13. (step 4.1) master- financial management of eu funded projects and external auditing

8/13/2019 13. (Step 4.1) Master- Financial Management of EU Funded Projects and External Auditing

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Are there any european programmes that I can claim more than )**+overhead rate and under which conditions?

What are the key reference documents that I need to be familiar fore%ective nancial management?

Are there any european programmes that the project coordinator takes asignicant nancial risk and if so. how this can be avoided?

1.2 Master nancial management of european projects

1.2.1 Reference material

0; - 0inancial ;egulation =>>1*) for *)@-**http11eur-le2!europa!eu1


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havefullled the conditions activities and achievements" for receiving thefunding. you are eligible to receive the funding without the claim of anycosts1e2penses!:ased on mi2ed from both4here are some$uropean 3rogrammes that for some costs you need to applythe Actual &osts;ule and for some others you can apply the 'um# (um

&ostsrule e!g! subsistence costs in missions"!$2change rate appliedhttp11ec!europa!eu1budget1inforeuro1inde2!cfm?


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4ravel (osts

4ravel costs are admissible only if they are directly connected to specicand clearly identiable project related activities!

4ravel costs should be related only to sta% therefore the names oftravellers should be consistent with the names included in the P&ta%Pbudget heading!

8on sta% members should be accounted for under the PCther (ostsPe!g volunteers" or P&ubcontracting (ostsP e!g subcontractors" budgetheadings!

3artners are required to choose the cheapest mean of travel. where thisis not the case a full e2planation should be provided!

#ire of cars ma2imum class : car may be used" or ta2i costs are eligibleonly if not e2cessive compared to other means of travel. or if there areother in/uencing factors e!g! time. e2cessive luggage not due to

e2cessive shoppingQQ but say for transporting dissemination material orproject publications. etc!"!

4ravel (osts Dustication

'etailed $2penditure sheet for each person . each enclosing

Invoices of 4ravel Agency

3lane14rain1:us ticket

0or planes :oarding (ard Invoice of (ar ;ental (ompany

4a2i receipts

8!:! All documents enclosed should be translated into $nglish and convertedinto $uro . specifying the currency conversion rate applied use the oRcial $one"3oints to remember

4ravel costs are admissible only if they are directly connected to specicand clearly identiable project related activities!

4ravel costs should be related only to sta% therefore the names oftravellers should be consistent with the names included in the P&ta%Pbudget heading!

8on sta% members should be accounted for under the PCther (ostsPe!g volunteers" or P&ubcontracting (ostsP e!g subcontractors" budgetheadings!

3artners are required to choose the cheapest mean of travel. where thisis not the case a full e2planation should be provided!

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4ravel costs should include transportation from your point of departuree!g! home or oRce" to your nal destination e!g! hotel. or meetingplace" and vice-versa!

&ubsistence (osts&ubsistence (osts include

Accommodation hotel invoice"

Feals breakfast. lunch and dinners! 8o e2tras. no room service"


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'etailed $2penditure sheet for each person enclosing

'eclaration for 'aily Allowance T #otel Invoices

Cr

;eimbursement &heet enclosing

;estaurant Invoices

#otel Invoice

:us ticket

4a2i receipt

8!:! All documents enclosed should have their main part translated into $nglishand converted into $uro. specifying the currency conversion rate applied usethe oRcial $ one"3oints to remember

$ach cost described in the report is supported by the relatedaccountancy documents

4he subsistence cost per day for each country is below the ma2imumceiling if e2ists" also taking into account the ,*+ o% related to the lastday of stay!

4he subsistence cost ceiling is reduced if the hosting partner covered thecost for the lunch 1 dinner!

0or $A(# sta% member you have enclosed a specic e2pendituresheet.including hotel invoicesL restaurants receipts. ta2i tickets etc! 8:$2penditure sheets for more than one person are not accepted!

0or each sta% member you have lled in a di%erent line in the report!

&ubsistence costs should be related only to sta%! 8on sta% members e!gvolunteers. consultants. subcontractors" should be accounted underSCther (ostsS or S&ubcontracting (ostsS!

