Analysis (of types) of errors in EU and National public procurement within the Structural Funds programmes

Report ID: 107

In 2013, the Contact Committee of the heads of Supreme Audit Institutions (SAIs) of the Member States of the European Union and the European Court of Auditors mandated the Working Group on Structural Funds to continue its review of issues relating to Structural Funds, more specifically, to carry out a parallel audit on the ‘Analysis (of types) of errors in EU and national public procurement within the structural funds programmes’.

The Working Group consisted of nine SAIs, while a further five SAIs and the European Court of Auditors acted as observers. The parallel audit was carried out in order to understand the reasons why beneficiaries fail to comply with public procurement rules. The comparison of the national results was intended to reveal differences or similar causes in the Member States. Most SAIs based their audit on errors already detected by their national management and control system.

Although this parallel audit was not designed to provide a full and accurate picture of the situation, the findings suggest a rather large number of errors in public procurement under Structural Funds. The following are the main conclusions and recommendations:

 Most authorities of the management and control systems do not systematically record the types of errors in public procurement procedures. They place focus on individual errors only. It is not always assured that all authorities, especially intermediate bodies, report every error detected.

We recommend national authorities to systematically record the types of errors detected in public procurement procedures. This is the only way to obtain a full picture of these errors and address them.

 In 2007, the Coordination Committee of the Funds (COCOF) issued guidelines for determining financial corrections with regard to irregularities in the application of public procurement regulations to contracts co-financed by the Structural Funds. Although the description of the categories is rather ambiguous and vague, most Member States used the COCOF guidelines in their original version without further developing them.

We recommend that national authorities refine the description of the categories and when needed elaborate categories and rates of the COCOF guidelines further in order to ensure a uniform and just application at national level. In addition to that, it would be helpful if the European Commission distributed good practices on how the guidelines are applied in the Member States.

 The national management and control systems detected more public procurement errors in contracts with values below the EU thresholds than above the EU thresholds. However, the average financial impact of errors was higher in procedures above the EU thresholds than below the EU thresholds.
Although most authorities already strive to prevent errors in public procurement procedures, we recommend national authorities to take more targeted action in order to reduce the most common errors in public procurement procedures and those with the highest financial impact.

 According to the findings of the Working Group “lack of knowledge” is the most common reason for errors in public procurement, followed by ‘interpretation difficulties’.
We recommend the Member States to request the European Commission to further clarify the legal framework and reduce the administrative burden for the contracting authorities and the bidders, but without resulting in limitation of the equal access, fair competition and efficient use of public funds. Further to that, we recommend Member States to take the following steps in order to prevent or reduce errors in the area of public procurement:

 They should keep public procurement rules as simple as possible and not change them too radically or too frequently.

 Some Member States should improve the knowledge of the staff of the national authorities in the field of public procurement in order that they are equipped to support beneficiaries and prevent errors.

 Member States should improve their communication policy and provide better information to beneficiaries.

They should try to ensure that beneficiaries exert due diligence at all stages of public procurement.

Efficiency of the process of issuing of biometric passports and supporting information systems

Report ID: 108

A. In the Republic of Latvia the EU funds administration and control system is established at several levels, which during the audit period enabled detection of public procurement errors in the indicative amount of 1%from the total amount declared to the EC, however:
A1. There is a risk that the actions of institutions involved in management of the EU funds in clarifying of the principles and legal framework of public procurement, as well as the impact of the detected errors on procurement procedure are insufficient and ineffective, since:
1.1. The biggest part of the errors or 57% from the total number of errors detected by institutions involved in management of the EU funds, which were subject to proportional financial corrections during the audit period, in all operational programmes were pertaining to unlawful restrictions for selection of tenderers (for example setting specific requirements that favour a single businessman) or unequal treatment of tenderers in awarding of the contract (for example, unjustified preferential treatment given to one of candidates invited to negotiate), indicating that the beneficiaries are not completely aware of the procurement procedures;
1.2. In 45% of the cases the reasons of errors indicated by the beneficiaries do not correspond to the reasons indicated by the audit authority, the responsible and cooperation authorities; for example, in cases when beneficiaries have not selected any of the six reasons of errors, they have indicated to “other reason of error” and in 50% of cases they described these errors as differences in opinion with the institution which had detected the error;
A2. The procedure for data entering and classification of errors in the EU funds management information system is inaccurate — information on public procurement errors is entered without specifying the type of error, as well as the EU funds management information system does not aggregate information on procurement contracts in order to enable determining whether the contracts are subject, not fully or not subject to EU Public Procurement Directives and to apply a respective financial correction.

