financial corrections will be required.
If the applicable rules and regulations are respected, but the management and control systems
need to be improved, there should be pertinent recommendations, but no financial corrections need
be envisaged. If there are deficiencies in respect of the applicable rules and regulations, financial
corrections should always be made.
The amount of the financial correction will be assessed wherever possible on the basis of individual
files. If the irregularity appears systemic or covers a great number of similar operations or projects, the
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Section 2 Financial Management 2000 - 2006
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correction should be based on an extrapolation of findings from a representative sample of individual
files or on an evaluation of the actual risk of loss.
Where internal audit units or operational units detect deficiencies and remedial action is taken, and the
irregularity is reported to the Commission, the funds concerned can be re-allocated.
Flat rate corrections will be applied to all expenditure under the measure or measures concerned unless
it can be demonstrated that the deficiencies were limited to a certain area of expenditure. There will be
an opportunity to demonstrate to the Commission that the loss or risk to the Funds was less than the
corrections proposed by the Commission.
Types of corrections
The Commission can apply the following types of corrections:
Specifically quantified corrections
These are corrections made where a quantifiable irregularity is detected for an individual
operation or several individual operations. These will be applied where it is feasible to quantify
the correction. This would be the case where operations or parts thereof are ineligible or do not
respect EU legislation.
Extrapolated corrections
These will apply where the auditor has detected, in a representative sample of transactions, a
quantifiable irregularity that can be assumed will have recurred in other operations of the same
type, or throughout a measure, sub-programme or operational programme. The Commission can
apply extrapolated corrections where it has reason to believe that the irregularity detected is not
limited to specific cases investigated.
Flat rate corrections
These will be applied for individual breaches or systemic irregularities that are not in practice
quantifiable, such as those resulting from a failure to undertake checks effectively to prevent or
detect irregularities or to comply with a condition of the assistance or EU legislation (for example
information and publicity rules). These will apply where it is not possible to calculate the specific
loss related to an individual case or several cases of irregularities. They can also be applied when
a Member State discovers such failures and fails to take corrective action.
Scales of flat rate corrections
Scales of flat rate corrections can vary from 2% to 100% of the assistance:
A 100% rate will apply when the deficiencies in the management and control system are so serious as to constitute a complete failure to comply with Commission rules, so rendering all the payments irregular.
A 25% rate will apply when the management and/or control system is gravely deficient, there is evidence of widespread irregularity and negligence in countering irregular or fraudulent practices.
A 10% rate will apply when one or more key controls are not applied or applied so poorly or so infrequently that they are completely ineffective in determining the eligibility of the claim or preventing irregularity.
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A 5% rate will apply when all key controls are applied but not in the number, frequency, or depth required by the regulations.
A 2% rate will apply where key controls are adequately performed but ancillary controls are not operated or there is a failure to conform with the Structural Fund Regulations.
The Commission can decide to suspend an interim payment on the basis of the expenditure being
linked to a “serious” irregularity which has not been corrected (Article 39 of Council Regulation no.
1260/1999). If there is no change to this situation within 5 months and the Commission and Member
State authorities cannot agree on the action to be taken, the Commission can reduce the payment on
account or cancel all or part of the Structural Fund contribution to the action.
There is a reporting requirement that each Member State will report what irregularities have been
detected, the amounts involved, and the amounts recovered. In order to record this information, a
debtors’ ledger (a list of debtors owing money for repayment) to record money owed to accounts will
have to be kept for each Operational Programme.
Closure of 2000-2006 Operational Programmes
In view of difficulties and delays encountered in respect of the closure process in the 1994-1999
programming period, the Department of Finance set up a Closure Monitoring Committee (CMC) in
January 2006 chaired by the ERDF Paying Authority (Department of Finance). The CMC meets on a
monthly basis and includes representatives from the Paying Authorities for all the EU funds and from
each Operational Programme Managing Authority. The ERDF Financial Control Unit, as the designated
Winding-Up Body, also attends the meetings in an advisory role.
The objective of the CMC is to plan and prepare for closure in an orderly fashion. It will also ensure
that any financial irregularities contained in claims already submitted to Brussels are identified at the
earliest possible date and substituted with alternative eligible expenditure so as to avoid the imposition
of financial penalties on the Exchequer by the Commission.
As part of the closure process, a member state can make financial corrections in relation to errors or
weaknesses found. These can be as a result of, inter alia,, reviews by the Managing Authorities or the
Paying Authority or may be in relation to corrections recommended by the Winding Up Body as part
of its closure review. These corrections may be applied to the final statement of expenditure in order
to reduce the error rate below 2%, i.e. to a low error rate. The corrections can be punctual (one-off),
extrapolated or flat rate (based on an estimate of the detrimental effect on the Community Budget or on
an EU Guideline).
Ireland has followed a policy of ‘overbooking’ Structural Fund expenditure by declaring expenditure for
operations in excess of the amount required to draw down the budgeted Structural Fund allocation.
This effectively means that, in the event of declared expenditure being subsequently found to be
ineligible and corrected, the member state will still have enough declared expenditure to draw down
the full allocation of EU funding. Where such ‘overbooked’ expenditure exists, financial corrections can
be made without a net impact to the member state’s funding allocation, once the total amount of the
corrections is less than the amount of the “overbooked” expenditure.
Article 39 of Council Regulation 1260/1999 allows the Member State to make financial corrections in
relation to individual or systemic irregularities which will effectively cancel the Community contribution
to a particular operation. Funds released in this way may be re-used by the Member State for the
Programme concerned.
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Article 4 of Regulation (EC) No. 438/2001 requires Member States’ management and control systems
to include procedures to verify the delivery of the co-financed products and services, the reality of
expenditure claimed and to ensure compliance with national and Community rules in relation to, inter
alia, the eligibility of expenditure, public procurement, state aid, protection of the environment and
equal opportunities. Article 4 of Commission Regulation No. 1386/2002 contains similar provisions for
the Cohesion Fund.
In April 2006, the European Commission issued a ‘Working document concerning good practice in
relation to management verifications to be carried out by Member States’. This guide has been updated
in 2008 to take account of the the new regulations for 2007-2013. This draft document provides
examples of good practice regarding management verifications on expenditure declared by final
beneficiaries. It is intended to be of relevance during both the current and future programming periods.
It covers the regulatory requirements, general principles and purpose of verifications, the bodies
responsible for carrying them out, the timing, scope and intensity of the verifications, the organisation
of on-the-spot visits, the requirement to document the work and outsourcing. More detailed examples
of good practice are given in respect of two specific areas, namely public procurement and aid
schemes, which have sometimes been problematic in Member States.
The document states that verifications should cover all aspects, whether of a financial, technical,
physical or administrative nature, that determine the effective utilisation of the funds. The procedures
require the recording of verifications of projects on-the-spot. These records should state the work done,
the results of the verification and the measures taken in respect of any discrepancies. Where any
physical or administrative verifications are not exhaustive, but are performed on a sample of works or
transactions, the records should identify the works or transactions selected and describe the sampling
method used.
It also sets out the roles and responsibilities at the various cascade levels including managing authority,
intermediate body and final beneficiary level.
Web Site
Information on EU Structural Funds in Ireland can be accessed via the internet site: www.ndp.ie
This site provides information including the following:
Guide to funding under the NDP 2000-06
NDP/CSF Operation Programmes
Cohesion Fund projects
European Union Regulations and guidelines
NDP/CSF Evaluation Process
Press releases and publications
NDP/EU Logo and publicity guidelines
Featured projects
The website also contains links to the European Commission website as well as to Irish Government
Departments and State Agencies / Bodies.
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SECTION THREE
FINANCIAL
MANAGEMENT
2007 - 2013
Background
Structural Funds objectives 2007-2013
Irish National Strategic Reference Framework
Eligibility of expenditure
Management and control systems – general
Designation of authorities
Functions of the Managing Authority
Functions of the Certifying Authority
Functions of the Audit Authority
Management and control systems - Member States
European Commission Audit Reference Manual (ARM)
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Section 3: Financial Management 2007-2013
Background
In July 2006, the Council of the European Union adopted a series of regulations governing the 20072013 Structural Funds period which establish a simplified set of objectives for Cohesion policy. A
Convergence Objective aimed at speeding up the convergence of the least-developed Member States
and Regions by improving the conditions for growth and employment. This is the priority objective of
the Structural Funds and is where the bulk of the funding is concentrated.
Outside these regions, a Regional Competitiveness and Employment objective aims at strengthening
regions’ competitiveness, attractiveness and employment. Both of Ireland’s regions, the Border,
Midland and Western (BMW) and the Southern and Eastern (S&E) are funded under this objective,
with the BMW region qualifying for additional phasing-in support. There is also a third objective,
European Territorial Cooperation, under which Ireland receives funding on the PEACE III Programme
and Ireland Wales Interreg Programme.
Structural Funds objectives 2007-2013
Council Regulation 1083/2006 defines the objectives of the Structural Funds and the Cohesion Fund
and the criteria by which Member States and regions will be eligible for co-financing, the financial
resources available and the criteria for their allocation. In particular, the regulation lays down the
principles and rules on partnership, programming, evaluation, management (including financial
management) and monitoring on the basis of responsibilities shared between the Member States and
the Commission.
The ERDF, the ESF, the Cohesion Fund, the European Investment Bank (EIB) and the other existing
Community financial instruments shall each contribute in an appropriate way towards achieving the
following three objectives:
The Convergence Objective - aimed at speeding up the convergence of the least developed
Members States and regions (where per capita gross domestic product (GDP) is less than 75% of
the Community average) by improving conditions for growth and employment through an increase
and improvement in the quality of investment in physical and human capital, the development
of innovation and of the knowledge society, adaptability to economic and social changes, the
protection and improvement of the environment, and administration efficiency.
