AUDIT AUTHORITY ANNUAL AUDIT REPORT EUROPEAN ECONOMIC AREA FINANCIAL MECHANISM, NORWEGIAN FINANCIAL MECHANISM

Transcription

1 AUDIT AUTHORITY ANNUAL AUDIT REPORT EUROPEAN ECONOMIC AREA FINANCIAL MECHANISM, NORWEGIAN FINANCIAL MECHANISM Riga

2 Contents ABREVIATIONS... 3 SUMMARY INTRODUCTION INDICATION OF THE AUDIT AUTHORITY RESPONSIBLE FOR THE PREPARATION OF AAR INDICATION OF AAR REFERENCE PERIOD IDENTIFICATION OF THE FINANCIAL MECHANISMS, PROGRAMMES AND NATIONAL ENTITIES COVERED BY AAR DESCRIPTION OF THE STEPS TAKEN TO PREPARE AAR MANAGEMENT AND CONTROL SYSTEMS AUDIT STRATEGY SYSTEM AUDITS CARRIED OUT IN ORDER TO VERIFY THE EFFECTIVE FUNCTIONING OF THE MANAGEMENT AND CONTROL SYSTEM PROJECT AUDITS CARRIED OUT IN ORDER TO VERIFY EXPENDITURE DECLARED INDICATION OF THE BODIES THAT CARRIED OUT THE PROJECT AUDITS DESCRIPTION OF THE BASIS FOR SELECTION OF THE SAMPLE DESCRIPTION OF THE PRINCIPAL RESULTS OF THE PROJECT AUDITS CONCLUSIONS DRAWN FROM THE RESULTS OF THE PROJECT AUDITS WITH REGARD TO THE EFFECTIVENESS OF MANAGEMENT AND CONTROL SYSTEM FOLLOW UP OF THE MANAGEMENT AND CONTROL SYSTEM COMPLIANCE ASSESSMENT JUSTIFICATION FOR THE AUDIT OPINION Annex

3 ABREVIATIONS AAR CA Donor states EEA EEA/rwegian Financial Mechanisms EU EUR ISA LVL MoF NFP PMB PO Regulations on the implementation of the EEA/ rwegian Financial Mechanisms Annual Audit Report Certifying Authority Cabinet of Ministers European Economic Area Financial Mechanism Committee and rwegian Ministry of Foreign Affairs European Economic Area European Economic Area Financial Mechanism and rwegian Financial Mechanism European Union Euro International Standards on Auditing Latvian lats Ministry of Finance National Focal Point Procurement Monitoring Bureau Programme Operator Regulation on the implementation of the European Economic Area Financial Mechanism and Regulation on the implementation of the rwegian Financial Mechanism

4 SUMMARY 1. AAR is prepared by the Audit Authority according to Paragraph 1.(e)(i) of Article 4.6 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms The functions of the Audit Authority under the EEA/rwegian Financial Mechanisms are fulfilled by the Ministry of Finance European Union Funds Audit Department (Section 1.1). 3. This AAR covers the period from 28 April 2011 to 30 June 2012 (AAR reference period) (Section 1.2). 4. programmes were approved during the AAR reference period. Only expenditures of Technical Assistance (including Fund for Bilateral Relations at National Level) were incurred and certified within the AAR reference period (Section 1.3). 5. AAR and audit opinion is prepared based on the results of the project audit carried out to verify expenditure declared within Technical Assistance (including Fund for Bilateral Relations at National Level). While preparing AAR the follow-up of implementation of recommendations provided in the result of the EEA/rwegian Financial Mechanisms management and control system compliance assessment also has been performed (Section 1.4). 6. Within the AAR reference period the Audit Authority performed EEA/rwegian Financial Mechanisms management and control system compliance assessment (Section 2). 7. Joint Audit Strategy (covering all the programmes) will be presented to the Donor states within nine months of the approval of the first programme (Section 3). 8. system audits were carried out during the AAR reference period. Functioning of the management and control system that has been developed for the implementation of the Technical Assistance (including Fund for Bilateral Relations at National Level) has been checked during the project audit (Section 4). 9. One project audit has been carried out Technical Assistance (including Fund for Bilateral Relations at National Level) audit EEZ/NOR-PR-TP-12/29. The scope of the audit consisted from the expenditure included in the 2 interim financial reports prepared during the AAR reference period. Expenditures included in these 2 interim financial reports were audited in full. errors with financial impact and no systemic errors were found during the project audit. Results of the project audit and overall opinion are detailed in Section In the result of the follow-up of the implementation of recommendations from the EEA/rwegian Financial Mechanisms management and control system compliance assessment the Audit Authority found that 16 recommendations out of 29 are implemented, 2 recommendations are partly implemented and 11 recommendations are not implemented. The Audit Authority evaluated the impact which not implemented recommendations had on the proper functioning of the management and control system during the AAR reference period and concluded that there was no major impact and institutions are continuing to implement recommendations (Section 6). 4

