EXPORT REFUNDS AUDIT MANUAL by rar99983

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									EXPORT REFUNDS AUDIT SECTION




           WORK




          MANUAL




                         June 2008



                                     1
                           INDEX


Section

1.        Table of Legal Instruments



2.        Council Regulation (EC) No. 485/08 and Commission Regulation (EC)
          No. 4/2004



3.        Audit Committee



4.        Export Refunds Audit Section



5.        Preparation of Audit Programme / Selection of Undertakings for
          Scrutiny



6.        Communications and Mutual Assistance under Article 7 of Regulation
          (EC) No. 485/08



7.        Selection of Transactions for Audit



8.        Scrutiny of Undertakings



9.        Annual Report on Application of Regulation (EC) No. 485/08



10.       Liaison with EU Auditors




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1. Table of Legal Instruments

Council Regulation (EEC) No. 4045/89 of 21 December 1989, which came into effect on 01
January 1990 provided for the scrutiny by Member States of transactions forming part of the
system of financing by the Guarantee Section of the European Agricultural Guidance and
Guarantee Fund. This regulation was repealed by Article 16 of Regulation 485/08 of 26 May
2008.

Council Regulation (EC) No. 3094/94 of 12 December 1994, Council Regulation (EC) No.
3235/94 of 20 December 1994 and Council Regulation 2154/02 of 28 November 2002 amended
Regulation (EEC) No.4045/89. Each of these Regulations were repealed by Regulation 485/08.

Commission Regulation (EC) No. 800/1999 of 15 April 1999, lays down common detailed rules
for the application of the system of export refunds on agricultural products

Commission Regulation (EC) No. 4/2004 of 23 December 2003, lays down detailed rules for the
application of Council Regulation (EEC) No. 4045/89.

Commission Regulation (EC) No. 40/2006 of 10 January 2006 amending Regulation (EC) No.
4/2004.

Council Regulation (EC) No 485/2008 of 26 May 2008 on scrutiny by Member States of
transactions forming part of the system of financing by the European Agricultural Guarantee
Fund. This regulation replaces Council Regulation (EEC) No. 4045/89 of 21 December 1989 (as
amended).

Statutory Instrument No. 274 of 1994 - European Communities (Common Agricultural Policy)
(Scrutiny of Transactions) Regulations 1994 (as amended) gives full effect in Ireland to Council
Regulation (EEC) No. 4045/89.

Statutory Instrument No. 274 of 1994 was amended by S.I. No. 218 of 1995 -[European
Communities (Common Agricultural Policy) (Scrutiny of Transactions) (Amendment)
Regulations] to give full effect in Ireland to the amendments to Regulation (EEC) No. 4045/89
introduced by Regulation (EC) No. 3094/94.


2. Council Regulation (EC) No. 485/08 and Commission Regulation (EC) No. 4/2004

These Regulations provide that each Member State must:

•   Carry out a systematic scrutiny of the commercial documents of those entities receiving or
    making payments relating directly or indirectly to the system of financing by the European
    Agricultural Guarantee Fund (EAGF). The purpose of the scrutiny is to ascertain whether the
    relevant transactions have actually been carried out and have been executed correctly. In this
    jurisdiction, export refunds are scrutinized by Revenue’s Export Refunds Audit Section and
    the remainder of EAGF transactions are scrutinized by the Internal Audit Unit of the
    Department of Agriculture Fisheries and Food.

•   Draw up risk analysis criteria each year for the selection of the traders to be included in the
    scrutiny programme for that year. This analysis is then to be presented to the Audit
    Committee for approval and transmission to the EU Commission by 1 December of each year.


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•   Draw up a programme of scrutinies in accordance with approved risk analysis criteria to be
    carried out during the scrutiny period 1 July to 30th June and submit the programme to the EU
    Commission before 15 April each year for approval.

•   Send to the EU Commission a detailed annual report on the application of the Regulations
    before 1 January following the scrutiny period to which the report refers.

•   Make a special department responsible for monitoring the application of the Regulations.