$quipment 1I(4 (ost$quipment or I(4 costs include

$2penditure for the purchase. leasing or hiring of hardware and I(4equipment are admissible only if strictly necessary for carrying out theproject activities!

When choosing to lease. hire or purchase I(4 equipment. the leaste2pensive option should be chosen!

Cnly the portion of equipmentPs depreciation corresponding to the

duration of the action and the percentage of use may be taken into

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account see e2ample"!

$quipment used for project administration e!g! 3(s. laptop etc" normallyis covered by the PIndirect (ostsP budget heading!

4he total e2penditure for equipment can be up to a specic + of the totaldirect costs in some programmes!

$quipment (ost Dustication$quipment costs should be justied using

Invoice cost Ude#reciation rate calculation U durationrateU#ercentage of use

/e#reciation rate It depends on your national accounting rules butnormally it is 66.6+ per year

/uration Rate the no! of months. it was used in one year1) months.e!g! if purchased on month >. the duration rate is ,*+

Percentage of use #ow much it was used in a working day1month e!g!fully )**+". or partially e!g! ,*+. @*+. etc"

'eclaration demonstrating that the acquisition of equipment is necessaryand directly linked to the project

3oints to remember 8ormally the purchase of laptops and personal computers is considered

as indirect cost and not eligible under I(4 costs 4he I(41equipment cost claimed per project year varies depending on the

annual depreciation rate applicable normally )16" as well as on the + ofuse of this equipment was used in the project! e!g! an InteractiveWhiteboard with a cost of *** $;C was purchased on month 6 for thepilot training and in total for the )st year of the project it was used for,*+ during the )* remaining months till the end of )st year! 4hus. thetotal eligible cost to be claimed is ***U)16U)*1)"U,*+BE66 $; canonly be claimed for the Interactive Whiteboard at the nancial report forthe )st year!

'epreciation is applied according to the national accounting rules for thepurchase of any equipment below a specic threshold! e!g! in reece.any equipment with purchase price below ),** $; is not subject todepreciation. or for software purchases there is no depreciation

&ubcontracting $2penditure made to an e2ternal organisation who is not a member of

the partnership that carried out a specic and limited project activity.must be included in the P&ub-contractingP cost category!

&ub-contracting activities may include translation. interpreting. and

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printing services. carried out by e2ternal organisations who are notmembers of the project partnership!

4his e2penditure is only admissible when the personnel of the partnerorganisations does not possess the necessary skills1resources to carry outthe activity in question!

&ubcontracting (onditions It is not possible to sub-contract any of the fundamental project activities

so as not to distort the concept of the partnership!

&o. the beneciary cannot sub-contract the entire management andgeneral administration of the project and none of the partners can sub-contract all or a large part of the activities assigned to them!

enerally. the following rules regarding procurement may apply to

(ontracts with a value elo" 012. can be paid on a presentation ofan invoiceL

(ontracts with a value between 012. and 02.are subject to aprocedure involving at least three tenderersL

(ontracts between 02. and 03.are subject to a procedureinvolving at least ve tenderersL

0or contracts of a value over P>*!***. national rules with regard toprocurement apply!

N.B. As a rule of good practice, you are strongly advised to apply aprocedure involving at least three tenders/oers in allthe cases so as to

ensure the Economicfrom the ENArule.

&ubcontracting ;equirements0or sub-contracted activities the project coordinator should draw up anagreement with the sub-contractor!4he agreement should include the following information

4ype of sub-contract

&tart date and end date of the sub-contract

&um to be paid

'etailed description of the costs

Work programme or phases

3ayment procedure total sum. spread out etc."