5 11. The Audit Opinion is provided on the effective functioning of the management and control system that has been developed for the implementation of the Technical Assistance (including Fund for Bilateral Relations at National Level) during the reference period from to , so as to provide a reasonable assurance that interim financial reports, prepared during this reference period, are correct and as a consequence reasonable assurance that the underlying transactions are legal and regular. The expenditures included in the 2 interim financial reports prepared during the AAR reference period were audited in full and no errors were found, thus the Audit Authority concluded to have an unqualified Opinion as it is set out in Table 4 of Section INTRODUCTION 1.1. Indication of the Audit Authority responsible for the preparation of AAR In accordance with the Law on the Management of the EEA Financial Mechanism and the rwegian Financial Mechanism for the Period of and Regulations 502 Procedures for Ensuring the Functions of the Audit Authority in the Management of the EEA Financial Mechanism and the rwegian Financial Mechanism for the Period of the MoF fulfils the functions of the Audit Authority. In compliance with the Regulations of the MoF 1 the European Union Funds Audit Department performs functions of the Audit Authority for the EEA/rwegian Financial Mechanisms In order to insure functional independence the Audit Authority is directly subordinated to the State Secretary of the MoF according to the Regulations of the MoF 1. In addition, the power to report directly to the via Minister of Finance is set by the Law on the Management of the EEA Financial Mechanism and the rwegian Financial Mechanism for the Period of There is single Audit Authority in Latvia. functions of the Audit Authority are delegated, therefore AAR is based solely on the work performed by the Audit Authority Indication of AAR reference period In accordance with the Paragraph 1.(e)(i) of Article 4.6 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms the first AAR to be submitted by 31 December 2012 shall cover the period up to 30 June This AAR covers the period from 28 April 2011 (the date of signature of the Memorandum of Understanding on the implementation of the EEA/rwegian Financial Mechanisms and thus the first date of eligibility of expenditures under the Agreement for the financing of the Technical Assistance and the Fund for Bilateral Relations at National Level) to 30 June 2012 hereinafter called AAR reference period Identification of the financial mechanisms, programmes and national entities covered by AAR Summary of the financial mechanisms, their relevant programmes and national entities designated for the implementation of these financial mechanisms is presented in the Table 1. 1 Regulations of the Ministry of Finance 12-16/7 dated 1 June

6 rwegian Financial Mechanism EEA Financial Mechanism Ministry of Finance State Treasury EEA and rwegian Financial Mechanisms Programme National Focal Point Certifying Authority Financial mechanism - LV05 LV02 Table 1. Financial mechanisms, programmes and designated national entities Programme Technical Assistance (including Fund for Bilateral Relations at National Level) rwegian-latvian Research Support Fund and Scholarship Programme National Climate Policy Programme operator Executor of the Programme Operator s delegated functions Agency / Programme Partner Ministry of Finance - Ministry of Education and Science Ministry of Environmental Protection and Regional Development State Education Development Agency State Regional Development Agency Donor states approval date Agreement signed / First date of eligibility of expenditures is t yet approved t yet approved LV03 NGO Fund Society Integration Foundation LV04 Conservation and Revitalisation of Cultural and Natural Heritage Ministry of Culture LV06 Green Industry Innovation Ministry of Economics Latvian Investment and Development Agency LV07 Capacity-building and Institutional Cooperation between Beneficiary State and rwegian Public Institutions, Local and Regional Authorities Ministry of Environmental Protection and Regional Development State Regional Development Agency LV08 Reform of the Latvian Correctional Services and Police Detention Centres Ministry of Justice Ministry of Interior As it can be seen from the Table 1 above no programmes were approved during the AAR reference period therefore this AAR only refers to the functioning of the management and control system that has been developed for the implementation of the Technical Assistance (including Fund for Bilateral Relations at National Level). The report and opinion on the set-up of the EEA/rwegian Financial Mechanisms management and control systems was submitted to the Donor states on 8 June 2012 and this AAR provides only information on the follow-up of recommendations from the report on the 6

