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Guidance Note:
25 March 2020 VN/7038/2020
FIRST-LEVEL CONTROL IN FINLAND FOR THE TERRITORIAL COOPERATION OBJECTIVE (INTERREG) PROGRAMMES DURING THE 2014-2020 PROGRAMMING PERIOD
1. Background
First-level control is a control system set up to verify the legality and regularity of the expenditure declared by each partner participating in a project. Such control and verifi-cation will be carried out by an auditor, i.e. a controller, as proposed. The controller will also carry out on-the-spot verifications. The European regional cooperation goal-re-lated control system during the period 2014–2020 is based on Regulation of the Euro-pean Parliament and Council No 1303/2013 (EU), article 125, article 4, as well as Regulation 1299/2013 article 23, section 4.
Before the project's implementation report (the payment application) is submitted to the programme secretariat, it must be verified on behalf of each partner’s costs in the project. The purpose of this verification is to satisfy the Programme’s Managing Au-thority, Certifying Authority and Lead Partner that the expenditure co-financed from the programme conforms to the rules, the programme, the approved project plan and the project agreement, and to ensure that any problems are detected and solved as early as possible. Verification is part of the eligibility review for costs: only certified charges can be reported to the programme secretariat.
Since first-level control will be organised using a method chosen individually by each Member State, each Member State will introduce its own procedure for designating the controllers responsible for verifying the partners' expenditure.
For organising control in Finland, the decentralised model – in which the con-troller is presented by the project and appointed by the Ministry of Economic Af-fairs and Employment – inspects the costs of the project. The Ministry of Eco-nomic Affairs and Employment is responsible for ensuring this control system and its effectiveness. The Åland Islands are not covered by the decentralised sys-tem: rather, Åland applies a central model, with separate guidelines.
Each Finnish partner must arrange the verification of his own implementation re-port/payment application by the controller before the report is submitted to the pro-gramme secretariat by the Lead Partner. Controller refers to an independent auditor whose services each Finnish partner participating in the project acquires in compli-ance with the regulations concerning public procurement, and who must be approved as a controller through the MEAE certification procedure. If the organisation has previ-ously contracted its auditing function in accordance with the public procurement rules, it may propose this same auditor as the controller, provided that the auditor concerned meets the appropriate criteria and that the contract covers the requirements of the EU-financed projects. Alternatively, Finnish partners working on the same project can opt for a shared auditor to carry out verification for all partners.
The partner(s) and chosen auditor jointly complete the MEAE application form and de-liver it to the Ministry. On the basis of the submitted application, the MEAE verifies that the auditor meets the required criteria. Sufficient time (about one month) must be re-served for this appointment procedure, so as soon as the financing decision arrives after the project has been obtained, the appointment should be applied for. Following the MEAE's decision, the auditor’s partner will be informed by the Ministry of the audi-tor's designation as controller for the project.
This guidance note provides further information and guidelines on the functions and qualifications of controllers, the appointment of controllers including competitive ten-dering, certification of controllers, implementation and scheduling of the verification, covering of expenses incurred due to control, training arranged for controllers, and monitoring of the control process.
The MEAE can issue further guidelines on first-level control in Finland, to supplement this guidance note where necessary.
Information on first-level control arrangements in other Member States is available from the respective programme's Managing Authority.
2. Controller's functions and qualifications
The controller's function is to verify the delivery of the co-financed products and ser-vices by the Finnish partner, the soundness of expenditure and the compliance of ex-penditure with the rules and programme. Consequently, controllers must not only be competent in national audit procedures but must also possess particular information regarding funding and project management. Controllers must know the relevant Com-munity and national legislation concerning the projects and the special rules related to the programme funding the project. The controllers are expected to follow the national and international auditing standards and the Auditing Act (459/2007), and they are lia-ble for damages under the Auditing Act.
The requirements concerning the qualifications, skills and experience of a con-troller performing the control tasks can be summarised as follows:
- The controller should be an approved auditor in accordance with the Auditing Act (Tilintarkastuslaki). The audit firm is not designated as a controller, because in ap-proving the controller, what is inspected is whether or not the controller personally fulfils the set requirements.
with the special features of the Interreg European Territorial Co-operation pro-gramme, which the project inspection targets.
- The controller should have sufficient knowledge of English or other language re-quired by the programme in order to carry out the verifications on the basis of the forms and guidance provided by the programme and to communicate with the pro-gramme secretariat and other Member State controllers, etc. In addition to for-eign/second language skills obtained through study, this generally requires that the controller has experience of working in English (or one of the other programme languages). A description of language skills must be provided in the application form. In selecting the project, the inspector must ensure prior to the agreement that the controller's language skills are sufficient. A person whose language skills are inadequate to ensure smooth working interaction must not be presented as a controller.
