Hungary - NGO Fund HU0068

Transcription

1 - NGO Fund HU0068 Name of the monitoring agent Eliza Siembida (signature) Date Company Ernst & Young Poland 18

2 Contents Summary findings Conclusions and recommendations Key Findings Selection of sub-projects Project monitoring Financial management, control mechanisms and reporting Attachments Attachment no. 1. List of sample sub-projects Attachment no. 2. Sample projects testing results

3 Summary findings Summary of the main findings from the audit of the NGO Fund in project no. HU0068 are presented below: At Fund Level The adequacy of the accounting and financial operations and reporting Receipt of funds from the FMO The Operator holds separate bank account for the re-granting part of the NGO fund. Management fee is received on the Operator s general bank account. Interest accrued on the re-granting bank account remained on the account. Further disbursement of the re-granting to the sub-projects Disbursements to sub-projects are done by the Operator only. Disbursements are done from a EUR account to a HUF account at bank exchange rate. Budget compliance and control The Operator has the ultimate responsibility for budget compliance and control. The budget is controlled on an on-going basis in excel sheets. The budget is broken down to detailed budget lines and costs incurred are input into the sheet and compared against budgeted values. Verification, certification and approval of the incurred expenditure With regards to the management costs, the Operator is to report the FMO actual incurred expenditure. Our testing showed that: - the Operator reported its estimated labor costs and actual incurred other direct costs. Overhead costs are allocated to the Fund based on full-time posts allocated to the Fund. The overhead costs reported to the FMO are estimates. - the Partners (except one who reports actual incurred costs) report fixed fee per budget line. Costs reported by the Partners are not verified by the Operator. The costs reported did not exceed allocations in a given budget line. Exchange rates used in quarterly reports are the EC reference rates. Systems in place to track disbursement to projects, irregularities and recovery of funds, verification of co-financing provided by sub-projects Disbursements to sub-projects are tracked by the Operator. Systems in place for irregularities identification comprise of i.a. on-site visits. Per received, there were a few cases of recovery of funds until the date of the monitoring (e.g. S03171). 20

4 Cash management and records maintenance and assessment of internal control The Operator and its Partners maintain separate bookkeeping accounts for the Project. Records are maintained in an organized and consistent way. We noted no issues with internal controls on the Project. Analysis of the selection criteria Selection criteria for sub-projects under the Fund The selection criteria used were compliant with the Implementation Agreement. The sub-project selection process was transparent with some issues. Selection criteria for external experts who assessed the sub-project applications Transparent with some issues. Analysis of the set-up of the Selection Committee for the Fund and the criteria for selection of its members Transparent with some issues. Assessment of complaints mechanism Romania Bulgaria The sub-project applicants can complain to the Selection Committee. However, after the quality evaluation of the applications and approval of projects for funding by the Selection Committee the applicants could appeal, but the Selection Committee decisions were final. Analysis of whether the criteria were correctly and systematically applied, whether this was in line with contractual obligations (Annex III to the Grant Agreement/the FMO NGO Grants Guideline) and whether any conflict of interest was detected Potential conflict of interest was detected. At sub-project level Adequacy of the accounting and financial operations and procurement reporting systems Receipt of funds from the operator, eligibility of expenditures The beneficiaries receive funds from the Operator from a separate bank account opened for the re-granting. Verification of eligibility of expenditures by the Operator and its Partners is not sufficiently documented. In the sample projects tested in not all cases 10% of expenses were verified. Accounting of the subproject expenditure is in place Accounting records of the beneficiaries are checked during financial visits onsite. The Operator and their Partner, as well as the Beneficiaries, maintain separate bookkeeping accounts for the NGO Fund. 21

5 Budget compliance Budget compliance is verified in the beneficiaries quarterly reports. Public procurement compliance The sub-projects budgets are below the public procurement threshold. Co-financing/in kind contribution/revenue generation Co-financing and in-kind contribution are verified by the Operator and its Partners. Interest earned on the sub-projects grant account is deducted from the final grant settlement. Conclusions The NGO has established dedicated team to manage the NGO Fund implementation within the organization, supported by finance/accounting and administrative functions responsible for managing the project. The NGO established internal procedures supporting processes carried out on the basis of the Fund set-up documents as well as supporting both beneficiaries and other stakeholders in access to relevant on the project. The project is managed in an organized way and it is transparent for the applicants. The project implementation is supported by the IT system designed by the NGO which facilitated applying for the grants and assessments made by evaluators. The sub-project selection process is transparent and supported by IT tools. At the same time there are some issues related to this process. Monitoring of the implementation of sub-projects and reporting of sub-projects is transparent and consistent among the Operator and its Partners. The present design of the process for verification of eligibility of costs reported by sub-projects does not ensure appropriate audit trail for the checks done. The management costs reported to FMO consisted of different categories, including direct project management costs and indirect costs, allocated to the project. The allocation of costs to the project, e.g. personnel costs is ca 50% and overhead costs are allocated at 43-47% of the total costs. Reporting of the management costs to the FMO proved to be inconsistent between the Operator and the Partners. 22