3. The Audit Committee

This is an independent Committee consisting of a chairman and not less than 4 ordinary members.
It was set up by the Minister for Agriculture and Food under the European Communities
(Common Agricultural Policy) (Scrutiny of Transaction) Regulations, 1994 [S.I. No. 274 of 1994
as amended by S.I. 218 of 1995].

The Audit Committee is responsible for monitoring the application of Regulation (EC) No.
485/08 and for the co-ordination and general surveillance of the work carried out by officials of
the Department of Agriculture Fisheries and Food and of the Revenue Commissioners in
implementing the provisions of the Regulation.

The draft annual scrutiny programme (see section 5), the proposals for application of risk analysis
in preparation of the annual programme (see section 5) and the Annual Report on implementation
of the scrutiny programme (see section 9) have to be submitted to the Audit Committee prior to
being sent to the EU Commission for approval.

The Audit Committee meets at least once per quarter. The Agencies responsible for implementing
the Scrutiny Programme and other provisions of Regulation (EC) No. 485/08 report regularly
(normally quarterly) to the Committee on their activities and on progress made in implementing
the scrutiny programme.


4. Export Refunds Audit Section

The Section is responsible for implementing Council Regulation (EC) No. 485/08 in relation to
the scrutiny of transactions involving claims for export refunds. This involves the post-factum
scrutiny of the commercial records of undertakings in receipt of export refunds that are selected
for scrutiny in the annual scrutiny programme. The programme is drawn up in accordance with
the provisions of Regulation (EC) No. 485/08 and S.I. No. 274 of 1994 (as amended), in
consultation with the Department of Agriculture Fisheries and Food and subject to direction by
the Audit Committee. A report is prepared in respect of each scrutiny carried out and a copy is
sent to the Department of Agriculture Fisheries and Food.

The principal tasks, which are required to be carried out are: -

•   Preparation of the Annual Scrutiny Programme (see section 5).

•   Drawing up proposals for the application of risk analysis in relation to the preparation and
    implementation of the annual scrutiny programme for approval by the Audit Committee and
    the EU Commission (see section 5).


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•   Selection of transactions for scrutiny (see section 7).

•   Implementation of the scrutiny programme and the preparation and submission of scrutiny
    reports (see section 8).

•   Preparation of the Annual Audit Report on the application of Regulation (EC) No. 485/08 in
    relation to export refunds (see section 9).

•   Preparation of periodic reports on the application of Regulation (EC) 485/08 for submission to
    the Audit Committee.

•   Preparing communications for transmission to OMS and the EU Commission under Article 7
    of Regulation (EC) 485/08 and responding to requests received from OMS under Article 7 (see
    section 6)

•   Servicing EU Expert Group meetings on the application of Regulation (EC) No. 485/08.

•   Participation in special exercises led by the EU Commission services in reinforcing the audit
    of undertakings within and across national boundaries and in third countries.

•   Participation in joint actions involving mutual assistance between two or more Member States
    and co-ordinated by the EU Commission under Regulation (EEC) 4/2004.


5. Preparation of the Audit Programme & Selection of Undertakings for Scrutiny

EU Requirements

Under Article 10 of Regulation (EC) 485/08 each Member State is required to draw up a
programme of scrutinies to be carried out during the scrutiny period, which runs from 1st July
each year to 30th June in the following year. Article 2. of the Regulation lays down rules for
calculating the minimum number of undertakings to be included in the scrutiny programme and
provides that the selection of undertakings for scrutiny in relation to export refunds is to be done
on the basis of risk analysis. The Regulation requires that the scrutiny programme intended for
implementation in the scrutiny period beginning 1st July in any year is to be sent to the EU
Commission before 15th April of the same year and provides that if the Commission has not
made its comments known within eight weeks the programme is to be implemented.

Article 2 of Regulation (EC) 485/08 requires that Member States submit their proposals for the
use of risk analysis in relation to the scrutiny programme (and its implementation) to the EU
Commission for approval not later than 1 December of the year prior to the commencement of the
scrutiny period. Member States are required to take account of the comments of the EU
Commission on the proposals, which are given within eight weeks of their receipt.