- The controller should be fully independent of the organisation, unit and operations subject to verification.
In addition, controllers must agree to carry out the verifications within the required three-month period or a shorter deadline set by the programme.
Fulfilment of these requirements is checked within the appointment procedure. The appointed controller(s) must personally perform the control task. This must be included in the project’s criteria for selecting a controller, and it is also recommended to incor-porate it in the agreement concluded between the controller and the project. According to the new legislation, the appointed controller is no longer able to delegate another inspector to perform control on his/her behalf.
Prior to the appointment, the auditor proposed as controller within the project shall get acquainted with the project and the documents related to the control, in order to en-sure that s/he understands the nature and scope of the control concerned. The project partner shall provide the auditor proposed as controller with this MEAE guidance, rele-vant documents provided by the funding programme, such as the programme manual, eventual guidance on first-level control and implementation report, verification check-list and the control report templates. In addition, the controller must have access to the project application approved by the managing or monitoring committee of the relevant INTERREG programme. The partner will also provide the controller with a copy of the partnership agreement, drawn up during the initial stage of the project, and a copy of the grant agreement between the lead partner and the managing authority, as soon as it has been signed.
Control work especially needs to take into account that not all programmes use the same procedures, and there can also be differences in the acceptability of costs, for example. For this reason, the controller must always be familiar with the most up-to-date guidelines available on the web pages of the programme in question.
3. Selecting the controller
may, if they so choose, opt for a shared controller to carry out the inspections for all partners. In all instances with regard to procuring the controller's services, the above-mentioned rules of procurement should be observed. As with all other expenditure connected with the project, the costs of the project itself should be reasonable. If these rules are contravened in procurement, the controller’s fee shall be considered ineligible for the project and shall have to be borne by the project itself. In drawing up the invitation to tender, it is important that the above-mentioned qualifications for the controller are taken into account, since they will be screened during the appointment procedure. The invitation to tender must also provide a sufficiently detailed description of the content of the service, including the programme description, project description and the functions of the controller. An agreement on the key responsibilities of the controller’s work tasks and the related schedules must be concluded with the selected controller. It must be ensured by agreement that the project obtains the services pro-cured in an appropriate manner with respect to quality and schedule. If preferred, the suitability of the auditor as controller can be ensured before signing the agreement by the Ministry of Employment and the Economy. It is unnecessary to deliver the agree-ment to MEAE, but it must be stored for possible inspections. Moreover, the pro-gramme officials may inspect the agreement before they pay the costs incurred by first-level control.
In planning the project operations, it must be ensured that the controller is formally ap-pointed by MEAE prior to the first inspection. Inspection must therefore not be per-formed before the Ministry of Employment and the Economy has appointed the auditor to function as project controller. A single application form containing the details and signatures of each partner is sufficient for the application form that the representative of each partner has signed. Also in this event, the Ministry of Economic Affairs and Employment shall distribute a separate appointment document to each partner. 4. Appointment procedure
The qualifications of the auditor proposed as a controller will be checked during the appointment procedure. The project partner and the auditor will jointly complete the MEAE's application form, which includes information on the auditor proposed as con-troller as well as on the project. Two persons can be proposed for appointment using a single application form. The partner delivers the application form with annexes to the Registry of the Ministry of Economic Affairs and Employment by email to [email protected] and cc’d to [email protected] .
The up-to-date application form is available on the MEAE website http://www.ra-kennerahastot.fi/web/eay/ensimmaisen-tason-valvonta-flc. The form is published in Finnish, Swedish and English. The appointment procedure must be initiated immedi-ately after the applicant has been notified that the project has been approved for fund-ing.
Having checked the credentials of the auditor proposed as controller and verified that the criteria are met, the MEAE will provide the partner with the Ministry’s deci-sion. Additionally MEAE will provide an appointment document to the Interreg Baltic Sea Region Programme project partners . The partner will forward this to the lead partner of the project. The lead partner will then submit the original certificate to the programme secretariat as an annex of the first consolidated payment claim of the project.
this way, a new appointment procedure will not be necessary, e.g. at the end of the controller’s employment relationship or during holiday periods.
The Finnish partners in projects financed by the ESPON 2020 and URBACT II Pro-grammes shall submit the application form and its annexes in English to the Ministry of Economic Affairs and Employment. These programmes require a copy of the applica-tion form in addiapplica-tion to the appointment document.
