HORI ZON 2 0 2 0 UPDATE ON H2 0 2 0 FI NANCI AL AND AUDI T I SSUES - - PowerPoint PPT Presentation

HORI ZON 2 0 2 0

HORIZON 2020

UPDATE ON H2 0 2 0 FI NANCI AL AND AUDI T I SSUES Dinos Alevizopoulos Head of Sector – Audit 0 5 May 2 0 2 0

HORI ZON 2 0 2 0

HORIZON 2020

PERSONNEL COSTS

3

Disclaimer: Information not legally binding

Personnel costs: finding your w ay

Personnel costs Average costs SME ow ners Actual costs

1 B Project-based rem uneration 1 A Non project-based rem uneration Monthly Annual Additional remuneration?

Eligible? Not eligible Hourly rates

Within the cap Above the cap

Basic remuneration

1720 Individual Standard

4

Disclaimer: Information not legally binding

Applies only to beneficiaries w ith project- based rem uneration schem es

Hours w orked



Hourly rate

EUR/ hour

Additional rem uneration

Tim e records and/ or Declaration on exclusive w ork Form ula for actual costs

Personnel costs: Calculation

5

Disclaimer: Information not legally binding

Hours declared to the action m ust be supported by reliable records and docum entation !

!

Only the hours actually w orked on the action can be charged. You cannot declare:

→ Budgeted time (what you indicated for the budget) → Estimated time (e.g. person 'guessing' at the end of the year) → Time allocation (e.g. x % of the contractual time of the person)

• Think of how you follow different projects

Personnel costs: hours w orked for the action

6

Disclaimer: Information not legally binding

 Depends if the person w orks exclusively on a H2 0 2 0 action

For this purpose, "working exclusively" refers to an uninterrupted period

• f at least one full calendar month during which all the hours worked by

the employee for the beneficiary were dedicated to the H2020 action.

Working exclusively Records Conditions

(full details available in the AGA; page 160)

YES

Declaration on exclusive work for the action → only one per reporting period (per person) → covering one uninterrupted period of exclusive dedication of at least one calendar month

NO

Time records (i.e. timesheets) → dated and signed at least monthly by the person and his/her supervisor → minimum conditions and information needed are detailed in the AGA

Tim e records: supporting docum ents

7

Disclaimer: Information not legally binding

Declaration for persons w orking exclusively on the action: Model available in the AGA

( version 1 9 / 1 2 / 2 0 1 4 )

!

Only one declaration can be m ade per reporting period for each person

8

Disclaimer: Information not legally binding

 Inconsistency with HR records  Time sheets not properly dated or signed  More than full time employment charged among different projects double funding!  Poor or limited information captured

Tim e recording: com m on errors

9

Disclaimer: Information not legally binding

Do keep tim e records

Time records should include, as a minimum:

 title and number of the action

 beneficiary’s full name  full name, date and signature of the person working for the action  number of hours worked for the action  supervisor’s full name and signature  reference to the action tasks or work packages of Annex 1

Information included in time-sheets must match records of annual leave, sick leave, other leaves and work-related travel.

Auditor's advice: Tim e sheets ( continued)

10

Disclaimer: Information not legally binding

Personnel costs: hourly rate

Costs must be declared on the basis of the unit cost (hourly rate) fixed by Commission Decision C(2013) 8197 and indicated in Annexes 2 and 2a of the grant agreement. In practice: SYGMA calculates the hourly rate for you by using the formula: The SME owner or natural person may be remunerated by dividends, service contracts between the company and the owner, etc.; Still, the unit cost m ust be declared if there is no salary

!