3enalty clauses in the case that the agreement is not respected

3oints to remember

&ub contracting costs should be justied using

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Finimum number of o%ers as result from the call for tenders

(ontract with the specied details

Invoice

3roof of 3ayment i!e! bank statement"

sual &ubcontracting &ervices $2ternal quality evaluation

4ranslation &ervices

'evelopment of a website

'evelopment of an e


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Indirect (osts (ommunication costs phone bills. Internet. postage. etc"

Infrastructure costs rent. electricity. utilities. etc"

(onsumables oRce supplies. photocoping. etc"

Cperational sta% Accounting. legal department. security. etc"

3respecied overhead rateIn most of the cases. the overhead is specied in advance by theworkprogramme calls of proposals! It is normally up to a ma2imum + e!g K+.*+. or even up to >*+ in some programmes" of the direct costs e2cept of thesubcontracts! (an you understand why?"3re-agreed overhead rate4here are some programmes e!g in 03K" and calls for proposals that allow theorganisation to calculate the actual percentage of overheads that are

applicable for the operation of their organisation and justify it by their auditors!In this way. there are some big organisations that can claim even ))*+Qoverhead rate in their projects!


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forcharging indirect costs to the project *+ or >*+ depending onthestatus of the organisation"

/at rate of indirect costsIn the majority of the programmes. since there are diRculties in identifying theactual indirect costs e!g! overheads" a /at rate is used that is normally up toK+ to the budget or to joint cost categories!,! Indirect costs ineligible itemsIneligible items from the pool of indirect costs should be removed!

Farketing V sales costs

0inancing costs

$2change rate losses

(osts with no relationship to the project

>! 3ersonnel costs$stablish a correct hourly rate. i!e!K! #ours charged to the project'o not charge time when

4he person is on leave

Attending conferencesunrelated to the project

ensure a reliable time-recording for all employees charged in your $(projects

&ign and have the time charged approved

E! se of average personnel costIn some programmes and hopefully more /e2ible in the new programmingperiod *)@-**. it can be permitted to use average personnel costs for thecalculation of sta% costs!

4hey re/ect the usual cost accounting practice declared y teene4ciary

4hey are based on actualpersonnel costs as registered in the statutoryaccounts "itoutestimated or udgeted elements"

4hey e2clude ineligile cost itemsand any costs claimed under othercost categories toavoid double funding of the same costs"

4he numerof productive hours corresponds to usual management#ractice

=! &alaries of &F$ ownersIn order to avoid confusion and make things more comple2. &F$ owners maychoose to pay themselves a salary for their involvement in the project" basedon the $;A rule and claim this salary as a cost under the $( project! 4his is thepreferred and most common solution!

)*! 5A4

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(alls for proposals will indicate the date when communicating the evaluationresults to applicants! 8ormally this date must fall within si2 months of theclosure of the call! It will also indicate the date for concluding the grantagreements or notifying the grant decisions" to successful applicants!8ormally this date must fall within three months following the communicationof the evaluation results!

Fulti-annual work programsAbolishing the obligation to generate interests on Jpre-nancingJ and to returnthe interest4here will no longer be an obligation to generate interest on pre-nancing paidto grant beneciaries to provide them with cash for the action! $ven if interestis generated. it is not due to the $. neither is it counted as revenue of theproject!&hifting the emphasis of the grant system from reimbursing cost claims topayments for the delivery of results lump sums. /at rates. unit costsIn most cases. $ grants are reimbursements of a share of the actual costsincurred by the beneciary. which implies time consuming paperwork both forthe beneciary. who must itemise all e2penditure. and the (ommission. whichthen has to check the project not only against the delivery of the results. butalso against the eligibility of all the costs claimed!4he simplication concerns mainly the alternatives to actual costs. i!e! lumpsums payments against delivery". /at rates percentages to cover certaincategories of costs" and unit costs rates per unit. such as per person per day"

*.***!8o guarantees on pre-nancing can be asked for such grantsL legal status ofthe beneciary as well as the nancial and operational capacity will have to bedemonstrated by a declaration of honour without the necessity to providesupporting documents. and no certication will be required that the beneciaryis not in an e2clusion situation! Also. for such grants. the non-prot principle

does not apply!0urther simplication and /e2ibility in the grant rulesAt the moment the so-called cascading grants or sub-granting. i!e! grantsawarded by a grant beneciary" are capped by a ma2imum threshold for thetotal grant amount that can be sub-granted. thus limiting the scope for takingon board partners with specic e2pertise who had not been identied at thebeginning! 4his cap will be abolished!4he current rule that 5A4 can be made eligible if it is not recoverable under 5A4legislation is. in principle. kept! In addition. public bodies will be allowed toinclude 5A4 as eligible in actions in which they do not engage as publicauthorities!

