Control Optimisation and Simplification

1. Control Optimisation and Simplification Nataša Prah Slovenia

2. Introduction • What and why? • How? • Conclusions • Questions for discussion

3. What and why? • We have taken the control frameworks for two of the biggest areas of EU funding (Agriculture / Structural Funds) and compared them to identify: • any alignment, • any unclear areas and • any areas where there is a difference in the implementation approach.

4. How? • To compare the existing control framework with COSO framework: • Control environment • Risk assessment • Control activities • Information and communication • Monitoring

5. Control Environment • Consistency: • The lack of an internal audit service requirement in Structural Funds. • Areas for considerations: • Greater use of qualitative data – high turnover of people could indicate issues within the control environment; • Better definition of required people competences, to enhance selection and recruitment procedures; and, • A greater emphasis of the behavioural aspects of management to set the ‘tone at the top’.

6. Risk Assessment • Consistency: • Structural Funds define a better model for monitoring strategic level risks, on the basis of the strong links to programme outcomes. • Areas for considerations: • To enhance the risk assessment to go beyond operational risks tomore strategic in terms of the focus on outcomes. • Greater view of risks (internal and external) and a prioritisation of these risks may allow for some managed risks to be taken where the cost of control exceeds the value at risk – this would require a mind-set change and a move away from the compliance regimes.

7. Control Activities • Consistency: • The majority of the control activity elements are covered (compliance focus). • A better alignment in the agricultural regulations to the approach on managing performance indicators would be beneficial. • Areas for considerations: • Gifts, hospitality and the conflicts of interest requirements is an area where the agricultural regulations could be clearer on the controls around the potential bribing of officials.

8. Information and Communication • Consistency: • Both regulations cover the same markers consistently. • In many areas related to relationship between internal and external parties both regulations are unclear. • Areas for considerations: • An emphasis is on the activities around processing and not the wider organization.

9. Monitoring • Consistency: • The gaps in both regulations relate to monitoring the control environment and outside information – complaints etc. to form a view of the organization. • Areas for considerations: • Control environment, change management, people engagement are gaps in monitoring arrangements. • The lack of a clearly defined internal audit function within Structural Funds.

10. Conclusions • Overall, the analysis has highlighted that these two EU regulations would benefit from alignment in key areas – so simplification through alignment is a key message. • Greater regulatory emphasis on establishing a robust control environment, setting the right ‘tone from the top’ will allow for a more risk based approach, leading to a reduction in excessive control activities and a more efficient, effective use of the key controls. • Greater alignment of the various levels of audit, internal and external, where assurance is taken from each group, and sampling is complementary, rather than repeated will also allow for greater efficiencies.

11. Questions • Do you recognise the elements highlighted by the analysis, and do you have any to add? • What National level requirements exist in member states in relation to the control environment issues highlighted through the analysis? • Which areas of the analysis are of most use to you, and why? • Based on your experiences what do you see as the key areas for control simplification / optimization?