Report on public procurement for building works in the Czech Republic and the Federal Republic of Germany

Report ID: 63

The procurement of goods and services by public-sector contracting agencies is of great importance both for the government and for the business community. The government’s task is to use public resources as efficiently and economically as possible and to ensure fair and regulated competition.

In the European Union (EU), public contract awarding is key to the success of the single economic area. In order to ensure a largely unrestricted competition in the field of crossborder procurement, awarding authorities also have to meet certain requirements imposed by the EU in awarding contracts where the contract value exceeds certain thresholds. To this end, the EU Member States have to transpose EU
procurement law into their national law and apply it. This has already happened both in the Czech Republic and in Germany. For contracts worth less than the EU thresholds, regulating public contract awarding procedures remains a matter for the individual countries.
Moreover, the contract award procedure is, as a rule, vulnerable to corruption. In view of the generally high damage potential, awarding authorities are obliged to take reasonable action to fight and to rule out corruption and abusive favouritism in their contract award procedures (corruption prevention).

Parallel audit of the use of public funds for motorway construction

Report ID: 65

The European motorway network forms the backbone of the passenger and freight transport in the European Union. As this situation will remain unchanged for the time being, investments in the expansion and maintenance of the European Motorway network are very important. Thus, examining the use of public funds for financing motorway construction projects is a key responsibility of Supreme Audit Institutions.

This report informs about the findings produced by the parallel audit missions regarding the funds spent on building the A 73 motorway (A 73) in Germany (section Thuringia/Bavaria satate border - Lichten - fels) and the D 1 motorway (D 1) in the Slovak Republic (section Vrtizer - Hricovske Podhradie). The audit missions focused on the public procurement procedure and a comparison of building standards and costs relative to the A 73 and the D 1. In the years 2009 to 2011, the audits were performed by the German SAI and the Slovak SAI in their respective country in order to share their findings and make comparisons.

The parallel audits found that by awarding the public works contract concerning the D 1 to a general contractor, competition was restricted placing small and medium sized enterprises at a disadvantage.

The expenses on building the two motorways increased considerably owing to the general increase in construction costs, the hike in value added tax (VAT) and, above all, the inadequate preparatory works performed by the respective national road works administrations. The two administrations did not or not adequately invite tenders for required work and services, with the result that supplementary agreements had to be subsequently concluded. Since the costs stipulated in these agreements were fixed in an environment with reduced or even no competition the contractors were able to enforce higher prices.

Report on the parallel audit on the simplification of regulations in Structural Funds

Report ID: 66

In 2011, the Contact Committee of the heads of Supreme Audit Institutions (SAI) of the Member States of the European Union (EU) and the European Court of Auditors (ECA) 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 ‘Simplification of the Regulations in Structural Funds.’
The Working Group consisted of 12 EU Member State SAIs and audited the impact of nine simplification measures. The following are the key conclusions:

 In general, the simplification measures were infrequently used and affected only a small proportion of all projects, largely due to a number of factors relating to the management of Structural Funds at national and supranational level, including:
• Introduction at a late stage by amendatory regulations;
• Not all measures were suitable for all Operational Programmes (OP) and/or projects;
• Limitations relating to the resources required for the implementation of measures; and
• A lack of clarity and legal certainty experienced by national authorities.

 Whenever the measures were used, most of them were considered to represent genuine simplification. Factors relating to why national authorities chose not to use the measures differed considerably, depending on the European system1, the national legal system, the organisation of Structural Funds in each Member State, as well as the specific features of each OP. These conditions influenced the potential scope of application of measures and their respective benefit.

The key findings of the report were the following:
 Measures 1, 2 and 3 (flat-rate for indirect costs, flat-rate costs based on standard scales of unit cost, lump sums):
In the case of national authorities, the process of establishing the methodology relating to the application of the above-indicated measures led to administrative burdens and was regarded as difficult and involving an element of risk; furthermore, developing the methodology and acquiring the Commission’s approval were often lengthy processes. The lump sum was perceived as too low and the ‘all or nothing-principle’ led to a reluctance of the measure’s use. Whenever these three measures were used, they constituted genuine simplification.
 Measure 4 (in-kind contributions to financial engineering schemes):
This was the only measure that was not used in any of the audited OPs within the participating Member States.

Report on the parallel audit on the Management and Control Systems for Assistance Granted under the Structural Funds

Report ID: 68

This was a parallel audit on the application of the Structural Funds regulations, to ensure that all Member States establish appropriate audit trails and implement independent checks on 5% of transactions. The results of the audit will be used by all current and prospective new Member States in developing their own management and control systems.

The main conclusions were:

• In most countries there is a sufficient audit trail as required by regulations, although some weaknesses in the audit trail were noted when examining individual projects, these were not usually systematic weaknesses, but individual project failings.
• The progress reporting of projects was felt to be relatively weak, focusing largely on financial monitoring without providing any link to the outputs and outcomes of the projects.
• In most countries the execution and reporting of the 5% checks complied with Commission Regulation 438/2001. Where this is not the case, the relevant authorities have taken steps in the right direction to ensure that the required checks will be carried out by the end of the programming period.
• The independence of the organizations that carry out the 5% sample checks was guaranteed in all programmes.
• The implementation of the 5% checks across all countries has been relatively slow and has often not been evenly spread over the period to date.
• The way the Structural Fund rules are formulated by the European Commission (Commission) leaves room for ambiguous or even contradictory interpretations.
• Furthermore, some Member States expressed concern about an increasing burden to implement the new provisions for the 2000 - 2006 Programme, with little opportunity to apply a risk-based approach, and associated resource costs that were out of proportion to the funding provided by the European Union.

Source: https://www.eca.europa.eu/sites/cc/Lists/CCDocuments/1959819/1959819_EN.PDFhttps://www.eca.europa.eu/sites/cc/Lists/CCDocuments/1959819/1959819_EN.PDF

Report on parallel audit on the processes of identifying reporting and following-up on irregularities

Report ID: 69

In total the 2000-2006 Structural Funds programme involved an expenditure of 141,5 billion Euro (without Community initiatives, innovative measures and technical assistance) to the nine Member States whose SAIs carried out the parallel audit.

The significance of the value of Structural Funds to all Member States prompted the Contact Committee in 2000 to establish a Working Group to carry out an exploratory survey of EU structural funds. A questionnaire was sent to the SAIs to gain an understanding of how these funds were controlled and managed by the various countries and to identify possible risk areas. Work was planned to coincide with the 2000-2006 funding cycle and revision of the regulations covering the funds.

The Working Group reported its findings from this work to the Contact Committee in November 2002 and recommended to conduct  a parallel audit aimed to identify parts of the controls that need to be improved, and provide an overview of best practice. It was determined that the best way to achieve this was to focus the parallel audit on the application of the regulations, to ensure that all Member States establish appropriate audit trails for transactions and implement independent checks on 5% of transactions. The results of the audit would be used not only for the Member States, but also for the new Member States.

Each SAI produced a Country Report which has been consolidated to provide an overall conclusion, identify good practice, weaknesses and recommendations arising from the work. Issues raised byindividual SAIs are annotated under each Objective where appropriate. The Working Group have then produced the combined report summarising the key findings and recommendations from those Country.

The audit approach was enhanced through the participation of the European Court of Auditors (ECA), in particular, towards the end of the report drafting process the ECA benchmarked the draft report findings and recommendations against those reported by the ECA. The report contains recommendations for  audit trails and 5% checks as well as for  future parallel audits.

Source: https://www.eca.europa.eu/sites/cc/Lists/CCDocuments/1959819/1959819_EN.PDF