european court of auditors 6 – 8 november 2006 eurosai - prague léon kirsch european court of...

6 – 8 November 2006 EUROSAI - PragueLéon KIRSCH

European Court of Auditors

EUROPEAN COURT OF AUDITORS

Audit of the Audit of the Single Payment Scheme Single Payment Scheme

((SPS)SPS)(Systems audit)(Systems audit)

Recent Developments in EU Agricultural Funds

6 – 8 November 2006Léon KIRSCH

European Court of AuditorsEUROSAI - Prague

Content of the Content of the presentationpresentation Systems Audit of SPSSystems Audit of SPS

The audit will be split into The audit will be split into threethree phases (2006- phases (2006-2008) and each phase will be split into 2008) and each phase will be split into twotwo stages stages

The The firstfirst phase will be limited to the phase will be limited to the establishment and management of payment establishment and management of payment entitlements (2006-2007)entitlements (2006-2007)

The The secondsecond phase will adress the activation of phase will adress the activation of payment entitlements, payments and the payment entitlements, payments and the reliability of inspecctions (2006-2008)reliability of inspecctions (2006-2008)

The The thirdthird phase will focus on IT systems and phase will focus on IT systems and their reliability (2007-2008/2009)their reliability (2007-2008/2009)

Recent developments pending for systems auditRecent developments pending for systems audit



Presentation of SPSPresentation of SPS

Introduction – CAP reform Introduction – CAP reform Single Payment Scheme (SPS)Single Payment Scheme (SPS)

Legal basisLegal basis OOverviewverview Implementation processImplementation process

Reasons for the audit, Scope of the auditReasons for the audit, Scope of the audit Audit objectives and approachAudit objectives and approach Expected audit resultsExpected audit results Audit ProgrammeAudit Programme ExampleExample Questions, answersQuestions, answers



IntroductionIntroduction – CAP reform – CAP reform

June 2003 reform of the Common Agricultural June 2003 reform of the Common Agricultural Policy (CAP) aims to achieve the following:Policy (CAP) aims to achieve the following: allow farmers to produceallow farmers to produce to market demand to market demand, no link of , no link of

the subsidy with the production (decoupling)the subsidy with the production (decoupling) promote environmentally and economically sustainable promote environmentally and economically sustainable

farmingfarming through the linking of the SPS to respect through the linking of the SPS to respect environmental, food safety, animal and plant health and environmental, food safety, animal and plant health and animal welfare standards (‘cross-compliance’)animal welfare standards (‘cross-compliance’)

strengthen the EUstrengthen the EU’s position in WTO agricultural trade ’s position in WTO agricultural trade negotiationsnegotiations

simplify CAP application for farmers and administrators simplify CAP application for farmers and administrators keep budgetary costs stable and manageable (financial keep budgetary costs stable and manageable (financial

discipline)discipline) safeguard the rural economy and environment safeguard the rural economy and environment

(modulation, new measures)(modulation, new measures)



Single Payment Scheme Single Payment Scheme (SPS)(SPS) Legal basis Legal basis

basic regulationsbasic regulations Council Regulation (EC) No 1782/2003 of 29Council Regulation (EC) No 1782/2003 of 29thth September 2003 September 2003

establishing common rules for direct support schemes under the establishing common rules for direct support schemes under the common agricultural policy and establishing certain support common agricultural policy and establishing certain support schemes for farmers, as amendedschemes for farmers, as amended

other Council Regulations that can be found in Annex 1 of the APMother Council Regulations that can be found in Annex 1 of the APM implementing regulations issued by the Commissionimplementing regulations issued by the Commission

Commission Regulations No 795/2004 of 21Commission Regulations No 795/2004 of 21stst April 2004 laying April 2004 laying down detailed rules for the implementation of the SPS, as amendeddown detailed rules for the implementation of the SPS, as amended

Commission Regulations No 796/2004 of 21Commission Regulations No 796/2004 of 21stst April 2004 laying April 2004 laying down detailed rules for the implementation of cross-compliance, down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system modulation and the integrated administration and control system (IACS), as amended(IACS), as amended