The Regional Competitiveness and Employment Objective – for territories outside the
Convergence objective, aimed at strengthening regions’ competitiveness and attractiveness as
well as employment by anticipating economic and social changes, including those linked to the
opening of trade, through the increasing and improvement of the quality of investment in human
capital, innovation and the promotion of the knowledge society, entrepreneurship, the protection
and improvement of the environment, and the improvement of accessibility, adaptability of
workers and businesses as well as the development of inclusive job markets.
The European Territorial Cooperation Objective - aimed at strengthening cross-border
cooperation through joint local and regional initiatives, strengthening transnational cooperation
by means of actions conducive to integrated territorial development linked to the Community
priorities, and strengthening interregional cooperation and exchange of experience at the
appropriate territorial level.
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Irish National Strategic Reference Framework
The principal EU Regulations which apply to this strategy document and to
the Operational Programmes which will be drawn up under it are the set of
Council Regulations adopted in July 2006. Under these Regulations, each
Member State must prepare a National Strategic Reference Framework
(NSRF) to guide the preparation of the Operational Programmes. The
Regulations provide that Ireland’s framework document must cover the
programmes under the Regional Competitiveness and Employment (RCE)
Objective.
Border, Midland
and Western Region
Southern and
Eastern Region
In Ireland, the National Strategic Reference Framework was prepared by
the Department of Finance and was submitted to the Commission in early
March 2007. The Structural Funds play a complementary role in relation
to the National Development Plan (NDP) 2007-2013 and will focus on
niche investments in employment, innovation, research and development
and strengthening the competitiveness, attractiveness and connectivity of
the National Spatial Strategy Gateways and Hubs.
Over the period to 2013, Ireland has been allocated in total €901m in European Union Structural
Funds. Of that amount, €750m is earmarked for the two Regional programmes and the national
Social Fund programme under the regional competitive and employment objective. The regional
breakdown of this sum is €458m for the BMW Region and €292m for the S&E region. As was the
case in the previous round, 50% of the funding is to be allocated to labour market activity funded
by the European Social Fund (ESF) and 50% to the European Regional Development Fund (ERDF).
The balance of €151m is for smaller Territorial Co-operation programmes, including the PEACE and
European Territorial Co-operation programmes. Ireland’s National Strategic Reference Framework was
agreed with the Commission in July 2007 and sets out the strategic priorities for the deployment of the
available funding.
The broad priorities in the framework will take shape through three operational programmes. One
national programme is investing in human resources and is part funded by the European Social Fund.
There are two regional programmes, one for the Southern and Eastern Region and one for the Border,
Midland and Western Region, both part funded by the European Regional Development Fund.
NSRF 2007-2013
Operational Programme
Structural Funds €m
Total spend €m
Human Capital Investment (ESF) 375
1,360
Southern & Eastern Region (ERDF)
146
668
Border, Midland & Western Region (ERDF) 229 572
Total
750 2,600
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3
Ireland’s strategic priorities for EU Structural Funds over the period 2007-2013, have been designed to
complement the National Development Plan (NDP) 2007-2013, which is the key investment vehicle
for addressing Ireland’s social and economic needs. The strategic priorities for the NSRF are to:
1. Promote investment in human capital through upskilling the workforce, increasing participation in the workforce and activating groups outside the workforce.
2. Support innovation, knowledge and entrepreneurship in the regions.
3. Strengthen the competitiveness, attractiveness and connectivity of the National Spatial Strategy Gateways and Hubs.
The National Development Plan 2007-2013 builds on the significant social and economic
achievements of the NDP/CSF (2000-2006). The two ERDF Operational Programmes can be
downloaded from the Regional Assembly websites, www.bmwassembly.ie and www.seregassembly.ie.
The National Strategic Reference Framework document is available at www.finance.gov.ie. The Human
Capital Investment Operational Programme is at www.esf.ie.
The Department of Finance Circular 12/2008 sets out the financial management and control
procedures for the Structural Funds 2007-2013 (see website: www.finance.gov.ie).
Expenditure is eligible for a contribution from the Funds if it has actually been paid between the date of
submission of the operational programmes to the Commission (or from 1 January 2007, whichever is
earlier), and 31 December 2015. Operations must not have been completed before the starting date
for eligibility.
Expenditure is eligible for a contribution from the Funds only where it is incurred for operations decided
on by the managing authority of the operational programme concerned or under its responsibility, in
accordance with criteria fixed by the monitoring committee.
The rules on eligibility of expenditure are laid down at national level subject to the exceptions provided
for in the specific regulations for each Fund. They cover the entirety of the expenditure declared under
the operational programmes. These were finalised in September 2008 by the Department of Finance
in its Circular 16/2008. (See website: http://www.finance.gov.ie)
Management and control systems – general
Regulation 1083/2006 requires that management and control systems of operational programmes set
up by Member states provide for:
(a) the definition of the functions of the bodies concerned in management and control and the allocation of functions within each body;
(b) compliance with the principle of separation of functions between and within such bodies;
(c) procedures for ensuring the correctness and regularity of expenditure declared under the operational programme;
(d) reliable, accounting, monitoring and financial reporting systems in computerised form;
(e) a system of reporting and monitoring where the responsible body entrusts the execution of tasks to another body;
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3
(f) arrangements for auditing the functioning of the systems;
(g) systems and procedures to ensure an adequate audit trail;
(h) reporting and monitoring procedures for irregularities and for the recovery of amounts unduly paid.
Designation of authorities
For each operational programme the Member State is required to designate the following:
(a) a managing authority: a national, regional or local public authority or a public or private body designated by the Member State to manage the operational programme;
(b) a certifying authority: a national, regional or local public authority or body designated by the Member State to certify statement of expenditure and applications for payment before they are sent to the Commission;
(c)
an audit authority: a national, regional or local public authority or body, functionally independent of the managing authority and the certifying authority, designated by the Member State for each operational programme and responsible for verifying the effective functioning of the management and control system.
The same authority may be designated for more than one operational programme.
In Ireland, the following are the designated authorities:
Operational
Programme
Managing
Authority
Certifying
Authority
Audit
Authority
BMW OP
BMW Regional Assembly
Department of Finance
S&E OP
S&E Regional Assembly
ESF OP
Department of Enterprise,
Trade and Employment
Department of Enterprise, Trade and Employment
ESF Financial Control Unit
Functions of the Managing Authority
The managing authority is responsible for managing and implementing the operational programme in
accordance with the principle of sound financial management and in particular for:
(a) ensuring that operations are selected for funding in accordance with the criteria applicable to the operational programme and that they comply with applicable Community and national rules for the whole of their implementation period;
(b) verifying that the co-financed products and services are delivered and that the expenditure
declared by the beneficiaries for operations has actually been incurred and complies with
Community and national rules; on-the-spot verifications of individual operations may be carried
out on a sample basis in accordance with the detailed rules to be adopted by the Commission;
(c) ensuring that there is a system for recording and storing in computerised form accounting
records for each operation under the operational programme and that the data on implementation
necessary for financial management, monitoring, verifications, audits and evaluation are collected;
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3
(d) ensuring that beneficiaries and other bodies involved in the implementation of operations maintain either a separate accounting system or an adequate accounting code for all transactions relating to the operation without prejudice to national accounting rules;
(e) ensuring that the evaluations of operational programmes are carried out;
(f) setting up procedures to ensure that all documents regarding expenditure and audits, required to ensure an adequate audit trail, are held;
(g) ensuring that the certifying authority receives all necessary information on the procedures and verifications carried out in relation to expenditure for the purpose of certification;
(h) guiding the work of the monitoring committee and providing it with the documents required to permit the quality of the implementation of the operational programme to be monitored in the light of its specific goals;
(i) drawing up and after approval by the monitoring committee, submitting the annual and final reports on implementation to the Commission;
(j) ensuring compliance with the information and publicity requirements;
(k) providing the Commission with information to allow it to appraise major projects.
Functions of the Certifying Authority
The certifying authority of an operational programme is responsible for:
(a) drawing up and submitting to the Commission certified statements of expenditure and applications for payment;
(b) certifying that the statement of expenditure is accurate, results from reliable accounting systems and is based on verifiable supporting documents and that the expenditure declared complies with applicable Community and national rules;
(c) ensuring for purposes of certification that it has received adequate information from the managing authority on the procedure and verifications carried out in relation to expenditure included in statements of expenditure;
(d) taking account for certification purposes of the results of all audits carried out by or under the responsibility of the audit authority;
(e) maintaining accounting records in computerised form of expenditure declared to the Commission;
(f) keeping an account of amounts recoverable and of amounts withdrawn following cancellation
of all or part of the contribution for an operation. Amounts recovered shall be repaid to the general
budget of the European Union prior to the closure of the operational programme by deducting
them from the next statement of expenditure.
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3
Functions of the Audit Authority
The audit authority of an operational programme is responsible for ensuring that audits are carried out
to verify the effective functioning of the management and control system of the operational programme.
The Authority must present an audit strategy to the Commission within nine months of the approval of
the operational programme.
The strategy outlines the bodies which will perform the audits, the method to be used, the sampling
method for audits on operations and the indicative planning of audits to ensure that the main bodies
are audited and that audits are spread evenly throughout the programming period. Where a common
system applies to several operational programmes, a single audit strategy may be submitted.
Each year from 2008 to 2015 the Authority must submit an annual control report to the Commission.
This report will set out the findings of the audits carried out during the previous 12 month-period
ending on 30th June of the year concerned in accordance with the audit strategy of the operational
programme and report on any short-comings found in the systems for the management and control of
the programme.