5. Scheduling and carrying out the control
The inspections can be initiated when a funding decision has been received for the project or when the funding agreement has been signed and the MEAE has nominated the auditor’s controller. In Finland, a so-called normal (desk-based) inspection is per-formed either in the controller’s or the partner's premises with the help of the lat-est version of the checklist provided by the programme. The controller should use the programme's latest report templates. The inspection covers 100% of the ex-penditure reported by the partner. The exex-penditure entered for each project is certi-fied therein as well as the project invoices, receipts and other payment application an-nex documents – such as the work contracts of adult employees, hourly accounting for part-time employees, public bidding documents and project-directed grounds for gen-eral expenses as well as for shared costs between the partners, project revenues, etc. By means of these, the controller must be able to ensure that all expenditure reported by the partner is actually generated; incurred by the project; in accordance with the regulations, programme and approved project plan; and that the reported actions have actually been implemented. If not all receipts are inspected, the sampling method – which must conform with Good Auditing Practice – must be documented in the control report. The substantiality principle applied in general auditing practice is not applicable in first-level control. All errors detected shall be reported even if they have been cor-rected in the final payment claim.
It must be verified that relevant publicity activities on the project have been carried out. With regard to environmental projects, it must be verified that the environmental au-thorities have been heard, the necessary environmental permits have been acquired, the environmental impact assessment has been carried out for the appropriate pro-jects, sufficient information has been communicated on projects with an environmental impact, and the measures are not in conflict with the environmental directives (Bird, Water Framework and Waste Framework Directives). The controller must also be ver-ify that the promotion of equal opportunities based on gender has been taken into ac-count in the project's activities. It should be noted that the above matters can be veri-fied only through cooperation and the exchange of information between the controller, the managing authority, the national co-financing body and the relevant environmental and other authorities.
For the second implementation report and thereafter, the controller shall also verify transfers of ERDF aid, paid by the programme's managing authority, from the lead partner to the other partners, and any Finnish national co-financing transfers to the Finnish partners. In addition, the controller will monitor the compliance of the partner's match funding.
Each partner will deliver the verified implementation reports to the lead partner, who will be responsible for compiling them. The lead partner is also responsible for ensur-ing that the expenses declared by each partner are related to the project's operations, that they comply with the partnership agreement and are verified by the officially des-ignated controller. It is the Finnish lead partner's responsibility to ensure that the joint implementation report (incl. the payment application) is based on the reports received from all partners, is drawn up accurately, that it complies with the project agreement, and includes the verification by the competent controller of each partner. The Finnish lead partner’s controller does not control the eligibility of costs reported by other part-ners, but his/her task is also to verify that the lead partner is fulfilling his/her obliga-tions as the lead partner in the project, unless the programme’s authorities deem this unnecessary.
In order to verify the delivery of products and services, on-the-spot verifications must be performed. In Finland, first-level controllers carry out at least one on-the-spot verification for each partner, which can be performed during the normal verifi-cation visits described above. On-the-spot verifiverifi-cation shall always be conducted on the partners of projects chosen by the programme for such controls. Such on-the-spot verifications will be reported in accordance with the programme practice, either in the relevant section of the verification report or on a separate form. On-the-spot verifications should be carried out when the project's operations are being per-formed; not too early for the amount to be verified but nevertheless in good time prior to the closure of the project, when problems and irregularities detected during the veri-fication can be resolved. On-the-spot checks should be carried out more than once for major projects involving investments and infrastructure.
The partnership agreements and the agreement between each partner and the con-troller must indicate the verification schedule and liabilities for delays, reporting mis-takes and irregularities.
Each European Territorial Cooperation programme follows the approved reporting schedule, including the verification deadlines. In agreeing on the scheduling for the verifications, it is taken into account that, according to regulation 1299/2013/EU, ex-penditure should be ratified no later than within three months from the date that the project has delivered the required documents to the controller. However, the funding authority may issue more stringent and detailed rules on the reporting methods and schedules. In any case, the partner-specific verifications must be initi-ated without delay following the closure of the programme's reporting period, and an efficient schedule must be drawn up for the preparation, verification and delivery to the lead partner of all reports for the final verification. It should also be noted that a verifi-cation cannot be carried out for any of the partners if the documentation is not com-plete. The lead partner must be allowed sufficient time to compile the verified imple-mentation reports from each partner, whilst the lead partner controller must have enough time to check all documents related to the entire project's implementation re-port before the project's final rere-port is delivered to the programme secretariat. To-wards the end of the project, enough time must be reserved for the verifications so that they are carried out after the closure of the actual operations but before the closure of the implementation period. Any expenditure on control measures will not be eligible in all programmes after the closure of the implementation period, as indicated in the funding agreement.