Com. Reg. No 2235/2003, No 2237/2003, No. 1973/2004, Com. Reg. No 2235/2003, No 2237/2003, No. 1973/2004, No.1655/2004No.1655/2004

national implementing regulations issued by the Member Statenational implementing regulations issued by the Member State



Single Payment Scheme Single Payment Scheme (SPS)(SPS) OverviewOverview (Key elements of Single Payment Scheme ) (Key elements of Single Payment Scheme )

payment is irrespective of what the farmer produces (= payment is irrespective of what the farmer produces (= decouplingdecoupling))

whowho is entitled ? is entitled ? entitlements only go to farmers entitlements only go to farmers actively farmingactively farming at the date each at the date each

Member State (MS) introduces the schemeMember State (MS) introduces the scheme farmers are allotted farmers are allotted payment entitlements payment entitlements either based on:either based on:

reference amountsreference amounts (generally amounts of direct payments each farmer (generally amounts of direct payments each farmer received in the reference period 2000-2002, though different calculation received in the reference period 2000-2002, though different calculation options are available for specific cases)options are available for specific cases)

flat rates flat rates (regional ceilings divided by the number of eligible hectares (regional ceilings divided by the number of eligible hectares decelared by the farmers of the region in the year of SPS introduction)decelared by the farmers of the region in the year of SPS introduction)

a mixturea mixture of reference amounts and flat rates (either static or dynamic) of reference amounts and flat rates (either static or dynamic) activatingactivating entitlements entitlements

payments are granted annualy where farmers have payments are granted annualy where farmers have eligible hectareseligible hectares at their disposal at their disposal to activateto activate the appropriate number of entitlements the appropriate number of entitlements (in principal permanent crops, fruit and vegetables, ware potatoes (in principal permanent crops, fruit and vegetables, ware potatoes and forestry and forestry are notare not considered as eligible land) considered as eligible land)

conditions farmers must fulfill (‘cross-compliance’) – must respect conditions farmers must fulfill (‘cross-compliance’) – must respect Good agricultural and environmental condition and Statutory Good agricultural and environmental condition and Statutory management requirementsmanagement requirements



Single Payment SchemSingle Payment Schemee (SPS)(SPS)

ImplementationImplementation (Options for SPS design and (Options for SPS design and calculation)calculation) Basic (historic) approachBasic (historic) approach – entitlements granted – entitlements granted

based on payments received in reference period based on payments received in reference period (reference amounts)(reference amounts)

Regional (flat rate) approachRegional (flat rate) approach – entitlements – entitlements granted based on the disvison of regional ceilings by granted based on the disvison of regional ceilings by the number of eligible hectares decelared by the the number of eligible hectares decelared by the farmers of the region in the year of SPS farmers of the region in the year of SPS introduction(this model entails some redistribution of introduction(this model entails some redistribution of payments between farmers)payments between farmers)

Mixed modelsMixed models – mix of the above two models, further – mix of the above two models, further can be divided as hybrid can be divided as hybrid staticstatic model (the proportion model (the proportion of the above two models stays the same from the first of the above two models stays the same from the first application) or as hybrid application) or as hybrid dynamicdynamic (proportion (proportion changes from the first application) changes from the first application)



Single Payment Scheme Single Payment Scheme (SPS)(SPS) Member States Member States implementingimplementing SPS SPS from 2005from 2005

Member State Model used

Budgetary Ceiling for SPS calendar year 2005 as per Annex V of Comm.Reg. No 118/2005 (in thousands)

GermanyDynamic hybrid moving to a flat rate model

€5 145 726

England - Dynamic hybrid moving to a flat rate modelScotland, Wales - HistoricNorthern Ireland - Static hybrid

Italy Historic €2 345 849Ireland Historic €1 260 142Denmark Static hybrid €909 429Sweden Static hybrid €597 073Austria Historic €519 863Belgium Historic €306 318Portugal Historic €302 562Luxembourg Static hybrid €33 414Total budgetary ceiling for 10 MS starting SPS in 2005 €15 088 104