4he denition of prot in a grant is claried. taking into account discussions

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misuse can henceforth be published!

1.6.6 +nno)ation

I4 4ools


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1..2 Aim of te on-te-s#ot audit

1..5 7o is mainly suject to on-te-s#ot audit

(ontractors receiving the largest amount of grantsAny organisation. selected randomly based on a representative sample

Crganisations selected on a risk-based approachCrganisations that there is high risk to present errors e!g! 8Cs. non-protorganisations and in general organisations with no shown capacity to presentsound nancial management of signicant european projects! 8ote. that auditresults have shown that most errors are to be found in personnel and indirectcosts!

1..6 *umer of Audits $on-te-s#ot%

Audits in general have been signicantly increased! 0or e2ample in ;esearchprojects in total around )6* on-the-spot audits have been conducted for the

nancial period ***-**> and for the period **K - *)6 around on-te-s#ort audits #er year!

1.. 8y "om

4he &ommissionits own departments X including C


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0raud detection and prevention

Cther 4ypes system. scientic1technical" 5erify compliance with certied methodologies

Identify and correct systemic problems

3rovide additional assurance on specic parts of the budget (omplement scientic audits

;epresentative audits &ample siNe )>) B =,+ condence level. + e2pected error rate. ,+

materiality threshold

0inancial &tatements as sampling unit

&amples from the whole population of each 's and $A

1..: 7at is )eri4ed;

In 4echnical AuditsIn 0inancial Audits

1..< Audit Processes

)! Audit &trategy and &election! 3lanning and 3reparation for the audit

Initial contact by the responsible auditor appro2! month before

e2amination on site to agree on dates and logistics (ollection of audit information internal and e2ternal"

0ormal Announcement including detailed anne2 on information anddocumentation to be provided a"prior to the audit e2amination on siteand b"at the time of the audit e2amination

;equested 'ocuments for the audit


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requested. that data be handed over in an appropriate form!

ma!e a)ailale directly to te &ommission all te detailed datatat it may re?uest=

ensure that the rights of the (ommission and the $uropean (ourt ofAuditors to carry out audits are e2tended to the right to carry out any

such audit or control on any third party whose costs are reimbursed in fullor in part by the $( contribution. on the same terms and conditions!

&upporting 'ocumentation ;equestedA! eneral Information about the (ontractor3rior)! (ontractorJs legal registration such as trade register abstract"! Crganisation chart with list of key oRcers6! 0inancial statements of the last ve years together with the statutoryauditors report if applicable"

Including general balance in $2cel format@! (ontractorJs accounting policies,! 'escription of cost1prot centre structure with an indication where theaction is carried out">!


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https11docs!google!com1le1d1*:@yslei&riM*6;Mnd850ha8$*1edit?uspBsharing3roject3eriod3eriod 'atesActivity

'irect or Indirect(ost (ategory3ersonnel or travel or $quipment. or &ubcontracting or other or overhead3rovider(ost 'escriptionAccounting accounte!g! for personnel >\\\Accounting date3ayment date(ost unite!g! hour. unit. months. + in overheads. etc(;-(urrencye!g! :3. $;. etc(laimed Ouantity in units(laimed amount per unit in (;(laimed total amount in (;$2change ;ate(laimed total amount in $;(omment! eneral


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$( auditors need to collect the evidence in relation with these costs! 4herequest is thus to put the supporting documentation at their disposal!@! (alculation of hourly rates i!e! gross remuneration plus related charges" forall personnel categories1project personnel,! (ertied time records or any other control documents directly attributingpersonnel costs to the audited project" for all project personne involved in the

project actions>! &tandard" 3roductive hours calculation if applicable"8ot priorK! $mployment contracts for all permanent and temporary" project personnelE! 3ayroll1&alary slips for all project personnel whole period of project duration"=! :ank statements showing amount and date of bank transfer1paymentreceipts - no copy required;egarding the bank statements. the $( auditors need to ensure that thesecosts were actually incurred and paid out by the organisation! 4hey thereforeneed to have at their disposal the bank statements of the organisation!0! &upporting documents for durable equipment4he e2istence and use for the project may be checked during the audit mission3rior)! (ontractorJs internal guidelines1procedures for procurement of durableequipment if available"! (ontractorJs valuation rules for accounting treatment of durable equipment6! ! 5oucher1$2pense account of accounting entries

