The Audit Authority The Audit Authority and its role in the and its role in the

supervision of supervision of management and management and

control systems for SFcontrol systems for SF

Shared responsibility!Shared responsibility!

Mission impossible?Mission impossible?

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Who is speakingWho is speakingDirector of ERDF-Audit Department in the Director of ERDF-Audit Department in the Federal Chancellery Federal Chancellery Head of Audit Head of Audit Authority for ERDF in Austria (EU member Authority for ERDF in Austria (EU member since 1995)since 1995)

Since 1994 responsibility forSince 1994 responsibility for

1.1.SFP 1995-1999: 34 programs SFP 1995-1999: 34 programs (incl. C-initiatives)(incl. C-initiatives)

2.2.SFP 2000-2006: 23 programs SFP 2000-2006: 23 programs (incl. C-initiatives)(incl. C-initiatives)

3.3.SFP 2007-2013: 22 programs SFP 2007-2013: 22 programs (incl. C-initiatives)(incl. C-initiatives)

From those 79 programs From those 79 programs 30 ‘main-stream’ 30 ‘main-stream’ = objective 1, objective 2= objective 1, objective 2

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Available ERDF funds for Available ERDF funds for AUSTRIAAUSTRIAMainstream program - ERDF-funds available Mainstream program - ERDF-funds available and used:and used:

SFP 1995-1999: SFP 1995-1999: committed: committed: 446 Mio. €446 Mio. €

used ERDF: used ERDF: 443 Mio. €443 Mio. €

SFP 2000-2006: SFP 2000-2006: committed: committed: 895 Mio. €895 Mio. €

used ERDF: used ERDF: 742 Mio. €742 Mio. €

final result expected for 2010final result expected for 2010

SFP 2007-2013: committed: SFP 2007-2013: committed: 680 Mio. €680 Mio. €programs just startedprograms just started

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Audit Experiences madeAudit Experiences madeBefore EU-funds-audit responsibility Before EU-funds-audit responsibility was delegated – audit of national was delegated – audit of national programs and projectsprograms and projects

Audit experience EU-programs and Audit experience EU-programs and projects:projects:

system audits of umpteen Managing system audits of umpteen Managing Authorities and approximately more Authorities and approximately more than 100 Intermediate Bodiesthan 100 Intermediate Bodies

Audit of approximately 800 ERDF-Audit of approximately 800 ERDF-funded projectsfunded projects

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EU-Programs in AustriaEU-Programs in Austria Austria is a net-payer country – public Austria is a net-payer country – public

opinion: we recycle our own moneyopinion: we recycle our own money Austria is a small country – well developed – Austria is a small country – well developed –

thus in comparison with other Member thus in comparison with other Member States Structural Funds play a financially States Structural Funds play a financially ‘subordinated’ role. The management ‘subordinated’ role. The management efforts to use the money the best way are efforts to use the money the best way are disproportional high!disproportional high!

EU is quite ‘unpopular’ in Austria: European EU is quite ‘unpopular’ in Austria: European Social Regional Cohesion Policy in Austria Social Regional Cohesion Policy in Austria is rather an instrument for ‘is rather an instrument for ‘Political Political CohesionCohesion’ ’

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The role of the Audit AuthorityThe role of the Audit AuthorityDuties and responsibilities are very detailed Duties and responsibilities are very detailed laid down in the regulations! laid down in the regulations!

Critical reflection of the actual status from Critical reflection of the actual status from the perspective of an Audit Authority:the perspective of an Audit Authority:

1.1. The role of the AA in shared management: very The role of the AA in shared management: very challenging, very exposed and very thankless!challenging, very exposed and very thankless!

2.2. Public perception of the AA: the long arm of the Public perception of the AA: the long arm of the European Commission European Commission

3.3. Within the last 10 years a high-speed evolution Within the last 10 years a high-speed evolution of the audit requirements can be observed! More of the audit requirements can be observed! More details are laid down. Programs and Projects details are laid down. Programs and Projects became much more complex in the last years!became much more complex in the last years!

