During the fi-compass 'Knowledge Hub – Audit and control of financial instruments 2014-2020’, financial instruments practitioners, DG REGIO and fi-compass experts shared their experience and exchanged best practices related to audit and control of financial instruments.
This Knowledge Hub, organised between April and July 2021, was already the fourth edition of this new, intensive knowledge-sharing format of fi-compass.
Jonathan Denness, Head of Unit Financial Instruments and relations with International Financial Institutions, DG REGIO European Commission concluded:
“With this Knowledge Hub, we aimed to provide an opportunity to openly exchange and share know-how on audit and control of financial instruments. The Chatham House Rule applies to our Knowledge Hubs to create a favourable environment for such open discussions. We had a very pro-active group of experts, mainly from audit authorities and managing authorities from different Member States. They were great practical contributors with a wide range of real-life examples. We managed to discuss a number of important practical topics. The ‘Notes of workshop’ from this Knowledge Hub summarising our key discussions will hopefully become a useful fi-compass resource for the wider fi-compass audience”.
Jonathan Denness, Head of Unit, DG REGIO, European Commission
The Knowledge Hub is a fi-compass product to help financial instruments practitioners share views and experiences on key topics.
This Knowledge Hub consisted of two online workshop sessions and pre- and post-workshop exchanges between the participants, moderated by fi-compass, based on material developed specifically for the purpose of this Knowledge Hub. As audit and control activities should take into account the specific risks linked to the implementation of the financial instruments, which are different from those of grants, the Knowledge Hub’s specific focus was put on the three main risk areas:
- the verification of the small and medium-sized enterprise (SME) status;
- eligibility of final recipients and underlying investments and;
- Subsidised public loans to companies at reduced interest rates; and
- the use of the support for the intended purpose.
Connect, exchange, improve
Participants agreed that verification and control activities of risk areas should start from early on and need to be tailored to the specificities of financial instruments. Financial intermediaries deploying the support to final recipients are responsible for verification and control activities. It is good practice for managing authorities and fund of funds managers to support their financial intermediaries, for instance by providing template documentation and offering capacity building to enable them to familiarise themselves with the requirements of the EU Regulations relevant to financial instruments.
Well-established controls from early in the project can prevent systemic irregularities later on. Audit and control activities should be undertaken throughout the implementation. Fund of funds’ early monitoring visits to their financial intermediaries are a useful measure for the prevention of irregularities and inconsistencies.
Audit and control activities should take into consideration the nature and specificities of financial instruments and the differences with grant schemes.
Participants also discussed the types of controls to be performed at different levels underlying the need to avoid ‘gold-plating’ and controls at the level of the final recipient. Regarding the viability of final recipients’ projects/investments for example, managing authorities can reasonably rely on the assessment of financial intermediaries during the investment appraisal process which is performed in line with the standard banking or investment practice. Participants also exchanged on the available tools for checking the SME status such as self-declarations, national commercial registers, certification by a national authority, tools such as ARACHNE and other commercial ones. Participants agreed that the role of the body performing the controls is to examine the documentation available and not to ‘investigate’ from a fraud perspective.
In parallel to the fi-compass Knowledge Hub, the European Commission updated its Audit methodology for auditing financial instruments 2014-2020 in early summer 2021 to reflect recent legislative changes and provide more clarification on closure.
The update takes into consideration the new flexibilities for financial instruments introduced by the Coronavirus Response Investment Initiative (CRII), the Coronavirus Response Investment Initiative Plus (CRII+) and the Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU) packages of measures. The methodology is tailored to the particularities of financial instruments, bearing in mind differences in how shared management financial instruments work in comparison to grant schemes.
The 2021 update of the audit methodology includes a new annex, which describes the management and control responsibilities of the different stakeholders involved in financial instruments.