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Audits for the European Regional Development Fund

Luca BALDIN, External auditor for Germany

1/ Could you please tell us what is the role of your unit within the DG Regional Policy? How do you contribute to the European Regional Development Fund management?

Our Unit, which belongs to the Directorate Audit of Dg Regional Policy, is responsible for performing the audit of the structural funds in Germany, Austrian, Hungary, Slovenia, Belgium, Netherland, Bulgaria, Rumania and Fyrom to determine:
- whether the systems are operating effectively to prevent errors and irregularities, and that, where errors and irregularities do occur, the systems are effective in detecting and correcting them;
- whether the system gives a satisfactory assurance of the legality and regularity of the underlying operations and of the accuracy of the expenditure declared.
For the programming period 2000-2006, the closure of assistance covers the financial settlement of outstanding Community commitments through payment of the balance of the commitment to the appointed authority or the issue of a debit note and decommitment of any final balance, as well as the period until all the Commission\'s and Member State\'s rights and obligations have been extinguished in respect of assistance or operations. Once the final contribution has been calculated, the Commission will inform the Member State of the final balance to be paid or to be recovered and will request the Member State’s comments. If the amount to be paid by Commission services is lower than the amount requested by the Member State and if no agreement is reached with the Member State on the final balance to be paid or recovered, or if the Member State does not reply to the Commission’s request for comments within the deadline given to it by the Commission, the Commission will carry out a financial correction by decision pursuant to Article 39 of Regulation (EC) No. 1260/99.
For the programming period 2007-2013 the principal activities performed by our unit are the following:

• Audits of new management and controls systems implemented by the member state to start in 2008 after national compliance assessment;

• Work of 2 DG\'s REGIO and EMPL will be coordinated under joint audit strategy

• Commission audits to verify effective functioning of systems;

• On-the-spot audits of systems/operations – 10 working days notice except in urgent cases.

The identified deficiencies during the audit work may lead to suspension of payments and financial corrections (Art. 91 and 100) and interruption by Authorizing Officers by delegation.




2/ Do the ERDF Programme priorities have been re-examined after the on-going economic crisis?



Our methodology, called \"Audit of Management and Control Systems\" has the aim of providing a standard framework within which audits of Member States’ management and control systems may be carried out, and which ensures consistency of approach between auditors and audits. The adopted audit approach consists in an audit methodology and procedures which could be used to undertake systems audits of Structural Funds expenditure. This methodology comprises system-based audits, which are aimed at providing assurance that the systems of management and control put in place by Member States over Structural Fund actions are adequate and effective, and on-the-spot checks of operations designed to verify the correct functioning of the systems. In particular, our methodology foresees that we carry out tests of controls to determine whether internal management and control procedures exist and are operating continuously, coherently and effectively; and substantive testing to check the completeness, accuracy and validity of transactions, together with the practical effects of any identified weaknesses or errors.

As we have to follow the International Auditing Standards and INTOSAI the financial crisis has not brought any significant change in our daily work. However, in response to the financial and economic crisis, Regional Policy Commissioner Danuta Hübner has announced a package of decisions by the European Commission aimed at giving Member States more flexibility in their use of the structural funds. The changes will extend the deadline for EU countries to use up their allocations from the 2000-2006 funding period and ensure that every available euro can be used to maximum effect.



3/ Could you please give us an example of a project financed by the ERDF Programme?


During my audit work, I have had the opportunity to check and controls the following project co-financed by the ERDF in the region Bremen (Germany):

Promoting the Centre for Wind Energy and Maritime Engineering (CWMT)

The Centre for Wind Energy and Maritime Engineering (CWMT) is aiming to further expand the State of Bremen and Bremerhaven in particular as a German centre of excellence for rotor blades and maritime technology. The core focus of the CWMT is to be on research, development and testing of rotor blades. The work is to include the use of computer simulation and experimental processes on materials, wings, construction methods and verification of technical reliability. The ERDF programme is assisting the CWMT’s 2nd building phase. This consists of a second testing shed for the rotor blade centre of excellence and a new building for offices, workshops and laboratories.
The foundation of the rotor blade centre of excellence was assisted under the 2000 – 2006 Objective 2 Programme, when a shed was renovated on the old Rickmerswerft shipyard site and equipped with test beds. The total project volume is estimated in € 7,000,000, of which Euro 2,750,000 are co-funding by the ERDF. The provided information are taken from the following website:www.efre-bremen.de



4/ What are the effects of the present crisis context on the applying projects?


Following an invitation by the Commission, Member states have requested an extension to the eligibility period for funding for 385 of the 555 Cohesion Policy programmes in 2000-2006, where funds had not been fully utilised. The extended eligibility period concerns the four structural funds in place at the time: the European Regional Development Fund (ERDF), European Social Fund (ESF), the European Agricultural Guidance and Guarantee Fund (EAGGF) and the Financial Instrument for Fisheries Guidance (FIFG).

This flexibility will enable Member States and regions to implement and finalise more projects on the ground. The Commission is urging them to focus on \'high-return\' sectors and measures, such as investing in energy efficiency to create green jobs and save energy, and support for clean technologies to boost sectors like the construction and automotive industries. The Commission has also adopted a measure to give Member States and regions more flexibility in allocating funding for different priorities. Until now, managing authorities had a 2% margin of flexibility if they wanted to transfer funding between the so-called \'priority axes\' that define the strategic spending areas of each Cohesion Policy operational programme.



5/ Giving that you are auditor for Germany, which is the audited projects proportion? What are the selection criteria applied on the audited projects?



The main purpose of the audits of final beneficiaries/final recipients is to determine whether the relevant aspects of Member State authorities’ management and control systems relating to operations are functioning satisfactorily. Checks should be carried out on a sample basis, with the aim of carrying out sufficient examination to provide a reasonable level of assurance that the management and control systems to be examined by each audit are operating effectively to prevent errors or irregularities. Given the large number of different management and control systems and the extent of the bodies involved, the overall audit strategy and specific audit enquiry should foresee the coverage of all relevant areas (for example, main implementing authorities, main final beneficiaries, forms of assistance) are covered, over a given number of years. The selection of authorities, forms of assistance, priorities and operations to be audited should be based on a full risk-analysis, and to identify the specific auditees for the audit in the Member State, which takes account of previous audit activity by all relevant auditors (Member State auditors, Commission services and the Court of Auditors).