Public Procurement Financial Corrections Caroline Theuma Senior - - PowerPoint PPT Presentation

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

• f 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 and Risk Management Directorate Central Harmonisation Directorate EU Funds Audits Directorate Financial Investigations 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

• perations in order to guarantee coverage of different types of
• perations, 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.

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.

Principles of Public Procurement

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

• perator 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,

• n 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.

Expenditure amount declared to the European Commission

Related to the contracts

Applied to any future expenditure related to the same affected contract before expenditure is declared

Where irregularities related to the non-compliance with public procurement rules are detected, the amount of the financial correction is calculated in view of:

Commission Financial Correction Guidelines state that:

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,

• r

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

• f 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

• btain

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%

• r 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

Selection of criteria or technical specifications were modified after the opening of tenders or were incorrectly applied (irregularity no. 14, financial correction of 25%); Use of award criteria during evaluation were different from the ones stated in the tender specifications when contract was published or additional award criteria were used during evaluation (irregularities no. 15, financial correction of 10%

• r 25% (discriminatory effect);

Insufficient audit trail to justify the award of the contract resulting in lack of transparency or the Contracting Authority refused to provided access to the relevant documentation to evidence that procurement process was complied with (irregularity no. 16, financial correction of 25%or 100%);

Negotiation during award procedures or modification of winning bid during evaluation - the Contracting Authority allowed a tenderer to modify its tender during evaluation of

• ffers which eventually led to the award of the contract to

the same tenderer (irregularity no. 17, financial correction of 25%); *New: Prior involvement of tenderers towards the CA leading to the distortion of competition (irregularity no. 18, financial correction of 25%); In a competitive procedure (with negotiations), the initial conditions of the contract where modified substantially, requiring the publication of a new tender (irregularities no. 19, financial correction of 25%;

Rejection of abnormally low tenders no justified (irregularity

• no. 20, financial correction of 25%); and

Conflict of interest (irregularity no. 21, financial correction of 100%); and *New: Bid Rigging (irregularity no. 22, financial correction of 10%, 25% or 100%).

Modification of the contract elements set out in the contract notice or tender specifications not in compliance with the Article 72 (2) of the Procurement Directives. Modifications will only be considered irregular in the following cases: they are not of an unforeseen nature; they are above 10 % of the initial contract value for service and supply contracts and above 15 % of the initial contract value for works contracts;

they are above the thresholds set out under Article 4 of Directive 2014/24/EU (https://ec.europa.eu/growth/single- market/public-procurement/rules- implementation/thresholds_en); They alter the overall nature of the contract; there is a substantial modification to the price, nature of works, terms of payment, material used and when such modification alters the scope of the original contract; and Led to an increase in price exceeding 50% of the original contract Rate of correction 25% and/or 100% (both, where price ≥50%)

Fraud

100% financial correction for irregularities relating to fraud (as established by a competent body. EC auditors and the AAs do not have competence to investigate fraud)

Reporting Irregularities

1

▪ In accordance the Manual of Procedures issued by the MA, you are duty bound to immediately report irregularities to the MA. I detected an irregularity – What happens now? What should I do?

Take action - Report it!

Reporting Irregularities 2

Irregularities Procedure:

Irregularity Report Circulation of Report (MA) Financial Recovery

Recommendations and best practices

Recommendations and best practices (1)

• The necessary training should be provided to ensure that officers

working on EU projects are familiar with the Management verifications (MVs) procedures with specific attention on which costs and outcomes or outputs are eligible, information and publicity requirements and relevant national and union eligibility rules and the key documents/records to keep. This will make

• fficers more efficient and effective, thus contribute towards

reducing effort and errors during MVs;

• Comprehensive checklists should be used updated to reflect the

latest Regulations/Procurement Directives to ensure that all documentation is in file;

• Tendering procedure (from tender to contract implementation)

should be carried out with proper planning

Recommendations and best practices (2)

• The quantity and quality of the material/items as per

technical specifications stipulated in the tender conditions should be respected before payment is effected;

• Proper data collection, storage and quality of indicators

should be maintained;

• Beneficiaries should ensure durability of the operation

concerned; and

• Prepare Progress reports as required.

THROUGH OUR WORK WE AIM TO SAFEGUARD ACCOUNTABILITY AND ENSURE THAT EXPENDITURE CLAIMED IS LEGAL AND REGULAR

THANK YOU Emails: caroline.theuma@gov.mt info.iaid@gov.mt General line: +356 22005900 Direct line: +356 22005922 Website: www.iaid.gov.mt