Cendrine de Buggenoms Your ref. 11/09/2023 No (2023)6139087
European Commission,Joint Audit
Directorate for Cohesion – DAC.5 -
Audit V Our ref. 20.09.2023 No 10-2/5945-1
National system audit report JKS-
49/2022 (Audit No
NARDAC5EE2428)
Dear Ms Cendrine de Buggenoms,
Thank you for the questions. Please find the answers of the Estonian Audit Authority below:
Question 1.1 - From the 1st of April 2020 two rather large IB-s were merged into the SSSC
– Foundation Archimedes (support measures related to higher education) and Foundation
INNOVE (support measures related to youth education etc). This included the re-
arrangement and merger of control systems. Also, public procurement controls were re-
arranged, buy centralizing the public procurement controls into one separate team within
SSSC, carrying out only procurement verifications.
Therefore, as SSSC was enlarged by mergers and re-arranged from the viewpoint of
procurement controls we decided to focus on the procurement controls that were carried out
post April 2020 and thus illustrated the situation after the mergers in a new setup of SSSC.
However, when auditing the sample, it became evident that some procurement controls were
still started before April 2020 (but showed up in our sample as post that date). And also, it
became clear that post April 2020 still some procurement control practises were still
continuously improved and thus immediate controls after the April 2020 had still some
mishaps that were avoided in the case of later controls.
This was one of the contributing factors to extend the audit sample with focusing only on
controls executed post January 2022.
Question 1.2 - Out of procurements verified before the April 2020 ended up in our sample
six, namely procurements No: 193284, 202189, 198237, 217433, 198843 and 199174. This
is mentioned also in on report on page 13. All the rest of the 23 procurement controls were
carried out post April 2020. In addition you can see from Annexes 2 and 3 (pages 48-49,
blue and green part) which procurements are controlled before January 2022 and post
January 2022.
Question 1.3a - In the previous reporting period, AA identified irregularities mainly in
relation to the implementation of the ERDF and CF. The infringements were to a significant
extent related to large construction procurements. In view of the nature of the previous
infringements and the distribution of EU funding, AA considered it expedient to include in
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the scope of the audit precisely those public contracts relating in particular to the financing
of construction and infrastructure. Other risk factors were not as critical, according to AA.
AA identified measures involving riskier procurement and selected a risk-based sample.
Procurement controls for less risky measures were included in the population, from which a
random sample was taken. The random sample consisted mainly of supplies and services
procurement.
Question 1.3b - In general this would be true. However, in case of negotiated procedures
that are controlled by the SSSC we have not identified irregularities. We have paid a
separate attention to the issue. In June 2021 we analysed 10 negotiated procedures verified
by the SSSC and came to the conclusion, that in all cases the verification made were
adequate and additional issues were not detected by the AA. Prior audits that have
encountered negotiated procedures and where verifications have been made by the SSSC
also have not revealed undetected errors. Thus, despite the typical risk, we decided not to
focus on the negotiated procedures in the framework of the audit in hand.
Question 1.3c - According to SSSC rules of procedure, procurement checks in the EE-LV
programme are carried out by procurement experts. However, before April 2020, the control
system of SSSC was different – the consolidation of the implementing units was not
completed, and the roles and resources were not yet fully in place. Among other things,
there were situations where procurement experts did not check public procurements in the
EE-LV programme. However, the AA's primary EE-LV sample was prepared precisely on
the assumption that the scope of the audit should be those carried out by procurement
experts on the basis of SSSC rules of procedure.
In the course of the audit, it became known that for some procurement controls, the
controller had not been a procurement expert. Notably, some of the system extract boxes
submitted to the AA erroneously reflected inaccurate data. Therefore, during the audit,
additional data analyses had to be carried out and an additional sample had to be prepared.
Only procurements that have been verified only by SSSC procurement experts under the
new control system and the current rules of procedure were included in the additional
sample of EE-LV.
Question 1.3d - AA considers it necessary to point out that, in both cases, there are two
framework contracts by the same beneficiary, the verification of which was not the subject
of any significant complaints to SSSC during the audit.
The auditors did not take into account the infringement of contract No 231876, since it was
so small (below 20 000 EUR) that SSSC’s procedures did not required for the examination
of so small mini-competitions. However, as the audit identified a financial irregularity, the
report provided for information.
As regards contract No 191359, SSSC, although it found an infringement as a result of its
procurement control, did not correctly initiate infringement procedures in respect of the
same framework contract. This process has changed in SSSC to this day.
The nature of the issue was again related to smaller expenditure and the use of financial
value steps / levels in the mini procurements. Namely, in case of smaller purchase it was
unclear how the winning bid in the mini-competition is selected. An thus the issue. But
again, the example in question related to the sum of 14 000 EUR approximately.
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As one of the issues related to the case that was legally below the control limit and as second
is a small one and by now amended in the control system thus we did not see a major issue
with the supply contracts.
Question 2.1 - That is correct.
Question 2.2 - In the context of the audit, the AA received reasonable assurance that
SSSC’s current control system is effective and that it detects a significant number of errors.
And more in time we same forward the better the situation eg continuous improvement of
the procurement controls was clearly visible.
The AA agrees that 13.79% seems significant in terms of numbers, but alongside this, it is
also important to take into account the nature of the four identified procurement violations.
