Public Procurement Financial Corrections Caroline Theuma Senior Audit Manager (EU Funds Audits)
Outline Introduction • • Roles and Responsibilities of IAID • Procurement and related financial corrections • Reporting of financial corrections • Recommendations and best practices
Introduction • The responsibilities and powers of the IAID are entrenched in the Internal Audit and Financial Investigations Act (Chapter 461 of the Laws of Malta). • In order to carry out their duties, IAID officers are authorised to have full, free and unrestricted access to all Government records and property and the same access to third parties in receipt of Government/EU Funds.
Roles and responsibilities IAID Internal Audit Central EU Funds Financial and Risk Harmonisation Audits Investigations Management Directorate Directorate Directorate Directorate
Management and Control / Audit
Audit Structure
System Audits and Audits on operations When do audits take place and what type of audits are conducted? • Systems audits are carried out at the beginning of the programming period in order to verify the effective functioning of the management and control systems of the Operational Programme. Systems audits may be carried out on the main implementing bodies and other horizontal stakeholders, as well checks on beneficiaries. • Operational audits are carried out on the basis of an appropriate sample to verify expenditure declarations to the European Commission. The Audit Authority may decide to audit a complementary sample of operations in order to guarantee coverage of different types of operations, beneficiaries and Union priorities. 7
Audits of Operations –What do auditors check? • The projects’ applicability to the Operational Programme • Does it comply with the grant conditions? • Are the invoices in line with fiscal obligations? • Is the audit trail of expenditure declared complete? • Is expenditure declared eligible? • Is the matched funding from the beneficiary body correct? • Were the publicity rules complied with? • Does it comply with public procurement Directives?
REFERENCES � Commission Decision for determining financial corrections to be made on expenditure financed by the Union under shared management, for non- compliance with the rules on public procurement (Brussels, 14.5.2019 C(2019) 3452 final) � Public Procurement Regulations in Malta were transposed on 28 October 2016 from the EU Public Procurement Directive 2014/24/EU: Refer to https://contracts.gov.mt/en/Resources/Pages/Resources.aspx) for Legal Notice 352 of 2016, as amended by Legal Notices 155 of 2017, 233 of 2017, 26 of 2018, 176 of 2018, 263 of 2018 and Act XXVIII of 2018 � https://ec.europa.eu/growth/single-market/public-procurement/rules- implementation/thresholds_en
Procurement Directives EU law sets minimum harmonised rules for tenders whose monetary value exceeds a certain amount and which are presumed to be of cross-border interest. The European rules ensure that the award of contracts of higher value for the provision of public goods and services must be fair, equitable, transparent and non-discriminatory. For tenders of lower value however, national rules apply, which nevertheless have to respect general principles of EU law.
Principles of Public Procurement Public procurement is driven by principles of transparency, equal treatment, non-discrimination, proportionality, propelled by EU wide Directives which seek to ensure good financial governance.
Financial Corrections
Irregularities What is an irregularity in terms if EU Funded Projects? An irregularity is defined as ‘any breach of the application of EU/National Laws, resulting from an act or omission by an economic operator involved in the implementation of the ESIF Funds, which has, or would have, the effect of prejudicing the budget of the EU by charging an unjustified item of expenditure to the budget of the EU.
Types of Irregularities Administrative Irregularity – Irregularities which do not have a financial impact; Individual Irregularity – e.g. paying a one time ineligible cost through EU funds; Financial irregularity which can be systematic or non- systematic: Systematic irregularity – an ongoing action which persists through the implementation of the project. It results from the existence of serious deficiencies in the management and control systems. Non-systematic irregularity - it is an action which was detected and corrected immediately and did not effect the whole project implementation but a specific tender, cost item etc.…
Financial impact of Irregularities The amount of the financial correction is assessed, wherever possible, on the basis of individual cases and is equal to the exact amount of expenditure wrongly charged to the EU Budget. However, when we cannot quantify the financial corrections, a flat rate correction, proportionate to the seriousness of the irregularity or the system deficiency, should be made.
Commission Financial Correction Guidelines state that: Where irregularities related to the non-compliance with public procurement rules are detected, Expenditure amount the amount of the financial declared to the European correction is calculated in view of: Commission Applied to any Related to the future expenditure contracts related to the same affected contract before expenditure is declared
Purpose and Scope of the Guidelines Breaches of Public Procurement Rules Financial Corrections
Range of Rates on financial irregularities Range of rates between 5% and 100% These rates of corrections are applied when it is not possible to quantify precisely the financial implications for the contract in question.
Main elements of the guidelines ( 1 ) � Guidelines applicable to all financial correction procedures launched after the date of adoption of the guidelines; � Applicable also to contracts not subject to the Directives if � There is a cross border interest and Treaty principles of transparency and non-discrimination are not respected, or � There is a clear breach of the applicable national public procurement law (or similar rules) ; � Rates of corrections not cumulated for irregularities in the same contract (the most serious irregularity justifies the rate of correction);
Main elements of the guidelines ( 2 ) � Flat rate corrections are to be applied in case of all public procurement irregularities (no precise quantification is possible due to nature of irregularities); � Provisions of 2014 Directives are reflected (further types of irregularities are included, flexibility offered by 2014 Directives is taken into account); and � 100% financial correction for irregularities relating to fraud (as established by a competent body, EC auditors and in general AAs do not have competence to investigate fraud)
Irr rregularities stipulated in the guidelines are split under three stages: Contract notice and tender specifications Selection of tenderers and evaluation of tender Contract implementation
Contract Notice and Tender Specifications
� Lack of publication or unjustified direct award (irregularity no. 1, financial correction of 25% or 100%); � Artificial splitting (irregularity no. 2, financial correction of 25% or 100%); � * New: Lack of justification for not subdividing contract into lots (irregularity no. 3 financial correction of 5%); � Non compliance with time limits (failure to extend, publish extended time limits, restrictions to obtain tender documentation or insufficient time given for potential tenderers to obtain tender documentation (irregularity no. 4&5&6, rates of financial correction vary from 5%, 10%, 25% or 100%);
� Use of competitive procedure with negotiation or competitive dialogue not justified (irregularity no. 7, rate of financial correction which can be applied is 10% or 25%); � * New: Non compliance with the procedures established in the Directives relating to framework agreements, dynamic purchasing system, e-auctions, e-catalogues, centralised purchasing activities and bodies (irregularity no. 8, rates of financial correction 10% or 25%); � Failure to publish in the contract notice the selection and/or award criteria, conditions or technical specifications related with the contract (irregularity no. 9, financial correction of 10% or 25%);
� Use of criteria for exclusion, selection, award, conditions for performance of technical specifications related to the contract are discriminatory, unlawful or restrict access for economic operators (irregularities no. 10 & 11, financial correction of 5%, 10% or 25%); � Insufficient or imprecise definition of the subject matter of the contract before and even after publication of the contract notice. The amount of clarifications made by tenderers is not an indicator that an irregularity exists, provided that questions are answered by the Contracting Authority. (irregularity no. 12, financial correction of 10%); and � * New: Unjustified limitation of sub contracting where the tender imposes limitations on the use of subcontractors for a share of the contract (fixed %). (irregularity no. 13, financial correction of 5%).
SELECTION OF TENDERERS AND EVALUATION OF TENDERS
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