training seminar on an information point for fp7 in palestine witkowski jacob, ba,cpa, cia...
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Training Seminar onTraining Seminar onan Information Point for an Information Point for FP7 in PalestineFP7 in Palestine
Witkowski Jacob, BA,CPA, CIAWitkowski Jacob, BA,CPA, [email protected]
Nicosia, Cyprus 23-28 November 2008Nicosia, Cyprus 23-28 November 2008
Audit JustificationAudit Justification
The Commission may at any time during The Commission may at any time during the grant period, and up to 5 years after the grant period, and up to 5 years after the end of the project, arrange for audit to the end of the project, arrange for audit to be carried outbe carried out
(Article II 22 of the Fp7 Model Grant (Article II 22 of the Fp7 Model Grant Agreement)Agreement)
Audit PurposeAudit Purpose
To substantiate the financial reports (Form C)To substantiate the financial reports (Form C)
To verify that expenses are according to To verify that expenses are according to financial FP7 regulations (eligible expenses)financial FP7 regulations (eligible expenses)
To verify that the reports are based on To verify that the reports are based on appropriate recordsappropriate records
To insure that the internal control of the To insure that the internal control of the organization allows for sampling checkingorganization allows for sampling checking
To make sure that expenses have got a right To make sure that expenses have got a right audit trailaudit trail
By WhomBy Whom??
DG in chargeDG in charge
Court of auditorsCourt of auditors
External ProfessionalsExternal Professionals
In house employeesIn house employees
WHO IS BEING AUDITEDWHO IS BEING AUDITED??
CoordinatorCoordinator
PartnerPartner
Sub Contractor ?Sub Contractor ?
Third Party?Third Party?
Is there a difference in the scope of audit?Is there a difference in the scope of audit?
Upper funding limitsUpper funding limits
Maximum Maximum reimbursement reimbursement
ratesrates
Research and Research and technological technological development development
activitiesactivities
Demonstration Demonstration activitiesactivities
Management of Management of the consortium the consortium
activitiesactivitiesOther activitiesOther activities
Networks of Networks of ExcellenceExcellence
50%50%
75%75%100%100%100%100%
Collaborative Collaborative ProjectsProjects
50%50%
75%75%50%50%100%100%100%100%
Coordination Coordination and Support and Support
ActionsActions100%100%100%100%
Typical Direct CostsTypical Direct Costs
Personnel Costs/Staff SalariesPersonnel Costs/Staff Salaries Travel and subsistenceTravel and subsistence Durable Equipment (depreciation) Durable Equipment (depreciation) ConsumablesConsumables Subcontracting costsSubcontracting costs
Indirect Costs (Overheads)Indirect Costs (Overheads)
• Actual Indirect CostsActual Indirect Costs
• Flat Rate (20%-60%) Flat Rate (20%-60%)
RentRentElectricityElectricityMunicipal taxesMunicipal taxesMaintenanceMaintenanceOffice SupplyOffice SupplyBooks & NewspapersBooks & NewspapersDepreciation on office equipmentDepreciation on office equipmentLawyers and Bookkeeping& AuditingLawyers and Bookkeeping& Auditing
Typical Indirect CostsTypical Indirect Costs
1. Actual Indirect Costs1. Actual Indirect Costs
Real Indirect CostsReal Indirect Costs
Simplified method: Simplified method: – A participant may use a simplified method to A participant may use a simplified method to
calculate its indirect costs at the level of the calculate its indirect costs at the level of the legal entity:legal entity: If the organisation does not have an accounting If the organisation does not have an accounting
system with detailed cost allocationsystem with detailed cost allocation In accordance with its usual management and In accordance with its usual management and
accounting principles accounting principles Based on actual costs of the last closed Based on actual costs of the last closed
accounting yearaccounting year
2. Flat Rate2. Flat Rate Standard Flat Rate of 20%Standard Flat Rate of 20% Special transitional* flat rate of 60% only Special transitional* flat rate of 60% only
applicable for funding schemes with RTD applicable for funding schemes with RTD activities for:activities for:– Non-profit Public BodiesNon-profit Public Bodies– Secondary and Higher Education EstablishmentsSecondary and Higher Education Establishments– Research OrganisationsResearch Organisations– SMEsSMEs
* * Until end 2010Until end 2010
Excluding SubcontractingExcluding Subcontracting
Excluding third partyExcluding third party