B. At the result of the audit three recommendations were issued to the Ministry of Finance as the managing authority aimed at:
B.1. Ensuring that detailed information is being entered and accumulated within the EU funds management information system on public procurement errors, so that institutions involved in management of the EU funds can analyse this information and perform sufficient actions to eliminate the errors;
B.2. Ensuring that institutions involved in management of the EU funds provide purposeful support to the beneficiaries in respect to procurement procedures and detailed explanation of the substance of the detected errors in order to reduce the number of public procurement errors within projects financed by the EU funds;
B.3. Reduction of the number of unclassified errors by ensuring accurate classification and evaluation of errors according to their type.

Parallel Audit of Assurance of Epizootic Safety in the Republic of Poland, the Republic of Lithuania and the Slovak Republic after Accession to the Schengen Area

Report ID: 117

Once Lithuania, Poland and Slovakia entered the Schengen Area, their eastern borders became the external border of the European Union and, simultaneously, the first stage of the transfer of animals from the east to the Community. The three states are obliged to protect their borders properly also with regard to epizootic safety, defined as the prevention of and protection against hazards caused by infectious animal diseases transmissible to humans.

The national border protection system has been adapted to EU requirements in terms of legal and operational regulations for border services, including for preventing epizootic hazards from spreading across the EU. These responsibilities result from the EU Treaty and the Convention implementing the Schengen Agreement.

Since epizootic safety is an issue of high importance, in 2010 the NIK and the SAIs of Lithuania and Slovakia decided to check whether the borders of their countries were protected appropriately through a parallel audit. The audit was conducted between 1st April 2010 and 15th September 2010, and covered the period between 1st January 2007 and 31st December 2009.

The agreement to conduct such joint audit was made pursuant to the exchange of Letters of Intent among the heads of the three SAIs as well as previous bilateral agreements signed among them.

The audit topics covered included the following areas:

- whether national legislation had been adapted to EU regulations in the audited area,

 - whether the recommendations issued following the audit conducted by the Food and Veterinary Office, Directorate General of Health and Consumer Affairs (DG SANCO), European Commission had been implemented in national regulations, within the audited areas,

- whether the applicable procedures had been adapted to current epizootic risks and for the event of emergency situations, including those related to controlled, uncontrolled or illegal movement of animals from non-EU countries,

 - whether the institutions responsible for epizootic safety were able to cope with emergency on the local and national levels,

 - whether the epizootic safety system has been adapted to make information on epizootic hazard available to the public, on the national and local levels.

Source: https://www.nik.gov.pl/plik/id,2240,vp,2790.pdf

The Government Successfully Borrows in the Domestic Market: How to Optimize this Process and to Reduce Debt Management Costs

Report ID: 118

The National Audit Office of Lithuania carried out an audit of the management of the debt on behalf of the State, during which the efficiency of the management of Government securities (hereinafter – GS) issued in the domestic market was assessed. The audit covered the period between 2006-2009; in some cases data of 2010 was also used for comparison. The Government borrows in the domestic market through issuance of bonds – GS with maturity of over one year , with maturity of 3, 5, 7 and 10 years, and Treasury bills – GS with maturity of under one year, with maturity of 1, 3, 6, 9 and 12 months.

Domestic GS comprise about 30 per cent of the debt on behalf of the State. Until the end of 2008, GS were issued in the domestic market only through auctions. Until February 2009, in the domestic market of Lithuania GS auctions were organized by the Bank of Lithuania, later on – AB NASDAQ OMX Vilnius. In 2008 with the start of economic crisis, the Government started to issue GS in the domestic market not only through auctions, but also through private placements concluding a contract with creditors, as well as resumed the issuance of savings bonds. The Ministry of Finance successfully borrows in the domestic market: organization of GS auctions conforms to recommendations of the World Bank and International Monetary Fund, as well as best foreign practice. During the audit no substantial problems related to the borrowing and debt management of the Ministry of Finance were detected; issues indicated in the report and recommendations given would allow to improve the efficiency of the GS management: i.e., to develop the domestic market, increase the demand of GS, which in the long run would help to reduce the debt management costs. The Medium-Term Debt Management Strategy of the Government does not provide for the objective to develop and maintain the efficient domestic market; no analysis was conducted as to what is the maximum possibility to borrow in the domestic market. Establishment of the above mentioned objective and clear means to implement it would allow increasing the demand of GS issued in the domestic market, independence from foreign market and reduce the debt management costs in the future.