7 EEA/rwegian Financial Mechanisms management and control system compliance assessment Description of the steps taken to prepare AAR Taking into account that during the AAR reference period only Technical Assistance (including Fund for Bilateral Relations at National Level) was implemented and expenditures were incurred only in relation to the Technical Assistance (including Fund for Bilateral Relations at National Level) then in order to prepare AAR the Audit Authority carried out project audit in accordance with the Paragraph 1.(c) of Article 4.6 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms to verify expenditure declared within the Technical Assistance (including Fund for Bilateral Relations at National Level). As well as the Audit Authority carried out follow-up of implementation of recommendations provided in the result of the EEA/rwegian Financial Mechanisms management and control system compliance assessment. 2. MANAGEMENT AND CONTROL SYSTEMS In accordance with the Paragraph 1 and 3 of Article 4.8 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms , MoF, acting as the National Focal Point, has prepared and submitted on 8 June 2012 to the Donor states: 1. The EEA/rwegian Financial Mechanisms management and control system description approved by the National Focal Point on 17 February 2012 and updated on 27 March The audit report on the EEA/rwegian Financial Mechanisms management and control system compliance assessment and Assurance report on the compliance of the EEA/rwegian Financial Mechanisms management and control system approved by the Audit Authority on 27 April Detailed description of the management and control systems of the Programme Operators and respective audit report and opinion in accordance with the Paragraph 2 and 3 of Article 4.8 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms has not been prepared and submitted to the Donor states within the AAR reference period, as no programmes were approved during the AAR reference period. 3. AUDIT STRATEGY In accordance with the Paragraph 1(d) of Article 4.6 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms the Audit Authority will prepare and present Joint Audit Strategy (covering all the programmes) to the Donor states within nine months of the approval of the first programme. 4. SYSTEM AUDITS CARRIED OUT IN ORDER TO VERIFY THE EFFECTIVE FUNCTIONING OF THE MANAGEMENT AND CONTROL SYSTEM system audits were carried out during the AAR reference period as: 1. programmes were approved during the AAR reference period no possibility to carry out audits of programmes to verify the effective functioning of its management 7

8 and control system (Paragraph 1(b) of Article 4.6 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms ). 2. In relation to the level of the Beneficiary State (Paragraph 1(a) of Article 4.6 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms ) management and control system compliance evaluation have been carried out, as well as follow-up of recommendation implementation. Functioning of the management and control system that has been developed for the implementation of the Technical Assistance (including Fund for Bilateral Relations at National Level) has been checked during the project audit (for detailed information see Section 5). 5. PROJECT AUDITS CARRIED OUT IN ORDER TO VERIFY EXPENDITURE DECLARED 5.1. Indication of the bodies that carried out the project audits Project audits were carried out solely by the Audit Authority Description of the basis for selection of the sample During the AAR reference period 2 interim financial reports within Technical Assistance (including Fund for Bilateral Relations at National Level) were prepared: Table 2. Interim financial reports prepared during the AAR reference period Report Report date Report period Reported expenditures, EUR Certified expenditures, EUR Submitted to Donor states Apr - Dec Jan-Apr Total: Regarding the AAR reference period one project audit was carried out Technical Assistance (including Fund for Bilateral Relations at National Level) audit EEZ/NOR-PR-TP- 12/29. The scope of the audit consisted from the expenditure included in the above mentioned 2 interim financial reports prepared during the AAR reference period. Expenditures included in these 2 interim financial reports were audited in full. The Audit Authority performed substantive testing during the audit in order to evaluate whether: 1. The implementation of the Technical Assistance (including Fund for Bilateral Relations at National Level) was commenced and carried out in compliance with the Regulations on the implementation of the EEA/rwegian Financial Mechanisms Expenditures included in the certified interim financial reports are eligible, corresponds to the accounting records and supporting documents held by the beneficiary. 3. The public contribution has been paid to the beneficiary in accordance with the Regulations on the implementation of the EEA/rwegian Financial Mechanisms and Agreement for the financing of the Technical Assistance and the Fund for Bilateral Relations at National Level. 8

