Auditing Framework 5 Projects

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UKROs ANNUAL CONFERENCE 05-06 July 2001
Horst HünkeDG Information Society06.07.2001
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COMMUNITY RDArticle 163 of the Treaty
Objective

• to strengthen the scientific and technological
  bases of EU industry
• to enhance industrys competitivity
• to promote research activities deemed necessary
  for other community policies

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COMMUNITY FUNDED RD
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MODELS OF FUNDING IN FP5

• Full Cost (FC)EU contribution 50 (actual
  direct and indirect costs)
• Full Cost/Flat Overhead Rate (FF)EU contribution
  50 (actual direct costs 80 indirect costs
  on labour)
• Additional Cost (AC) EU contribution 100
  additional costs 20 on additional costs
  excluding subcontracting

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ELIGIBLE COSTSArt. 22 and 23 of Annex II

• actual costs
• necessary for the project
• incurred during the duration of the project
• in accordance with common accounting principles
  and contractors internal rules
• recorded in the accounts

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NON-ELIGIBLE COSTSArt. 23.3 of Annex II
Examples

• notional costs
• return on capital
• interest
• provisions for future losses or doubtful debts
• resources made available free of charge
• marketing, sales and distribution costs
• indirect taxes, duties, VAT
• entertainment or hospitality expenses except
  those absolutely necessary for the project
• costs related to another project

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COSTS CATEGORIESArt. 23 of Annex II

• personnel
• durable equipment
• subcontracting
• travel and subsistence
• consumables
• computing
• protection of knowledge
• other specific costs
• administrative and financial coordination

Direct costs

• overheads

Indirect costs
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JUSTIFICATION OF COSTSArt. 25 of Annex II

• costs must be justified by contractors
• project accounts and documentation to support
  and justify costs claimed

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FINANCIAL AUDITLegal and Contractual Basis

• legal obligation on the Commission protection of
  the Community financial interests
• contractual basis article 26 of Annex II to RTD
  contract
• Financial Regulation
• audits by Commission staff by external auditors
  by the Court of Auditors
• Internal Audit Service of the Commission
  Internal Audit Capabilities within Directorates
  General

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FREQUENT PROBLEMSEncountered in Audits
Personnel

• trail to general ledger
• hours charged
• calculation of hourly rates (average rates ?
  actual rates)
• non-eligible expenses(e.g. provisions for future
  losses included in both direct costs and
  overheads)

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FREQUENT PROBLEMSEncountered in Audits
Overheads

• unacceptable calculation methods(e.g. artificial
  increase uneven distribution sold or charged
  time)
• non-eligible expenses(e.g. marketing costs
  unrecoverable VAT owners private costs
  entertainment allowances distribution of
  profits)

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COURT OF AUDITORS Findings

• Structural overcharging in research (confirmed
  by audits INFSO)
• desk top review and plausibility check of cost
  statements is ineffective
• no dissuasive effect from audits performed
  (currently insufficient frequency)

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COURT OF AUDITORS Recommendations

• audit certificates
• clear definition of eligible expenditure
• introduction of contractual penalties for
  overcharging
• increase verification of proposal costs

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ACTION PLAN

• audit certificates in pilot phase
• increase the use of flat rates
• sectoral legislation on fraud prevention measures

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AUDIT CERTIFICATION PILOT
Design

• IST RTD contracts of Calls 6, 7 and 8
• first cost statement for cost/contractor gt 250
  KEuro/year
• final cost statement for cost/contractor gt 250
  KEuro/project
• retention raised from 15 to 20
• reimbursement up to 4 KEuro/certificate (other
  costs)

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AUDIT CERTIFICATION PILOT
Coverage and Costs

• first cost statements 23 contractors, 84
  costs
• final cost statements 65 contractors, 89
  costs
• cost for EU budget ? 1 of total funding

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CONCLUSION

• simplification of funding rules
• more attention by contractors
• more evidence of regularity
• Objectiveconfidence in the functioning of the
  funding system

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Charge only those amounts

• you would be willing to pay for

with your own money.