If you are a SME ow ner w ithout a salary or a natural person w ithout a salary

11

Disclaimer: Information not legally binding

Personnel costs: hourly rate

You calculate the hourly rate according to your usual cost accounting practice provided that:  You applied it in a consistent manner, based on objective criteria, and regardless of the source of funding  You calculate the hourly rate using the actual personnel costs recorded in your accounts, excluding ineligible cost or costs included in other budget categories  You use one of the options to determine the annual productive hours provided in the Model Grant Agreement

If you use average personnel costs

12

Disclaimer: Information not legally binding

Personnel costs: hourly rate

1 A - General case: the salary does not depend on specific projects 1 B - Specific case: project-based remuneration

Subject to the provisions on additional rem uneration

!

Actual costs

13

Disclaimer: Information not legally binding

Hourly rate: CASE 1 A ( rem uneration is not project-based)

Hourly rate = Personnel costs Productive hours

Annual hourly rate

Hourly rates calculated per full financial year

Annual personnel costs Annual productive hours

Monthly hourly rate

Hourly rates calculated per month

Tw o

• ptions

NEW !

( 2 0 1 6 )

Monthly personnel costs Monthly productive hours

14

Disclaimer: Information not legally binding

• I nclude:

 Salaries  Social security contributions (employers' and employees')  Taxes and other costs included in the remuneration if they arise from national law or the employment contract

• Do not include:

 Any ineligible item (article 6.5)  Any costs included in other budget categories (e.g. indirect costs)

Hourly rate = Productive hours

Eligible personnel costs

Hourly rate: CASE 1 A ( rem uneration is not project-based)

15

Disclaimer: Information not legally binding

Hourly rate: CASE 1 A ( rem uneration is not project-based)

Annual productive hours

1 7 2 0 hours

you m ust use this option if the em ploym ent contract does not specify the w orking tim e conditions or if the "annual w orkable hours" cannot be determ ined

I ndividual annual productive hours

• Form ula: annual w orkable hours + overtim e - absences

Standard annual productive hours

• According to the beneficiary's usual accounting practices. Minim um threshold:

annual productive hours ≥ 9 0 % of the standard annual w orkable hours

! Advice

Hourly rate = Personnel costs

16

Disclaimer: Information not legally binding

 Same option applied to all personnel working in H2020 actions; although… different

• ptions

for different types of personnel are possible, if:

 the same

• ption

is applied at least per group

• f

personnel employed under similar conditions (e.g. same staff category, same type of contract, cost center, etc.); and  the options are applied consistently (e.g. the choice of the option is not changed ad-hoc for specific employees)

 keep the same option(s) for the full financial year

 Options may be changed for the next financial year

Annual productive hours options: principles

Hourly rate: CASE 1 A ( rem uneration is NOT project-based)

17

Disclaimer: Information not legally binding

Annual hourly rate specificities

The annual hourly rate must be calculated per full financial year

If the financial year is not closed at the end of the reporting period, the beneficiary must use the hourly rate of the last closed financial year available.

!

0 1 / 1 0 / 2 0 1 4 3 1 / 0 3 / 2 0 1 6 Hourly rate of 2 0 1 5 also for these m onths

Reporting period (example)

2 0 1 4 2 0 1 5 2 0 1 6

Hourly rate of 2 0 1 4 Hourly rate of 2 0 1 5

Annual personnel costs Annual productive hours

Hourly rate: CASE 1 A ( rem uneration is NOT project-based)

18

Disclaimer: Information not legally binding

Monthly hourly rate specificities

One hourly rate per each m onth the person w orks in the action  Monthly productive hours = 1/ 12 of the annual productive hours

Only options 1 (1720) and 3 (standard) are allowed. Option 2 (individual) is NOT allowed for monthly hourly rates.

 Thirteen salary (and similar) included in each month "pro-rata"; not in full

in the month when they are paid.

 Tim e spent in parental leave cannot be deducted from the monthly

productive hours. However, personnel costs incurred during parental leave may be charged in proportion to the time the person worked for the action.

!