The Audit Unit of the Department of Agriculture Fisheries and Food and Export Refunds Audit
Section working in consultation with each other and subject to the direction of the Audit
Committee prepare separate scrutiny programmes in relation to their respective areas of
responsibility. These programmes are then combined into a single programme, which is
submitted to the Audit Committee prior to being sent to the EU Commission for approval.




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Risk Analysis

Export Refunds Audit Section and the Audit Unit of the Department of Agriculture Fisheries &
Food draw up separate sets of proposals for the application of risk analysis in relation to the
preparation of their separate scrutiny programmes. Both sets of proposals are presented to the
Audit Committee for approval before being sent to the EU Commission in time to meet the 1
December deadline.

Selection of undertakings for scrutiny

Payment files are received from the Department of Agriculture Fisheries and Food listing all the
undertakings which received/made payments in relation to export refunds in the EAGF financial
year (16 October - 15 October) preceding the beginning of the scrutiny period in question . The
information provided includes the names of undertakings which received / made export refund
payments under each product sub-head together with the amount of payments involved.
Undertakings for scrutiny are selected on the basis of risk analysis.

Gathering information on which to assess risk

Prior to preparing the scrutiny programme the Section gathers as much information as possible to
facilitate the application of risk analysis to the selection process.

Records of CAP frauds and irregularities are inspected to identify those undertakings found to
have been involved in a significant CAP irregularity or suspected of involvement in any
fraudulent activity in relation to CAP in the previous 12 months.

Members of the Section are consulted to establish if they wish to have any particular undertaking
included in the audit programme arising from information/ experience gained in the course of
their audit duties.

The Customs Investigation Branch of Investigation and Prosecutions Division, Regional Head
Offices and Large Cases Division are consulted to establish if, arising from information /
experience gained in the area of CAP fraud, they wish to have any particular undertaking included
in the audit programme.

The Department of Agriculture Fisheries and Food is consulted to establish if
it wishes to have any particular undertakings included in the audit programme.

Minimum number of scrutinies

Article 2 of Regulation (EC) No. 485/08 requires that the number of undertakings to be
scrutinised in the annual scrutiny programme is to be not less than half the undertakings whose
receipts or payments or the sum thereof, under the Guarantee Section of the EAGF amounted to
more than €150,000 in the EAGF financial year (ending 15th October) prior to the beginning of
the period of scrutiny in question. The minimum number of undertakings to be scrutinised in the
programme is calculated on this basis having regard to sums received / paid in relation to export
refunds.




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Layout of the scrutiny programme

Details of the scrutiny programme are set out in a special format in accordance with guidelines
issued by the EU. Commission Regulation No. (EC) 4/2004 (as amended) sets out the guidelines
used for the annual programme.


6. Communications and Assistance under Article 7 of Regulation (EC) No. 485/08

Article 7.1 of Regulation (EC) 485/08 requires Member States to assist each other for the purpose
of carrying out the scrutiny provided for in Articles 2 and 3 where an undertaking or a third party
is established in a Member State other than that in which payment of the amount in question has
or should have been made or received. Article 7.1 further states that the Commission may co-
ordinate joint actions involving mutual assistance between two or more Member States.

Under Article 7.2 of the Regulation each Member State, in which payments are made to or
received by undertakings established in another Member State, is required to send a list of such
undertakings to the other Member State concerned within 3 months of the end of the EAGF
financial year of payment i.e. before 15th January each year. A copy of each list is to be sent to
the EU Commission by the same date. Guidelines in relation to the preparation of the list are
contained in Annex IV to Regulation (EC) No. 4/2004.

The Member States receiving or making payment may ask the Member State in which the
undertaking is established to scrutinise some of the undertakings on the list indicating why it is
necessary to make such a request and indicating the risks involved.

Under Article 7.3 of the Regulation each Member State is required to send to the Commission,
before 15 January each year, a list of undertakings established in a third country which received
or made payments in that Member State. This list is drawn up in accordance with the specimen
form set out in Annex V to Commission Regulation (EC) No. 4/2004.

Under Article 7.4 of the Regulation a Member State may, as part of the scrutiny of an
undertaking, make a specific request to another Member state to provide information or carry out
a scrutiny. The reason for the request should be indicated. This request is to be drawn up in
accordance with the specimen form set out in Annex VI to Commission Regulation (EC) No.
4/2004.