6 The findings and descriptions of processes in this report are based on provided by the representatives of the Fund Intermediary and its Partners involved in the implementation of EEA Grants in, namely the Hungarian Environmental Partnership foundation (Ökotárs Alapítvány), Foundation for Development of Democratic Rights (Demokratikus Jogok Fejlesztéséért Alapítvány, Demnet), Autonómia Foundation (Autonómia Alapítvány) and Carpathian Foundation (Kárpátok Alapítvány). The main document defining the EEA Grants management and control system is the Implementation Agreement signed on February 4, 2008 between the Financial Mechanism Office and the Hungarian Environmental Partnership Foundation (with annexes and addendums) which lays down the responsibilities of the Fund Intermediary/the Operator and defines the Fund set-up. We were informed that there were no particular procedures developed for the purpose of EEA Grants implementation in any of the Partners (Ökotárs, Demnet, Autonómia, Kárpátok) apart from the Implementation Agreement and guidelines developed by the FMO and the Operator and its Partners and provided to sub-project applicants and evaluators (described in the following chapters of the report). Key Findings Selection of sub-projects Grant Management Information System (GMIS) In their bid to EEA/rwegian Financial Mechanism the Operator and its Partners (Ökotárs, Demnet, Autonómia, and Kárpátok) committed themselves to use Grant Management Information System (GMIS). GMIS is a web-based tool ( on in which data regarding sub-project applications is recorded, analyzed and processed. The Operator developed an online application form for the potential applicants to fill in and submit online to the Operator and the Partners. The application form could also be printed, however applications in hard copies were not accepted. We were informed that the online application form contains inbuilt controls, e.g. to check whether the applicant meets the minimum requirements, and the system does not allow for applications to be submitted after deadlines. GMIS contains i.a. on when the application was submitted, about the applicant, evaluators data, results of evaluators assessments, an evaluator s conflict of interest, and articles related to the application rounds/calls for proposals, FAQ, list of granted projects, premonitoring questions. Access to GMIS is possible for registered users (requires login and password). All of the above mentioned data is in the online system only for admin users (users appointed from the Operator and the Partners). The admin users have access to all data and can input and modify all the data (including evaluators scores, lists of evaluators who participated in the evaluation, status of projects rejected/granted). Furthermore, the evaluators have limited access to the system - they can only access the application and their own evaluation sheets. If an evaluator was marked in the system as not independent from an applicant, the system does not allow him/her to access the evaluation sheets for that application. Selection of external experts to assess the sub-project applications In accordance with Article 4 of the Implementation Agreement: - the Operator shall appoint four selection committees, one in each thematic area (...), 23

7 - the selection committees shall be made up of a chairperson and four independent evaluators ( ), - the chairpersons shall be appointed by the Operator; three of them based on nomination by the Partners ( ), - the evaluators shall be selected based on their expertise and experience in the particular thematic area, as well as their knowledge of the Hungarian NGO sector ( ), - the Operator shall invite the relevant ministries to appoint one of the evaluators on each selection committee, - the evaluators shall be independent from the Operator and the Partners and applicants in their respective thematic area, - the selection committee shall operate in an open, transparent and accountable manner, and its composition must ensure that due attention is paid to possible areas of conflict of interest. Further, conflict of interest is defined in article 10.4 of the Agreement The Operator shall take all necessary measures to prevent or end any situation that could compromise the impartial and objective performance of the Agreement. Such conflict of interests could arise in particular as a result of economic interest, political or national affinity, family or emotional ties, or any other relevant connection or shared interest. Any conflict of interests, which could arise during performance of the Agreement, must be notified in writing to the FMO without delay. Based on provided during interviews and testing results on sample projects 2 we noted the following regarding the selection of sub-projects: Selection Committees There were separate selection committees in each thematic area at each of the Partners. Data of the Selection Committee members in each thematic area the evaluators are input into the GMIS. Information on any conflict of interest declared by the particular evaluators is also input ( tick mark ) in the system and those evaluators cannot assess (and access) those applications in the system where conflict of interest was declared. We were informed that the evaluators did not have access to other evaluators assessments in the system either. The evaluators signed contracts with the Operator and the Partners as well as declarations of impartiality. The declaration of impartiality is either a separate document or a clause included in the contracts in which they declare to obey confidentiality of data and impartiality, which was defined as having no financial interests in the applicants, and neither they nor their close family members work for the applicants. The declarations of impartiality were signed by the evaluators before they knew the applicants and were obliged to inform the Operator or the Partners of any conflict of interest after the names of the applicant organizations were known. Prior to each evaluation round there were separate trainings for evaluators in all thematic areas during which they were informed about the online evaluation system and the assessment criteria. Ökotárs The Selection Committee members were chosen from Ökotárs pool of evaluators, i.e. persons they were acquainted with and often cooperated with. There was no formal selection process of the independent evaluators. There were five persons in the Selection Committee for the three calls in the environmental priority sector: - Móra Veronika the Selection Committee Chairperson (Director of Ökotárs since 2007), - Prém Krisztina independent evaluator, representative of the Ministry of Rural Development, 2 The sample projects include: cut-off projects and 20 sample projects (please refer to Attachment no. 1 and no. 2 for the lists of sample projects). 24