K! :ank statements showing amount and date of paymentsE! Inventory register or 2ed asset register1ledger for the durable equipmentrelated to the project=! 'epreciation table showing the gross book value of the durable equipment.the additions and retirements. the depreciation rate and the depreciationcharge per period)*! In case of rented equipment rental contract. inventory list of rentedequipment. and calculation of leasing and1or rented charges))! $quipmentJs usage diary1register for equipment used by di%erent projects"! &upporting documents for subcontracting3rior

)! (ontractorJs internal guidelines1procedures for procurement ofservices where applicable"! :rief description of services provided by subcontractors and1orthird party resources in the conte2t of the funded 3roject action!6! &igned original copies of agreements with subcontractors and1orthird party resources including technical anne2es"@! ;equest and (ommission approval of subcontracting whererequired"8on 3rior,! Criginal invoices for e2ternal assistance>! $vidence of delivery or services provided

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agreement for up to ve years from the end of the project!

ensure tat te &ommission@s ser)ices= andor any externalody$ies% autorised y it= a)eon-te-s#ot access at allreasonale times= notaly to te ene4ciary@s oBces "ere te#roject is eing carried out= to its com#uter data= to itsaccounting data and to all te information needed to carry outtose audits= including information on indi)idual salaries of#ersons in)ol)ed in te #roject. Tey sall ensure tat teinformation is readily a)ailale on te s#ot at te moment of teaudit and= if so re?uested= tat data e anded o)er in ana##ro#riate form.

make available directly to the (ommission all the detailed data that itmay request.

ensure tat te rigts of te &ommission and te Euro#ean &ourtof Auditors to carry out audits are extended to te rigt to carry

out any suc audit or control on any tird #arty "ose costs arereimursed in full or in #art y te E& contriution= on te sameterms and conditions.

3rovide full access to $( to all the information needed to carry out those audits.e!g! salaries. to its computer data. to its accounting$nsure that similar access by $( is possible to any third parties whose costs arereimbursed in full or in part by $(e!g! 4hird 3arties can be subcontractors!6! (losure of meeting

'iscussion of preliminary ndings and observations

Indication of further audit procedures

@! ;eport and Audit (losure)! 3reparation of draft Audit ;eportAudit &teering (ommittee reviews and revises the draft audit report andprepares the nal draft report to be sent to the beneciary! It pays specialattention on the @ (s

(oherence.

(ompleteness.

(orrectness and

(ompliance with the Audit #andbook

! 4ransmission of 'raft audit report to beneciary4ransmission of 'raft audit report to the beneciary after internalconsultations" for comments by the audited organisation!6! :eneciary provides comments to the draft audit report8ormally. a time of window of 6* days is allowed for providing comments@! $( considers the comments and nalises the audit report

,! (losure of the audit by formal letter indicating further procedures for

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implementing audit results,! Implementation of Audit ;esultsAudit Cutcomes8o ndingsonly" qualied recommendation0inancial Adjustment

8on-systematic nding identied(orrection of future payments or recovery by the responsible nancial services&ystematic nding identied4he implication of this type of error is that the beneciary is not complying in asystematic way with his agreement obligation !Assum#tionC(an imply that all currently open and closed agreements under the samefunding program are a%ected and might need to be retrospectively" adjusted+m#actC$2trapolation of audit results

(ommon decision of all 's which are concerned by having contractswith the organisation audited!

#owever. decentralised follow-up of implementation of results

'etailed formal


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)+ of their ndings are the result of irregularities

@+ of their ndings are the result of qualitative e!g! general descriptionof cost claims"

E+ with no ndings at all no errors. irregularities. etc"

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13. (step 4.1) master- financial management of eu funded projects and external auditing

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