Monthly personnel costs Monthly productive hours

Hourly rate: CASE 1 A ( rem uneration is NOT project-based)

19

Disclaimer: Information not legally binding

Beneficiaries m ust ensure that:

• the total num ber of hours declared in EU and Euratom grants for a

person for a year is NOT higher than the number of annual productive hours used for the calculation of the hourly rate

• the total amount of personnel costs declared (for reimbursement as

actual costs) in EU and Euratom grants for a person for a year is NOT higher than the total personnel costs recorded in the beneficiary’s accounts (for that person for that year).

Personnel costs: double ceiling

∑ hours declared ≤ total annual productive hours ∑ cost declared ≤ total personnel costs for the person

20

Disclaimer: Information not legally binding

Hourly rate: CASE 1 B ( project-based rem uneration)

NEW !

( 2 0 1 7 )

Identify what part of the remuneration

• f the

employee is 'basic' and what part is 'additional'

Additional remuneration?

1

Calculate the hourly rate of the employee using only the 'basic remuneration'

Hourly rate

2

Multiply that hourly rate by the number of hours worked in the action

Personnel costs: 'basic'

3

Calculate what part of the additional remuneration identified in Step 1 is eligible & add it to the result

• f Step 3

+ Additional remuneration

4

CASE 1B: FOUR STEPS TO CALCULATE THE PERSONNEL COSTS

21

Disclaimer: Information not legally binding

STI LL PUZZLED?

W hy don’t you try the Personnel Cost W izard?

Wizard entry point

HORI ZON 2 0 2 0

HORIZON 2020

SUBCONTRACTI NG OTHER DI RECT COSTS

23

Disclaimer: Information not legally binding

Step 1 Accounting ( 1 )

Costs m ust be actually incurred by the Beneficiary ( Art.6 .1 .a) . Costs m ust not include deductible VAT ( Art.6 .1 .a.xi) .

1 . Underlying docum entation exists in proper form ; 2 . Costs are recorded and paid; 3 . VAT is excluded if deductible for the Beneficiary.

• SUBCONTRACTI NG COSTS

24

Disclaimer: Information not legally binding

Step 1 Accounting ( 2 )

Costs m ust be incurred during the project period defined in Art.3 of the GA. Costs m ust not be incurred during suspension of the action.

1 . Check if delivery lies w ithin the project period; 2 . Check if costs are linked to final reports.

• SUBCONTRACTI NG COSTS

25

Disclaimer: Information not legally binding

Step 1 Accounting ( 3 )

Ensure that:

• National accounting standards are

respected ( Art. 6 .1 .a.v) ;

• Costs do not contain ineligible

elem ents ( Art. 6 .5 .a) ;

• Com plete Representation letter.
• SUBCONTRACTI NG COSTS

26

Disclaimer: Information not legally binding

Step 2 Tendering

Review of the original signed subcontracting agreement and verification of: 1.Consistency with the accounting documents. 2.Compliance with formal requirements.

• SUBCONTRACTI NG COSTS

27

Disclaimer: Information not legally binding

• A. General Eligibility conditions
• General eligibility conditions respected
• Verify if:

1 . Claim ed costs m atch breakdow n list of Beneficiary; 2 . No system atic errors in the calculations; 3 . Correct conversion to EUR.

• OTHER DI RECT COSTS

28

Disclaimer: Information not legally binding

• B. General Eligibility conditions
• Costs w ere actually incurred
• Verify:

1 . Claim ed am ounts vs docum ents ( e.g. invoices) 2 . Docum ents are addressed to you ( Beneficiary) 3 . Costs are recorded in the accounts ( GL) 4 . Any discount or rebate is accounted for 5 . No altering transaction in 6 m onths * 6 . No re-invoicing by the Beneficiary w ithin 6 m onths * 7 . Costs are paid ( or netted off)

• OTHER DI RECT COSTS

29

Disclaimer: Information not legally binding

Depreciation costs

• Depreciation is correct and in com pliance w ith

the Standards

• Verify:

1 . Usual accounting practices 2 . Depreciation charged is based on Accruals Basis 3 . Depreciation charged correspond to the period of action 4 . Existence of the Fixed Asset

• OTHER DI RECT COSTS

H2 0 2 0 FI NANCI AL ERRORS Special focus on the State

• f I srael.