9 4. Technical Assistance (including Fund for Bilateral Relations at National Level) has been implemented in accordance with the Agreement for the financing of the Technical Assistance and the Fund for Bilateral Relations at National Level and risk of double financing did not exist. 5. Information and publicity requirements are ensured in accordance with the Regulations on the implementation of the EEA/rwegian Financial Mechanisms and national law and of the Republic of Latvia. 6. Law and of the Republic of Latvia regarding public procurement are complied with. 7. State aid requirements are complied with within the Technical Assistance (including Fund for Bilateral Relations at National Level) Description of the principal results of the project audits Results of the project audit are included in Table 3. errors with financial impact were found during audit. Table 3. Results of the project audit Results Expenditure, LVL Expenditure, EUR Total certified expenditures Certified expenditures checked by the Audit Authority, from which: Ineligible expenditure found 0 0 Eligible expenditures Conclusions drawn from the results of the project audits with regard to the effectiveness of management and control system During the project audit it was found, that: 1. The implementation of the Technical Assistance (including Fund for Bilateral Relations at National Level) was commenced and is carried out in compliance with the Regulations on the implementation of the EEA/rwegian Financial Mechanisms Expenditures included in the certified interim financial reports are eligible, corresponds to the accounting records and supporting documents held by the beneficiary and though are eligible for the financing from the EEA/rwegian Financial Mechanisms Technical Assistance (including Fund for Bilateral Relations at National Level) is financed from the EEA/rwegian Financial Mechanisms in full. Prefinancing from the state budged is ensured for the implementation of the Technical Assistance (including Fund for Bilateral Relations at National Level). 4. Technical Assistance (including Fund for Bilateral Relations at National Level) has been implemented in accordance with the Agreement for the financing of the Technical Assistance and the Fund for Bilateral Relations at National Level and risk of double financing did not exist. 9

10 5. Information and publicity requirements are ensured in accordance with the Regulations on the implementation of the EEA/rwegian Financial Mechanisms and national law and of the Republic of Latvia. 6. Beneficiary ensures compliance with the law and of the Republic of Latvia regarding public procurement. 7. State aid is not referable to the Technical Assistance (including Fund for Bilateral Relations at National Level). According to Paragraph 1 of Article 4.6 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms results of the project audit provide reasonable assurance that interim financial reports prepared during the AAR reference period and submitted to the Donor states (see Table 2) are correct and underlying transactions are legal and regular. systemic errors were founds during the project audit. 6. FOLLOW UP OF THE MANAGEMENT AND CONTROL SYSTEM COMPLIANCE ASSESSMENT In the result of the follow-up of the implementation of recommendations from the management and control system compliance assessment the Audit Authority found that as at : recommendations out of 29 are implemented recommendations out of 29 are partly implemented recommendations out of 29 are not implemented. The main reasons for nonimplementation of these recommendations are that respective cross-cutting have not been approved yet. The Audit Authority evaluated the impact which not implemented recommendations had on the proper functioning of the management and control system during the AAR reference period and concluded that there was no major impact as: 1. Implementation of programmes and projects has not been started yet. 2. Only limited amount of expenditures has been certified in the AAR reference period only Technical Assistance (including Fund for Bilateral Relations at National Level) expenditures. 3. Functioning of the management and control system that has been developed for the implementation of the Technical Assistance (including Fund for Bilateral Relations at National Level) has been checked during the project audit and no errors were found. The detailed information on the implementation of the before mentioned recommendations is provided in the Annex 1 to AAR. 7. JUSTIFICATION FOR THE AUDIT OPINION The Audit Opinion of the Audit Authority is prepared in accordance with the Paragraph 1.(e)(ii) of Article 4.6 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms and ISA 800 Special Considerations Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks. The Audit Opinion is provided: 10