The programme secretariat will issue further guidance on the preparation of implemen-tation reports and delivery to the secretariat.
Verifications related to Finnish national co-financing
carry out additional verifications for its funding. The partner receiving Finnish national co-financing must apply for payment in accordance with the guidance issued by the relevant authority.
6. Reporting of irregularities
Irregularities refer to cases where aid has been applied and/or paid unduly and on an unsound basis. There can be several explanations for irregularities, such as non-im-plementation of the project due to the applicant or for other reasons – e.g. a bank-ruptcy or some other financial reason, an undetected human error committed by the applicant and/or financing body, or even fraud. The method of reporting irregularities depends on the stage at which the mistake was detected and whether any aid was ac-tually paid to the applicant and/or reported to the Commission for the purpose of ap-plying for payment.
Normal verification reports must indicate any conflicts and discrepancies detected dur-ing the verification, and the measures taken to correct them. However, sometimes these irregularities may go unnoticed during the normal verifications carried out by the controllers and even during the checks performed by the programme secretariat/verifi-cation authority. Consequently, aid can be paid on an unsound basis and must be re-covered. Where past irregularities are detected during later verification(s), the control-ler must immediately draw up a separate irregularity report for the MEAE's regional de-partment unit, which will forward the information to the MEAE financial unit responsible for reporting to the Commission. Such irregularity reports must also be submitted as information to the programme's managing and certifying authorities.
Where irregularities are detected before the certifying authority has paid out the grant to the partner, it is unnecessary to submit a separate irregularity report to the MEAE. Nonetheless, irregularities must be clearly documented in the verification report. 7. Processing the payment application
When verified implementation reports and documents from all partners have been en-closed with the project's joint implementation report, and the Finnish lead partner's controller has verified the joint implementation report as having been correctly drawn up, the lead partner will then deliver the implementation report to the programme sec-retariat in accordance with the programme guidelines. The lead partner's function is to ensure that the verified payment application is submitted to the programme secretariat within the reporting schedule agreed for the programme. However, the time spent on the verification itself must be less than three months.
The programme's certifying authority will carry out a further verification, checking that the implementation report has been drawn up correctly – i.e. that it contains each part-ner's controller’s report, and that the verification has been carried out and documented correctly, taking into account the observations and notes presented in the report. In addition, the certifying authority will ensure that the on-the-spot checks have been car-ried out. Where necessary, the certifying authority may request additional information from the project for the implementation report.
The certifying authority and the Ministry of Economic Affairs and Employment may carry out additional on-the-spot checks.
8. Costs for first-level control
the control expenditure is included in the project, sufficient time must be reserved for the verifications after the closure of the actual operations of the project but prior to the closure of the implementation period, since the project's expenditure is eligible only within the implementation period.
The MEAE does not charge a fee for the certification of an auditor as first-level control-ler.
9. Training and information events for the controllers
In order to ensure access to adequate information and skills, and to guarantee the quality of the controls, the MEAE will organise regular training and information events for the controllers. These events will feature a discourse of general Community and national regulations and decrees concerning the European Territorial Cooperation ob-jective programmes, introduction of the programmes and their special features and presentations on certification procedure. Information on future events will be sent to the designated controllers. Controllers are liable for travel and other costs incurred due to the training events, as these expenses will not be regarded as eligible project ex-penditure. Participation in training is highly recommended.
10. Monitoring of first-level control and storage of documents
All project and verification documents must be recorded and stored within the project organisation until 31 December 2032.
The audit authority designated for each programme is responsible for second-level control, ensuring that the projects are checked through the appropriate sampling in or-der to verify the project expenditure. Depending on the programme, the projects are verified either by an international auditing corporation, selected through competitive tendering, or the national competent body (in Finland, the Controller function of the Ministry of Finance).
More information is provided by:
Ms Tuula Manelius, Ministerial Counsellor, tel. +358 (0)295 064 909, [email protected]
Ms Jaana Ahlbäck, Coordinator, tel. +358 (0)295 049 285, [email protected] Ms Pirjo Lepistö, Coordinator, tel. +358 (0)295 049 212, [email protected]
Marja-Riitta Pihlman
Director-General, Head of Department Tuula Manelius