There are 3 construction procurements related to the shortcomings of procurement controls.
A significant part of the financial impact is due specifically to the corrections related to the
amendments to the two construction contracts. It was in their case that the understanding of
SSSC and AA regarding the legal bases was slightly different.
At the moment, SSSC is overestimating the amendments to the contract in
Procurement No. 201722 (and it is not excluded that the final conclusion on the
financial impact will change).
In the case of procurement No. 249829, the infringement procedure has been initiated
and SSSC is currently assessing the merits of the recovery.
In the case of procurement No. 218169, the recovery has been carried out and the
control system has already been improved.
With regard to service procurement No. 191359, we described above that the
infringement was not actually related to the procurement control procedure.
In this respect, SSSC has initiated infringement proceedings and changed its procedure.
According to AA, all four contracts concerned dissenting opinions, in particular as a result
of differing interpretations of public procurement law, and not a very obvious control
deficiencies within the SSSC. None of the other aspects of the procurement control could,
according to AA, be the subject of any significant complaints against current control system
of the SSSC.
Moreover, in the big picture, the AA audit confirmed that the procurements controlled under
the current system did not contain any previous errors. The SSSC has introduced a highly
effective preflight function for unpublished procurements, which very much prevents many
possible violations. For procurements that have already been published, the SSSC's error
detection capability is high, according to AA. The AA did not detect that the system
introduced following the SSSC consolidation process should not comply with Category II.
Based on the foregoing, AA was able to draw the overall conclusion that the SSSC's current
control system is working, but needs some improvement. We identified weaknesses in the
individual procurement controls, the impact of which has been assessed on Key
Requirement 4 and the performance of the SSSC system is moderate, and these
shortcomings can be easily corrected by implementing the recommendations.
Question 2.3 - In the referred points the background is twofold: in some cases, the small
change in the payment terms is not the only detected issue. And secondly, AA has been very
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cautious about the formal changes in the procurement terms – previous experience in the
past, with EC auditors as well, has shown that also seemingly small formal changes and
deviations can possibly constitute as a unacceptable change. Thus, the strict approach.
In section 4.5.2 of our observation, we found that:
(a) the letters of guarantee were submitted almost two months later than foreseen,
(b) the advance was made to a lower extent than foreseen, and
(c) the last payment was supported almost three months earlier than foreseen.
According to AA, those circumstances, taken as a whole, must be regarded as a material
amendment to the contract. In isolation, according to AA, there would not necessarily have
been a material contract amendment. The question must therefore be answered in the light of
all the elements of the infringement taken together. The mere knowledge that the provisions
of the contract were not to be complied with could probably have broadened the circle of
tenderers. If the tenderers had known that the letter of guarantee could be submitted for a
shorter period and that the last payment was received in advance, more bidders could
potentially have participated in the procurement. Moreover, the nuances described above
changed the ratio of contractual obligations in favour of the contractor. However, as
mentioned, a change can only be considered significant in the aforementioned set of
elements.
In point 4.5.3 of the observation, we found that the last payment represented a lower
percentage of the contract fee than was provided for in the contract provision. Also, the last
payment was made earlier than the provision of the contract provided for. Although we took
the view in the audit report that this is a significant change to the contract as a whole, in the
course of the follow-up to the audit, we have changed our position. SSSC carried out an in-
depth analysis of the circumstances surrounding those payments, after which it became clear
that they were an infringement, but not a material infringement with no financial impact.
Following the audit, the AA became aware of circumstances related to dates, compliance
with contractual provisions as well as financial proportions, as a result of which AA no
longer considers the amendment to be material. It follows from the foregoing that contract
No 198843 also does not involve a correction of 25% or an ineligible cost of EUR 82 038.56
(but a lower correction of 5% as referred to in point 4.1.5 applies – different basis for the
correction, not the lower final payment).
Question 3.1 - The initial deadline set for SSSC to carry out follow-up activities and
implement the recommendations is 02.10.2023 (which can be extended). To date, it is
already known that there is no significant modification of the contract in connection with
contract No 198843 (point 4.5.3 of the report) eg the issue mentioned in the previous pint
where we dropped the topic related to the lower final payment.
There is a potential possibility that the financial impact will also be reduced in the case of
infringements of procurement Nos 201722 (4.4.1) and 193284 (points 4.4.2 and 4.5.2).
However, the corresponding knowledge has not reached AA to date, since the deadline
given to SSSC has not arrived.
Question 3.2 - As mentioned in the previous point, the initial deadline for follow-up and
implementation of recommendations will come on 02.10.2023 (which can be extended). By
that time, we expect SSSC, among other things, to provide information on the form and time
period in which SSSC intends to randomly verify previous procurements. Only then can the
AA draw a conclusion about the extent to which and with what time frame there is a basis to
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carry out additional audit. Here we naturally have to keep in mind the closure process as
well.
Question 3.3 - The overall conclusions apply to both OPs. The procurement control
monitoring system, including policies, procedures and roles, was finalised only after the
consolidation of all implementing entities within the SSSC. Although today's system works
for both mainstream and EE-LV, we detected significant errors in procurements controlled
under the old system in both cases.
Yours sincerely,
(signed digitally)
Kaur Siruli
Head of the Financial Control Department
Audit Authority
Henry Kibin +372 5885 1356
[email protected]
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