ECOnetus Workshop

1
ECOnetus Workshop

• Financial Procedures Regulations for Framework
  Projects

European and External Resource Office
11 November 2009
2
Workshop Agenda

• 10.00 10.15 Introduction of speakers
  explanation of the topic
• 10.15 11.15 Comparison of FP6 FP7 Structure,
  Financial Procedures Regulations
• 11.15 11.30 Coffee
• 11.30 12.30 Preparation of an FP7 budget
• 12.30 13.30 Lunch
• 13.30 14.30 Indirect Costs in FP7
• 14.30 15.00 State Aid Implications
• 15.00 15.15 Coffee
• 15.15 16.00 Audit Requirements
• 16.00 16.30 Question and Answer Session
• 16.30 Close

3
Introduction of Speakers

• The European and External Resource Office (EuRO)
  assists all researchers with Framework Programme
  proposals
• EuRO has successfully accessed in excess of 37
  million from Structural Funds, and approximately
  1.5 million in FP6 funding, including Marie
  Curie actions

4
European External Resource Office

• Tactics
• Pro-active approach to identifying future
  opportunities
• Establish quality thresholds
• Progressive control over project management

• Strategy
• To support new initiatives through a one stop
  shop of relevant expertise
• To co-ordinate activities, secure internal
  approval and manage the institutions exposure to
  risk

Remit Secure external resources to enable the
implementation, delivery and successful
completion of extra curricula activities and
initiatives that are central to the Universitys
strategic objectives
5
European External Resource Office

• Finance Officers
• Monitor project expenditure outputs attainment
• Ensure all expenditure complies with EU
  regulations guidance
• Compile submit claims
• Construct audit trails
• Monitor income
• Close the project down
• Negotiate with auditors

• European Officers
• Prepare applications for funding
• Agree methodology of implementation
• Cost projects
• Secure internal approval
• Secure external funding
• Monitor implementation and negotiate change of
  contract with funding agency

6
Brief Overview of FP7 Structure
7

• Four programmes corresponding to four basic
  components of European research
• Co-operation
• Ideas
• People
• Capacities

8
FP7 Budget ( billion)
9
FP7 Co-operation Programme

• Four sub-programmes
• Collaborative research
• The bulk of EU research funding
• Joint Technology Initiatives
• European Technology Platforms
• 3. Co-ordination of non-Community research
  programmes
• International Co-operation
• Between EU and third countries

10
FP7 Co-operation Programme

• 10 high-level themes bn
• Health 6.05
• Food, agriculture and biotechnology 1.935
• Information and communication technologies 9.11
• Nanosciences, Nanotechnologies, Materials
• new Production Technologies 3.5
• Energy 2.3
• Environment and Climate Change 1.9
• Transport and Aeronautics 4.18
• Socio-economic Sciences and Humanities 0.61
• Security 1.35
• Space 1.43

11
FP7 Ideas Programme

• European Research Council
• 7.56 billion - significant funding
• Enhance the dynamism, creativity
• and excellence of EU research in
• all scientific and technological fields
• Frontier research, cutting-edge, world-class
  initiatives
• Support to individual teams to promote excellence
  through a Europe-wide competition
• The 3 Rs Recruit, Repatriate, Retain top talent
  to EU

12
FP7 Ideas Programme

• ERC Starting Independent Researcher Grant
• Only programme to be funded in 2007
• 300m to be committed 200 grants funded for up
  to 5 years
• Establish ca. 200 new investigators in any field
  per annum ca. 1400 in 7 years
• Sole selection criterion Excellence of person
  proposal
• ERC Advanced Investigator Grant
• Start-up expected in 2nd year
• From ca. 250m to gt 1 bn/ year (ca. 3m/
  proposal) ca. 200 grants committed per year
• Sole selection criterion Excellence of proposal
  track record

13
FP7 People Programme

• 4.777bn
• Quantitative qualitative strengthening
• of Human Resources in RTD in Europe
• Attracting, training retaining
• researchers in the EU
• Marie Curie Initial training of researchers
• Individual Fellowships Life-long learning
  career development
• Industry-academia pathways and partnerships
  knowledge-sharing scheme (especially SMEs)
• International Fellowships (in out)
• Specific Actions Awards for Excellence