8 - dr Malatinszky Ákos independent evaluator, - Zalatnay László independent evaluator, - dr Kalas György independent evaluator. There were also two more persons input in GMIS: Karen Turner a representative of FMO and László Perneczky a potential sixth evaluator both of whom eventually did not participate in the evaluations. We were informed that these two persons have read-only access to the system and assessments of the particular evaluators. We were also provided with the CVs of the evaluators and we observed that: - dr Kalas György was the president of the Advisory Board of Ökotárs from 1991 to 2004, - Zalatnay László was the president of Ökotárs from 1998 to Per received, Ökotárs was not provided by the FMO with a definition of independence of the evaluators other than the one stated in the Implementation Agreement. The 5 sample projects in the environment priority sector and cut-off sample projects were evaluated by at least three evaluators and all of them were evaluated by the Selection Committee Chairperson. Ökotárs developed Rules of valuation ( ÉRTÉKELÉSI SZABÁLYZAT ) for the evaluators which are accessible online. The Rules describe in general terms how the evaluation process is organized, i.e. the successive steps in the process and deadlines for each step. The Rules were distributed among the evaluators in all priority sectors. Autonómia In total there were nine evaluators selected by Autonómia for the three calls in the social priority sector (not all of them participated in all three calls). There was no formal selection process of the independent evaluators they were selected on the basis of their knowledge of the sector and were acquainted with Autonómia. We were informed that there was no chairman selected for the Selection Committee in the social priority sector. We were provided with CVs of the evaluators and observed that at the time of the evaluation process the following evaluators: - Béres Tibor was working in Autonómia, - Kelemen Ágnes - during the evaluation phase worked for the Ministry of Social Affairs and Labour and then joined Autónomia, - Csongor Anna was the Director of Autonómia and member of supervisory board of Ökotárs (as well as a member of the managing board of Menhely Foundation - the Foundation applied for grant to Demnet, however was rejected). We observed that Autonómia did not systematically use the tick mark in GMIS to exclude evaluators with conflict of interest. Per received, the tick mark was used to indicate the number of evaluators in certain rounds/calls for proposals. All of the evaluators had access to applications, however in case of declared conflict of interest they did not evaluate the application. The sample 5 projects in the social priority sector were evaluated by three or five evaluators. In case of cut-off sample by two or six evaluators. Demnet There were five evaluators in each round/call for proposals in Demnet s priority sector, i.e. civil, but altogether nine evaluators participated due to personal changes during the calls for proposals. Per received, in their evaluator selection Demnet used the following criteria: knowledge and experience in the field of civil organizations capacity building and university or college degree. Demnet selected evaluators based on their previous contacts and also looked for evaluators from the Ministry of Social Affairs and Labour. 25

9 We were provided with CVs of the evaluators and observed that: - Pálvölgyi Péter - was the Managing Director of Demnet since 2003, - Nizak Péter - was the previous Managing Director of Demnet ( ), - Jaksa Brigitta - was the Policy Officer of Demnet since 2008, - Garas Ildikó - was delegated by the Ministry of Social Affairs and Labour, - Erős Barbara - was an employee of Demnet, - Csanády Dániel was Programme Leader in Demnet until The sample 5 projects in the civil priority sector were evaluated by at least two evaluators and maximum five. The cut-off sample projects were evaluated by five evaluators. Kárpátok In the thematic area of cultural heritage, the applications were separated into three main subthemes: - intangible cultural heritage, - tangible cultural heritage, - environmental cultural heritage. In the selection of evaluators, the Carpathian Foundation sought for evaluators who had basic knowledge and experience in all the above three fields. However, the evaluators were specialized in one of the three fields. The Foundation did not have a pool of evaluators to choose from. The Foundation requested the National Office of Cultural Heritage to suggest evaluators. They also acquainted with a few evaluators during the preparation of the bid to FMO. We were provided with CVs of the evaluators and observed that during the evaluation process: - Soós Gábor was the World Heritage International Relations Officer in the National Office of Cultural Heritage, used to be Permanent Delegate to UNESCO, - Vartik Melinda was the Financial and administrative leader at the Carpathian Foundation, had little experience in the field of cultural heritage, - Gyulai Éva dr. was a historian and museologist, - Köles Sándor was the Executive Director of the Carpathian Foundation in , - Deme Péter was delegated by the National Office of Cultural Heritage. - Hortiné dr. Bathó Edit - was a musem director. In every call for proposals there were five evaluators. And in the 5 sample projects in the cultural priority sector and cut-off projects were evaluated by five evaluators. Sub-project Selection process Open calls for proposals that were published on the program website ( contained detailed on the eligibility of applicants, the application procedure, list of non-eligible costs and non-eligible activities, the general and detailed selection criteria, eligible thematic areas and eligible activities, description of contracting and reporting for successful applicants. However, there was no on scoring of particular criteria or the weight given to the criteria. The applicants and stakeholders have access to relevant on the project and selection processes on the project website as well as the Partners websites. The third call for proposals was different from the first two (one stage) calls. Based on the evaluation of the first and second call the Operator considered that the quality of projects proposals was lagging, i.e. in the Operator s opinion there were many quality projects but they 26