The report will include an opinion, based on the controls and audits that have been carried out under
its responsibility, as to whether the management and control system functions effectively, so as to
provide a reasonable assurance that statements of expenditure presented to the Commission are correct
and as a consequence reasonable assurance that the underlying transactions are legal and regular.
The Audit Authority will also be responsible for submitting a closure declaration for the relevant
operational programme by 31 March 2017.
Where the audits and controls referred to above are carried out by a body other than the audit
authority, the audit authority shall ensure that such bodies have the necessary functional
independence.
The ERDF FCU is designated as the Audit Authority for the two ERDF operational programmes in
Ireland. The Unit is required to develop and implement a random sampling methodology aimed
at providing a reliable error rate based on expenditure audited. The Unit will continue to use
risk assessment should they be required to select a complementary sample of transactions. Risk
assessment will also be used as the basis for the selection of measures and organisations to be the
subject of systems audits.
Management and control systems – Member States
Member States are responsible for the management and control of operational programmes, in
particular, ensuring that management and control systems for operational programmes are set up in
accordance with Articles 58 – 62 of Regulation (EC) 1083/2006 and that they function effectively.
The systems should prevent, or detect and correct, irregularities and recover amounts unduly paid.
If such amounts cannot be recovered, the Member State shall be responsible for reimbursing the
European Union if the loss has been incurred as a result of fault and negligence on its part.
Before the submission of the first interim application for payment or at the latest within twelve month
of the approval of each operational programme, the Member States are required to submit to the
Commission a description of the systems, covering in particular the organisation and procedures of
the managing and certifying authorities, intermediate bodies, the audit authority and any other bodies
carrying out audits under its responsibility.
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3
The descriptions referred to above must be assessed to ensure that they comply with Articles 58 to 62 of
Regulation (EC) 1083/2006. If the assessment opinion contains reservations, the report shall indicate the
seriousness of the shortcomings and, where the shortcomings do not concern the whole programme, the
priorities concerned. The Member State are required to inform the Commission of the corrective measures
to be taken and the timetable for their implementation and subsequently provide confirmation of the
implementation of the measures and the withdrawal of the corresponding reservations.
The report and the opinion must be drawn up by the audit authority or a public or private body functionally
independent of the managing and certifying authorities, which must carry out its work taking account
of internationally accepted auditing standards. In Ireland, the ERDF FCU is the designated Compliance
Assessment Body for the two ERDF Operational Programmes.
European Commission Audit Reference Manual (ARM)
The Audit Reference Manual brings together in one document the guidance relevant for the functions and
tasks of the audit authorities designated under Article 62 of Council Regulation (EC) No 1083/2006.
Since the adoption of the regulations for the programming period 2007-2013, the Commission has
in collaboration with the national authorities produced guidance notes covering the most important
requirements concerning the management and control arrangements.
The aim of the guidance notes is twofold:
They define and explain regulatory requirements in a detailed and clear way so that inconsistencies between the application of rules of different Member States and between the Commission and a Member State are avoided.
They give the Member States a useful tool for designing and organising their management and control systems by providing recommendations to ensure that the requirements of the regulations are fulfilled, with examples of good practice.
Further guidance notes may be added to the Audit Reference Manual in future or existing guidance notes
revised and updated if necessary.
The Audit Reference Manual does not replace the audit authorities’ own audit manuals, which have to be
prepared taking account of international audit standards.
Contents of the audit reference manual
The guidance notes included in the Audit Reference Manual can be divided into three categories:
1) guidance notes directly addressed to the audit authorities,
2) those related to the auditees, managing authorities and certifying authorities, and
3) general guidance notes of particular relevance to the audit authorities.
The Commission has issued many further guidance and information notes which are of relevance.
Guidance notes related to the audit authorities cover:
The Compliance Assessment exercise (under Article 71 of Regulation (EC) 1083/2006)
(COCOF 07/0039/01-EN);
The Audit Strategy (under Article 62 of Regulation (EC) No 1083/2006) (COCOF 07/0038/01-EN);
Page 24
A common methodology for the assessment of management and control systems in the Member States (2007-2013 programming period)(COCOF 08/0019/01-EN);
Sampling Methods for Audit Authorities (under Article 62 of Regulation (EC) No 1083/2006 and Article 16 of Commission Regulation (EC) No 1028/2006)(COCOF 08/0021/02-EN);
3
The concept of the reliance on the work of other auditors (COCOF 09/0002/01-EN);
Annual control reports and opinions (Article 62(d)(i) & (ii) of Council Regulation (EC) 1083/2006) (COCOF 09/004/01-EN);
Audit approach with regard to the simplified rules of eligibility on flat-rate indirect costs, standard scales of unit costs and lump sums.
Guidance notes for managing and certifying authorities cover:
The functions of the Certifying Authority for the 2007-2013 programming period
(COCOF 08/0014/02-EN);
Management verifications to be carried out by the Member States on operations co-financed by the Structural Funds and the Cohesion fund for the 2007-2013 programming period
(COCOF 08/0020/04-EN);
Brochure on eligibility rules;
Self assessment tool for Managing Authorities (COCOF 09/0005/00-EN).
Guidelines on horizontal topics:
Guidelines for determining financial corrections to be made to expenditure co-financed by the Structural Funds or the Cohesion Fund for non-compliance with the rules on public procurement (COCOF 07/0037/03-EN);
Guidance note on Partial closure (under Article 88 of Regulation (EC) No 1083/2006)
(COCOF 08/0043/02-EN);
Guidance note on the Annual summary in relation to Structural Actions and the European Fisheries Fund (under Article 53b(3) of amended Financial Regulation) (revised 10/2008) COCOF 07/0063/06-EN);
Information note on Fraud indicators for ERDF, ESF and CF (COCOF 09/0003/00-EN).
The guidance notes are applicable to the European Territorial Cooperation Programmes, and contain
specific sections where relevant.
Page 25
3
Page 26
4
SECTION FOUR
PERFORMANCE
of the UNIT 2009
Introduction
Staff complement
Programme of work in 2009
Audits/Reviews carried out in 2009
Irregularity reports recommended/noted
Cohesion Fund – Minimum 15% audits
ERDF – Winding-Up Declarations
Cohesion Fund – Winding-Up Declarations
Compliance Assessment Reports 2007-2013
Audit Strategies for 2007 - 2013 Programmes
Audit of 2007 - 2013 Programmes
Systems Audits 2007 - 2013
Audits of Operations 2007 - 2013
Other activities – 2009
Unit expenditure – 2009
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Section 4: Performance of the Unit - 2009
Introduction
This section of the Report sets out the key activities of the Unit during 2009 and provides performance
indicators in relation to the Unit’s audit function.
Staff complement
On 20 March 2009, Lawrence Byrne (Controller) resigned. Since that date, the Unit has one vacancy
at Controller level. Given the current civil service moratorium on recruitment, the vacancy is unlikely to
be filled in the short term. However, Ms. Susanne McCarthy (Auditor) joined the Unit in March 2010
on temporary secondment for a year from the Office of the Comptroller and Auditor General. All the
current audit staff are qualified accountants with considerable public sector audit experience.
Programme of work in 2009
During 2009 the ERDF FCU focussed on two key objectives:
The Unit carried out significant work in preparation for closure of the 2000-2006 programmes including audits to maintain the target 5% audit of expenditure.
The Unit continued with preparations for the audit of the 2007-2013 programmes, selecting the random sample of projects required for audits of operations (expenditure) and carried out a number of systems audits.
Audits/Reviews carried out in 2009
The Unit visited 55 organisations in the course of 2009 (See Table 4A).This comprised of 34
minimum 5% ERDF expenditure audits, 2 Cohesion Fund audits and 6 winding up reviews in relation
to the 2000-2006 programming period.
In relation to the new 2007-2013 Programmes, the Unit carried out 3 Compliance Assessment
Reviews, 9 Systems Audits and 1 Operation (operations) Audit (Ireland Wales).
Table 4A: Category of Audits & Reviews conducted - 2009
Audit / Review category
Minimum 5% ERDF Audits 2000-06
Minimum 15% Cohesion Fund Audits 2000-06
34
2
Winding Up Reviews 2000-06
6
Compliance Assessment Reviews 2007-13
3
Audit of Systems 2007-13
9
Audit of Operations (expenditure) 2007-13
1
Total
55*
* This includes seven visits relating to Irish Interreg operations for which the
Republic of Ireland is not the Paying Authority.
Page 28
No. of audits
Section 4 Performance of the Unit 2009
4
The ERDF FCU carries out systems audits which incorporate sample checks of expenditure to
achieve the minimum 5% verifications required by Article 10 of Regulation 438/2001. The audit
methodology followed is set out in the Guideline Terms of Reference for Systems Audits which the
Unit prepared for use by Internal Audit Units performing systems audits assigned to them by the
ERDF FCU.
The work of the ERDF FCU during 2009 concentrated on audits of operations which had not
previously been examined in order to ensure full coverage of all programme measures. The Unit has
significantly exceeded the requirement to audit a minimum of 5% of eligible expenditure for each
Operational Programme.
The Unit undertook systems audits (including 5% sample checks) of the following operational
programmes:
Economic and Social Infrastructure OP
Productive Sector OP
Border, Midland and Western Regional OP
Southern & Eastern Regional OP
Interreg Ireland Wales
In the period January to December 2009 the Unit carried out audits in 34 organisations in relation
to the 2000-2006 programming period. In the course of these audits the ERDF FCU verified
additional expenditure to the value of €87,917,527 (€78,484,975 in 2008). As at 31 December
2009, the Unit has verified expenditure of €441,244,744 from a total of €3,748,163,969
declared to the Commission, representing 11.8% of the cumulative expenditure declared to that
date.