14
FP7 People Programme

• Initial training
• Marie Curie Research Training Networks
• Marie Curie Host Fellowships for Early Stage
  Research Training
• Marie Curie actions - Large Conferences
• Marie Curie actions - Series of events
• Marie Curie Chairs
• Industry-academia
• Marie Curie Host Fellowships for the Transfer of
  Knowledge
• Life-long training
• Marie Curie Intra-European Fellowships
• Marie Curie European Reintegration Grants
• International dimension
• Marie Curie Outgoing International Fellowships
• Marie Curie Incoming International Fellowships
• Marie Curie International Reintegration Grants

15
FP7 Capacities Programme

• 4.2 billion
• Research Infrastructures (existing and new)
• Research for the benefit of SMEs
• Trans-national research co-op
  technology-transfer
• Regions of Knowledge research-driven clusters
• Research potential of Convergence Regions
• Trans-national secondments, research equipment,
  
• knowledge transfer activities, etc.
• Science in society
• Encourage debate on science technology,
  their relation to
• society culture
• Support to the coherent development of Research
  Policies
• International co-operation
• Horizontal support actions and measures (third
  countries)

16
Comparison of FP6 FP7 Financial Procedures
Regulations
17
Comparison of FP6 FP7 Financial Procedures
Regulations

• Move to the full cost model
• Introduction of indirect cost options for FP7

18
New Terminology in FP7
19
Key Documents
20
From FP6 Instrumentsto FP7 Funding Schemes
21
Financial rules Forms of grants

• Three forms of grants are proposed for the
  Community financial contribution
• Reimbursement of eligible costs
• Lump sum amounts
• Flat-rate financing (a percentage for indirect
  costs or scales of unit costs)
• These may be used to cover the entire financial
  contribution from the EC for a funding scheme or
  more than one may be used in combination
• For most funding schemes, reimbursement of
  eligible costs will continue to be the preferred
  method, particularly at the beginning of FP7.
  Lump sum and flat rate financing will be
  introduced gradually and if successful will be
  used more extensively
• For frontier research actions, the ERCs
  Scientific Council will propose appropriate
  funding modalities within the terms established
  by the RFP (Rules for Participation in FP7) and
  the Financial Regulation

22
FP7 Contract

• Structure
• Core part Grant Agreement parameters
• Annex I DoW
• Annex II General Conditions
• Annex III Specific Provisions for Funding
  Schemes
• Annexes IV, V VI Forms A, B C
• Annex VII Form D (Terms of Reference for the
  Certificate of Costs) and Form E (Certificate on
  the Methodology) (New)
• Consortium Agreement mandatory (except if
  excluded by Call)

23
FP7 Contract Similarities with FP6

• Signed by co-ordinator and EC
• Accession of beneficiaries via Form A
• Later accession of beneficiaries via Form B
• Entry into force upon signature by co-ordinator
  and EC

24
FP7 Contract Differences Improvements from
FP6

• Changes to financial provisions and reporting
  provisions

25
Consortium Agreement

• Except where otherwise provided in the call for
  proposals, all legal entities wishing to
  participate in an indirect action shall draw up
  an agreement, hereinafter the consortium
  agreement, to govern the following
• (a) The internal organisation of the consortium
• (b) The distribution of the Community financial
  contribution
• (c) Additional rules on dissemination and use
  including intellectual property rights
  arrangements, as appropriate
• (d) The settlement of internal disputes

26
Consortium Agreement

• Key point
• Each partner is responsible for their own
  finances, and could be subject to an audit

27
Implementation of the Project Guarantee Fund

• Beneficiaries are technically responsible for
  carrying out the project jointly and severally
  towards the Community
• But no collective financial responsibility as
  under FP6
• Instead Establishment of a beneficiary Guarantee
  Fund to cover risks
• EC will establish Guarantee Fund and its
  modalities for implementation

28
Guarantee Fund (GF)

• GF belongs to all beneficiaries of FP7 grant
  agreements
• All beneficiaries contribute to GF to insure
  against financial losses of the project
• Contribution 5 of the EC financial
  contribution foreseen for each beneficiary
• In principle, this amount will be reimbursed at
  end of action
• Financial interest generated will serve to cover
  financial risk