31

Disclaimer: Information not legally binding

Personnel costs – due to:

• Incorrect productive hours calculation
• Incorrect remuneration costs - e.g. estimated
• Incorrect time working on action claimed
• Costs of seconded staff members
• Other - e.g. unreliable/ missing timesheets

Subcontracting - due to:

• Lack of adequate supporting documents
• Not foreseen in Annex I nor agreed by EU services
• Other errors – including e.g. no value for money,

Audit in H2 0 2 0 – Main detected errors ( 1 / 2 )

32

Disclaimer: Information not legally binding

Other goods and services - due to:

• Lack of adequate supporting documents
• Cost not related to the action
• No direct measurement of the cost
• Other errors – e.g. indirect costs claimed as direct costs , no value for money

Equipm ent - due to:

• No proper depreciation

Travel - due to:

• Cost not related to the action
• Other errors – e.g. lack of adequate supporting documents

Audit in H2 0 2 0 – Main detected errors ( 2 / 2 )

33

Disclaimer: Information not legally binding

Latest state of play on the error rate

לארשי דובכה לכ

34

Disclaimer: Information not legally binding

Error rate – State of I srael

H2 0 2 0 AUDI T LI FECYCLE

36

Disclaimer: Information not legally binding

I ntroduction on Controls

Topics on Audit

Background on Audit Error rate Audit process Discussion/ Feedback

Ex-ante controls

Principles

 Balance between trust and control  Minim ize burden on beneficiaries  Equal treatm ent

Methodology

 Limited information requested ex-ante (Financial statements, use of resources)  Risk considerations may justify asking the beneficiary for further information and/or evidence.

38

Disclaimer: Information not legally binding

1 . More Sim plification

• 25% flat rate for indirect costs
• One set of documents : MGA and annotated
• A governance to increase synergies

 The creation of the Common Audit Service for all H2020 ex-post audits  One Horizon 2020 (Corporate) Audit Strategy

2 . More Transparency

• Annotated Model Grant Agreement containing Examples, best

practices, Lists and procedures , Specific cases and exceptions

• Research Enquiry Service & FAQ
• Online Indicative Audit Programme (regularly updated)

Ex-post controls in H2 0 2 0 – The design

39

Disclaimer: Information not legally binding

W hy do w e need an audit?

I, the undersigned Director-General, declare that the information contained in this report gives a true and fair view [1]. I state that I have reasonable assurance [ …] which is based on my own judgement and on the information at my disposal [ …] However the following reservation should be noted: Brussels, 31 March 20XX "Signed" The Director-General

[1]True and fair in this context means a reliable, complete and correct view on the state of affairs in the service.

Reservation concerning the rate of residual errors with regard to the accuracy of financial statements in the Framework Programme

DG Declaration

• f Assurance

40

Audit Cycle

Planning Execution Reporting Strategy

41 41 41

Audit Planning

Selection of beneficiaries In-house: mission planning Externalised: batch preparation

Error Rate

€ € Population Sample Error Rate % = ∑ neg_adj € € ∑ aud_amount

• Assessing Legality Regularity of H2020 project

payments

• Residual error rate – acceptable level

General control objective: To get a residual error rate as close as possible to 2% , without necessarily expecting it to get under 2% .