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Is shared management …..Is shared management …..…… …… the ‘root of all evil’?the ‘root of all evil’?

Definitely the shared management is the Definitely the shared management is the most challenging principle to implement most challenging principle to implement policy objectives because:policy objectives because: Partnership needs a common understanding Partnership needs a common understanding

of the partners what are the common goals, of the partners what are the common goals, objectives and principles. Only equal partners objectives and principles. Only equal partners will have a successful partnership! If one is will have a successful partnership! If one is ‘stronger’ problems will automatically occur!‘stronger’ problems will automatically occur!

Uncertainty of partners ends in Uncertainty of partners ends in overregulation, surveillance and finally in overregulation, surveillance and finally in frustration!frustration!

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Shared management …..Shared management …..…… …… the ‘root of all evil’?the ‘root of all evil’? Evident Risk that the ‘Principle of Distrust’ Evident Risk that the ‘Principle of Distrust’

is incorporated step by stepis incorporated step by step Provocative questionProvocative question: are those budgetary : are those budgetary

fields better administered which are fields better administered which are managed under the responsibility of only managed under the responsibility of only one partner?one partner?

for national funding programs: for national funding programs: definitely notdefinitely not – – the same errors and mistakes are detected!the same errors and mistakes are detected!

are programs managed by the EC only better are programs managed by the EC only better performing? What about the error rate of the performing? What about the error rate of the ECA in the research frame-work program, the ECA in the research frame-work program, the external affaires, etc.?external affaires, etc.?

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Not to be misunderstood …..Not to be misunderstood …..…… …… Austria is 100 % supportive to …Austria is 100 % supportive to …

ensure sound and efficient management ensure sound and efficient management and control of all public funds including and control of all public funds including EU-funds,EU-funds,

contribute with all necessary means to contribute with all necessary means to fulfill the legal obligations and not give fulfill the legal obligations and not give only lip service to common principles,only lip service to common principles,

implement in equal partnership the implement in equal partnership the programs,programs,

seek for improvements by sharing the seek for improvements by sharing the practical experiences made. practical experiences made.

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But what are the reasons that it seems But what are the reasons that it seems as if the situation of the management as if the situation of the management of Structural Funds has not – of Structural Funds has not – visiblyvisibly – – improved?improved?

Cohesion policy is a very complex Cohesion policy is a very complex multi-layer policy area!multi-layer policy area!

Out of this potential conflict of interest Out of this potential conflict of interest results!results!

Why this and let me give you some Why this and let me give you some examples: examples:

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The several dilemmas of SF-The several dilemmas of SF-policy policy 11

Both partners – the Commission and the Both partners – the Commission and the Member State – are not homogenous single Member State – are not homogenous single bodies which follow all the same objectives!bodies which follow all the same objectives!Different interests within each of the bodies Different interests within each of the bodies increase the number of potential conflicts of increase the number of potential conflicts of objectives. And this not only in personal but objectives. And this not only in personal but also in time-cycle aspects. also in time-cycle aspects. For example: Commission is a ‘unique’ body. For example: Commission is a ‘unique’ body. But different Directorates/units within the But different Directorates/units within the Directorates have for the same intervention Directorates have for the same intervention different – and sometimes - conflicting different – and sometimes - conflicting objectives.objectives.Also EP has this potential conflicting objectives!Also EP has this potential conflicting objectives!

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The several dilemmas of SF-The several dilemmas of SF-policy policy 2 2Practical observations:Practical observations:General Director sends to the Member General Director sends to the Member States letters and guidance documents States letters and guidance documents explaining, that adequate assurance has explaining, that adequate assurance has to be given that only eligible, legal und to be given that only eligible, legal und regular expenditure may be declared to regular expenditure may be declared to EC. EC. The same General Director sends at the The same General Director sends at the end of the year information-letters to MS end of the year information-letters to MS with requests and reminders to speed up with requests and reminders to speed up the payment declarations to avoid n+2 the payment declarations to avoid n+2 losses.losses.