UK - 4 regions €3 667 728



Single Payment Scheme (SPS)Single Payment Scheme (SPS)

Member States Member States implementingimplementing SPS in SPS in 2006 or 20072006 or 2007Member State Model Year of entry SPS

Greece Historic 2006

Spain Historic 2006

France Historic 2006

Netherlands Historic 2006

FinlandDynamic hybrid moving to a flat rate

model2006

Malta Mandatory flat rate regional model 2007

Slovenia Mandatory flat rate regional model 2007



Reasons for and scope of Reasons for and scope of the audit the audit ReasonsReasons to audit SPS Entitlements are to audit SPS Entitlements are

The Single Payment Scheme (SPS) is a central The Single Payment Scheme (SPS) is a central element of the CAP reformelement of the CAP reform

To implement properly SPS is a huge task and it will To implement properly SPS is a huge task and it will be prone to problems and errorsbe prone to problems and errors

First payments under SPS will be done from 2006 First payments under SPS will be done from 2006 budget (represents 13% of the general budget - € budget (represents 13% of the general budget - € 14.653 Mio and this will increase further in the next 14.653 Mio and this will increase further in the next years)years)

Payment entitlements will be established once and Payment entitlements will be established once and then used for later payments, if incorrectly then used for later payments, if incorrectly calculated now, all future payments will be incorrect calculated now, all future payments will be incorrect as wellas well



Reasons for and scope of Reasons for and scope of the auditthe audit ScopeScope of the audit of the audit

The The firstfirst phase of the audit will be limited phase of the audit will be limited to the establishment and management of to the establishment and management of payment entitlementspayment entitlements

FirstFirst stage (in 2006) – visit of 13 paying stage (in 2006) – visit of 13 paying agencies in the 10 Member States that agencies in the 10 Member States that introduced SPS in 2005 and audit of the introduced SPS in 2005 and audit of the Commission Commission

SecondSecond stage (in 2007) – visit of paying stage (in 2007) – visit of paying agencies in 5 Member States that agencies in 5 Member States that introduce SPS in 2006 (appear in budget introduce SPS in 2006 (appear in budget year 2007)year 2007)



AuditAudit objectives and objectives and approachapproach The main The main objectivesobjectives of the SPS audit are to of the SPS audit are to

assess whether: assess whether: The Commission has set up the necessary The Commission has set up the necessary

procedures to ensure uniform and correct procedures to ensure uniform and correct calculation of entitlements, respecting the national calculation of entitlements, respecting the national ceilings and has adequately supported the Member ceilings and has adequately supported the Member States in their efforts to set up the initial States in their efforts to set up the initial implementation of the SPS. implementation of the SPS.

The national provisions adopted by the Member The national provisions adopted by the Member States comply with EU legislation and the States comply with EU legislation and the entitlements have been correctly calculated.entitlements have been correctly calculated.

The Member States have set up adequate The Member States have set up adequate administrative procedures and a reliable internal administrative procedures and a reliable internal control for the correct, complete and accurate control for the correct, complete and accurate establishment and management of payment establishment and management of payment entitlementsentitlements



Audit approachAudit approach

There will be two major areas the audit will focused There will be two major areas the audit will focused on:on:

At the Commission levelAt the Commission level where it has to be assessed where it has to be assessed whether:whether:

administrative procedures and controls have been put in place administrative procedures and controls have been put in place at the Commission to ensure compliance with EU legislation;at the Commission to ensure compliance with EU legislation;

the Commission ensures uniform implementation, where the Commission ensures uniform implementation, where necessarynecessary

adequate supervision is exercised for the proper adequate supervision is exercised for the proper implementation of the SPS in the Member States implementation of the SPS in the Member States

At the Member State levelAt the Member State level where it has to be assessed where it has to be assessed whether:whether:

adequate procedures are in place for establishing payment adequate procedures are in place for establishing payment entitlements;entitlements;

a proper system for the management of the payment a proper system for the management of the payment entitlements is in place;entitlements is in place;

adequate controls function effectively.adequate controls function effectively.