H2 0 2 0 Audit

Assurance elem ents

44

Disclaimer: Information not legally binding

• Set fieldwork dates
• Prepare Audit Planning Memorandum (APM)
• Prepare and send Letter of Announcement (LoA)

 Request information (Annexes to LoA)

• Collect audit evidence (Internal Control

Questionnaire – Annex II LoA, Breakdown of costs – Annex III LoA, other evidence – Annex I LoA)

• Sampling

Audit Process – planning and preparation

Audit Process

45

Disclaimer: Information not legally binding

Audit process – Exam ination on site

Opening meeting Systems Analysis Systems and substantive testing Closure meeting Assessment after field- work

Usually during 4-5 working days (one week) (…)

General information on:

• organisation
• projects
• financial

administration

• internal control

systems

Audit agenda for the week

Collection of information and audit evidence, analysis

• f documents, interviews

with researchers, project presentations, physical inspections, etc.

Discussion on preliminary audit findings and

• bservations

Indication of further audit procedure

Audit Process

46

Disclaimer: Information not legally binding

Exam ination – Personnel Costs

Hours s Wo Worked x

Audit Process

47

Disclaimer: Information not legally binding

Main feedback from Audited Beneficiaries

Beneficiaries welcome audits conducted centrally by the Com m on Audit Service. Preparatory files in H2020 ex-post audits can be tim e consum ing. Certificate on Financial Statements (CFS): external auditors may not have the specialized know ledge needed for H2020 projects. The calculation of personnel costs can be com plex and tim e consum ing. Disproportionate audit effort on costs categories with low participation in the

• verall budget (e.g. travel costs and subsistence).

LRI & CoMUC: too long procedures.

Ex-post controls in H2 0 2 0 – The Feedback

HORI ZON 2 0 2 0

HORIZON 2020

LUMP SUM PI LOT

49

Disclaimer: Information not legally binding

Lum p sum grant: introduction

The grant agreement will set out the lump sum (EU funding) corresponding to the full accomplishment of the work committed in Annex 1. The lump sum for the grant is set out at its signature, the costs actually incurred are not relevant.

50

Disclaimer: Information not legally binding

Lum p sum grant: introduction ( ii)

Linked third party

BENEFI CI ARY

Subcontractor I nternational partner

Costs actually incurred are not relevant.

W ho does the w ork still is !

As in the General MGA:

• Linked third parties and international

partners must be named in the grant agreement

• Annex 1 must detail the tasks to be:

 Attributed to each linked third party  Attributed to each international partner  Subcontracted

51

Disclaimer: Information not legally binding

Option 1 Option 2

Lum p sum grant: tw o m ethods

Per project based on the budget Am ount of the lum p sum Fixed in the call

Amount set out in the call Proposal describes efforts and resources Split of the lump sum per WP and per beneficiary Proposal provides detailed estimation of cost Experts assess costs during the evaluation Lump sum is fixed at grant preparation

52

Disclaimer: Information not legally binding

Lum p sum grant: ex-post controls

Checks, review s and audits for:



Proper implementation of the action (e.g. technical audit)



Compliance with the other obligations of the grant:

〉

IPR obligations

〉

Obligations related to third parties (e.g. financial support)

〉

Other obligations (e.g. ethics, visibility of EU funding, etc.)



Bye, bye, financial audits

53

Disclaimer: Information not legally binding

Lum p sum grant: ex-post controls

You need

Technical documents Publications, prototypes, deliverables Who did what? … any document proving that the work was done as detailed in Annex 1

You don't need

Time-sheets Pay-slips or contracts Depreciation policy Travel invoices … .actual costs

Already the case under the general MGA

!

54

Disclaimer: Information not legally binding

Additional info

Participant Portal

At: http://ec.europa.eu/research/participants/portal/desktop/en/home.html

Horizon 2020 Annotated Grant Agreement

http://ec.europa.eu/research/participants/data/ref/h2020/grants_manual/amga/h2020-amga_en.pdf

Horizon 2020 On-line Manual

http://ec.europa.eu/research/participants/portal/desktop/en/funding/guide.html#

Questions? Research Enquiry Service

http://ec.europa.eu/research/enquiries

55

Disclaimer: Information not legally binding

Thank you for your attention & participation !