Such requests may be made at any stage during the Scrutiny Period and should be sent through
the Paying Agency. They are sent both in hard copy and in electronic format.


7. Selection of Transactions for Scrutiny

A purely statistical sampling approach is not efficient in populations with a relatively small
number of transactions. In those circumstances a non-statistical sampling technique is to be used
as an alternative for substantive testing.

The parameters for the test outlined below have been established following a detailed
examination of a cross section of previous audit cases and discussions with audit management.

For the number of items making up the population (N), suggested minimum sample sizes for
substantive testing are as follows:

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         N                       Sample Size
         1-20                    30%
         21-250                  10
         251-500                 15
         501-2000                20
         2001+                   25

All of the records are to be imported into the IDEA software application. The number of records
to be sampled is then to be selected using IDEA’s stratified random sampling facility.

In all cases, if errors are found, the auditor should test additional items until (s)he is in a position
to judge the level of material error.

In order to obtain the selected transactions, the Paying Agency (Department of Agriculture
Fisheries and Food) is visited and the payment records relating to the undertaking are inspected.
In the case of an undertaking in the Processed Products Sector, the recipe file is also inspected.
Photocopies of relevant documents are taken


8. Scrutiny of Undertakings

EU Guidelines

Detailed guidelines in relation to the implementation of Ex-Post controls are set out in
Commission document Ref. V1/6877/94).

Objectives

The principal objective of the scrutiny is to ascertain whether transactions forming part of the
system of financing by the EAGF have actually been carried out and have been executed
correctly.

The objectives of the scrutiny may include arriving at an assessment of any or all of the
following: -

•   Is the financing information supplied by the undertaking valid?

•   Is the information on the nature of the product indicated by the undertaking correct?

•   Is the quantity of the product declared by the undertaking correct?

•   Is the declared destination and / or end use of the product correct?

•   Are all legal obligations relating to the transaction fulfilled?

Preparation for Scrutiny

All scrutinies begin with a preparatory phase in order to:



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•   Develop an understanding of the legal, financial and commercial characteristics of the
    undertaking as well as its structure and organisation;

•   Identify the key management systems and controls;

•   Determine matters that are potentially significant (i.e. risks) for testing and to specify the
    suppositions of risk to be tested;

•   Determine the third parties to which an extension of controls should be necessary.



Prior to the commencement of each scrutiny the Auditor should ensure that:

•   The relevance of the key generic risks in relation to the undertaking to be controlled are
    reviewed.

•   In the light of this review, s/he identifies the evidence s/he requires in order to form an
    opinion on whether the suppositions of risk are true or false.

•   S/he identifies the sources of information required in addition to that already submitted with
    the claim, e.g. production and laboratory records.

•   Previous audit files and any other official papers containing information relevant to the
    undertaking and its operations are consulted.

•   All Regulations relevant to the CAP Sector involved are studied.

•   Revenue databases are queried regarding sampling, CAP irregularities and imports from third
    countries (FAST) in relation to the undertaking.

•   Seadata (An Internet Database), which is provided by Lloyds of London, is used to track all
    ships to verify that the product being audited arrived at the correct destination.

•   The Customs Investigation Branch of Investigations & Prosecutions Division, Regional Head
    Offices and Large Cases Division and the Internal Audit Unit of the Department of
    Agriculture and Food are consulted as to the undertaking’s record with each office.

•   Undertakings are notified in writing in advance of an audit visit. This initial contact should be
    with a senior member of the management (e.g. company secretary, chief accountant, etc.)

•   The various criteria to be verified, as assessed above, for each of the selected transactions are
    identified and recorded.

Initial Meeting with Management

At the initial meeting with senior management of the undertaking the legal basis for the scrutiny
and the obligations imposed on the trader under S.I No. 274/94 (as amended by S.I. No. 218/95)
should be explained. The general requirements of the audit team and the form the scrutiny will
take should also be discussed.