10 could be better prepared and better defined in the sub-project applications. Therefore, two-stage procedure was proposed so that the applicants could use the Operator s help more effectively. In the first stage the applicants were requested to provide a brief project idea which was evaluated and selected projects were then allowed to the second stage. In the second stage the projects were evaluated based on the detailed selection criteria in accordance with the Implementation Agreement. After the first stage the Operator carried out workshops for the applicants on how to develop a project. After the applications were submitted in the system, the evaluators were assigned applications to evaluate. The evaluators input their assessments/score into the system on-line and could modify their assessments until they submitted the final score in the system. GMIS contains predefined criteria to be scored (in accordance with criteria cited in the open calls) and scores to be selected for each criterion from a drop-down list. The evaluators could also write their comments regarding the applications. The system calculates average score per project and ranks the projects according to their scores. The preliminary ranking lists were generated from the system and provided for the Selection Committee meetings. For example in case of the 1 st call the criteria were defined as below: Criteria Score How relevant is the proposal to the objectives and priority sectors of the NGO fund? 0-15 How relevant is the proposal to the objectives of the thematic area? How clearly defined are the goals and targets of the proposal? 0-10 How relevant is the proposal to the needs and constrains of the target group? 0-10 To what extent are the target group or other stakeholders/constituencies involved in 0-10 the project? To what extent does the project contain innovative elements? 0-15 How coherent, achievable and appropriate are the proposed activities? 0-10 To what extent is the proposal built upon real partnership and cooperation with other t used in organizations/institutions? scoring, thought as discriminatory To what extent does the proposal contain objectively verifiable indicators for 0 5 measuring project results/outcomes? To what extent is the budget clear and detailed? To what extent is the proposed 0 10 expenditure necessary for the implementation of the project? To what extent does the proposal contribute to the strengthening and sustainability 0 5 of the applicant and of the NGO sector? Will the capacities and experience of the applicant and its partners allow the 0-10 successful implementation of the project both in technical and financial terms; and to achieve the expected results? Maximum total score 100 In the second and the third call the scoring was different. Maximum score for each category (there were three major criteria: objectives, activities, budget) was 5 points and the scores from each category were multiplied, e.g. 5x5x5, hence the maximum total score was 125. Then average score of all the evaluators was calculated. We were provided with the guidelines for evaluators for the third call and noted a discrepancy the guidelines state that the scores will be added not multiplied, i.e. the maximum score is 15 not 125. The GMIS shows composition of the Selection Committee (evaluators) for each project, as well as their scores and comments, however comments made by evaluators were usually very brief and not consistent some of the evaluators wrote no comments at all to justify their scores. Ökotárs The sub-project applications were discussed during the Selection Committee meetings. Per received, the Selection Committee s goal was to exclude applications that did not have a chance to succeed (e.g. in the first call there were 154 applications and 60 were discussed during the meeting). Ranking lists of all projects generated from the system (with identification 27

11 numbers of applications, titles of projects, NGO s name, scores given by each evaluator and average score in case of the first call, and only average score in case of second and third call) were provided for the Selection Committee meetings. The evaluators were asked to propose projects for discussion, i.e. propose projects that should be accepted. The evaluators also proposed where the cut-off line for projects accepted and rejected for funding should be. We were provided with meeting minutes from the Selection Committee meetings. The minutes contain brief on which evaluator proposed to discuss which project and the final list of projects accepted. The minutes do not contain justifications for projects to be accepted or rejected (e.g. for projects that were scored below the cut-off line and were accepted in the final version of scores - there is no written justification for the decision). The final scores agreed upon by the Selection Committee were recorded in GMIS (historical data is stored in the system). In our sample of 5 sub-projects and cut-off projects in the environmental priority sector there were cases where score of a project was changed, i.e. increased and there was no written justification for the change provided - neither in the Selection Committee meeting minutes nor in the GMIS (refer to Attachment no. 2 for details). Autonómia In the case of Autonómia the ratio of applications and granted projects was the following: First call for proposal: 19 projects were granted out of 246 applications, Second call for proposal: 20 projects were granted out of 341 applications, Third call for proposal: 15 projects were granted out of 312 applications (49 applications were evaluated in the second phase). In the first and second call about 600 sub-project applications were received. Autonómia divided the applications into two groups and there were two evaluation teams established with 2 or 3 evaluators. Each evaluation team selected the best applications ( their favorites ) to be shortlisted. Afterwards, all shortlisted applications were read through by all evaluators. The evaluators decided about the application s rejection or acceptance on the Selection Committee meeting and the final scores were defined during the meeting and input in GMIS. In our sample of 5 sub-projects in the social priority sector and cut-off projects there were cases where score of a project was changed, i.e. increased and there was no written justification for the change provided - neither in the Selection Committee meeting minutes nor in the GMIS (refer to Attachment no. 2 for details). We were also not provided with details of the preliminary scores awarded by each of the evaluators only average scores per project were and the final scores input in GMIS. Demnet In the case of Demnet the ratio of applications and granted projects were the following: - First call for proposals: 24 were granted out of 352 applications, - Second call for proposals: 19 were granted out of 187 applications, - Third call for proposals: 12 were granted out of 185 applications. In the first call, applications were evaluated on average by three evaluators and there were separate Selection Committee meetings for macro and micro sub-projects. In the second and third call there was a pre-evaluation by evaluator couples and the best 40 applications were then evaluated by every evaluator. The applications were evaluated individually, and the evaluators learnt about other evaluator s assessment only during the Selection Committee meeting. The evaluators made their individual rankings of applications and the rankings were summarized during the Selection Committee meetings. The applications were then discussed. 28

