The Role and Responsibilities of the Audit Authority for EU Funds in Malta

The EU Funds Audits Directorate (EUFAD) within the Internal Audit and Investigations Department is the designated Audit Authority (AA) for EU Funds in Malta in line with Article 123 (4) of the Regulation (EU) No. 1303/2013. The AA is responsible for meeting the audit obligations of the approved Operational Programmes being implemented in Malta under the 2014-2020 programming period. The following table, lists the Operational Programmes (OPs) falling within the EUFADs remit and their respective budget allocation.

Operational Programme Budget Allocation (€)
OPI – Fostering a competitive and sustainable economy to meet our challenges 717,859,686
OPII – Investing in human capital to create more opportunities and promote the wellbeing of society 132,366,810
SME Initiative (SMI) 15,000,000
Food and/or Basic Material Assistance Operational Programme (FEAD)s 4,640,777
European Maritime and Fisheries Fund (EMFF) 22,627,422
Italia-Malta Programme 43,952,171
Internal Security Fund (ISF) 74,677,704
Asylum, Migration and Integration Fund (AMIF) 18,446,877
Rural Development Programme (RDP) 97,500,000
The European Economic Area Financial Mechanism and Norwegian Financial Mechanism 8,000,000

This article will focus on the audit requirements of the European Structural and Investment Funds (namely OPI, OPII, SME Initiative, FEAD, EMFF and ETC). The remaining Operational Programmes will be the subject of a future article.

European Structural and Investment Funds (ESIF)

For the 2014-2020 programming period, the AA’s first task is to prepare an Audit Strategy within eight months from the approval of the respective OP. The strategy sets out the audit methodology, the sampling method for audits on operations and the planning of audits in relation to the current accounting year and the two subsequent accounting years. The strategy is updated annually from 2016 up to the Programme closure. The audit plan is important since it highlights how the AA will obtain its assurance to be in a position to issue an annual opinion on each OP. In turn, the European Commission (EC) acknowledges receipt of the audit strategy and provides constructive feedback which is further discussed during the annual bilateral meeting.

As illustrated in figure 1 below, the assurance process for the 2014-2020 programming period is split between ex-ante and ex-post verifications.

Figure 1: Assurance Process for 2014-2020 Programming Period

Assurance Process

The ex-ante checks and verifications carried out during the implementation of the programming period are explained in the following paragraphs.

Designation Procedure

The AA was appointed as the independent audit body to carry out the designation procedure following the approval of the OP. Prior to certification, the Managing and Certifying Authorities need to be designated. The AA assesses the fulfilment by the authorities of the criteria relating to the internal control environment, risk management, management and control activities, and monitoring. Once the audit fieldwork is finalised, the report and opinion are forwarded to the EC, where within 2 months from the receipt of the documents may make observations.

Following the designation procedure, the Maltese Certifying Authority may start declaring expenditure to the EC following first level checks carried out by the Managing Authority/Intermediate Body. The AA will then carry out ex-post checks and controls through system audits and audits of operations.

System Audits and Audits of Operations

The audits (obligatory by Regulation) are carried out on an on-going basis throughout the programming period (up to three years following the closure of the OP).

System Audits

Systems audits are carried out in accordance with paragraph 1 of Article 127 of Regulation (EU) No. 1303/2013 in order to verify the effective functioning of the management and control systems of the OP. Systems audits may be carried out on the main implementing bodies and other horizontal stakeholders, as well as on cross-cutting issues by undertaking audits on operations. The overall conclusion on the system audits carried out provides a basis for determining assurance levels and for determining the confidence levels for audits of operations.

Audits of Operations

Audits on operations are carried out on the basis of an appropriate sample to verify expenditure declarations to the EC in accordance with paragraph 1 of Article 127 of Regulation (EU) No. 1303/2013. The AA may decide to audit a complementary sample of operations in order to guarantee coverage of different types of operations, beneficiaries and Union priorities.

An audit of operation usually includes:

  • Reconciliation between the expenditure claimed and the supporting documents; and
  • Verification of the execution of the operation, the eligibility of the expenditure, the provision of co-financing and of compliance with relevant EU and national legislation, including, where applicable, public procurement, state aid, equal opportunities and the environment.

The scope of carrying out such ex-post checks and control is to ensure that the amounts declared to the EC are legal and regular. If during checks carried out, financial irregularities are detected, financial corrections may be applied accordingly. This in turn, will have a direct impact on the calculation of the error rate and on the overall annual audit opinion of the respective OP.

Audit of Accounts

The AA is to provide reasonable assurance on the truth, completeness, accuracy and veracity of the amounts declared. This is done by carrying out tests on the financial statements of the Certifying Authority to form an independent opinion as to whether the information within gives a true and fair view. The audit is to cover all the aspects stated in Article 137 of EC Regulation 1303/2013, namely the reconciliation of the eligible expenditure declared, any corrections made after management verification duly reflected in the accounts, and transactions supported by relevant documentary evidence.

While carrying out the audit of accounts, the AA is to make use of the result of systems audit, conducted at an earlier stage, to further substantiate grounds before forming any conclusions on the accounts. Through the use of the result of audits of operations, the AA reconciles the total eligible expenditure declared with the expenditure declared on the application for payment submitted to the EC and that any irregularities found have been eliminated from the accounts.

The conclusions drawn from the systems audits, audits of operations and audit of accounts will then be reported in the Annual Control Report which is to be submitted to the EC by 15 February of the following year. Moreover, from the conclusions derived, the auditor can then formulate an opinion for the programme and recommend subsequent action if necessary.

Commission Audits and Supervision

Finally, subsequent to submitting the Annual Control Report and Annual Opinion, the EC assesses and scrutinises all the documents provided. It either accepts the conclusions arrived, or requests further clarifications or additional work to be carried out by the AA. The EC may also provide its feedback and recommendations for the AA to consider implementing in future audits carried out for the remaining programming period.

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