29
GF - Ongoing Grant Agreement

• A beneficiary does not reimburse to the
• co-ordinator any amount requested by EC
• Remaining beneficiaries agree to continue with
  implementation of grant agreement
• EC orders the transfer of an equivalent amount
  directly from the GF to the co-ordinator
• Amounts transferred from the GF shall substitute
  the EC financial contribution not reimbursed by
  the beneficiary

30
GF - Recoveries after Termination or Completion
of Grant Agreement

• The EC requests the beneficiary concerned to
  reimburse the amount due (recovery order)
• If payment not made by the due date, sums may be
  recovered by offsetting them against any sums the
  EC owes to the beneficiary concerned
• Where offsetting is not possible, the EC recovers
  from the GF the amounts due

31
GF Recoveries to the Benefit of the GF

• Where amounts have been
• Transferred from the Fund to an ongoing project,
  or
• Recovered from the Fund by the EC
• the beneficiary owing them shall reimburse the
  GF
• For this purpose, the EC shall issue a recovery
  order against this beneficiary to the benefit of
  the GF

32
GF Financial Viability and Guarantees

• Exoneration of verification of financial
  viability of beneficiaries (excluding
  co-ordinators) requesting less than
• 500,000
• No bank / financial guarantee may be requested

33
Preparation of an FP7 Budget
34
Evaluation Criteria
Appropriateness of allocation of budget is
evaluated under Implementation
Source UKRO
35
Preparation of an FP7 Budget

• FP based on principle of co-financing
• EC does not fund 100 of costs, with some
  exceptions
• No financial profit
• Must match the budget to the corresponding work
  packages project activity
• Resources to be committed (2 pages of Proposal)
• Can applicants illustrate a critical mass of
  resources? Have applicants accessed other funding
  sources?
• Can applicants illustrate integrated financial
  planning (budget distribution, accuracy, cash
  flow)?

36
Reporting Reimbursement of Eligible Costs

• The definition of eligible costs has been
  simplified
• Previous three cost reporting models have been
  abandoned
• Participants can include direct indirect costs
  or have the option of a flat rate for indirect
  costs
• Costs will be determined according to the usual
  accounting and management principles of the
  participants to achieve the project objectives
  based on principles of economy, efficiency and
  effectiveness

37
Reporting Reimbursement of Eligible Costs

• The Community financial contribution will cover
• A maximum of 50 of eligible costs minus receipts
  both for research and for demonstration
  activities, with a top up of a maximum of 25 for
  research activities for SMEs, public bodies,
  secondary and higher education establishments and
  non-profit research organisations
• 100 of frontier research actions for all
  entities
• Up to 100 for all other activities, including
  coordination and support actions, and training
  and career development of researchers, for all
  entities

38
Maximum Reimbursement Rates
Co-ordination Support Actions, Training,
Management
39
Reporting Reimbursement of Eligible Costs

• The maximum indicated on the previous table are
  applied to all eligible costs even where part of
  the reimbursement of costs, or even the full
  funding of the project, is based on lump sums or
  flat rates
• For Networks of Excellence, a special lump sum is
  proposed, with a fixed amount per researcher per
  year. Portions of the lump sum would be paid
  periodically according to indicators showing
  progressive implementation of the Joint Programme
  of Activities (JPA)

40
Eligible Project Costs

• Costs incurred for the implementation of the
  project shall meet the following conditions in
  order to be considered eligible. They must be
• Actual
• Incurred by the beneficiary
• Incurred during the duration of the project
• Exceptions costs incurred in relation to final
  reports, reports corresponding to the last
  period, certificates on the financial statements
  when requested for the last period, final
  reviews, etc., incurred during the period of up
  to 60 days after the end of the project or the
  date of termination, whichever is earlier

41
Eligible Project Costs (Continued)

• Determined according to the usual accounting and
  management principles and practices
• The accounting procedures used in the recording
  of costs and receipts shall respect the
  accounting rules of the State in which the
  beneficiary is established. They shall permit the
  direct reconciliation between the costs and
  receipts for the implementation of the project
• Used solely to achieve project objectives and its
  expected results, in a manner consistent with the
  principles of economy, efficiency and
  effectiveness
• Recorded in the accounts of the beneficiaries
• Exclusive of non-eligible costs