11 1. On the effective functioning of the management and control system that has been developed for the implementation of the Technical Assistance (including Fund for Bilateral Relations at National Level) (Section 1.3), 2. So as to provide a reasonable assurance that statements of actual expenditure incurred presented to the Donor states are correct and as a consequence reasonable assurance that the underlying transactions are legal and regular - which is based on the results of the project audit of the Technical Assistance (including Fund for Bilateral Relations at National Level) (Section 5). The expenditures included in the 2 interim financial reports prepared during the AAR full and: reference period were audited in 1. no errors with financial impact were found (Section 3), 2. no systemic effors were found (Section 4). Thus the Audit Authority concludes to have an unqualified Opinion as it is set out intable 4. Table 4. P eparatlon ti o f thee Auor Audit O nton.. Er,'rors,..with,,i'.fi **.ncia,,li.,,,iim,p act,, Syffimiclb dh Aibove:.im#ffi ft*#i{ffi, I,em'#il IJnqualified opinion IJnqualified opinion Qualified opinion Qualified opinion / Adverse opinion Adverse opinion Adverse opinion Disclaimer Disclaimer Prepared by: EIJ Funds Audit Department Senior Expert Olga Guza Approved by: Head of Audit Authority Nata Lasrnane ' g \-,_--d 11 -'/*

12 Follow up of the recommendations of the management and control system compliance assessment Recommendation Recomme ndation priority Implementation deadline 12 Implemented (Yes / / Partly) Status of implementation External regulatory enactments Submit to the draft Regulations Regulations of the European Economic Area Financial Mechanism and rwegian Financial Mechanism Monitoring Committee. High Yes Develop and submit to the draft Regulations Procedures according to which institutions involved in the management of financial mechanisms shall perform monitoring, evaluation, control of and reporting on irregularities identified in the management of financial mechanisms and recover irregular expenditure. Develop and submit to the draft Regulations Procedure for the management of the European Economic Area Financial Mechanism and rwegian Financial Mechanism , planning state budget funds and making payments. In draft cross-cutting regulation refer to the following: Yes Partly (point 5 not Annex 1 Regulations 439 Regulations of the European Economic Area Financial Mechanism and rwegian Financial Mechanism Monitoring Committee was approved by on Draft Regulations Procedures according to which monitoring, evaluation, control of and reporting on irregularities identified and recover irregular expenditure shell be performed for the European Economic Area Financial Mechanism and the rwegian Financial Mechanism through the period from 2009 to 2014 (hereinafter - Draft Regulations) have been announced at the Meeting of the State s Secretaries on , but have not been submitted to yet. Regulations 694 Procedure for the management of the European Economic Area Financial Mechanism and rwegian Financial Mechanism , planning state budget funds and making payments was approved by on Cross-cutting refer to: 1. Regulations 694 covers provision

13 1. Provision of state budget pre-financing in full amount (also for payment to project promoters) in the form of a grant for the implementation of EEA/rwegian Financial Mechanisms co-financed programmes, so that PO do not have to open and maintain a separate interest accumulating bank account. 2. Mechanism for handing over information on the checks carried out by PO, agencies and PMB to the CA, evaluating the possibility to hand over information to the CA electronically. 3. Mechanisms for transferring information about the implementation of programmes/projects to the NFP/CA/Audit Authority, considering the possibility to organize transfer of information in electronic form or define the information which must be stored electronically at the PO level, so that data could be comparable and usable. 4. Preparing and submitting of interim financial reports, annual programme reports, final programme reports and payment claims. 5. All points of the programme implementation agreement referred to in Article of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms implemented in full yet, cause not all Regulations on specific programmes are yet available) of the state budget pre-financing in full amount. 2. Regulations 694 provide mechanism for handing over information electronically on the procurement checks carried out by PO, agencies and PMB to CA. Draft Regulations provide mechanism for handing over information electronically on the on-the-spot checks carried out by PO and agencies to CA. 3. Regulations 694 identifies information on the implementation of programmes/projects which should be maintained on the websites of PO and agencies. 4. Regulations 694 provides procedures for preparing and submitting of interim financial reports, annual programme reports, final programme reports and payment claims. 5. Following points of the programme implementation agreement referred to in Article of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms are covered in the cross-cutting : (a) obligations regarding reporting that enable NFP to comply with its reporting obligations to the Donor states covered in Draft Regulations. (b) obligations related to PO reporting obligations to the Donor states and CA and its duty to provide documents upon request covered in Draft Regulations and 13

