Audit: key to NextGen management and control

Pablo Merello
insight featured image
During the last few weeks, the European Funds and more specifically the Recovery and Resilience Mechanism (RRM) has been immersed in a heated public debate, mainly affected by the political sphere. There are many aspects to be taken into account in the management and evolution of this aid mechanism.

From a political point of view, the First Vice-President of the Government, Nadia Calviño, has announced that she will ask Brussels for the payment of the third disbursement before November 11. Recently, several news items have appeared regarding the possible risk of the European Commission freezing the next transfer of funds, as one of the basic milestones has allegedly not been met: the implementation of an audit and control system for the distribution of the money (specifically, milestone number 173 of the Recovery and Resilience Plan, in which the Ministry of Finance and Public Function committed to have the computer system for the monitoring and control of the plan in place by the last quarter of 2021).

Logically, in this context of uncertainty, the reinforcement of the role of auditing as a mechanism for control and verification of the MRR is once again of particular relevance. The first thing to remember is that a large part of the Next Generation funds are aimed at private investment projects, subject to a series of mandatory requirements, which are included in the call for proposals and/or in the concession resolutions. Private companies must accept these commitments and understand the obligations to which they are committing themselves before signing them. Understanding the scope of the obligations to which they commit themselves when accepting the grants will be essential for their subsequent correct accreditation and to avoid problems in the event of possible controls by the competent bodies.

Although it is true that there are many steps and levels of control within the Public Administration, the control and verification mechanisms are not new, but they are necessary to ensure the correct use and enjoyment of aid, based on the current regulatory framework.

Secondly, it is important to emphasize the public nature of the funds. This public nature highlights the importance of having transparent control and auditing processes, where good financial management by the companies will make the difference in optimizing the funds granted.

On this point, the experts agree on the need for companies to develop expertise and capacity to apply for aid, either through internal knowledge within the staff or through expert help from companies specialized in this type of advice. On their road to recovery and growth, companies must be able to adapt to regulatory requirements, as well as demonstrate a mature capacity for management, auditing and traceability of their business and operations.

At the European level, it should be recalled that one of the key conditions of some of the Member States for approving the enormous disbursement of funds was precisely to strengthen control mechanisms over the processing and destination of the funds. In response to these requirements, the Recovery, Transformation and Resilience Plan of the Spanish State includes a specific control and information framework, which consists of two fundamental pillars: on the one hand, a control system different from that of the previous structural funds (on this occasion, the objective is more aimed at ensuring the reliability of the milestones and objectives, as well as preventing irregularities, for example, those related to fraud); and on the other, it is based on the control mechanisms already in place in the Public Administration, but adapted and aimed at protecting the financial interests of the EU.

We are, therefore, faced with a clear concept of supervision, management, review and comprehensive monitoring, which guarantees the best control practices in global terms. The figure of the audit, both at national level on the beneficiary companies, as well as from the European control bodies in their supervisory mission with respect to the Member States, exerts a notable and direct influence on the obtaining of these aids. The sense of this lies in the fact that the more thorough the verification process of the requirements for financing, the greater the guarantees of compliance that will be deposited in the business fabric and in the correct use of the funds received.

In short, the executive function linked to the audit is essential in the progress of the allocation and distribution of the funds provided to the Spanish State, and is one of the main tools for guaranteeing the reduction of risks to companies and, consequently, their structural soundness in the future.