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Structure of Undertaking and Method of Operation

The first stage of the scrutiny is concerned with obtaining information on the structure and
organisation of the company, its method of operation, the system of records and the internal
controls in place. This fact-finding stage is conducted through a series of meetings with the
relevant personnel in the company. A tour of the plant is undertaken, where appropriate.
Notes are made of each interview, recording the time and date of interview and the name and
position of each interviewee.

Transactions Audit

The scrutiny of the transactions selected for audit is carried out by examination of and
comparison with the undertaking’s records (books of account, stock records, production records,
laboratory records etc.).

Some commercial records will be of particular significance to the scrutiny, such as credit notes,
insurance claims, correspondence with customers etc. Examination of such records should not be
restricted solely to verifying the transactions selected for scrutiny but should also be of a more
general nature.

The relevant information extracted from the undertaking’s records etc. is recorded during the
course of the scrutiny.

Crosschecks

The credibility of documents held by the undertaking is tested by means of internal crosschecks
and by information available from third parties, for example, upstream at the producer and
transport firm, and downstream at the buyer and shipping companies. This may include making
visits to stores to ensure that the facilities to process the volume of product exist. Third parties
would include transport firms, suppliers etc.

Where assistance from colleagues is required a written request is prepared setting out the
information required, quoting the necessary references to identify the transaction(s). Copies of
relevant documentation should be sent with such requests.

Sampling of Product

Where applicable, indicative samples are drawn of final product and eligible ingredients for
analysis at the State Laboratory.

Weights and Measures Certificate

The undertaking’s current Weights and Measures Certificate(s) is/are inspected. Copies are taken
for inclusion with scrutiny report and for local reference.

Physical Examination of Stock

Where appropriate, physical examination of selected stock is carried out (Article 3 of Regulation
(EC) 485/08 refers).



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Final Stage of Audit

The final stage of the scrutiny should be concerned with resolving discrepancies, anomalies and
other problems encountered during the scrutiny. This may involve discussions with the relevant
personnel in the undertaking. Particular notes should be made of explanations in response to
queries, which are not regarded as satisfactory from an audit point of view.

Irregularities

Any irregularities identified during audits should be discussed with the undertaking on
completion of audit. Reports should refer to these discussions and their outcome.
Any evidence of fraud should be notified to Investigations & Prosecutions Division immediately.
The trader should not be alerted to the fact that such evidence has been uncovered.

Reports on Scrutinies

The scrutiny report should be structured along the lines set out in the Ex-Post Control Package
(VI/6877/94), as follows:

• General Information (see sheet no. 1 of Annex 1 Ex-Post Control Package)

• Introduction;

• Planning Phase;

• Execution Phase;

• Findings;

• Conclusion.

A copy of each scrutiny report is sent to the Finance Division of the Dept. of Agriculture and
Food. Copies of all scrutiny reports are held in the Section for reference together with
information or suggestions on the nature, timing and risks pertinent to any subsequent ex-post
control.

Irregularities are notified to the CAP Audit & Analysis Section, where they are recorded and
notified to the Dept. of Agriculture and Food, Control Officers, Export Officers etc.

Interim reports are prepared where irregular practices are identified so that the Paying Agency
may be informed.

A record is maintained of the time spent and the staff resources deployed in carrying out each
scrutiny.




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9. Annual Report on the Application of Regulation (EC) No. 485/08

An annual report on the application of Regulation (EC) 485/08 is required to be sent to the EU
Commission before 1st January following the scrutiny period (Article 9 of the Regulation).

A report on the application of the Regulation in relation to export refund payments is prepared
and sent to the Department of Agriculture Fisheries and Food where it is incorporated into a joint
report on behalf of Revenue and the Department for presentation to the Audit Committee prior to
being sent to the EU Commission.

The report is required to contain comprehensive information on the application of Regulation
(EC) No. 485/08 during the scrutiny period to which it refers. It is to be prepared in accordance
with the guidelines set forth in Annex II to Commission Regulation (EC) No. 4/2004.


10. Liaison with EU Auditors

Staff liaise with auditors from the EU Commission and from the European Court of Auditors
when those bodies carry out audit visits to Ireland in connection with the application of
Regulation (EC) No. 485/08 in relation to export refunds.




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