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Practicalities in the Financial Management of FP7 projects
- An outlook to audits and Horizon 2020 rules
Gabor KitleyChief Executive Officer
Europa Media
Is the FP7 Financial Audit really a nightmare?
No, but it can go wrong…..
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Let’ see if you know the basics
• What is eligibleWhat is eligible• Exceptions?
• What is direct/indirect• What changed after 2011?
• Planning and preparationO i ti ’ t / d• Organisation’s system/procedures
are set up?
Eligible Costs
Eligible costs: Actual, except….
I d d i th j t t Incurred during the project, except…. Incurred at/by the Beneficiary, except…. In accordance with the beneficiary’s usual
accounting and management principles, except… Recorded in the accounts of the beneficiary Recorded in the accounts of the beneficiary,
except… Used for the sole purpose of achieving the
objectives of the project – NO EXCEPTION!
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Direct / Indirect Costs
NO COST MODELS NO COST MODELS –– ONLY FCONLY FC
Direct Actual CostsDirect Actual Costs (that can be attributed directly to the project)
1 Personnel costs (can also include “in house consultants”)1. Personnel costs (can also include in-house consultants )
2.2. SubSub--contracting/Third Party Assistancecontracting/Third Party Assistance
i.e.: Costs for Certificates (CFS, CoM)
3. Other Direct Costs:
Travel costs for personnel working on the project
Costs for consumables
Other costs
Purchase costs/renting costs of durable equipment((depreciationdepreciation))
Indirect costsIndirect costs
All costs that cannot be identified as attributed directly to the project (the “running” costs: electricity, heating, telephone, internet etc. –also called “overheads”)
Internal procedures (roles and responsibilities) CFS needed? Budget spending planning (reporting period/work package level)
Planning – organisational level
g p g p g ( p g p p g ) Is this the first FP7 project of your organisation?
FP7 rules prevail on exchange rates, timesheets, overhead, etc.
National/National/organisation rules to be followed on Equipment Travel documentation Overtime, etc.
Justification of costs upon work package/activity Justification of costs upon work package/activity How is your accounting software?
Identification of project related costs Cooperation between financial and technical officers
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Project management – online platform? Excel sheets? Using FP7 management tools? (market) 6-monthly internal reporting? – develop the template (part of
Setting up the system
6 monthly internal reporting? develop the template (part of project tool box e.g.)
Who needs training? - guidelines
Time recording system All productive hours need to be measured, not just the project
related ones! Name of the project (id), Name of the person, Number of
hours, activity/WP identification, signature, authorisation, date, comments
T i l i t k i tiTypical mistakes in reporting and financial management
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Time recordingsystem
Timesheets
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Time recording
Typical Mistakes – Personnel
Costs claimed for people not directly employed nor paid by the beneficiary.
Personnel costs claimed based on a budgeted,Personnel costs claimed based on a budgeted, standard, estimated rates.
Average hourly rates used which differs significantly from actual ones.
Billable hours are used instead of number of workable hours.
For the calculation of the number of productive hours on
Source – EC
the project, including time spent related to maintaining general expertise, administration and/or sales.
Absence of timesheets. Timesheets not approved by a project leader.
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For the calculation of the hourly personnel rate, by dividing the payroll costs by the number of productive hours on the project (only) instead of by the total
Typical Mistakes – Personnel
hours on the project (only) instead of by the total number of productive hours.
Personnel costs claimed include overtime hours for which staff have not been paid.
Personnel costs claimed include the remuneration of an in-house consultant hired through a contract with a consultancy firm (no labour contract, no direct y (instructions, not 100% on the premises, commercial rate, etc).
Overhead costs included in the personnel cost calculation.
Source – EC
Absence of detailed calculation of direct costs
A few examples based on ENVIRES
Project information:
Project Acronym: ENVIRESProject GA: 221846Funding scheme: Collaborative Project
Project duration: 36 monthsProject starting date: 1st March 2010Project end date: 28th February 2013Project end date: 28th February 2013
Number of reporting periods: 3Current reporting period (for this Workshop): 01/03/2010-28/02/2011
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How much is eligible?
How much is eligible?
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How much is eligible?
