The second level control

The so-called “second level control” – or, more properly, the audit activity – encompasses both administrative and on-the-spot checks on the management and control systems of OPs financed via ESI Funds (system audits), and on expenditure certified annually to the European Commission (audits of operations). As per Article 74 of Regulation (EU) 1303/2013, Member States shall be held responsible for management, control and audit of ESI Funds, and shall ensure both compliance with the specific rules of each Fund, and effective functioning thereof.

As per Article 127 of Regulation (EU) 1303/2013, the Audit Authority (AA) shall ensure that audits are carried out on proper functioning of OP management and control systems and on an appropriate sample of operations based on the expenditure declared. The audits on declared expenditure are based on a representative sample and, as a general rule, on a statistical sampling method.

When is second level audit carried out?

The audit activity follows an extremely strict timing: planning and scheduling are set out in the Audit Strategy; system audits are planned consistently with a prior risk analysis and subsequently reported in a document titled “Memorandum and planning of system audits”.

Audits of operations, as provided for in Article 27 of Regulation (EU) 480/2014, are carried out for each accounting period on a sample of operations selected according to a method established or approved by the Audit Authority in accordance with Article 28 of the same Regulation.

How is the second level control carried out?

The audit activity is performed in accordance with a precise time schedule, including the following main steps:

  • Developing an audit strategy and risk analysis: Within eight months of the approval of each OP, the Audit Authority (AA) is responsible for presenting the audit strategy, indicating the bodies to be audited (system audit), the methodology used, the sampling method for selecting the operations to be audited, the planning of audit activities in relation to the current and two subsequent accounting periods based on specific risk analyses.
  • Carrying out audits of management and control systems and updating the risk analysis: To ensure that operations are carried out in compliance with EU and national reference standards.
  • Sampling the operations to be audited: Through statistical methods applied to all certified operations to be carried out also at several times during the accounting period.
  • Carrying out audits of operations: To ascertain the legitimacy, effectiveness, correctness, pertinence and eligibility of expenditure.
  • Audit of accounts: The Audit Authority shall guarantee, for each accounting period, the reliability of accounts presented by the Certifying Authority and underlying the Managing Authority’s Statement of Assurance through specific audit activities ( 137(1) Reg. (EU) 1303/2013);
  • Sharing of results and annual reporting: The Audit Authority is responsible for submitting a) an audit opinion in accordance with Article 59(5)(2) of the Financial Regulation; b) an annual control report highlighting the main findings of the audit activities carried out, including weaknesses found in the management and control systems and corrective actions proposed and implemented;
  • Follow up of preventive and corrective actions: Following up its audit activities, if irregularities or implementation issues are found, the Audit Authority shall propose specific corrective actions to the parties concerned and shall monitor their implementation through specific follow-up activities.


Audits on OPs managed by the Agency

The “Audit Authorities and Audits” Section (one of the three areas of activity of NUVEC) is in charge of carrying out the Audit Authority functions: in compliance with EU regulations, for Institutional Development Contracts, on the management and control systems of national investment projects.

The “Audit Authorities and Audits” Section encompasses two areas:

  1. Audit Authority for EU Programmes, in compliance with applicable EU and national regulations;
  2. Audit Authority for Institutional Development Contracts and audits of programmes, management and control systems and national investment projects; audits of efficiency, effectiveness and cost-effectiveness of investment projects.

In order to carry out its audits functions, the “Audit Authorities and Audits” Section was placed, through Director Decree (D.D.) No. 7 of 02 April 2015 (Art. 2(1)(b)) in a regime of functional separation from the other NUVEC Sections and the other offices of the Agency, to ensure independence and autonomy of judgement on audit activities.

“1. Audit Authority of EU Programmes”

In the 2014-2020 programming phase, the Section is the Audit Authority of six National Operational Programmes (“Research and Innovation”, “Enterprise and Competitiveness”, “SME Initiative”, “Culture”, “Infrastructure and Networks” and “Legality”) for an overall budget of over 6.6 billion euros.

The Section also takes care of control activities related to the completion of EU and national programming 2007-2013.

The national coordinating body (MEF-RGS-IGRUE) analysed the NUVEC AA based on organisational adequacy and work reliability criteria and ranked it as Category 1, equivalent to the highest degree of assessment.

The NUVEC role is mostly strategic in 2018, as the six OPs subject to its Audit Authority are required to achieve the assigned spending targets by 31 December 2018 to avoid the risk of automatic decommitment of the assigned resources. Expenditure certifications of over 800 million euros are expected, which will require a significant volume of controls throughout the year.

As follows the activities implemented by NUVEC Section 1:

  • Updating audit strategies of relevant NOPs
  • System and operations audits
  • Sampling activities
  • Annual control reports and related opinions
  • Audit of accounts
  • Update manuals
  • Methodological insights on cost simplification, and cross-cutting principle of gender equality in auditing and audit procedures
  • Ascertaining compliance with AA designation requirements.

These institutional tasks are complemented with several transversal activities, such as preparation of opinions, interpretative and/or explanatory documents, and methodological documents on various topics: legal and administrative support, cost simplification, audit of accounts, gender equality, anti-fraud activities, manuals and quality control of Technical Assistance activities.

“2. Audit Authority on Institutional Development Contracts and Programme Audits”

Within this Section, NUVEC monitors the interventions co-financed with the resources of the national Development and Cohesion Fund (FSC) of the 2007-2013 and 2014-2020 programming periods, with the updating of reports and analyses on the progress of interventions at regional and/or sectoral level, including actions programmed through enhanced Framework Programme Agreements and Direct Implementation Instruments, such as Development Pacts and Institutional Development Contracts.

This systematic monitoring involves more than 16,000 interventions financed with FSC resources over 2007-2013, for a financial amount exceeding 19 billion euros, of which 14 billion euros allocated to Southern Italy (74%). NUVEC surveys show that in 68% of the cases public investments supported with additional national resources were remarkable in size (over 5 million euros) and scope of intervention, notably in the transport, social and environmental infrastructures. In 58% of cases, public investment went beyond the project-designing phase, setting up construction sites or completing works.

NUVEC also provides support for coordination and supervision of Development Pacts, through in-depth audit of management and control systems (a.k.a. SiGeCo), based on guidelines drawn up by the Section, to guide the Administrations and provide correct implementation guidelines.

In 2018, NUVEC will implement an ad-hoc pilot project within the “Governance NOP 2014-2020” to strengthen Public Administrations’ administrative capacity through the analysis of implementation procedures and monitoring systems, and promote public action accountability and transparency through effective tools and paths for access and dissemination of information on processes and products.