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The several dilemmas of SF-The several dilemmas of SF-policy policy 33Several ‘solutions’ had been invented to Several ‘solutions’ had been invented to avoid n+2 losses:avoid n+2 losses:

expenditure which occurred but has not fully expenditure which occurred but has not fully passed all control procedures can be declared – passed all control procedures can be declared – outcome of this ‘strategy’ can sometimes be outcome of this ‘strategy’ can sometimes be read in the ECA-DAS-report read in the ECA-DAS-report

in case MS are not sure if expenditure is fully in case MS are not sure if expenditure is fully eligible or if an irregularity exists – expenditure eligible or if an irregularity exists – expenditure may be declared when a notification to OLAF may be declared when a notification to OLAF (irregularity report) is made – this leads to an (irregularity report) is made – this leads to an artificial increase of irregularity reports – artificial increase of irregularity reports – consequences can be read not only in the Art. consequences can be read not only in the Art. 280 report but also in the newspapers as 280 report but also in the newspapers as fraudulent EU funds!fraudulent EU funds!

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The several dilemmas of SF-The several dilemmas of SF-policy policy 44

EC/EP policy objective: programs and EC/EP policy objective: programs and projects should become more projects should become more innovative, involve more participants innovative, involve more participants and less administrative burdensome!and less administrative burdensome! Innovative and more complex projects Innovative and more complex projects

are more risky – risk capital funds, are more risky – risk capital funds, innovative measures, research and innovative measures, research and development operations – these types of development operations – these types of operations have by nature a higher operations have by nature a higher inherent risk than ‘simple’ investment inherent risk than ‘simple’ investment projects!projects!

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The several dilemmas of SF-The several dilemmas of SF-policy policy 55In the Commission regulation on In the Commission regulation on implementation of SF a tolerable error implementation of SF a tolerable error rate of 2% has been laid down!rate of 2% has been laid down!Thus Managing Authorities will have to Thus Managing Authorities will have to decide: decide:

Innovative, new types of projects with Innovative, new types of projects with higher risk? Consequences in case the higher risk? Consequences in case the tolerable risk-target is not met are tolerable risk-target is not met are clear!clear!

Implement only safe projects, with less Implement only safe projects, with less innovative character – to be on the innovative character – to be on the safe side!safe side!

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Demystification of some illusions Demystification of some illusions 11Illusion 1:Illusion 1:more money improves the achievement more money improves the achievement of policy objectives and leads to better of policy objectives and leads to better and more innovative programsand more innovative programs Innovation does not need so much money, Innovation does not need so much money,

but it needs ‘freedom’ for development but it needs ‘freedom’ for development and a secure and stable environment. and a secure and stable environment. Failure is more probable than for big Failure is more probable than for big infrastructure projects!infrastructure projects!

Lot’s of problems result of the fact that at Lot’s of problems result of the fact that at the end of a program period things are the end of a program period things are stricter interpreted as in the beginning!stricter interpreted as in the beginning!

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Demystification of some illusions Demystification of some illusions 22Illusion 2:Illusion 2:

In the program period 2007-2013 the In the program period 2007-2013 the Commission and the European Parliament Commission and the European Parliament have promised/promoted have promised/promoted SIMPLIFICATIONSIMPLIFICATION Provocative question: simplification for whom?Provocative question: simplification for whom? For the implementing authorities? definitely For the implementing authorities? definitely

not – additional administrative burden was not – additional administrative burden was added.added.

For the EC? – I have my doubts!For the EC? – I have my doubts! For the projects/beneficiaries? Definitely not. For the projects/beneficiaries? Definitely not.

Also more administration for beneficiaries!Also more administration for beneficiaries!

