The control system of EU funds is built at a multi-level structure, where the most direct component is the beneficiary’s own internal control process. The so-called first level control ensured by the Managing Authority and Intermediate Body, is usually carried out in relation with the beneficiary's financial reporting in the course of project implementation. The second level control (audit) is carried out by the Audit Authority, which in Hungary is the Directorate General for Audit of European Funds (EUTAF).

The EUTAF is auditing the expenditures certified to the European Commission, therefore its scope includes the accounts of previous years too. It is important to know that regardless of the first level controls’ results further irregularities can be detected and, consequently, financial corrections can be established; moreover the audit scope can be extended to additional periods (e.g. in case of public procurement irregularities, or not adequate accounting processes). The second level control covers all relevant areas of expertise (finance, accounting, legal, procurement, engineering, IT, research, etc.), and involves both document-based checks and on-site inspections. In case irregularities are detected the Audit Authority establishes financial correction (for completed and closed projects as well), in line with European Commission guidelines. The rate of the financial correction ranges between 5-100%, but in most of the cases it is 25%. During the reconciliation phase of the audit report the auditee has the opportunity to comment the audit findings and may tempt to delete or reduce the financial correction, but only based on adequate substantiation and due justification.

In order to reduce the risk of financial correction at the second level control our company provides pre-audit services. Given that Hydea / AESA has been working closely with EUTAF in European territorial cooperation programme audits since 2011, we are acquainted with and regularly use the audit methodology applied. We are therefore capable to perform model audit missions in the form of a pre-audit operation with reliable accuracy, and hence can prepare the beneficiary to deal with potential audit observations. Our pre-audit service includes the following activities:

• Identification of areas at risk and selection of project activities, audit items;
• Reviewing project documentation, preparation of working documents;
• Administrative control of project implementation reports;
• Audit of accounts;
• Audit of procurement procedures below threshold;
• Audit of public procurement procedures;
• Technical document-based checks and on-site inspections;
• Preparing pre-audit report supported by checklists:
  • description of the irregularities detected;
  • determination of the expected financial corrections;
  • suggestions to repair irregularities or to reduce financial correction rates.