The objective of the ERDF FCU is to prioritise the audit of high risk Measures and organisations and
at the same time to ensure sufficient audit coverage of all co-financed Measures over the life of the
programming period. The Unit’s Risk Assessment Model is the basis for selection of Measures and
organisations for audit.
Table 4B (on the following page) outlines the number of organisations visited, the cumulative
total expenditure declared, the amounts of expenditure verified during 2009 and the cumulative
expenditure verified to 31/12/2009. At 31 December 2009 the Unit had achieved the cumulative
minimum 5% target for all programmes.
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Table 4B: ERDF expenditure declared and verified to 31 December 2009
No. of organisations Cumulative total of Amount verified visited in 2009
eligible expenditure during 2009
at 31/12/2009
€
€
Cumulative amount
verified at
31/12/2009
€
BMW Region
8 434,965,170
8,249,336
54,067,455 12.4%
S&E Region
9 773,128,346
3,963,956
74,374,649
9.6%
ESIOP
61,843,000,973
68,849,320 250,918,151
13.6%
Productive Sector
5
Technical Assistance
0
8,930,194
URBAN Initiative
2
9,257,625 1,276,732
Peace & Reconciliation
4
84,553,305
0
Innovative Actions (BMW)
Closed
2,765,627
0
767,363 27.7%
Innovative Actions (S&E)
Closed
2,985,180
0
412,485 13.8%
588,577,549
5,578,183
50,381,379
8.6%
1,126,250
12.6%
0
3,026,628 32.7%
6,170,384
7.3%
Total 2009
34
3,748,163,969
87,917,527
441,244,744
11.8%
Total 2008
46
3,748,163,969
78,484,975
353,097,111
Source: Appendices A & B
Irregularity reports recommended/noted
Where the Unit establishes that a material error or irregularity occurred, we recommend that an
irregularity report be submitted to the European Commission in accordance with the requirements of
Commission Regulation 1681/94 – Irregularities and the recovery of sums wrongly paid as amended
by Commission Regulation 2035/05 of 12 December 2005 (www.europa.eu.int/eur-lex).
The findings of audit will result in irregularity reports based on the recommendations of the Unit as
well as reports already issued by the relevant authorities and noted in our audit reports. However, until
final reports are completed for the audits of the Programmes, we are not in a position to quantify the
exact value and number of errors/irregularities for 2009.
Cohesion Fund – Minimum 15% Audits
In the period January to December 2009 the Unit verified additional expenditure to the value of
€2,116,500 (2008 : NIL). Cumulatively, the Unit has verified expenditure of €318,759,120 from
a total of €776,935,509 declared to the Commission (41.03%). A breakdown of the number of
organisations audited and expenditure declared and verified is outlined in Table 4C below.
The ERDF FCU has completed verification audits in all 9 of the Cohesion Fund projects. Six of the nine
projects have had Winding Up Declarations completed by the Unit, which are subject to review by the
European Commission. The position as at 31 December 2009 in regard to these 9 Cohesion Fund
projects is summarised in Table 4C.
Page 30
Percentage expenditure
verified at
31/12/2009
9.4%
4
Table 4C: Cohesion Fund Minimum 15% Verifications 2000 - 2009
Project No. of organisations Cumulative total of Amount verified visited in 2009
eligible expenditure during 2009
at 31/12/2009
€
€
Cumulative amount
verified at
31/12/2009
€
Percentage expenditure
verified at
31/12/2009
M1 – Cloghran/Lissenhall
Closed 107,428,524
-
37,011,513 34.4%
M1 – Lissenhall/Balbriggan Closed
59,355,958
-
19,870,314 33.5%
Cork Main Drainage
Closed
56,272,288
-
16,482,422 29.3%
Limerick Main Drainage
Closed 145,116,150
-
26,004,494 17.9%
Heuston Station & South West Rail Corridor
Closed
-
22,994,296 26.8%
Dublin Region Waste Water Treatment
Dublin Region Solid Waste Management
Closed 190,287,520
85,905,402
- 157,476,634 82.8%
-
5,783,769
-
M50 South Eastern Motorway
-
87,409,510
-
24,891,408 28.5%
N8 Ennis By-pass
2
39,376,388 2,116,500
8,244,270 20.9%
Total 2009
2
776,935,509
2,116,500
318,759,120
Total 2008
-
776,935,509
316,642,620
40.8%
-
5,783,769
100%
41%
Source: Appendices A & B
Appendix A gives a further breakdown of the annual expenditure declared and verified for each
project. This information is reported quarterly to the Audit Committee of the Department of Finance
and twice yearly to the Technical Assistance Monitoring Committee.
ERDF – Winding-Up Declarations
The Unit is the Winding Up Body for ERDF co-financed programmes in Ireland (except Interreg and
Peace II). The ERDF FCU will rely to a significant extent on the results of audits conducted by the
Unit and by internal audit units on its behalf. The ERDF FCU attends meeting of the Structural
Funds Closure Monitoring Committee, set up by the Department of Finance in January 2006. The
Committee is overseeing a structured and standardised approach to the closure of all Structural Fund
Operational Programmes.
The Unit carried out 6 closure reviews on 5 Operational Programmes for the ERDF in consultation
with the Managing Authorities. Each Programme consists of a number of Measures which benefit
from ERDF co-financing. A number of Measures have fully expended their EU allocation – it is
planned to carry out rolling closures of each Measure as final reports and final statements of
expenditure become available.
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Cohesion Fund - Winding-Up Declarations
The ERDF FCU is responsible for management / performance of Article 9 systems audits and sample
checks of expenditure as well as being the Winding-Up Body for Cohesion Fund projects.
The final (closure) audits and related Winding Up work for the M50 South Eastern Motorway, the
N18 Ennis By-pass and the Dublin Solid Waste projects respectively are planned for completion
during 2010.
Compliance Assessment Reports 2007-2013
Article 71(2) of Regulation (EC) No 1083/2006 and Article 25 of the Commission Regulation (EC)
1828/2006 require Member States to carry out an assessment in order to express an opinion as to
whether the management and control systems established for the 2007-2013 programmes comply
with the requirements of Articles 58 to 62 of Council Regulation and Section 3 of Commission
Regulation. The opinion should be submitted with the description of the management and control
systems as required by Article 71(1) of Regulation (EC) No 1083/2006.
The Unit submitted the compliance assessment reports to the Commission in September 2008
(Ireland Wales) and October 2008 (BMW and S&E). In July 2009 the Commission accepted the
Systems Description and related documentation in respect of the two regional programmes. The
Ireland Wales programme documentation was similarly approved by the Commission in August
2009.
Audit Strategies for 2007- 2013 Programmes
Under a provision for “proportionality of control arrangements” in the regulations, the ERDF FCU
originally took advantage of a relaxation of the requirements for submission of an audit strategy for
the two regional programmes. This provision applies to programmes where the total eligible public
expenditure does not exceed €750m and the co-financing does not exceed 40% of the total public
expenditure. In such cases an audit strategy is not required to be submitted to the Commission.
However, in October 2009 the BMW Regional Assembly was granted Commission approval to
increase their co-financing rate to 50% in order to improve the timely drawdown of funds. As
a result, the Unit was required to formally submit an audit strategy for this Programme. A draft
was forwarded to the Commission in February 2010 and is currently under consideration by the
Commission.
The audit strategy for the Interreg Ireland Wales Programme, submitted in September 2008, was
accepted by the European Commission in September 2009.
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4
Audit of 2007-2013 Programmes
As required under Article 62(1) of Council Regulation 1083/2006 the ERDF Audit Authority (ERDF
FCU) will be responsible for:
a) Ensuring that audits are carried out to verify the effective functioning of the management and control system of the operational programme. (Systems Audits).
b) Ensuring that audits are carried out on operations on the basis of an appropriate sample to verify expenditure declared. (Operations Audits)
The first and statement of expenditure and claim for the BMW Regional Operational Programme
was submitted to the Commission on 30th October 2009. Therefore the ERDF AA’s programme for
systems audits and operations audits only began after this date.
Systems audits 2007-2013
Article 62(1)(a) of Council Regulation (EC) No 1083/2006 requires that audits are carried out to verify
the effective functioning of the management and control systems of the operational programme. The
Commission have provided practical guidance (COCOF 08/0019/00) on a common methodology
for the assessment of management and control systems in the Member States for the 2007-2013
programming period. This document establishes a framework for auditing management and control
systems in terms of;
defining key requirements of the applicable regulation (Council Regulation (EC) No 1083/2006 and Commission Regulation (EC) No 1828/2006),
defining assessment criteria for each key requirement to evaluate the effective functioning of systems,
providing guidelines for drawing conclusions on the effective functioning of systems for each key requirement and by each authority, and,
providing guidelines for reaching an overall conclusion by system on compliance with the regulatory key requirements taking into account any existing mitigating factors or compensatory controls.
The assessment tables provided by the Commission for evaluating the key requirements, conclusion by
authority and the overall conclusion will be completed as each key requirement is audited.
The ERDF FCU AA has elected to perform the assessment of all of the key requirements identified in
COCOF 08/0019 from within its own resources. This situation may be reviewed in the future in the
light of resources available to the Unit. The following programme implementing bodies which are
subject to systems auditing are as follows:
Certifying Authority (Department of Finance)
Managing Authority (BMW Regional Assembly)
Intermediate Bodies
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Audits of operations 2007-2013
Article 62.1(b) of Council Regulation (EC) No 1083/2006 requires that audits are carried out on
operations on the basis of an appropriate random sample. Our audit of operations will cover the
following key assurance areas and ensure that bodies are adhering to EC regulations and project letter
of offers;
Operation’s applicability to the operational programme,
Mangement & Control Systems,
Eligibility of expenditure,
Match funding declared,
Procurement procedures,
Horizontal Issues / Cross cutting themes,
State aid,
Revenue generation, and
Publicity.