Eligible CostsEligible Costs
ActualActual
Incurred by the beneficiary during duration of the Incurred by the beneficiary during duration of the projectproject
In accordance with the usual accounting and In accordance with the usual accounting and management principles of the beneficiarymanagement principles of the beneficiary
Recorded in the accounts of the beneficiaryRecorded in the accounts of the beneficiary
Used for the sole purpose of achieving the Used for the sole purpose of achieving the objectives of the projectobjectives of the project
Consistent with principles of economy, efficiency Consistent with principles of economy, efficiency and effectivenessand effectiveness
Non-Eligible CostsNon-Eligible Costs
Identifiable indirect taxes including VATIdentifiable indirect taxes including VAT
Bank-interest, exchange rate differencesBank-interest, exchange rate differences
Costs in other EU-projectsCosts in other EU-projects
Overpriced or economically unjustified costsOverpriced or economically unjustified costs
Not documented costsNot documented costs
ReservesReserves
Examples of Non-eligible CostsExamples of Non-eligible Costs
Costs not incurred during the official life Costs not incurred during the official life time of the project and paid up to 60 days time of the project and paid up to 60 days from project end or the date of submission from project end or the date of submission of final report –the earliest of themof final report –the earliest of them
TariffsTariffs
Alternative expensesAlternative expenses
AssessmentsAssessments
DividendsDividendsYield-ProfitYield-ProfitAllowance for lossAllowance for lossBank ChargesBank ChargesDoubtful and bad debtsDoubtful and bad debtsInterest in leasing chargesInterest in leasing chargesVatVatFederal Taxes ( not city & municipality)Federal Taxes ( not city & municipality)
Examples of Non-eligible CostsExamples of Non-eligible Costs
THIRD PARTIESTHIRD PARTIESSUBCONTRACTORSUBCONTRACTORTHIRD PARTYTHIRD PARTY
ProfitProfitNo ProfitNo Profit
No IPNo IPMay have IPMay have IP
No form CNo form CRevised form CRevised form C
Eligible cost if:Eligible cost if:
Agreement in writing between beneficiary and Agreement in writing between beneficiary and third party prior to GAthird party prior to GA
Approved in DOWApproved in DOW
Reported to beneficiary and not to CoordinatorReported to beneficiary and not to Coordinator
Professors ExceptionProfessors Exception
Professors being paid directly from Professors being paid directly from Government and not from the University Government and not from the University are eligible costs because the professor is are eligible costs because the professor is made available to the department and not made available to the department and not to a specific Project. In this case the to a specific Project. In this case the Government would be a Third PartyGovernment would be a Third Party
FINANCIAL REPORTFINANCIAL REPORT
All expenses in the financial report must All expenses in the financial report must be reported according to the budget line in be reported according to the budget line in form Cform C
Example: travel expenses which are direct Example: travel expenses which are direct expenses can not be reported as part of expenses can not be reported as part of managementmanagement
Example of estimation of costs & EC Example of estimation of costs & EC ContributionContribution
UniversityUniversity participating in a participating in a Collaborative ProjectCollaborative Project using the using the 60%60% flat rate for indirect costsflat rate for indirect costs
Direct CostsDirect Costs
RTD activitiesRTD activities 100,000100,000
Demo activitiesDemo activities 50,000 50,000
Other activitiesOther activities 10,000 10,000
TotalTotal 160,000160,000
Example of estimation of costs & EC Example of estimation of costs & EC ContributionContribution
+ Indirect Costs (60%)+ Indirect Costs (60%)
RTD activitiesRTD activities (100,000+60,000)(100,000+60,000)160,000160,000
Demo activities (50,000+30,000)Demo activities (50,000+30,000) 80,00080,000
Other activities (10,000+6,000)Other activities (10,000+6,000) 16,000 16,000
TotalTotal 256,000256,000
Example of estimation of costs & EC Example of estimation of costs & EC ContributionContribution
RTDRTD (160,000 * 75%) (160,000 * 75%) = = 120,000120,000
Demo Demo (80,000 * 50%) (80,000 * 50%) = = 40,00040,000
Management Management (16,000 * 100%) (16,000 * 100%) = = 16,00016,000
Total EC Contribution Total EC Contribution = = 176,000176,000