42
Ineligible Costs

• Indirect Taxes, for example VAT
• Profit
• Interest Owed
• Provision for future losses or charges
• Costs declared, incurred or reimbursed from
  another EC project
• Return on Capitol employed
• Debt and debt service charges
• Excessive or reckless expenditure

43
Personnel Costs

• Use Actual costs
• Include on costs Statutory deductions
• Include a cost of living increase 3 per annum
  is a good guide
• Bear in mind the Entitys policies and the rate
  of inflation in the Member State concerned

44
Average Personnel Costs

• Average personnel costs accepted if
• Consistent with the management principles and
  accounting practices of the beneficiary, and
• They do not significantly differ from actual
  personnel costs if identified according to a
  methodology approved by the EC (NEW)

45
Management Costs

• The 7 limit of total costs in FP6 has been
  removed in FP7
• The EC will fund 100 of Management Costs
• BUT Participants are expected to self-regulate
• Costs must be reasonable
• Management of the consortium activities includes
• Maintenance of the consortium agreement, if it is
  obligatory
• The overall legal, ethical, financial and
  administrative management including for each of
  the beneficiaries obtaining the certificates on
  the financial statements or on the methodology
• Implementation of competitive calls by the
  consortium for the participation of new
  beneficiaries.
• Obtaining any financial security such as bank
  guarantees, when requested by the Commission
• Any other management activities foreseen within
  the work programme, except
• co-ordination of research and technological
  development activities

46
Key Points

• Discuss budget early
• Costs of activities discussed first
• Each partner is to be fully aware of the
  contribution required
• Remember limits imposed by EC
• Compliance with State Aid Rules
• Researchers Administrations should both be
  involved

47
Preparation of FP7 Budget

• Fully worked example will follow the next section
  on Indirect Costs

48
Coffee
49
Indirect Costs in FP7
50
What are Eligible Indirect Costs?

• Eligible indirect costs are the costs which are
  not attributable directly to the project
• They will have been incurred in a direct
  relationship with the direct eligible costs
  attributed to the project

51
Indirect Costs for Public Sector organisations

• Public Sector organisations have 2 choices
• available when deciding how to calculate
• Indirect costs for the project
• Flat rate at 60 of total eligible costs (up to
  end of 2009)
• (Relatively Simple)
• Calculate indirect cost per staff hour according
  to the organisations published annual accounts
  (Can be complicated)

Note For CSA (Co-ordination and Support
Actions), limit of 7 of direct costs
52
Indirect Costs for Industrial Partners

• Industrial partners have 2 choices available when
• deciding how to calculate indirect costs for the
• project
• Flat rate at 20 of total eligible costs
• (Relatively Simple)
• 2. Calculate indirect cost per hour according to
  the organisations published annual accounts (Can
  be complicated)

Note For CSA (Co-ordination and Support
Actions), limit of 7 of direct costs
53
Option 1 Flat Rate _at_ 60

• Simplified Project Costing
• Staff Costs 350 000
• Other Costs 350 000
• Total Costs 700 000
• Overheads 60 420 000
• Total Project Costs 1 120 000

Note Apply relevant reimbursement rate to total
project cost, not including management costs
54
Flat-Rate Budget for FP7 Research Project
55
Flat-Rate Budget for FP7 Demonstration Project
56
Option 2 Calculate Actual Indirect Cost Rate
Eligible Costs
Total Operational Costs
Eligible Direct Costs
In-eligible Direct Costs
In-eligible In-direct Costs
Eligible In-direct Costs
Total Eligible Cost Pool
57
Indirect Costs A formula based approach
Total Research Costs
Research Hours
Total Operational Costs
Technical Costs
Administration Costs
Management Costs
58
Staff Time The Cost Driver
Eligible In-direct Costs
Administration Staff Costs


Technical Staff Costs
Management Staff Costs
Indirect cost per delivery hour 21.77

Academic Research Hours
Time

Project based non Delivery Staff Time
59
Staff time The cost driver

• Convert all delivery staff to full time
  equivalents (ftes216 days _at_7.4hrs) to determine
  total number of academic hours worked during
  financial year.
• Convert all other staff to a cost base and add
  value to eligible indirect operating costs.
• Remove the time and monetary value of delivery
  staff and other staff that are working on
  externally funded projects from the above
  calculations
• Divide total eligible in-direct operating costs
  by total academic and support staff hours
• Gives a single hourly rate attributable to all
  projects that attract Structural Funds.