12 The original evaluation scores (before the Selection Committee meetings) were input in the GMIS. The scores modified after discussions during the Selection Committee meeting were recorded in Excel sheets. We noted that some projects with lower scores were accepted for funding and some projects with higher scores were rejected and the reasons for the decisions were not documented (refer to Attachment no. 2 for details on results of our testing). Kárpátok In the case of Kárpátok the ratio of applications and granted projects were the following: First call for proposal: 11 macro projects and 11 micro projects were granted out of 201 applications, Second call for proposal: 20 projects were granted out of 230 applications, Third call for proposal: 20 projects were granted out of 204 applications (19 signed contracts out of 20). In the first call all applications were evaluated by five evaluators. In the second call Kárpátok formed evaluators teams - one with 2 evaluators and the other with 3 evaluators. The evaluator teams evaluated the applications, ranked the applications by scores and those applications which received more than 1 point were suggested for further evaluation. These suggested projects were then evaluated by all the 5 evaluators. (In the second round the applications were evaluated in three aspects, and each aspect could be scored 0-5. The aspects: 1) project goal 2) activity 3) budget.) In the third call there were two selection rounds. In the first round 3 evaluators participated, and each evaluated each project idea. The selected project ideas were then evaluated by all the 5 evaluators. In the first and second call not all the funding was distributed. In accordance with the received, the goal was not to distribute all the funding, but to finance those projects which in the Selection Committee s opinion were worth implementing, i.e. safe and of high quality. The funding not contracted in each round could be used in the next call - the Partner did not lose the funding. In the third call all the funding was granted to the applicants. We were provided only with ranking list of projects with their final scores (i.e. scores stored in GMIS). There was no on whether the scores were changed during the Selection Committee meeting. Complaints Per received and the open calls we noted that the Selection Committee decisions were definite and the applicants could not appeal: Applicants rejected due to non-compliance with eligibility (administrative) criteria can request the Operator to review its decision within 10 days of being notified about the rejection. After the applications are evaluated based on eligibility criteria the selection committee s decision is definitive and the applicants have no right of appeal at this stage. Per received, there were very few complaints by the applicants and rejection due to formal requirements occurred only occasionally thanks to the effectiveness of the online system. The cause of formal rejection was in most cases that the legal entity type of the applicant was different than the required/eligible types in the call for proposal. We were informed that after the evaluation of applications were finalized and decisions on the grants were made, the applicants could request more from the Selection Committee but their decision would not be changed regardless the applicant s explanations. We selected sample projects to test the complaints mechanisms. The results of our test show that: 29

13 Ökotárs In the sample projects rejected after the quality assessment (Z04715, Z02160, Z03821) there was an exchange of letters. Ökotárs did not change their decision. Autonómia Per received there was only one complaint submitted (S06624). Autonómia did not change their decision. The official explanations for rejecting or accepting projects can be found in the online system. Otherwise, Autonómia did not document the selection process. Demnet In the sample projects rejected (C04764, C03775, C03053) two projects were rejected due to administrative criteria, one of which was later allowed for evaluation based on the applicant answer. In case of the third project which was rejected, the applicant inquired about evaluation criteria, scoring. Kárpátok In the sample projects rejected (K02190, K01966, K04705) the applicants inquired about detailed reasons, scoring, and how to prepare for the next call. Findings/conclusions The project selection process is transparent and supported by IT tools. At the same time there are some issues related to this process: Procedures applied do not ensure that the risk of conflict of interest is effectively managed. Based on our testing some evaluators (i.e. from the four independent evaluators stipulated by the Implementation Agreement) were not independent from the Operator or the Partners at the time of the application appraisal. There was no formal selection process for the independent evaluators and the selection of evaluators was not documented/justified in written. The applicants were not provided with the entire on the evaluation of applications the criteria were listed in the calls for proposals however the maximum scores for particular criteria were not provided. The project selection process was based primarily on evaluators assessments of projects. Evaluators assess both content related aspects as well as cost effectiveness of the project. Based on a sample of project documentation reviewed by us, we noted that quality of justification was not uniform in case of particular evaluators (some gave comments, some did not), and there is no written justification provided for the final scores (or changes of scores) after the Selection Committee meetings. Assessment of budget aspects of the project is an integral part of evaluation. However it is questionable if external evaluators were suitably equipped to carry out this assessment. They did not have data on standard costs or historical data from other applications which would be useful for comparisons. They only relied on their individual, varied knowledge and experience about costs of projects (in each round there were several projects with decreased budget approved). The sub-project applications were evaluated by different number of evaluators ranging from two to six. 30