GS auctions in the domestic market are insufficiently regular and predictable. In 2nd half of 2006 – 2009 the Ministry of Finance systematically cancelled previously announced auctions, which had a negative impact on auction participants and investors. Such a practice raises the distrust in auction organizers, hampers the market development, and increases the debt management costs in the long–run. The Ministry of Finance does not announce the amount of the issued GS; issuing GS in the domestic market, did not always follow the established borrowing programmes and calendars. Appropriate planning of the borrowing need, announcement of the information about how regularly Treasury bills and bonds will be issued and about the planned amount of the GS issue would enable to attract more investors and develop the domestic market, as well as ensure the transparency of the Government plans. The Ministry of Finance does not use auction evaluation indicators, which show the interest of investors in Government securities with various maturities. Use of Bit-to-Cover or other evaluation indicators showing the interest of investors in auctions would allow attracting more investors. The audit pointed out that issuance and maturity dates of GS were not always closely linked to the need for public cash on respective days. The Ministry of Finance should ensure the balance between the regular nature of borrowing and need for public cash: it would enable to optimize the planning of borrowing and help to reduce the costs of interests. In order to eliminate the possible risk of settlement between auction participants, to ensure the proper understanding of information, stability and transparency, requirements to auction participants issued by the Ministry of Finance should set the minimum and maximum amount of GS, which has to / may be purchased by one auction participant / investor in one auction, as well as to set requirements for non-competitive bids. Seeking to attract the interest of possible new auction participants and potential investors, the Ministry of Finance should announce more information on its website related to the GS issuance process, carrying out of auctions; explain what information has to be submitted along with the bid for GS by auction participants, as well as particularities of various bids and advantages to individual groups of investors. We want to point out that issues set out in the report and the terminology used is technical, specific and in many cases meant only for experts.

Programmes measures aimed at increasing the employment of disabled persons

Report ID: 123

Problems connected with the issue of the programmes supporting employment of disabled people was the subject of discussion at the VII the EUROSAI Congress in 2008 in Kraków. It inspired the handling of this theme within the parallel audit coordinated by the NIK. It was participated by 12 SAI. The Common Position on Cooperation was signed at the meeting in Warszawa held on 15. January 2010 and the framework programme to be taken into account by all SAI in their audit research was agreed upon.

In many countries, the significant share of disabled persons in the society in connection with their insufficient economic activeness constitutes a considerable problem.

The population of these persons is characterized by low employment ratio, which is significantly lower than in the case of people without disability. Disabled people are also occupational passive, often do not seek job and point to their disease and disability as the cause.

In some member states the education level of disabled people is low and makes it even more difficult for them to find a job. For example, in Poland in 2010 only 6.7% disabled persons had university education, while this percentage in the whole population was 17.8%.

In some countries, the situation of disabled depends also on the gender. The Spanish SAI dealt with this aspect in the course of its audit and it was found that among the disabled job seekers, the rate of men was higher than the rate for women - 53% and 47%, respectively.

These data suggest a lower interest or bigger difficulties for women to join the labour market.

Furthermore, out of the total of disabled people that were employed in the period 2006-2009, men with disabilities accounted for an average of 62.9%, while disabled women represented only the remaining 37,1%. Also in Turkey, looking into gender distribution of the disabled that sit for

State Personnel Selection Examination, a precondition to be employed as blue collar worker in public sector, it is observed that women with disabilities has lower educational level and hence, are disadvantaged in terms of employment. And also when the disabled registered in TEA are analyzed in respect of gender, it is obvious that rate of active participation of women in work force is lower.

The basis for the system of support for disabled persons can be the compensation-oriented approach (providing financial support which is an alternative to work) or integration approach (aimed at assisting disabled people in finding and retaining employment) or their combination.

Work gives disabled persons a number of benefits, among which one should mention not only obtaining a source of income but also developing the sense of self-confidence and acquisition of new skills. This is why governments of the member states of EUROSAI allocate considerable resources to the measures supporting disabled persons in the labour market. Auditing how the governments spend funds to this end and whether it was in accordance with the principles of effectiveness, efficiency and economy constitutes an important task of the Supreme Audit Institutions – SAI.