60
Reconciliation to Year end Accounts

• Hourly overhead rate for year N is calculated
  after the annual accounts have been audited.
• Overhead rate for year N is then applied to all
  applications submitted during year N1.
• Projects often start some 6-12 months after the
  application has been formally approved.
• Overhead rate could therefore be upto 2 years in
  arrears.

61
Reconciliation to Year end Accounts

• Example of timing for Indirect cost claimed
• Actual overhead rate for 2005 is 25 per staff
  hour.
• Overhead rate in applications for a 3 year
  project 2006-8 uses the rate for 2005.
• Actual overhead rates for 2006-7 can be amended
  prior to submitting the final claim.
• Overhead rate for 2008 cannot be used (not
  known).
• Take a prudent approach to final year, reconcile
  accounts when relevant hourly rate is available.
• Any significant deviation will be resolved when
  the project is audited.

62
Advantages of Staff Based Overhead Methodology

• Single hourly overhead rate used for delivery and
  support staff.
• Used for ESF, ERDF and most other EU funding
  programmes.
• Auditable, no risk of double counting.
• ASSOCIATED RISKS
• Has to be applied consistently
• Dependent on evidence of staff activity
• MITIGATION Constant monitoring.

63
Lunch
64
State Aid Implications
65
State Aid Rules Guiding Principles

• Treaty of Union commits the EU to principles of
  an open market economy with free
  competition
• Three main objectives
• Prohibit the provision of state aid to ensure
  that the richer nations/regions do not provide
  subsidy to the private sector to enhance their
  position distorting the market
• To allow compatible state aid that addresses
  regional economic disparities and market
  failure
• To provide a transparent framework under which
  compatible aid is awarded

66
undertaking, entity or end user

• The concept of an "undertaking" entity or end
  user embraces public sector as well as private
  sector entities
• An undertaking" means any entity or end user
  which is engaged in economic activities
• It does not have to be profit-making so long as
  the activity carried out is one which in
  principle has commercial competitors
• Charities, universities, research institutions
  and voluntary organisations may be caught within
  the meaning of "undertaking" if they carry out
  economic activities

67
What is State Aid?
No formal definition but...

• ...any form of aid is incompatible with Common
  Market if it distorts or threatens to distort
  competition within the EU
  
• In addition to EU programmes, SAR apply to
• National/ local government aid
• Any source of funding the public sector controls

68
The Four Tests to establish Aid

• State aid exists within the meaning of Article
  87(1)
• where all four "tests" in that Article are met
• provided through public resources (EU or Member
  State)
• favours certain undertakings or the production of
  certain goods (selectivity)
• distorts or threatens to distort competition
  (economic advantage)
• potential to affect trade between Member States

69
Article 87(I)
Article 87(2)
Article 87(3)
87 (3) Schemes need to operate under regulations
otherwise aid is deemed to be illegal.
Compatible Aid
Aid that may be compatible
Meets 4 tests
Social Aid (individuals)
a) Development of activities where aid does not
affect the single market (Convergence )
Illegal
b) Develop activity in areas of low EA, high
unemployment (Competitiveness Employment)
Natural Disasters Exceptional Circ.
c) Promotes important pan EU projects
East Germany
d) Promotes Culture Heritage
Other EU
e) Other as specified by Commission agreed by
Council
70
Horizontal Aid
Regional Aid Tier 1 2
Vertical Aid Industrial Sectors Coal, Steel,
Motor Vehicles, etc
71
2007-2013
200,000 3 Years
De Minimis
Assisted Area T1
Regional Aid
Intermediate Areas T2
Multi-Sectoral Framework
Non Assisted Areas
State Aid
SME
Employment
Horizontal Aid
Training
Co. in Trouble
RD
Environmental
Sector Specific Rules
Vertical Aid
Notified Scheme
None of Above
72
Common Factors