The ERDF FCU has elected to take full responsibility for the Article 62.1(b) audits of expenditure
(operations) and reporting on the results of such audits. The audit of expenditure declared in the first
claim submitted on 30 October 2009, commenced in January 2010.
Other Activities - 2009
During 2009, other activities of the Unit comprised:
Information and publicity - Annual Report 2008
The Unit issued its eighth annual report (2008) in June 2009. The principal purpose of the Report is
to provide a source of financial management information in relation to EU regulations and guidelines
and the structures and procedures in place in Ireland.
Annual reports to the European Commission
The Unit submitted formal Annual Reports to the Commission in respect of 2000-06 ERDF and
Cohesion Fund audits respectively (June 2009). The reports, required by EU regulations, outlined the
extent of the work completed by the Unit and the key audit findings.
The Unit is also required to submit Annual Control Reports and opinions to the Commission for the
2007-13 programming period. These were submitted on 22 December 2009. As no audits of
operations was yet finalised (up to 31 December 2009) for the new national programmes, a qualified
opinion was given.
EU Meetings and Seminars
The Unit was represented at a number of meetings and seminars: 2 Technical Group meetings in
Brussels (March & December 2009); Audit Coordination Meeting with DG Regio (June 2009); Audit
Authority Annual Meeting, Slovenia (October 2009).
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4
Seminars, internships and study visits
The Unit participated in seminars and training courses in relation to the financial management and
audit of Structural Funds. Seminars included presentation at the Institute of Public Administration
in Dublin both to Irish delegates and study visits from EU candidate countries. Presentations abroad
included seminars at the European Institute of Public Administration, Maastricht and an IPA course
held in Poland.
Freedom of Information (FOI)
The Unit is subject to the provisions of the Freedom of Information (FOI) Act, 1997. The FOI Act
asserts, subject to specified exemptions, the right of the public to obtain access to information held by
Government Departments and Offices and certain public bodies, consistent with the public interest and
the right to privacy of individuals.
The Unit has met its requirements in relation to FOI by maintaining a guidance manual on the
functions, records, rules and procedures of the Financial Control Unit as required by Sections 15 &
16 of the Act. The manual and an application form for information under the FOI Act is available on
request from the Unit’s FOI Officer as follows:
Name: Mr. Gerard Doherty
Phone: + 353 57 936 3628
E-mail: gerard.doherty@finance.gov.ie
Unit expenditure – 2009
The costs of the ERDF FCU are co-financed by the ERDF under Technical Assistance for both the
2000-2006 and the 2007-2013 programming periods. Expenditure for 2009 was €585,514
(€670,517 in 2008). The cumulative expenditure for the Unit at 31 December 2009 was
€4,018,715.
Table 4D: Unit expenditure 2009
Expenditure Category
2009
€
2008
€
541,842
589,738
28,637
56,913
286
2,052
Training
1,178
2,052
Subscriptions
2,878
2,281
Publications & stationery
6,918
15,978
Other office expenses
3,775
1,503
€585,514
€670,517
Payroll
Travel & subsistence
Seminars
Total
Cumulative expenditure 31/12/2008
€3,433,203
Cumulative expenditure 31/12/2009
€4,018,715
Page 35
4
Page 36
5
SECTION FIVE
AUDIT FINDINGS
Introduction
Audit objectives
Audit Findings to date
Audit Trail
Public procurement
Information and publicity
Documented procedures
Page 37
5
Section 5: Audit Findings
Introduction
The findings and recommendations resulting from the audits of ERDF co-financed Operational
Programmes and Cohesion Fund projects are communicated to the European Commission, the Paying
Authority (Department of Finance) and the Managing Authority concerned. This section of the Report
outlines progress in implementing EU regulations and improvements in the financial management
and control systems for Structural Funds in Ireland. It also highlights the problems and issues noted
in audits performed by the ERDF FCU and by Internal Audit Units performing audits assigned to them
by the ERDF FCU. Other issues come to the attention of the Unit as a result of requests for advice or
guidance from organisations involved in EU co-financed operations. This Section of the Report will look
at:
The audit objectives of the ERDF FCU
A review of the types of errors and systems weaknesses found to date.
The findings described below are not intended to be a comprehensive listing of issues arising on audits.
The objective of this part of the Report is to outline key risk areas where errors or over-claims might
occur or where system weaknesses might arise.
These findings relate to issues arising during the 2000-2006 programming period. In January 2010,
the ERDF FCU began audits of ERDF expenditure for the Structural Funds 2007-2013.
Audit objectives
The audit objectives of the ERDF FCU are based on an examination of six key areas to assess the
effectiveness of the management and control systems in place in an organisation:
Audit trail
Public procurement
Information & publicity
Article 4 spot checks
In addition to audits performed directly by the ERDF FCU, we recommend that internal audit units
apply the same key objectives in the performance of systems audits assigned to them by the ERDF
FCU. The following is a brief explanation of each of the headings above:
Audit trail
That the audit trail is sufficient;
Page 38
To allow the various expenditure returns completed at each level of the cascade to be reconciled to the returns made at the level below it (from the Paying Authority to the Final Beneficiary).
For the declarations completed by the Final Beneficiary to be reconciled to the accounting records.
Section 5 Audit Findings
5
To ensure that the accounting records of Final Beneficiaries have an adequate audit trail to invoices and other probative documentation.
To ensure that accounting records of Final Beneficiaries record transactions accurately.
To ensure that all adjustments are properly documented.
That the expenditure returned is eligible as per European Commission Regulation 448/2004 for the
Structural Funds and Regulation 16/2003 for the Cohesion Fund. The Regulation can be accessed at
the European Commission website www.europa.eu.int/eur-lex.
Public procurement
That public procurement procedures have been adhered to as set out in the “Public Procurement
Guidelines (July 2004) issued by the Department of Finance. This may be viewed at the Department’s
website www.finance.gov.ie or is available from this Unit.
The guidelines contain updates in relation to EU Directives introduced in 2004. EU Directive 2004/17/
EC covers the procurement procedures of bodies operating in the water, energy, transport and postal
services sectors. Directive 2004/18/EC covers procedures for the award of public works, public supply
and public service contracts respectively. The Directives must be implemented by member states no
later than 31 January 2006.
Information & publicity
That EU publicity and information requirements have been met in line with European Commission
Regulation 1159/2000.
Article 4 spot checks
The adequacy of management verifications and on-the-spot checks to verify the delivery of products/
services to comply with Article 4 of Regulation 438/2001.
The extent to which financial management and control procedures have been documented.
Audit Findings to date
The following is a review of the key audit findings categorised under the audit objective headings.
Audit Trail
Retention of supporting documents
A potential problem, particularly in voluntary or private sector grant-aided bodies, is the retention by
the project sponsor of key documents in relation to expenditure. In some cases, bodies are unable
to furnish the schedules of expenditure or calculations to support expenditure allocations. It is
critically important that bodies retain documentary evidence to support all grant claims or expenditure
declarations, particularly where the organisation’s accounting system does not retain a record of
previous years’ expenditure reports.
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5
Transcription and calculation errors
Cases were noted where eligible expenditure was inadvertently overstated due to calculation or
transcription errors. This highlights the need for checking of expenditure declarations and supporting
documents by an individual other than the person who prepared the document.
Contribution by grant recipient
A co-financed Measure provided for grant aid to projects where the grant recipient received funding for
85% of the approved construction cost. However, there was no control procedures or evidence on the
files reviewed to confirm that the grant recipient actually paid the 15% private contribution, i.e. that
the gross cost was as specified in the grant request. In one case, the penultimate grant aid instalment
was paid to a final recipient without evidence that the final recipient had actually paid the contractor.
The intermediate body involved in the Measure undertook to review the procedures and to ensure
on-the-spot checks to confirm actual expenditure incurred and paid by the grant recipient. We note
that new procedures are in place for projects that commenced since 2003 which require that the 15%
private contribution be confirmed by contractor’s receipts before the subsequent grant payment can be
processed.
Individual Job Codes
A project examined was found to have been carried out in two phases of works. Phase II expenditure
was eligible for ERDF co-financing but Phase I expenditure was not. Both phases have been entered
onto the accounting system of the final beneficiary using a single job code. In order to maintain a clear
audit trail individual job codes should be allocated to all phases of works which would enable a clear
audit trail for all transactions subject to co-financing.
Completion of Form B’s (expenditure declarations)
Our examinations of Form B’s identified a number of inadequacies in their completion. These included:
incorrect dates or dates omitted
reference numbers for Measures omitted from supporting schedules
omission of cumulative certified expenditure figures
omission of Form B1 reference numbers on subsequent Form B2
inadequate supporting evidence for adjustments
no reconciliation between Form B1s (final beneficiaries) and Form B2s (intermediate bodies)
on file.
amended Form B’s not cancelled or annotated (i.e. more than one Form B’s on file for a
particular period).
difficulties in reconciling Form B1 figures (final beneficiaries) to the accounting records in a number of instances. This represents a break in the audit trail and raises questions about the eligibility of the expenditure reported.
Such omissions weaken the audit trail and increase the risk of error. Declared expenditure that is not
fully supported by accounting records and appropriate probative documents (invoices etc.) should be
disallowed.
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Audit Trail - supporting documents
Instances were noted where (i) original tender documents and (ii) delivery dockets were not available
at the time of audit or where photocopied invoices were used to support expenditure returned.
Acceptance of photocopies is contrary to good practice and increases the risk of duplicate payments.