Certificate on financial statements Certificate on financial statements (Audit)(Audit) Mandatory for a beneficiary when its Mandatory for a beneficiary when its
cumulative EC contribution exceeds cumulative EC contribution exceeds €€ 375,000375,000
When the EC contribution is less than When the EC contribution is less than €€ 375,000 no CFS is required not even at 375,000 no CFS is required not even at the end of the projectthe end of the project
For projects of 2 years or less, no For projects of 2 years or less, no intermediate CFS intermediate CFS –– obligation of obligation of submission only at the end and if submission only at the end and if contribution ≥ contribution ≥ €€ 375,000 and covering 375,000 and covering all eligible costsall eligible costs
Qualification of Auditors for CFS
For any legal entity: An external auditor− Must be independent from the contractor− Must be qualified to carry out statutory financial audits (in accordance with the 8th Council directive (2006/43/EC))− Beneficiary is free to choose
The commission audit takes into consideration the CFS but performs its own independent audit
For public bodies/research organizations: An external auditor or a competent public officerPublic officer: − May not be involved in preparation of financial statements− Independence/legal capacity has to be assessed by responsible nationalauthorities
Necessity of Certification (1)
CERTIFICATE ON FINANCIAL STATEMENTS (CFS) to deliver to Commissionwithin 60 days after end of period CFS only mandatory, when requested funding for the period exceeds EUR 375.000 per beneficiaryIf Certification on Methodology – no intermediate CFSFor projects of 2 years or less, only CFS at the end – no intermediate CFSEC-Contribution ≤ EUR 375.000 – no Certificate (not even at the end)
Necessity of Certification (2)
Example: Year 1: EC Contribution EUR 200.000 – no CFS Year 2: EC Contribution EUR 180.000 – CFS has to be submitted(EUR 200.000 + EUR 180.000 > EUR 375.000) Year 3: EC Contribution EUR 250.000 – no CFS because < EUR 375.000Example certificate on methodology : Year 1: EC contribution EUR 200.000 - no CFS because < EUR 375.000 Year 2: EC contribution EUR 180.000 (EUR 200.000 + EUR 180.000> EUR 375.000) no intermediate CFS (because of certificate on methodology Year 3: EC contribution EUR 250.000 - CFS for all years
Audit-oriented documentation as essentialfactor of success
•Contract with the commission•Relevant correspondence•Audit-oriented preparation of invoices – traceability to book keeping•Preparation of time records, calculation of personnel and indirect costs•Project folder with all documentation•Access to book keeping•Audited financial report
How long should I keep my accounting How long should I keep my accounting records after project end?records after project end?What kind of documents should I supply to What kind of documents should I supply to the auditor?the auditor?How long takes an audit?How long takes an audit?Would I be notified before an audit?Would I be notified before an audit?What is my chances of being audit?What is my chances of being audit?Is the audit performed on the partner or Is the audit performed on the partner or the coordinator or all participants?the coordinator or all participants?
Frequently asked QuestionsFrequently asked Questions
Should I contract sub-contractors or third Should I contract sub-contractors or third parties?parties?
What kind of system should I use in What kind of system should I use in indirect calculation : indirect calculation :
ActualActualSimplifiedSimplifiedStandardStandardTransition flat rate Transition flat rate
Frequently asked QuestionsFrequently asked Questions
How do I calculate the rate of exchange?How do I calculate the rate of exchange?DonationsDonationsIn-kindIn-kindApproval of timesheetsApproval of timesheetsDigital timesheets and digital signatureDigital timesheets and digital signatureOver time calculationOver time calculationEffective hours calculationEffective hours calculationIn house consultants (self employed)In house consultants (self employed)Transfer of money between partners Transfer of money between partners Pre-kick-off meeting Pre-kick-off meeting
Frequently asked QuestionsFrequently asked Questions
Certificate of methodology (com)Certificate of methodology (com)
Contractor refusing access to individual Contractor refusing access to individual personal recordspersonal records
Vat in non-profit organizationVat in non-profit organization
Reimbursement of employees including Reimbursement of employees including VatVat
IP expenses.IP expenses.
Frequently asked QuestionsFrequently asked Questions