• Aid intensity includes ALL public sector support
  for a scheme/project
• Aid intensity gross amount of aid expressed as
  a percentage of the projects eligible costs
• Eligible costs identified before deductions for
  direct taxation
• In kind aid (not of a cash benefit) shall be the
  equivalent of the cash value of the benefit

73
Proximity to Market

• Three categories of RD
• Fundamental Research activity designed to
  broaden knowledge not linked to industrial or
  commercial objectives (Max 100)
• Industrial Research planned research aimed at
  acquisition of new knowledge geared at developing
  new products, processes or services (Max 75)
• Experimental Development (previously known as
  pre-competitive research) shaping of results of
  industrial research into plan, arrangement or
  design for new, altered or improved products (Max
  50)

74
Activities outside the RD Framework

• State Aid for RD is generally subject to the RD
  framework
• except where public funding
• Is awarded via an open tender procedure
• Supports fundamental research
• Supports public, non-profit-making
  higher-education or research establishments
  where
• the results are made available to Community
  industry on a non-discriminatory basis
• studies are carried out on behalf of or in
  collaboration with industry, on condition that
  the research establishment or companies carrying
  out the research have paid for it and the results
  are published

All of the above can attract 100 Funding
75
IPR Protection or Dissemination

• Full publication dissemination negates any
  competitive
• advantage therefore there is NO State Aid
• Protection of IPR (Partial) provides economic
  advantage in
• a competitive market and will have the potential
  to affect
• trade between Member States therefore State Aid
  exists
• If State Aid exists the sponsor must administer
  the project
• appropriately and provide management products to
  verify
• the fact

76
Activities supported within the RD Framework
compatible with FP7

• Personnel costs
• Instruments Equipment
• Buildings land
• Consultancy
• Operating expenses
  (materials, supplies etc)
• Indirect costs
• Technical/Feasibility Studies
• Patenting Costs

77
RD Industrial Research
Assisted Areas Entity SME FP7
XB Max
Tier 1 Areas
60
15
15
10
75
Tier 2 Areas
55
15
15
10
75
Non Assisted Areas
50
15
15
10
75
78
RD Experimental Development
Assisted Areas Entity SME FP7
XB Max
Tier 1 Areas
35
15
15
10
50
Tier 2 Areas
30
15
15
10
50
Non Assisted Areas
25
15
15
10
50
79
Definition of an SME

• Medium Enterprise
• lt 250 employees
• Turnover lt 50 m or balance sheet lt 43 m
• lt 25 of capital or voting rights owned by an
  enterprise that is not an SME

• Small Enterprise
• lt 50 employees
• Turnover lt 10 m or balance sheet lt 10 m
• lt 25 of capital or voting rights owned by an
  enterprise that is not an SME

• Micro Enterprise
• lt 10 employees
• Turnover and balance sheet lt 2 m

80
RD Aid Intensity under SME Block Exemption
Research Ceiling Region FP7
XB MAX
Fundamental
100
Industrial
60
10
15
10
75
Experimental Dev
35
5
15
10
50
Amending Regulation 364/2004 Introduced rates for
RD for SMEs within SME Block Exemption
81
Example
Total Project Cost 1.1 M Total
available 770,000
82
Coffee
83
Audit Requirements
84
General Principles

• The Certificate on the Financial Statements is a
  document provided by an external auditor
• It provides reasonable assurance of project
  costings to the EC
• The certificate is the main assurance mechanism
  in the processing of costs claimed and their
  subsequent payment

85
General Principles (Continued)

• The submission of an audit report does not waive
  the right of the EC to carry out its own audit
• Each beneficiary of a project must each obtain a
  Certificate on the financial Statements

86
Audit Requirements When?

• Periodic reports shall be submitted to the EC
  regarding eligible costs, financial interest
  yielded by pre-financing, and where appropriate,
  a Certificate on the Financial Statements
• It is usually an annual report