Audit Certificates
A number of implementing bodies placed reliance on auditor’s certificates in support of grant claims
from final beneficiaries. While this Unit welcomes the additional assurance afforded by independent
audit certification, in several instances errors were noted in the amounts and types of expenditure
included in the certified claims.
This Unit recommends that audit certificates should be accompanied by a schedule of the expenditure
items comprising the claim to allow spot checking by the implementing agency. Furthermore, auditors’
certificates should be based on clear terms of reference which include the requirement to certify
compliance with EU regulatory requirements.
Overheads
We have noted instances where there was no supporting documentation to explain the allocation of
overheads. The basis for the inclusion of overhead costs should be clearly explained and justified.
Repayable grants
It was noted that grants, which included a repayable element, were being returned for co-financing
under an ERDF measure. In response to our finding, the Managing Authority informed us that, under
the Measure in question, there is an element of repayable grants which is eligible for co-funding so
long as the repayable element is not re-used for co-financed activity or the income is netted off a
subsequent claim.
It is this Unit’s view that final beneficiaries should amend the expenditure declarations (Form B1’s)
by making a deduction in respect of grant refunds received in order to ensure that the claims to the
Commission only reflect actual grants paid and retained by the grant-aided body.
Eligibility criteria for project
The progress reports for group water supply projects provide physical indicator data to determine the
domestic and non-domestic usage of the water supply. Rural Water measure criteria rules state “ERDF
support will be provided only where 50% of usage/consumption is by the non-domestic sector …”. In
two instances we noted that domestic usage was estimated at 33.5% and 42.1% respectively per the
physical indicator data.
Payment of advance
An intermediate body advanced an amount of almost €1m to an implementing body to cover a 5%
advance payment to a contractor to cover costs at the initial set up period. This advance payment was
included in expenditure declared to the Commission although it did not represent expenditure actually
incurred and paid.
Advances to contractors are only eligible when the advances concerned are (i) an accepted practice in
the member state concerned, and (ii) are specified in the contract terms.
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Commission Decisions - Cohesion Fund 2000-2006
Infrastructure projects co-financed by the ERDF do not generally require prior authorisation by the
European Commission - the Member State can allocate funds to projects once they satisfy Operational
Programme objectives. However, for the programming period 2000-2006, Cohesion Fund projects
required a Commission Decision, i.e. specific sanction as to the nature, scope and timing of the costs
eligible for co-financing and the aid rate to be applied. This sanction may exclude specific elements of
the project from Cohesion Fund aid.
This Unit has noted previous decisions by the Commission to disallow expenditure which do not fall
specifically under the terms of the Decision for the project - in some cases this may lead to elements of
a single contract being excluded from co-financing.
We therefore advised implementing bodies and intermediate bodies to examine expenditure
declarations to reduce the risk that they might include expenditure for work which is not covered by
the Decision. In the M15% verifications undertaken by this Unit, a key element of our audit has been
to ensure that expenditure declared is clearly in line with the terms of the Commission Decision for the
project.
This Unit made a number of findings in relation to expenditure which, in our view, was not eligible or
where eligibility was difficult to establish in terms of the relevant Commission decision. The following
are examples of expenditure categories which we considered questionable;
(i)
(ii)
Design costs - where the Decision specifically refers to construction costs only. An exception may be in the case of a DBO (Design/Build/Operate) contract where this contract method was notified in the application to the Commission.
Operation and maintenance - costs to maintain an existing facility while construction is underway or commissioning costs of the new facility at the completion of the project.
(iii) Ancillary works - works undertaken to facilitate the installation of utilities, e.g. new water mains, ducting for telecoms/broadband.
(iv) Other contracts - contracts in respect of work related to the project but not included in the Decision (or specifically excluded from the decision).
It is important that on-the-spot checks (Article 4) are designed to detect and correct such items prior
to claims being submitted to the Commission. Furthermore, as projects are subject to separate closure
declarations and final reports, it is important that the final statement of expenditure does not contain
expenditure for works which are outside the scope of the relevant Commission Decision.
Eligible costs
Previous reports of the Unit referred to the nature of the expenditure which was declared for ERDF cofinancing by final beneficiaries involved in capital infrastructure projects. We offered guidance on costs
which we would consider constitutes eligible expenditure for the purposes of ERDF co-financing:
Contract expenditure: contract costs directly attributable and charged to the project.
Page 42
Direct labour: the cost of direct labour supported by wage rates and timesheets which demonstrate that the cost is directly attributable and charged to the project.
Machinery hire/charge-out: the cost of hiring plant or machinery or the local authority’s charge out rate for machinery (in line with tender prices - local market cost) and time-sheets/logs which demonstrate that the cost is directly attributable and charged to the project.
Direct materials: the cost of materials consumed on the project supported by unit costs in line with tender prices (local market cost) and delivery notes which demonstrate that the materials were actually used and charged to the project in question.
5
Direct expenses/overhead: other expenses in respect of activities directly related to the project,
supported by probative documentary evidence which demonstrate that the costs are appropriate, attributable and charged to the project in question (e.g. travel costs supported by
actual travel claims based on the local authority’s authorised mileage rates). The regulation states
that overheads are eligible if they are “based on real costs which relate to the implementation of
the operation”.
Administration costs
Previous annual reports referred to certain administration costs of final beneficiaries claimed as
eligible for ERDF co-financing as directly incurred project expenses, i.e. under Rule 1 of Commission
Regulation 448/2004 (Eligibility rules). We stated that it was our view that Rule 1 refers to overheads/
costs incurred in the implementation of the operation co-financed by the Structural Funds, i.e.
overheads /costs incurred by the operator /project manager of the co-financed project, i.e. in this case,
the final recipient.
This Unit considered that the final beneficiaries were grant approving bodies whose administration
costs were generally in respect of activities related to the selection, appraisal and monitoring of
projects. Our view is that these costs would be more appropriately co-financed under the Technical
Assistance Measure in line with the normal arrangements for costs covered by Rule 11 of Commission
Regulation 448/2004.
Inclusion of accruals
Accrued expenditure (expenditure incurred but not actually paid) was included in error as expenditure
eligible for EU co-financing. Only expenditure incurred and paid by the Final Beneficiary can be
claimed as eligible.
Allocation of professional salary on a percentage basis
Payroll costs for professional staff (i.e. engineers and technicians) were charged to a project on a
percentage (estimated) basis rather than allocating costs based on actual time spent on the project
(e.g. timesheet or diary).
Percentage overheads and mark-ups
Costs charged on the basis of a percentage mark-up of direct costs are difficult to support and justify as
eligible expenditure. The following cases were noted:
A local authority included an overhead charge equivalent to 20% of the salary of an engineer.
A “mark-up” of approximately 15% was charged to projects based on the values of materials issued from stores.
A final beneficiary implemented a policy of including a freight charge of 25% on the cost of the materials.
Ineligible costs included in project
There were instances noted where expenditure returned was unrelated to the project and had been
posted in error to the project code and subsequently incorrectly included in an expenditure declaration.
Instances were noted where costs, although related to the project in question, were not deemed to be
the type of expenditure covered by the project approval and were therefore considered ineligible. The
overclaim was corrected in a subsequent expenditure return.
We recommend that final beneficiaries review the supporting schedules for expenditure declarations to
confirm eligibility of expenditure items. Such reviews are necessary to reduce the risk of ineligible items
being included.
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5
Financial penalties
Interest on a late payment was returned as eligible expenditure. Financial penalties are not eligible for
co-financing by the EU.
Valued Added Tax (VAT)
VAT does not constitute eligible expenditure except where it is genuinely and definitively borne by
the final beneficiary or the final recipient in the case of an aid scheme. VAT which is recoverable,
by whatever means, cannot be considered eligible. In one case, VAT recovered by a wholly owned
subsidiary of a final beneficiary, was returned as eligible expenditure. Where input VAT is recoverable
by a company, or in this case, by a group of companies, only the net cost to the group should be
returned as eligible expenditure.
Estimated amounts
An implementing body submitted expenditure returns based on estimated private matching
expenditure. Estimates of expenditure are not allowed by the Commission and only actual expenditure
incurred and paid should be reported. A recalculation of the private expenditure, based on the actual
expenditure incurred, revealed overstatements and understatements.
Legal fees
Expenditure of €6,050 was claimed in respect of expenditure which related to a discretionary decision
by a final beneficiary to seek legal advice on the legality of an extension of a contract. We deemed this
expenditure to be in breach of Rule 3 of Regulation 448/2004 and therefore ineligible.
Public procurement
Tender opening
A number of cases were noted where the recording of tenders received and opened was inadequate. It
is recommended that a Tender Opening List, signed and countersigned by designated officials, should
be completed during the tender opening process and should record the names of all tenderers and the
total tender price in each case. Final Beneficiaries should ensure that they hold a copy of the original
tender documents in the event of a dispute over the contents of the documents subsequently.
Unforeseen costs
Increasingly, during the course of the ERDF FCU’s audit work, contract cost increases have been noted
on co-financed projects. These cost increases have been due to additional works added to the original
contract by the contracting authority, cost increases provided for in the terms of the contract, or through
a combination of both of these factors. Where additional works have been awarded to the original
contactor directly by negotiation and without prior publication of a contract notice for the additional
works, this has given rise to some concerns in the context of compliance with EU public procurement
rules.
In this regard, it should be noted that a public works contract may only be awarded by negotiated
procedure, without prior publication of a contract notice, in certain circumstances including, inter
alia, for additional works not included in the initial contract but which have, through unforeseen
circumstances, become necessary for carrying out the work. In such cases, contracting authorities may
use the negotiated procedure provided that:
(i) The works are assigned to the contactor carrying out the project and,
(ii) they cannot be technically or economically separated from the main contract without great inconvenience or they are strictly necessary to its later stages, and,
(iii) the aggregate value of the contract awarded for additional works does not exceed 50% of the value of the main contract.