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Other Typical Mistakes
Incorrect conversion in EUR. Costs claimed include elements not incurred andCosts claimed include elements not incurred and
recorded during eligibility period. Costs include excessive costs and uneconomical
expenditure (travel). Costs not relevant to the project (hospitality costs,
entertainment costs). Costs cannot be substantiated by proper audit trail
Source – EC
y p pand full supporting documentation (Invoices, tickets, timesheets).
Legal obligations from the GA (Annex II):
The Commission may at any time during the implementation of„The Commission may, at any time during the implementation of the project and up to five years after the end of the project, arrange for financial audits to be carried out, by external auditors, or by the Commission services themselves including OLAF”
„The Commission may initiate a technical audit or review at any „ e Co ss o ay t ate a tec ca aud t o e e at a ytime during the implementation of the project and up to up to five years after the end of the project.”
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Scope of the financial audit: Done at the Beneficiary’s level, to control, (cross-)check and
evaluate its financial reports (Form Cs) submitted to one or more FP7 Grant Agreements
Can be done directly by the European Commission (i.e. DG RTD M1) or by a subcontracted body (i.e. Deloitte, Polaris International, etc.) representing the EC; or jointly by the ECA/OLAF and the DG RTD (…)
Auditors are generally from the Beneficiary’s country, even if they work for the EC in Brussels, or…
Preferable done after the project closure, or any time during the project’s lifetime, but after the acceptance of the first periodic report. p j , p p p
In a nutshell: to control whether the reported project costs are real,
actual and were needed to the project (i.e.: not a value-for-money normally)
To remove any systematic (!) and non-systematic errors from the reported (thus reimbursed from the taxpayer’s money) expenditures
The EC’s perspective on Financial Audits
p y y) p To help the Beneficiary in the correct calculation and
classification of the project’s costs To analyse and evaluate the relation between the
cost(s) and the project To overview the Beneficiary’s general accounting
systems To validate the Beneficiary’s project specific To validate the Beneficiary s project specific
accounting and the relevant internal policies (i.e. travel policies, time-recording, etc.)
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Financial novelties
Simplified cost reimbursement system withenhanced use of lump sums flat rates and scale of
Expected novelties – Financial (1)
enhanced use of lump sums, flat rates and scale ofunit costs.
New forms of funding such as pre-commercialprocurement, and prizes.
Paid but not recoverable VAT shall be consideredas an eligible cost.Additi l ti b li ibl t EUR Additional remuneration may be eligible up to EUR8,000 per year and per person.
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Non-profit or SME participants EU funding up to 100% of the direct eligible costs
Non-profit or SME participants using actual indirect cost calculation method EU f di t 70% f t t l li ibl t
Expected novelties – Financial (2)
EU funding up to 70% of total eligible costs.
Industry participants EU funding up to 70% of the direct eligible costs
Industry participants using actual indirect cost calculation method EU funding up to 50% of total eligible costs.
Source: European Commission
Indirect eligible costs a flat rate of 20/25% (?) of thetotal direct eligible costs excluding subcontracting
Expected novelties – Financial (3)
g g g Actual indirect costs according to the beneficiary's usual
cost accounting practices reimbursement rates forfull costs calculation shall apply
Indirect costs may be declared in the form of a lumpsum or scale of unit costs when provided for in the workprogramme or work plan.
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The grant agreement shall contain: (a) the minimum requirements for the time recording
Expected novelties – Financial (4)
system as well as; (b) the option to choose between the fixed number of
annual productive hours and the method for establishing the number of annual productive hours to be used for the calculation of the hourly personnel rates taking account of the participant's usual accounting practices.
CFS The certificate shall only be submitted when that CFS The certificate shall only be submitted when that amount is equal to or greater than EUR 325 000 at the time of claiming the payment of the balance of the grant.
Official EU updates, timeline, policy framework:
Stay Updated!
http://ec.europa.eu/research/horizon2020/
Stakeholder views, discussions, comments:http://www.linkedin.com/groups/Horizon-2020-News-Views-4270510?trk=myg_ugrp_ovr
Practical updates, comparative assessment vis-à-vis FP7: http://www.eutrainingsite.com/eu_funds.php
Reconsider system/procedures!
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Good luck and Thank you for your attention!
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