14 Regulations 694. (e) the first and final dates of eligibility of expenditures covered in Regulations 694; (f) modifications of the programme covered in Regulations 694; (g) ensuring that the access requested in relation to monitoring, audits and evaluations is provided without delay covered in Regulations 694, Draft Regulations and Regulations 502 Procedure for performing functions of the audit authority in the management of European Economic Area Financial Mechanism and rwegian Financial Mechanism ; (h) ensuring that obligations regarding publicity are complied with covered in Regulations 694; (i) the right of NFP to suspend payments and request reimbursement from PO in case decision on such actions is taken by the Donor states or NFP covered in Regulations 694, Draft Regulations; (j) that termination of the Programme Agreement referred to in Article 5.7 may result in a termination of the programme implementation agreement covered in Draft Regulations; (k) a reference to programme partnerships, if relevant concerning National programme partners covered in Regulations 694. Remaining points will be covered in Regulations on specific programmes. 5. Arrange the public procurement system Low Yes The public procurement system regarding 14

15 6. 7. regarding financial mechanisms providing a procedure: 1. for cases when the financial mechanism beneficiary is not a subject of the Public Procurement Law; 2. for cases when within the framework of projects contract are concluded under the thresholds, above which the Project promoter must apply procurement procedures prescribed by procurement regulating normative acts. Develop internal procedure of the PMB for exante procurement checks. Update EU funds methodology 12.2 Methodology of the European Union funds Managing Authority for carrying out on-the-spot checks of the European Union Structural Funds Low Yes NFP guidelines / methodologies Within three financial mechanisms has been arranged similarly as practise in the EU funds projects: 1) amendments to the Public Procurement Law came into force , where Article 7 has been amended by supplementing the task delegated to the to set a procedure also for procurements financed for other foreign financial assistance apart from EU policy instruments. 2) In cross-cutting 694 it is set that PO should introduce in Project agreements a procedure regarding procurement contracts concluded below public procurement thresholds, to ensure compliance with the requirements of Paragraph 4 of Article Procurement of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms the best practice, transparency and the principle of unlimited competition should be met. PMB internal procedures according to which PMB carries out ex-ante procurement checks regarding the EEA/rwegian Financial Mechanisms projects and verifies ex-ante procurement checks carried out by PO and agencies have been approved on t yet implemented as respective crosscutting have not been approved yet. The non-implementation did not have impact 15

16 and Cohesion Fund co-financed projects in programming period in regard to financial mechanisms. Update guidelines of NFP of Guidelines for Making Financial Corrections in Projects Financed from the European Union Funds in regard to financial mechanisms. Update guidelines of NFP of Guidelines for Reporting on the Irregularities Identified during the EU Funds Implementation and Recovery of Irregular Expenditure in the Programming Period in regard to financial mechanisms. Develop guidelines for documents supporting project eligible costs. Within three Within three Within three Yes on the proper functioning of the management and control system during the AAR reference period as implementation of programmes and projects had not been started. Guidelines for Making Financial Corrections in Projects Financed from the European Union Funds can be used for the EEA/rwegian Financial Mechanisms t yet implemented as respective crosscutting have not been approved yet. The non-implementation did not have impact on the proper functioning of the management and control system during the AAR reference period as implementation of programmes and projects had not been started and irregularities had not been found regarding Technical Assistance (including Fund for Bilateral Relations at National Level) by the Audit Authority during the project audit and by CA during certification of expenditures. t yet implemented as respective crosscutting have not been approved yet. The non-implementation did not have impact on the proper functioning of the management and control system during the AAR reference period as implementation of programmes and projects had not been started and regarding Technical Assistance (including Fund for Bilateral Relations at National Level) it was found by the Audit Authority during the project audit that eligible costs of the Technical Assistance correspond to the 16