Page 44
5
Therefore, unless all of the above conditions are fulfilled, additional works should not be awarded by
negotiation without prior publication of a contract notice, particularly where the cost of the additional
work exceeds the relevant EU thresholds.
The questions that auditors need to address include:
Whether the increased costs could have been foreseen at the procurement stage.
Whether the additional costs have arisen as a result of additional works (as referred to in the EU Public Procurement Directives) or simply as a result of other factors such as price variation clause included in the original contract, without any additional works having been carried out.
The rules in this area seek to ensure that there is equal treatment of all of the original tenderers
and that they have not been excluded from tendering for additional works that should have been
included in the original contract competition. In this regard, it should be noted that the concept of
unforeseen events is taken to mean occurrences that overwhelmingly transcend the normal bounds of
economic life.
The European Commission has produced a series of useful guides on the Community Rules for Public
Procurement Contracts which can be accessed from the following website address:
http://ec.europa.eu/internal_market/publicprocurement/guidelines_en.htm
Procurement planning issues
In one case significant cost increases arose on a project due to the large number of post contract
variations that were required. In another case the bill of quantities was insufficiently detailed to allow
for foreseeable additional works. In both of these instances, more effective planning could have
addressed the issues.
Post contract award notice
There were several instances noted where the contract award notice was not submitted to the Official
Journal of the European Union (OJEC) within the specified time limit.
Direct award of consultancy contract
We have noted a case where a consultancy contract was awarded directly without recourse to a
procurement competition. No matter what the circumstances of a particular project might be, project
sponsors should ensure that contracts are advertised and awarded in an equitable and transparent
manner, ensuring fair competition.
Tender evaluation and award
We have noted cases where the award of contracts is not clearly documented and justified. This is
particularly important where the lowest tender fails to win the contract. It is important that the award
criteria are formulated and communicated to all potential contractors prior to the evaluation process.
Evidence of an objective and fair tender evaluation process should be available for examination (tender
evaluation report).
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5
Information and Publicity
Other than minor infringements in relation to signage (the size of the EU area on billboards) which the
ERDF FCU did not consider to be significant, information and publicity measures were found to be
satisfactory.
Invitation to Tender Adverts
Commission Regulation No. 1159/2000 requires that any documentation (i.e. tender adverts,
stationery, etc.) referring to ERDF funded projects should have an EU logo/text reference highlighting
the co-financing between the State and the EU. Generally, at the time that adverts for invitation to
tender are placed, the final recipient may be unaware that the projects are to be co-financed by the
ERDF. When a project is selected for ERDF co-financing the information should be relayed as soon
as possible to the final recipient to ensure publicity requirements are implemented correctly and in a
timely manner.
Stationary and publicity materials
Potential problems include the absence of EU logos and co-financing information on stationary or
correspondence relating to some schemes.
Improvements during 2000-2007
Procedures to improve the performance and recording of management verifications have been put in
place by the Paying Authority and Managing Authorities. In November 2004, the ERDF and Cohesion
Fund Paying Authority created a qualified accountant position to carry out management verifications
as part of its certification responsibilities. Similarly, the Southern & Eastern Regional OP Managing
Authority has an officer in place carrying out this work since 2004 and the BMW OP Managing
Authority has recruited an accountant for this task in 2007.
In 2006, the Department of Finance established a Management Verification Sub-Committee in order
to ensure that all the bodies within the cascade are, for the purposes of closure, coordinating their
management verification efforts in accordance with agreed practices and standards. The sub-committee
comprises verification staff from each Managing Authority and focuses specifically on issues related to
desk checks and on-the-spot checks. The ERDF Financial Control Unit attends in an advisory capacity
and the sub-committee is chaired by the Paying Authority within the Department of Finance.
The emphasis of the sub-committee, which meets on a monthly basis, is on providing standard
checklists for management verifications focussing on preventing, or identifying and correcting, common
errors identified during previous audits and checks. These checklists were distributed to relevant
authorities in early 2007.
Results of audits
Audits carried out by the ERDF FCU have reviewed procedures to ensure management verifications are
carried out efficiently. The following deficiencies were noted in some cases:
The performance of desk checks on declarations received was not evidenced.
On-the-spot checks were not spread over the life of the programme.
Page 46
In the case of one large project, it was found that the organisations at the higher levels of the cascade were slow to implement a system of spot checks.
5
In relation to Cohesion Fund projects, it was recommended by the ERDF FCU that management
verifications should be carried out over the life of the project and not just on the final claim. The
checks should be performed prior to certification of expenditure and the checks should be recorded and
documented.
A claim audited by the ERDF FCU did not provide sufficient assurance that the conditions of the grant
agreement or the relevant ERDF regulations have been complied with, or that sufficient management
verifications had been conducted.
A systems audit carried out by an internal audit unit noted that a final beneficiary accepted expenditure
declarations from final recipients without undertaking further checks. The final recipient declarations
were submitted without supporting documentation and the internal auditor considered that
reconciliations to the final beneficiary’s records were unsatisfactory.
Cases have been noted where final beneficiaries, responsible for payments to final recipients, were
found to have an inconsistent and un-coordinated approach to Article 4 checks with no clear allocation
of responsibilities. Checks were found to have been conducted ex post rather than ex ante and did
not confirm eligibility of expenditure. There was a lack of checklists or other evidence to confirm the
adequate performance of verifications. In some cases, checklists were used but checks did not cover all
the relevant Structural Fund regulatory requirements.
It is important that spot checks confirm that expenditure declared at one level had been reconciled
with the total of expenditure as per the declarations from bodies at the level below. Failure to perform
a satisfactory reconciliation of these figures significantly undermines the value of the spot check as a
worthwhile control feature.
In general, procedures manuals were found to be satisfactory. In one case, the ERDF FCU noted that
procedures manuals were not available to some officials involved in a co-financed project. In some
cases, procedures manuals were found to be in ‘draft’ form or being updated at the time of the audit.
A systems audit conducted by an internal audit unit noted that a final beneficiary, accountable for
a number of final recipients, could not produce procedure manuals detailing the responsibilities,
tasks and procedures for the personnel involved in the implementation of EU co-financed activity or
guidelines relation to ERDF eligibility rules to assist staff conducting on the spot checks.
Manuals should be prepared, and updated as necessary, to ensure that controls and responsibilities
are documented.
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5
Page 48
APPENDICES
Appendix A: Annual expenditure declared and verified 2000 - 2009
ERDF Oerational Programmes
Cohesion Fund Projects
2000 – 2006 M5% ERDF Verification Audits
2000 – 2006 ERDF Winding Up Reviews
2000 – 2006 M15% Cohesion Fund Verification Audits
2007 – 2013 Compliance Assessment Reviews
2007 – 2013 Audits of Systems
2007 – 2013 Audits of Operations (Expenditure)
Page 49
Page 50
119,803,866
33,953,290
28.3%
7,476,085
2,748,342
36.8%
3,519
1,716
48.8%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
ESIOP:
Eligible Expenditure*
Eligible Expenditure Verified % Verified per Year
Productive Sector OP:
Eligible Expenditure* Eligible Expenditure Verified % Verified per Year
Technical Assistance OP:
URBAN II OP:
Peace & Reconciliation OP:
Innovation Actions in BMW
Innovation Actions - S&E:
506,875,895
94,206,238
18.6%
-
-
-%
-
-
-%
2,310,558
-
-%
209,702
38,032
18.1%
1,031,009
229,858
22.3%
60,186,449
8,431,736
14.0%
285,144,030
73,589,689
25.8%
83,602,256
6,805,602
8.1%
74,391,891
5,111,321
6.9%
2001
€
682,698,704
90,457,865
13.3%