Audit approachAudit approach

Two kinds of audit test will be performed:Two kinds of audit test will be performed: a walk-through testa walk-through test – based on a limited sample of – based on a limited sample of

applications representing all the possible types of applications representing all the possible types of payment entitlements in a given agency in order to payment entitlements in a given agency in order to document the control systemdocument the control system

a compliance testa compliance test – based on a statistical sample of – based on a statistical sample of at least 30 applications from the entire population in at least 30 applications from the entire population in order to determine, if the controls are effectively order to determine, if the controls are effectively functioning; the sample will include as much as functioning; the sample will include as much as possible transactions selected for substantive testing possible transactions selected for substantive testing by FEOGA 1by FEOGA 1

The evidence collectionThe evidence collection plan contains the plan contains the audit objectives, the audit criteria, the source audit objectives, the audit criteria, the source of the audit evidence and the audit procedures of the audit evidence and the audit procedures to be undertaken by the auditorsto be undertaken by the auditors



Expected Audit results Expected Audit results (Benchmarking)(Benchmarking)

Administrative procedures and controls to ensure correct payment

Risk analysis and selection procedures for inspections

Inspection methodology and reporting of individual results

Preparation and reliability of statistics on inspections and results

3 5 / 6 14 15

1 / 2 / 3 / 4 / 10 / 8 5 14 16

1 / 2 / 3 / 4 13 7 15

1 / 2 / 3 / 4 / 9 / 11 / 12 6 14 / 17 16

1 / 2 / 4 5 / 6 14 15

A Works well, few or minor improvements required

B Works, but improvements are necessary

C Does not work as intended

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

Source: Court of Auditors, review of paying agencies' IACS system (abstract).

The total area found for every crop by remote sensing inside a reference parcel was allocated to the respective farmers proportionally to the area they had declared.

IACS MONITORING ELEMENTS - SINGLE AREA PAYMENT SCHEME (SAPS)

Hungary

Czech Republic

The Land Parcel Identification System (LPIS) does not contain the necessary eligibility data for the reference parcels (production blocks or cadastral parcels) and / or the agricultural parcels located therein.

Member State

Lithuania

Poland

Slovakia

Parcels not claimed or claimed partly only by one farmer can compensate for double or overdeclarations made by another farmer so that the real extent of over and/or double declarations inside a reference parcel cannot be correctly established. As a consequence, aid reductions and penalties are either not applied or applied at too low a level.

Approximately 20 % of inspections were carried out after harvest, between November 2004 and August 2005.

Inspection results were not or not correctly taken into account for the calculation of the SAPS payment

The administrative cross-checks allow for the claimed area to exceed the eligible area registered in the LPIS by up to 5 %.

The evaluation of risk factors applied was not carried out and / or not documented.

The Member States did not require the application to be supported with documents that enable each agricultural parcel to be precisely located and measured (Article 4 of Regulation (EC) No 2419/2001). This failure affected the quality of administrative cross-checks and inspections.

The analysis of significant discrepancies found during the inspections has not or not sufficiently been carried out and / or in the case of significant irregularities the control rate was not increased in the same year (Art. 18 (2) of Regulation (EC) No 2419/2001).

The Land Parcel Identification System did not allow the exact geographical coordinates of every corner or turning point of a parcel to be determined. On-the-spot inspectors faced the problem of establishing the boundaries of the parcel to be measured.

Inspection results were not recorded in the Land Parcel Identification System to avoid overdeclarations in coming years.

Minor unexplained differences between the number of inspections and / or inspection results reported to the Commission and the underlying data transmitted to the auditors and / or minor delays in transmitting statistics to the Commission.

Significant unexplained differences between the number of inspections and / or inspection results reported to the Commission and the underlying data transmitted to the auditors and / or substantial delays in transmitting statistics to the Commission.