14 The sub-project selection process is not uniform among the Partners. There are different data stored in GMIS - three of the Partners input final scores in GMIS, one - the preliminary scores, and the tick marks are not consistently used by all the Partners. The chairperson was also evaluating the applications and in the sample projects there were cases where she changed her scores which in turn influenced the applications chances of receiving the grant. The applications were granted the funds based on their average scores. The transparency of the selection process would be enhanced if there were written justifications for the change of the scores. The admin users of GMIS until the date of the monitoring could modify data regarding the applications and their appraisal in the system. The data stored in GMIS should be uniform in all the Partners and should be locked for modifications after the selection process was finished. It is not stated in the Implementation Agreement that the chairman/delegated by the Operator should not evaluate applications or whether only independent evaluators should assess applications. Voting/non-voting members of the Selection Committee were not defined in the Agreement. The Implementation Agreement does not state the minimum number of evaluators to evaluate an application. The definition of independence should be précised in the Implementation Agreement, e.g. conditions regarding working relationship could be added for instance did not work in the applicant organization in the last three years before the call for proposals. Project monitoring Project implementation monitoring Article 5 of the Implementation Agreement defines the Operator s responsibilities regarding monitoring of sub-project implementation. These include: - The end-recipients shall submit quarterly reports and a completion report ( ), - The operator shall further define and implement a monitoring and reporting structure which gives the Operator sufficient on the activities in the sub-projects, - For macro grants, the Operator shall conduct on-site auditing visits of each end-recipient to verify proper use of funding. The auditor will randomly select and check at least 10 % of all receipts, - For micro grants, the Operator shall conduct on-site auditing visits of at least 10% of endrecipients ( ) - The Operator shall conduct desk auditing for all other end-recipients. Each end-recipient will be requested to present proofs of particular expenses selected randomly by the Operator, in order to audit 10% of all expenses of each end-recipient. If any discrepancy is found, a complete financial audit shall be carried out. Based on received and testing of sample projects 3 we noted the following: The sub-projects were provided with guidelines on reporting and standard forms of reports. The sub-projects in each priority sector submit quarterly reports to the responsible Partners. The reports are standard form reports in which the sub-projects provide on financial progress - payments made (the report contains details of financial/accounting documents in each budget line). The reports are sent by and also contain narrative about physical progress sample projects (please refer to Attachment no. 1 for the list of sample projects). 31

15 The quarterly reports are reviewed by the respective Partners and the Operator. Exchange rates. The financial progress is reported by the sub-projects both in HUF and EUR the sub-projects use the exchange rates that were applied by the bank in the installment transfers from the Operator (the Operator transfers the advance payments from a EUR account to a HUF account of the sub-project). The Partners and the Operator also use Interim and final report evaluation sheets of sub-projects which contain on: financial data (budgeted, reported, approved), list of checked documents, evaluation of the implementation of the project comparing to the originally planned/modified goals, main activities, indicators and results; evaluation of the financial implementation of the project comparing to the originally planned/modified budget; recommendations on the approval/rejection of the interim/final report and the amount of final payment/payback. The Operator aggregates about submitted reports in one file. The file serves as a database of sub-projects, where about the beneficiary and the project is stored. The file also contains data on when the reports were approved, the deadlines for the following reports, payments made, dates of monitoring visits, amendments to grant contract. The file is part of the Operator s quarterly reporting to FMO. The Partners compare the total payments by activity to the total budget in the sub-projects quarterly reports (which are cumulated in each quarter). These are done in electronic form only. The Partners also perform on-the-spot visits and the visits are documented on standard form reports. Ökotárs Most often the visits are carried out by Program Manager (Ökotárs Director and one more employee of Ökotárs also sometimes participate in on-the-spot visits) and standard form reports (Site Visit Report Sheet) are issued from the visits. The reports contain regarding the current status and progress of the project, main findings and impressions (of the Program Manager), status of the use of the grant, issues and possible problems related to the budget and whether the expenditures related to the NGO Fund grant are handled separately in the accounts and list of documents checked and related findings. We were not provided with procedures/guidelines regarding on-the-spot controls. We were informed that the Ökotárs personnel discussed together what should be verified on-the-spot. Autonómia Program manager and project assistants carried out monitoring visits regularly. Each project was visited at least once. Demnet Program leader and project assistants visited every macro project at least once. The micro projects were only visited when the visit was considered by Demnet as reasonable and necessary. Demnet visited project events and there were monitoring visits as well, when the physical progress and financial implementation of the project was controlled, and sample invoices were checked onthe-spot as well. Kárpátok Program leader and project assistant visited every macro project 1 or 2 times. More than 90 % of the micro projects were visited on-the-spot. 32