17 Develop methodology for PMB and PO ex-ante checks of procurements. Establish a Communication Management Group. Ensure constant operation of the financial mechanisms web site in Latvian and English. Update MoF internal 12-29/18 from Regulations on publishing and updating information on external and internal websites of the Ministry of Finance, providing that technical updating of the financial mechanisms website will be outsourced. Update the following NFP procedures with regard to changes in the NFP structure according to the NFP reorganization which took place on : Procedure 1 of the NFP of Procedure for launching the European Economic Area Financial Mechanism and rwegian Financial Mechanism Within three Yes NFP internal regulatory enactments Within two moment when the Communication Yes Strategy is approved High Within two moment when access to the website is provided 17 accounting records and proper supporting documents held by the beneficiary. PMB methodology on carrying out of ex-ante procurement checks for PO and agencies has been approved on Communication Management Group was established on by approving group s in accordance with the communication strategy of the EEA/rwegian Financial Mechanisms Implemented during the audit Yes Yes Taking into consideration that the outsourcing contract was terminated, technical updating of the website is under MoF s responsibility. MoF s internal rules Nr.12-29/18 from Regulations on publishing and updating information on external and internal websites of the Ministry of Finance foresee to update information about the EEA/rwegian Financial Mechanisms in the webpage. NFP procedure 1 has been updated and approved on and procedure 6.10 has been updated and approved on

18 implementation period procedure 6.10 of the NFP of Procedure according to which the Managing Authority shall prepare an informative report on the acquisition of foreign financial resources and other informative reports Update procedure 2.3 of the NFP of Procedure according to which the Managing Authority shall update the description of the European Union Structural Funds, Cohesion Fund, European Economic Area Financial Mechanism and rwegian Financial Mechanism Management and Control System with regard to time schedule for updating the Management and control system description. Update procedure 6.8 of the NFP of Procedures according to which the NFP shall plan state budget resources for European Union funds, the Latvian-Swiss Cooperation Programme, the European Economic Area Financial Mechanism and rwegian Financial Mechanism co-financed projects, handle requests and monitor the use of resources. Develop and approve procedure 4 of the NFP Procedure according to which the National Focal Point shall ensure management and supervision of the European Economic Area Financial Mechanism and rwegian Financial Mechanism Update procedure 3 of the NFP of Procedure according to which the National Focal Point shall evaluate controls and audit reports on the European Economic Area Financial Mechanism and rwegian Financial Within three Within three Within three Yes The internal procedure of NFP has not been updated yet, but as the time schedule for updating the Management and control system description is set up in the Regulations 502 this does not have major impact on functionality of the management and control system. The internal procedure 6.8 of NFP has been updated on Implemented during the audit Procedure approved on t yet implemented as respective crosscutting have not been approved yet. The non-implementation did not have impact on the proper functioning of the management 18

19 Mechanism in view of the division of functions between the NFP and MoF Internal Audit Department associated with evaluation of internal audit reports. Update procedure 4.5 of the NFP of Procedure according to which the Managing Authority shall establish and evaluates potential irregularities and information provided by institutions involved in the management of the European Union Funds, EEA Financial Mechanism and rwegian Financial Mechanism and the Latvian-Swiss Cooperation Programme about irregularities in project implementation with regard to financial mechanisms and changes in the MA structure according to the MA reorganization which took place on Develop and approve the mechanism for evaluation of internal audit reports received from institutions. Develop the following CA internal procedures prescribing therein arrangements to implement functions/processes provided in Articles 4.5.1, , 8.5 and 8.7 of the Regulations on the implementation of the EEA/rwegian Financial Mechanisms : Description of transactions Making European Economic Area Financial Mechanism and rwegian Financial Mechanism payments and repayments, certifying expenditure in the period 2009 Low Within three 19 and control system during the AAR reference period as implementation of programmes and projects had not been started. t yet implemented as respective crosscutting have not been approved yet. The non-implementation did not have impact on the proper functioning of the management and control system during the AAR reference period as implementation of programmes and projects had not been started and irregularities had not been found regarding Technical Assistance (including Fund for Bilateral Relations at National Level) by the Audit Authority during the project audit and by CA during certification of expenditures. Implemented during the audit Approved internal 12-29/15 of the MoF of Cooperation during the internal audit process in the Ministry of Finance and subordinated institutions, in Section 4 of this Regulations cooperation between the Internal Audit Department of the MoF and the NFP and CA when sending evaluation of the report is described. CA internal regulatory enactments Within two t yet implemented as respective crosscutting have not been approved yet. The not implementation fact did not have impact on the proper functioning of the management and control system during the AAR reference period as only limited amount of expenditures had been certified in the AAR reference period (only Technical Assistance expenditures) and the Audit Authority checked expenditures included in the interim