Difficulties arose in establishing the boundaries of the parcel claimed and when measurement results exceeded the total cadastral area of the parcel measured, the area measured was considered to be the area established.

Reductions imposed due to non-compliance with conditions applicable to national top-up payments were extended to SAPS payments although the conditions applicable to SAPS were met.

The random selected inspections generated higher area discrepancies and a higher proportion of overdeclarations than risk-based inspections. This indicates that the underlying risk parameters were not effective.



Expected Audit results Expected Audit results (Benchmarking)(Benchmarking)

Administrative procedures and controls to ensure correct payment

Risk analysis and selection procedures for inspections

Inspection methodology and reporting of individual results

Preparation and reliability of statistics on inspections and results

3 5 / 6 14 15

1 / 2 / 3 / 4 / 10 / 8 5 14 16

1 / 2 / 3 / 4 13 7 15

1 / 2 / 3 / 4 / 9 / 11 / 12 6 14 / 17 16

1 / 2 / 4 5 / 6 14 15

A Works well, few or minor improvements required

B Works, but improvements are necessary

C Does not work as intended

IACS MONITORING ELEMENTS - SINGLE AREA PAYMENT SCHEME (SAPS)

Hungary

Czech Republic

Member State

Lithuania

Poland

Slovakia



Audit Audit programmeprogramme (Basics) (Basics)

For every paying agency a specific audit programme is For every paying agency a specific audit programme is neededneeded. However every programme will have to cover the . However every programme will have to cover the same basic items. same basic items.

The following five areas have been identified in order to design The following five areas have been identified in order to design and understand better the steps needed for the calculation of and understand better the steps needed for the calculation of the entitlements under SPS as per Council Reg (EC) the entitlements under SPS as per Council Reg (EC) 1782/2003:1782/2003:

1.1. Eligible populationEligible population

2.2. Definition of theDefinition of the reference amount reference amount

3.3. Establishment and Notification of the entitlementsEstablishment and Notification of the entitlements

4.4. Allocation of the National ReserveAllocation of the National Reserve

5.5. Management of the entitlementsManagement of the entitlements



Audit Audit programmeprogramme (Options for implementing (Options for implementing SPS)SPS) The audit programmes will have to The audit programmes will have to

be adapted following the options be adapted following the options decided for by the Member States.decided for by the Member States.

The key points of the The key points of the historichistoric and and the the purepure regionalregional approach are approach are presented in slides 19 to 35.presented in slides 19 to 35.

For For hybridehybride modelsmodels a combination of a combination of the audit programmes will have to the audit programmes will have to be tailor made. be tailor made.



Recent develoments pendingRecent develoments pending for systems audit for systems audit

In its opinion No 2/2004 on the so called «single In its opinion No 2/2004 on the so called «single audit model» and a proposal for a Community audit model» and a proposal for a Community Internal Control Framework (CICF) the ECA Internal Control Framework (CICF) the ECA stated: stated:

The type and intensity of checking within internal The type and intensity of checking within internal control systems would be set with reference to the control systems would be set with reference to the cost and benefits (§ 50). As no systems can cost and benefits (§ 50). As no systems can reasonably be expected to assure absolute reasonably be expected to assure absolute correctness of all transactions, the extent and correctness of all transactions, the extent and intensity of checking should make an appropriate intensity of checking should make an appropriate balance between the overall costs of operating balance between the overall costs of operating those checks and the overall benefits they bring those checks and the overall benefits they bring (§ (§ 25)25)

6 – 8 November 2006 EUROSAI - PragueLéon KIRSCH

European Court of Auditors

EUROPEAN COURT OF AUDITORS

ConclusionConclusion

Questions & Answers

european court of auditors 6 – 8 november 2006 eurosai - prague léon kirsch european court of...

Documents

allotted payment entitlements

common agricultural

common rules

apmimplementing regulations

amendedcommission regulations

cap application

detailed rules

direct support schemes