16 Eligibility of expenditures In accordance with Article 3 of the Implementation Agreement Description of sub-projects the eligibility of costs is defined as costs are eligible if they are justified, necessary and appropriate, and directly related to the sub-project s long term effects and planned results. ( ) The Operator shall develop a more detailed description of eligible costs and make it on its website no later than at the opening of the first call. During the audit we were not provided with procedures/guidelines regarding the verification of eligibility of costs by the Operator or the Partners. The sub-projects were provided with guidelines on what were the eligible costs and what source documents were sufficient to confirm the costs were incurred (compliant with FMO guidelines). Based on interviews and testing of sample projects 4 we observed the following regarding eligibility of expenditures: Per received, the Operator submits to FMO quarterly reporting packages comprising of a narrative and Excel sheets with projected cash flows, management costs and sub-project progress status. PIRs are prepared by FMO based on the quarterly reports. We verified procedures performed by the Operator and the Partners based on the reports submitted by the sub-projects, i.e. we verified whether the Partners checked at least 10% of all expenses in the sample projects and we selected sample expense items for our testing of eligibility of sub-project expenditures and re-performed expenditure eligibility check. The Partners and the Operator select expenses to be checked from all the costs reported by the sub-projects in the quarterly reports and request copies of financial/accounting documents supporting the selected costs. The Partners and the Operator prepare Excel files with the selected expenses and perform their verifications in the files. The results of our testing showed: Ökotárs Per received, Ökotárs at the end of each sub-project implementation selects at least 10% of invoices/cost items from all the costs reported by the sub-project in quarterly reports and requests copies of financial/accounting documents supporting the selected costs. We were informed that Ökotárs prepares an Excel file with the selected cost items and marks verified items with OK or with a short comment. The checks are performed by the Program Manager with help of interns. We were not provided with any written checklists or alike that would confirm the verifications performed. Results of testing of the 5 sample projects in the environment priority sector show that: Ökotárs requested copies of at least 10% of invoices/cost items from all the items reported by the sub-projects in quarterly reports with exception of one case where they checked 7% of invoices. For each of the projects, an Excel sheet with the selected documents was prepared. The documents provided by the sub-projects were uniform and we noted no issues with eligibility of the items selected for our testing. Autonómia In our sample of 5 projects in the social priority sector, in three cases less than 10% of expenses were checked sample projects (please refer to Attachment no. 1 for list of sample projects). 33

17 Per received, Autonómia used the following selection criteria for expenditures testing: at least 10% of the invoices, invoices with high values, at least one invoice from each budget line, at least one invoice from each quarter, own contribution (in kind and in cash as well). In the case of sub-projects where less than 10% of expenses were checked Autonómia explained that in the projects there were numerous invoices of low value and Autonómia focused on invoices with higher values. We were informed that no further checks were planned to achieve the 10% of expenses checked. We were informed, that Autonómia hired also interns to help the work of program manager (e.g. to check the eligibility).we noted no issues with eligibility of the items selected for our testing. Demnet In our sample in each case at least 10% of invoices were checked. We were informed that in case of problematic projects all invoices were checked. Per received, Demnet used the following selection criteria: at least one invoice from each budget line, invoices with high amounts, own contribution (in kind and in cash as well), invoices paid after eligibility period, in-kind contribution (checked there were no cash transfer, whether volunteer work was supported with volunteer agreement, timesheet, reasonable fee). The verifications performed were not documented. We noted no issues with eligibility of the items selected for our testing. Kárpátok In our sample in each case at least 10% of invoices were checked and in the case of problematic projects they checked all invoices. Per received, Kárpátok used the following selection criteria: at least one invoice from each budget line, at least one invoice from each quarter, invoices with high amounts, own contribution (in nature and in cash as well). The verifications were not documented. We noted no issues with eligibility of the items selected for our testing. Findings/conclusions Monitoring of the implementation of sub-projects and reporting of sub-projects to Fund intermediaries is transparent and consistent among the Partners and the Operator. The monitoring visits conducted are compliant with the Implementation Agreement, i.e. the required % of projects to be visited was achieved. There are no guidelines/procedures for performing on-the-spot visits. Standard reports are used by all the Partners. 34