20 2014. financial reports prepared during the AAR reference period in full and no errors were found (all the certified expenditure are eligible) Description of the procedure of the European Affairs Department Procedure for providing European Economic Area Financial Mechanism and rwegian Financial Mechanism certifying functions delegated to the European Affairs Department in the period Description of the procedure of the Settlement Department, European Union Payment Division Ensuring the flow of European Economic Area Financial Mechanism and rwegian Financial Mechanism financial resources in the period Develop a register for expenditure declared to Donor states. Develop an internal procedure for reporting on and monitoring of irregularities. Within two Within two t yet implemented as respective crosscutting have not been approved yet. The not implementation fact did not have impact on the proper functioning of the management and control system during the AAR reference period as only limited amount of expenditures had been certified in the AAR reference period (only Technical Assistance expenditures). t yet implemented as respective crosscutting have not been 20

21 To ensure proportionality of the management and control system for efficient achievement of financial mechanism goals the CA should develop a risk assessment mechanism based on which checks of expenditure supporting documentation will be carried out at the PO level and cases should be defined when checks will be carried out at the level of project promoter. Within two Audit Authority management and control system Submit draft Regulations Procedure for performing functions of the audit authority in the management of European Economic Area Financial Mechanism and rwegian Financial Yes Mechanism to the The Audit Authority shall develop: internal procedure for conducting system audits of the Management and Control System of the EEA and rwegian Financial Mechanisms Yes approved yet. The not implementation fact did not have impact on the proper functioning of the management and control system during the AAR reference period as only limited amount of expenditures had been certified in the AAR reference period (only Technical Assistance expenditures) and irregularities had not been found regarding Technical Assistance (including Fund for Bilateral Relations at National Level) by the Audit Authority during the project audit and by CA during certification of expenditures. t yet implemented as respective crosscutting have not been approved yet. The not implementation fact did not have impact on the proper functioning of the management and control system during the AAR reference period as only limited amount of expenditures had been certified in the AAR reference period (only Technical Assistance expenditures). Regulations 502 Procedure for performing functions of the audit authority in the management of European Economic Area Financial Mechanism and rwegian Financial Mechanism have been approved by on Audit Authority internal procedure ESFRD-7 for conducting system audits of the management and control system of the EEA/rwegian Financial Mechanisms

22 internal procedure for conducting audits of projects of the EEA and rwegian Financial Mechanisms Audit Authority internal procedure ESFRD-9 for conducting project audits within the EEA/rwegian Financial Mechanisms internal procedure for drafting and updating the EEA and rwegian Financial Mechanisms joint audit strategy. Audit Authority internal procedure ESFRD-2 for drafting and updating the EEA/rwegian Financial Mechanisms joint audit strategy. internal procedure for drafting the annual audit report on the EEA and rwegian Financial Mechanisms Audit Authority internal procedure ESFRD-3 for drafting the annual audit report and opinion as well as final audit report and closure declaration on the EEA/rwegian Financial Mechanisms In drafting the above mentioned procedures the proportionality must be ensured for efficient achievement of financial mechanism goals, including the following in the procedures: Administrative and on-the-spot verifications. Sampling of institutions/programmes/projects to be audited based on appropriate institution/programme/project risk assessment. Check lists used in audits Yes The principle of proportionality is ensured: Administrative and on-the-spot verifications covered in Regulations 502, Audit Authority internal procedure for conducting audits of projects and Audit Authority internal procedure for conducting system audits of the Management and Control System. Sampling of institutions/programmes/projects to be audited based on appropriate institution/programme/project risk assessment covered in the Audit Authority internal procedure for drafting 22

23 29. Evaluate proportionality of the management and control system for efficient achievement of financial mechanism goals and reflect the evaluation results on in the Annual Control Report. Proportionality for efficient achievement of financial mechanism goals After the implementation of other recommendations Partly and updating Joint audit strategy, Audit Authority internal procedure for conducting audits of projects and Audit Authority internal procedure for conducting system audits of the Management and Control System. Check lists used in audits covered in Audit Authority internal procedure for conducting audits of projects and Audit Authority internal procedure for conducting system audits of the Management and Control System. Proportionality of the management and control system is evaluated: 1. At the level of principle of proportionality is complied with; 2. At the level of PMB principle of proportionality is complied with; 3. At the level of the Audit Authority principle of proportionality is complied with (self-assessment). Proportionality of the management and control system at the level of CA and NFP will be evaluated as soon as other recommendations will be implemented. 23