30,024
18,619
62.0%
-
-
-%
3,921,827
622,802
15.9%
1,001,711
264,040
26.4%
2,841,239
270,770
9.5%
96,982,299
9,654,426
10.0%
389,582,028
53,395,839
13.7%
140,893,050
11,473,403
8.1%
47,446,526
14,864,016
31.3%
2002
€
* Eligible expenditure returned to the European Commission and notified to the ERDF FCU
201,597,611
47,894,368
23.8%
40,468,170
6,855,602
16.9%
S&E OP:
Total Eligible Expenditure* Total Eligible Expenditure Verified % Verified per Year
33,845,971
4,335,418
12.8%
2000
€
BMW OP:
ERDF Operational Programmes 728,874,164
82,720,1453
11.4%
355,864
142,790
40.1%
357,398
314,483
88.0%
13,921,783
1,897,492
13.6%
1,132,106
222,283
20.5%
2,236,093
344,599
15.4%
109,077,189
6,331,742
5.8%
442,348,706
38,098,806
8.6%
97,614,756
27,532,913
28.2%
61,830,269
7,835,037
12.7%
2003
€
740,221,507
56,900,257
7.7%
2,599,292
251,076
9.7%
1,749,656
331,276
18.9%
20,431,951
1,600,796
7.8%
2,659,195
811,078
30.5%
1,429,965
57,558
4.0%
120,988,979
9,344,632
7.7%
299,187,575
25,621,386
8.6%
233,107,008
14,716,052
6.3%
58,067,886
4,166,403
7.2%
2004
€
368,664,442
29,761,994
8.1%
-
-
-%
658,573
121,604
18.5%
18,341,310
1,005,455
5.5%
1,579,732
514,323
32.6%
800,911
221,749
27.7%
74,059,730
8,513,716
11.5%
175,562,020
8,620,053
4.9%
69,549,940
4,413,495
6.3%
28,112,226
6,351,599
22.6%
2005
€
274,258,646
29,240,787
10.7%
-
-
-%
-
-
-%
14,950,725
617,012
4.1%
2,574,361
953,425
37.0%
587,458
-
-%
69,415,694
2,399,928
3.5%
100,641,634
14,717,394
14.6%
57,477,415
935,335
1.6%
28,611,359
9,617,693
33.6%
2006
€
244,973,001
9,880,165
4.0%
-
-
-%
-
-
-%
10,675,151
426,827
4.0%
100,817
40,522
40.2%
-
-
-%
50,391,125
2,956,857
5.9%
30,731,114
3,018,710
9.8%
50,415,752
1,642,247
3.3%
102,659,042
1,795,002
1.7%
2007
€
-
172,925
-%
-
-
-%
-
-
-%
-
-
-%
-
172,925
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
2008
€
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
2009
€
3,748,163,969
441,244,744
11.8%
2,985,180
412,485
13.8%
2,765,627
767,363
27.7%
84,553,305
6,170,384
7.3%
9,257,624
3,026,628
32.7%
8,930,194
1,126,250
12.6%
588,577,550
50,381,379
8.6%
1,843,000,973
250,918,151
13.6%
773,128,347
74,374,649
9.6%
434,965,170
54,067,455
12.4%
Total
€
A
Appendix A: ERDF and Cohesion Fund
Annual expenditure declared and verified 2000-2009
-
-
-%
190,383,187
115,834,323
60.8%
-
-
-%
N18 Ennis By-Pass
Overall Total
Total Eligible Expenditure*
117,178,182
Total Eligible Expenditure Verified 74,670,799
% Verified per Year
63.7%
Page 51
210,172,978
79,124,797
37.6%
-
-
-%
5,630,154
4,978,282
88.4%
1,940,989
1,940,989
100.0%
30,387,914
18,984,897
62.5%
28,495,323
7,695,103
27.0%
53,164,295
3,521,288
6.6%
10,070,494
8,143,328
80.9%
9,355,694
9,355,694
100.0%
71,128,115
24,505,216
34.5%
2002
€
* Eligible expenditure returned to the European Commission and notified to the ERDF FCU
10,899,520
4,978,282
45.7%
1,478,385
1,478,385
100.0%
74,604,184
72,937,933
97.8%
-
-
-%
68,825,293
62,568,908
90.9%
Dublin Waste Water Treatment
Eligible Expenditure* Eligible Expenditure Verified % Verified per Year 26,965,265
6,764,748
25.1%
M50 SE Motorway
14,681,251
5,312,904
36.2%
Heuston & SW Rail Corridor
44,330,662
10,752,726
24.3%
-
-
-%
20,146,083
2,180,665
10.8%
Limerick Drainage Scheme
9,417,818
4,990,266
53.0%
9,330,119
9,330,119
100.0%
13,357,234
4,601,864
34.5%
2001
€
Dublin Solid Waste
Eligible Expenditure Verified
% Verified per Year
182,257
11,259
6.2%
-
-
-%
13,343,298
4,597,063
34.5%
2000
€
Cork Main Drainage
Lissenhall - Ballbriggan (M1)
Cloghran - Lissenhall (M1)
Cohesion Fund Projects 149,465,996
25,089,330
16.8%
-
-
-%
25,985,514
4,978,282
19.2%
2,364,395
2,364,395
100.0%
16,470,129
2,984,896
18.1%
13,015,309
2,180,198
16.8%
16,626,318
6,633,534
39.9%
28,478,592
1,456,154
5.1%
36,925,862
1,184,501
3.2%
9,599,877
3,307,370
34.5%
2003
€
53,078,280
13,881,206
26.2%
5,166,663
3,063,885
59.3%
22,447,161
4,978,282
22.2%
-
-
-%
-
-
-%
2,748,254
1,041,343
37.9%
10,848,792
2,916,281
26.9%
8,123,127
1,881,415
23.2%
3,744,283
-
-%
-
-
-%
2004
€
35,924,097
8,042,167
22.4%
13,476,936
3,063,885
22.7%
22,447,161
4,978,282
22.2%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
2005
€
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
2006
€
20,732,789
2,116,500
10.2%
20,732,789
2,116,500
10.2%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
2007
€
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
2008
€
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
-%
-
-
%
2009
€
776,935,509
318,759,122
41.0%
39,376,388
8,244,870
20.9%
87,409,510
24,891,410
28.5%
5,783,769
5,783,769
100.0%
190,287,520
157,476,634
82.8%
85,905,402
22,994,296
26.8%
145,116,150
26,004,494
17.9%
56,272,288
16,482,422
29.3%
59,355,958
19,870,314
33.5%
107,428,524
37,011,513
34.5%
Total
€
A
B
2000 - 2006 M5% ERDF Verification Audits
Organisation Visited
Type of Body Measure
Border Midlands and Western Regional
Sligo IT
Final Beneficiary
Operational Programme (BMW OP) Regional Innovation
Strategies
Dundalk IT
Final Beneficiary
Coillte (Lough Key project)
Final Recipient
Regional Innovation Strategies
Galway City Council
Final Beneficiary
Waste Management
Drogheda Borough Council
Final Beneficiary
Waste Management
Roscommon County Council
(Lough Key project)
Final Recipient
Tourism
Dept. Communications, Energy and Natural Resources
Intermediate Body
E Commerce
Tourism
Enterprise Ireland
Intermediate Body
Southern & Eastern Regional
Sligo IT
Final Beneficiary
Operational Programme (S&E OP) Regional Innovation
Strategies
Dundalk IT
Final Beneficiary
Coillte (Lough Key project)
Final Recipient
Tourism
Galway City Council
Final Beneficiary
Waste Management
Drogheda Borough Council
Final Beneficiary
Waste Management
Roscommon County Council
(Lough Key project)
Final Recipient
Tourism
Dept. Communications, Energy
and Natural Resources
Intermediate Body
E Commerce
Enterprise Ireland
Intermediate Body
Economic and Social Infrastructure
Department of Transport
Intermediate Body
Operational Programme (ESIOP) DTI Public Transport &
Traffic Management
Rail Procurement Agency
Final Beneficiary
DTI Public Transport & Traffic Management
Managing Authority
DTI Public Transport & Traffic Management
Dept. Communications, Intermediate Body
Energy and Natural Resources Department of Transport
Final Beneficiary
Paying Authority
Sustainable Energy
Priority - 2 Measures
Page 52
All Measures within Programme
B
2000 - 2006 M5% ERDF Verification Audits
Productive Sector Operational
Programme (PSOP) Department of Enterprise, Trade and Employment Managing Authority
RTDI Teagasc and RTDI Marine
Marine Institute
Final Beneficiary
RTDI Marine
Teagasc
Final Beneficiary
Teagasc RTDI
Department of Agriculture,
Food and Fisheries Intermediate Body
RTDI Marine
Final Beneficiary
Peace & Reconciliation (PEACE)
City of Dublin Vocational
Final Beneficiary
Paying Authority
Combat Poverty Agency
Final Beneficiary
Management, Monitoring, Evaluation and Co-ordination
Pobal
Final Beneficiary
Management, Monitoring, Evaluation and Co-ordination
URBAN Initiative (URBAN)
Dublin City Council
Managing Authority
Dublin City Council
Final Beneficiary
Reconciliation for Sustainable Peace - Project -Education for Reconciliation
2000 - 2006 ERDF Winding Up Reviews
BMW OP
Managing Authority
Waste Management
S&E OP
Southern and Eastern Regional Assembly
Managing Authority
MicroEnterprises
PSOP
Managing Authority
RTDI Marine
ESIOP
Managing Authority
National Roads
Managing Authority
Dublin City Council
Managing Authority
Certifying Authority
URBAN 2000 - 2006 M15% Cohesion Fund Verification Audits
Type of Project
Transport
Clare County Council
Final Beneficiary
Ennis By Pass
National Roads Authority
Intermediate Body
Ennis By Pass
Page 53
B
2007 - 2013 Compliance Assessment Reviews
S&E OP / BMW OP
BMW OP
Managing Authority
2007 - 2013 Audits of Systems
Type of Body System Key Requirements
BMW OP
Department of Finance Certifying Authority Reliable accounting, monitoring and financial reporting systems in computerised form
Southern & Eastern Regional
Operational Programme Reliable accounting, monitoring
and financial reporting systems in computerised form
Southern and Eastern Regional Assembly
Managing Authority
Adequate management verifications and reliable
accounting,
Enterprise Ireland
Intermediate Body
Adequate management verifications
BMW OP
Managing Authority
Adequate management verifications and reliable accounting,
Monitoring and financial reporting systems in computerised form
Enterprise Ireland
Intermediate Body
Adequate management verifications
Interreg Ireland Wales
Southern and Eastern Regional Assembly/ Joint Technical Secretariat Adequate management Interreg Ireland Wales verifications and reliable accounting,
Southern and Eastern Regional Assembly Managing Authority
/Interreg Ireland Wales
Adequate management
verifications and reliable accounting,
Southern and Eastern Regional Assembly/
Interreg Ireland Wales Monitoring and financial reporting systems in computerised form
Adequate arrangements for the certification of expenditure to be reliable and soundly based
2007 - 2013 Audits of Operations (Expenditure)
Type of Body Interreg Ireland Wales
Keep Wales Tidy
Public Beneficiary
Page 54
Measure
Climate Change and
Sustainable Regeneration
NOTES
Page 55
NOTES
Page 56
Design: Baseline CS. (www.baseline.ie)
Central Business Park
Tullamore
Co. Offaly
Ireland
Telephone: +353 57 936 3651
Facsimile: +353 57 936 3633
E-mail: eucontrol@finance.gov.ie
Website: www.ndp.ie

ERDF Financial Control Unit - EU Structural Funds in Ireland

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