87
Audit Requirements Who?

• In the case of
• Public Bodies
• Research organisations
• Higher secondary educational establishments
• The above entities may opt for a competent public
  officer to provide their certificate on financial
  statements and on the methodology, provided that
  the relevant national authorities have
  established the legal capacity of that competent
  public officer to audit that entity and that the
  independence of that officer, in particular
  regarding the preparation of the financial
  statements, can be ensured

88
Audit Requirements Who?

• In the case of the private sector
• Certificates on the financial statements and on
  the methodology shall be prepared and certified
  by an external auditor and shall be established
  in accordance with the terms of reference
• Each beneficiary is free to choose any qualified
  external auditor, including its usual external
  auditor, provided that the cumulative following
  requirements are met
• i) the auditor must be independent from the
  beneficiary
• ii) the auditor must be qualified to carry out
  statutory audits of accounting documents in
  accordance with national legislation implementing
  the 8th Council Directive on statutory audits of
  annual account and consolidated accounts or any
  Community legislation replacing this Directive.
  Beneficiaries established in third countries
  shall comply with national regulations in the
  same field and the certificate on the financial
  statement provided shall consist of an
  independent report of factual findings based on
  procedures specified by the Community

89
Audit Requirements Thresholds

• Notwithstanding the financial regulations and the
  implementation rules, a certificate on the
  financial statements shall only be compulsory
  when the cumulative amount of interim payments
  and balance payments made to the participant is
  equal to 375,000 or more
• For actions of a duration of 2 years or less, one
  certificate of financial statements shall be
  requested from the participant, at the end of the
  project

90
Audit Requirements Thresholds(Continued)

• For actions entirely reimbursed by means of lump
  sums or flat rates, Certificates on the Financial
  Statements shall not be required

91
Form E Certificate on the Methodology (New)
System Verification

• Aims at certifying the methodology of calculating
  (average) personnel costs overhead rates
• Valid throughout FP7, on a voluntary basis, must
  be accepted by EC
• Particularly aimed at legal entities with
  multiple participation
• Waives obligations of certificates for interim
  payments
• Simplified certificate for final payments

92
Form E Certificate on the Methodology (New)
Advantages

• EC will receive consistent certifications and
  cost claims clean from errors
• Beneficiaries will gain legal security?
• Beneficiaries in many projects will have to
  submit less certificates
• EC beneficiaries will have fewer processes to
  handle fewer certificates less money spent on
  certificates
• EC gains significantly in terms of assurance on
  legality and regularity

93
List of frequent errors found During Audit
94
EC Procurement Thresholds

• Directives set out
• Minimum thresholds for OJEU (Official Journal of
  the European Union)
• Rules to be observed in advertising tenders
  (duration, selection criteria etc.)
• Definitions of different types of contract/tender
• Rules on calculating value of contracts
• Directives set out best practice, thresholds
  identify method of advertisement

95
Main Contract Thresholds
(From 31 January 2006)
a) Government Departments b) Other (including
Universities and Research Institutes)
96
Non-Substantiation of Working Time

• Staff time must be recorded throughout the
  duration of the project by reliable means
  (including time sheets)
• A simple estimation of hours worked is not
  sufficient
• There must be a system in place that allows any
  time worked on the project to be followed and
  audited

97
The Calculation of Hourly Personnel Rates

• The hourly personnel rate is to be calculated as
  the actual costs (gross remuneration plus
  employers proportion of on costs) divided by the
  number of productive hours
• Audit evidence indicates that in general a
  plausible number of productive hours is in the
  order of 1600 hours per year
• 1600 calculated by 216 days x 7.4 hours

98
Indirect Costs

• Inclusion of non-chargeable activities like time
  spent by the beneficiary on internal research
  projects
• Use of estimated rates
• Inclusion of notional costs (internal re-charges)
• Inconsistent method across years used to
  calculate indirect costs

99
Substantiation of costs claimed

• The beneficiary is obliged to keep full
  supporting documentation to justify the costs
  claimed on file
• In order to substantiate costs for the project,
  all documentation for the purchase must be kept
  on file so that there is a proper audit trail

100
Question Answer Session
101
Close

• Thank you for your attention!

102
Contact Details

• Martyn Jeffries
• mjeffrie_at_glam.ac.uk