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Demystification of some illusions Demystification of some illusions 33Illusion 3:Illusion 3:A single audit concept could reduce the A single audit concept could reduce the burden for MS!burden for MS! There is no single audit concept in the field There is no single audit concept in the field

of structural funds!of structural funds! Far from it! Different levels of control have Far from it! Different levels of control have

to be implemented by regulation. Different – to be implemented by regulation. Different – independent - bodies perform audits on the independent - bodies perform audits on the same expenditure!same expenditure!

Some projects are audited several times – Some projects are audited several times – without any indication of misuse or without any indication of misuse or irregularity – some smaller programs feel an irregularity – some smaller programs feel an audit over-kill!audit over-kill!

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Demystification of some illusions Demystification of some illusions 44

Illusion 4:Illusion 4:

MS should manage, audit and control MS should manage, audit and control the EU-money as they treat their the EU-money as they treat their national money!national money! For heaven’s sake! For heaven’s sake! For Austria (and many other MS) it is For Austria (and many other MS) it is

evident, that the EU money is managed evident, that the EU money is managed much stricter than the national funds. much stricter than the national funds. And it is a matter of fact that much more And it is a matter of fact that much more controls and audits are performed for the controls and audits are performed for the projects with EU money!!projects with EU money!!

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Demystification of some illusions Demystification of some illusions 55Illusion 5:Illusion 5:

National eligibility rules will improve the National eligibility rules will improve the ‘eligibility’ of expenditure declared by the MS!‘eligibility’ of expenditure declared by the MS! I have serious doubts! The existing problem – I have serious doubts! The existing problem –

what is eligible – was only transferred to another what is eligible – was only transferred to another level – it was not solved!level – it was not solved!

For programs under the objective ‘Territorial For programs under the objective ‘Territorial Cooperation’ where some/many MS cooperate Cooperation’ where some/many MS cooperate this means that several rules will be applicable in this means that several rules will be applicable in parallel – (for the same type of expenditure)!parallel – (for the same type of expenditure)!

Increased risk that authorities make mistakes as Increased risk that authorities make mistakes as they have to respect different rules at the same they have to respect different rules at the same time – depending in which program a project is time – depending in which program a project is financed!!financed!!

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Popular misunderstandingsPopular misunderstandings irregularities are fraudirregularities are fraud

according to the regulation things have to be according to the regulation things have to be reported, which are not fraud – many cases are reported, which are not fraud – many cases are administrative mistakes!administrative mistakes!

tolerable risk is misuse and fraudtolerable risk is misuse and fraud in the public discussion the meaning of tolerable in the public discussion the meaning of tolerable

risk is not understood in the right mannerrisk is not understood in the right manner political declarations will improve the political declarations will improve the situationsituation as long as the inherent problems are not solved as long as the inherent problems are not solved

additional declarations will change the situation - additional declarations will change the situation - management level might count on declarations management level might count on declarations from others!!from others!!

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On the way to a positive DAS?

If there is no simplification for SF-programs and MS – are we at least on the right way to a positive DAS?(if we consider the positive DAS as a common ‘meta-objective’ for all of us?)

I am afraid: NO – quite the contrary!

But what can be done to improve the But what can be done to improve the situation?situation?

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Room for improvement The following should be considered: Reduction of inherent risk – less complexity,

clear and simple rules for all participants – the more participants/levels the higher the risk!

Expectations of projects, administration and politicians are too high – everything is a project and everything is charged to the project and the more partners the better!

Reduction of control risk – quality assurance of control bodies – creation of awareness together with simple rules – availability of enough qualified resources must be ensured!

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Politically to be considered Definition of tolerable risk: are 2 % acceptable

error rate for this types of interventions (innovative programs) realistic?

Shall programs be started when from the beginning the failure is evident? High risk programs!!

Where is the breakeven of costs of control? Can we avoid the audit-overkill? Definition of errors: what is an error – what is

a mistake? Errors and mistakes or not fraud!!

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Thank you for listening!

Contact: Susanna RafalzikFederal Chancellery AustriaDepartment IV/3 – Financial Control of the ERDFE-mail: susanna.rafalzik@bka.gv.at