18 There are no guidelines/procedures for verification of eligibility of costs and the present design of the verification process does not ensure appropriate audit trail for the checks done. In the sample projects not in all cases 10% of all expenses was verified by the particular Partners. We found no issues in the sample projects regarding testing of eligibility of expenditures. It was not defined in the Implementation Agreement whether the audit of 10% of all expenses of each end-recipient regarded the number of expenditure items or their value. Financial management, control mechanisms and reporting In accordance with the Implementation Agreement the Operator shall provide the FMO with quarterly reports and submit its invoice with the quarterly reports. In accordance with Article 8 of the Implementation Agreement the Operator shall keep full accurate and systematic records and accounts ( ) Such records must be kept for a 5-year period after the final payment made under this Agreement. These documents comprise any documentation concerning income and expenditure and any inventory, necessary for the checking of supporting documents. Based on interviews and testing of sample projects 5 we observed the following: The Partners and the Operator maintain separate accounting for the EEA Grants project and separate bank accounts for the EEA Grants re-granting. Public procurement We were informed that there were no public procurement proceedings in any of the sub-projects managed by the Partners and the Operator, i.e. in sub-projects in all priority sectors. Per received, the threshold above which public procurement is required by national law is equal to HUF or EUR. The highest amount of re-granting that could be awarded to applicants was EUR. Per received and according to the budgets of the sample sub-projects tested, the single budget lines were lower than the EUR threshold, except for personnel costs. Reporting to FMO Ökotárs submits to FMO quarterly reports which comprise of a narrative of activities performed in a given quarter, management costs of all Partners and on sub-projects. Ökotárs keeps accounting records and separate accounts for the EEA Grants project s direct costs. Overhead costs are recorded on general accounts and then allocated to particular projects using the workload of personnel, i.e. % of work done for the particular project in the total workload. Ökotárs financial statements are audited by external auditors annually. We were informed that Ökotárs is not required to have regular external audits by law. We verified that Ökotárs transfers payments to its Partners (management fees) and all the subprojects (re-granting) and we also verified on the sample of 20 sub-projects that the exchange rates quoted in Ökotárs quarterly reports on the status of sub-project implementation sent to FMO were the exchange rates stated on bank statements (the same exchange rates were used by the sub-projects in reporting to the Operator and the Partners respectively, their project costs in EUR) sample projects (please refer to Attachment no. 1 for the list of sample projects). 35

19 For Ökotárs we tested the quarterly reports from June 2008 to vember 2010 and observed that: Reports with management costs are prepared by the Ökotárs Director. We were informed that data regarding the Partner s management costs is filled in by the respective Partners and is not verified by Ökotárs. Management costs of Ökotárs: Exchange rates. We verified that exchange rates used in the quarterly reports (June 2008 to vember 2010) are the reference monthly rates published by the European Commission. Personnel costs (without expert fees). We verified personnel costs reported in October 2010 in detail (i.e. reviewed source documents) and noted that in case of Programme director, Financial manager and Programme assistant ca 50% of the employer s total salary cost is allocated to the project. We were informed that this allocation is based on % of a person s total work-time spent on EEA Grants project. However, Ökotárs does not maintain e.g. timesheets with time spent on different activities/projects. Moreover, the personnel costs reported in all quarterly reports for 2008, 2009 and 2010 do not reconcile with the costs actually incurred. We were informed that Ökotárs prepared estimation of personnel costs for each year and divided it by number of months to arrive at average monthly personnel cost which was then input in the quarterly reports. We reviewed the estimates prepared by Ökotárs and in case of 2008 and 2010 the estimates and amounts quoted in the quarterly reports were different, e.g. quoted amounts are slightly higher than the estimated in case of Programme coordinator. Other direct costs. We verified direct costs of the EEA Grants project (i.a. travel costs, website maintenance) and reconciled to source documents. We noted no issues. Overhead costs. We were informed that overhead costs are allocated to the EEA Grants project based on number of full-time posts (i.e. full-time posts total allocated to EEA Grants project compared to total full-time posts ca 43-47% depending on year). Per received, the overhead costs reported to FMO were the estimated overhead costs allocated to EEA Grants at the beginning of the year did not exceed the budget. We were informed that the overhead costs were underestimated at the time of budget preparation. Autonómia Per received, Ökotárs and Autonómia signed a 'contract of services' and not a grant contract. According to Autonómia s opinion they accepted to carry out certain tasks and if they fulfill the tasks they are entitled for the whole fee. Therefore no detailed supporting documents exist for the management costs (we verified May and vember 2010 in detail). Demnet Dement reports fixed fee in the quarterly reports for management costs, i.e. fees in EUR agreed in the project budget. Then the fees in EUR are calculated into HUF using the European Commission monthly reference exchange rates (from December 2008 to vember 2010, in June vember 2008 exchange rate of 251,43 HUF was used, for which we were not provided with an explanation). Hence, the amounts in HUF do not reconcile to source documents (we verified in detail management costs in September-vember 2010). Kárpátok We verified management costs for October 2009 in detail. Expenditures relating to management fee were supported by source documents. 36