1. Training Seminar on an Information Point for FP7 in Palestine Witkowski Jacob, BA,CPA, CIA wjacob@bezeqint.net Nicosia, Cyprus 23-28 November 2008

2. Audit Justification The Commission may at any time during the grant period, and up to 5 years after the end of the project, arrange for audit to be carried out (Article II 22 of the Fp7 Model Grant Agreement)

3. Audit Purpose To substantiate the financial reports (Form C) To verify that expenses are according to financial FP7 regulations (eligible expenses) To verify that the reports are based on appropriate records To insure that the internal control of the organization allows for sampling checking To make sure that expenses have got a right audit trail

4. By Whom? DG in charge Court of auditors External Professionals In house employees

5. WHO IS BEING AUDITED? Coordinator CoordinatorPartner Sub Contractor ? Third Party? Is there a difference in the scope of audit?

6. Upper funding limits Maximum reimbursement rates Research and technological development activities Demonstration activities Management of the consortium activities Other activities Networks of Excellence 50%75%100%100% Collaborative Projects 50%75%50%100%100% Coordination and Support Actions 100%100%

7. Forum C

8. Typical Direct Costs Personnel Costs/Staff Salaries Personnel Costs/Staff Salaries Travel and subsistence Travel and subsistence Durable Equipment (depreciation) Durable Equipment (depreciation) Consumables Consumables Subcontracting costs Subcontracting costs

9. Indirect Costs (Overheads) Actual Indirect Costs Actual Indirect Costs Flat Rate (20%-60%) Flat Rate (20%-60%)

10. RentElectricity Municipal taxes Maintenance Office Supply Books & Newspapers Depreciation on office equipment Lawyers and Bookkeeping& Auditing Typical Indirect Costs

11. 1. Actual Indirect Costs Real Indirect Costs Simplified method: –A participant may use a simplified method to calculate its indirect costs at the level of the legal entity:  If the organisation does not have an accounting system with detailed cost allocation  In accordance with its usual management and accounting principles  Based on actual costs of the last closed accounting year

12. 2. Flat Rate Standard Flat Rate of 20% Standard Flat Rate of 20% Special transitional* flat rate of 60% only applicable for funding schemes with RTD activities for: Special transitional* flat rate of 60% only applicable for funding schemes with RTD activities for: –Non-profit Public Bodies –Secondary and Higher Education Establishments –Research Organisations –SMEs * Until end 2010 Excluding Subcontracting Excluding third party

13. Eligible Costs Actual Incurred by the beneficiary during duration of the project In accordance with the usual accounting and management principles of the beneficiary Recorded in the accounts of the beneficiary Used for the sole purpose of achieving the objectives of the project Consistent with principles of economy, efficiency and effectiveness

14. Non-Eligible Costs Identifiable indirect taxes including VAT Bank-interest, exchange rate differences Costs in other EU-projects Overpriced or economically unjustified costs Not documented costs Reserves

15. Examples of Non-eligible Costs Costs not incurred during the official life time of the project and paid up to 60 days from project end or the date of submission of final report –the earliest of them Tariffs Alternative expenses Alternative expensesAssessments

16. DividendsYield-Profit Allowance for loss Bank Charges Doubtful and bad debts Interest in leasing charges Vat Federal Taxes ( not city & municipality) Examples of Non-eligible Costs

17. THIRD PARTIES THIRD PARTY SUBCONTRACTOR No Profit Profit May have IP No IP Revised form C No form C Eligible cost if: Agreement in writing between beneficiary and third party prior to GA Approved in DOW Reported to beneficiary and not to Coordinator

18. Professors Exception Professors being paid directly from Government and not from the University are eligible costs because the professor is made available to the department and not to a specific Project. In this case the Government would be a Third Party

19. FINANCIAL REPORT All expenses in the financial report must be reported according to the budget line in form C Example: travel expenses which are direct expenses can not be reported as part of management

20. Example of estimation of costs & EC Contribution University participating in a Collaborative Project using the 60% flat rate for indirect costs Direct Costs RTD activities100,000 Demo activities 50,000 Other activities 10,000 Total160,000

21. Example of estimation of costs & EC Contribution + Indirect Costs (60%) RTD activities(100,000+60,000)160,000 Demo activities (50,000+30,000) 80,000 Other activities (10,000+6,000) 16,000 Total256,000

22. Example of estimation of costs & EC Contribution RTD(160,000 * 75%) = 120,000 Demo (80,000 * 50%) = 40,000 Management (16,000 * 100%) = 16,000 Total EC Contribution = 176,000

23. Certificate on financial statements (Audit) Mandatory for a beneficiary when its cumulative EC contribution exceeds € 375,000 Mandatory for a beneficiary when its cumulative EC contribution exceeds € 375,000 When the EC contribution is less than € 375,000 no CFS is required not even at the end of the project When the EC contribution is less than € 375,000 no CFS is required not even at the end of the project For projects of 2 years or less, no intermediate CFS – obligation of submission only at the end and if contribution ≥ € 375,000 and covering all eligible costs For projects of 2 years or less, no intermediate CFS – obligation of submission only at the end and if contribution ≥ € 375,000 and covering all eligible costs

24. 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

25. For public bodies/research organizations: An external auditor or a competent public officer Public officer: − May not be involved in preparation of financial statements − Independence/legal capacity has to be assessed by responsible national authorities

26. Necessity of Certification (1) CERTIFICATE ON FINANCIAL STATEMENTS (CFS) to deliver to Commission within 60 days after end of period CFS only mandatory, when requested funding for the period exceeds EUR 375.000 per beneficiary If Certification on Methodology – no intermediate CFS For projects of 2 years or less, only CFS at the end – no intermediate CFS EC-Contribution ≤ EUR 375.000 – no Certificate (not even at the end)

27. 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 375.000 Example 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

28. Audit-oriented documentation as essential factor 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

29. Lets discuss!

30. How long should I keep my accounting records after project end? What kind of documents should I supply to the auditor? How long takes an audit? Would I be notified before an audit? What is my chances of being audit? Is the audit performed on the partner or the coordinator or all participants? Frequently asked Questions

31. Should I contract sub-contractors or third parties? What kind of system should I use in indirect calculation :  Actual  Simplified  Standard  Transition flat rate Frequently asked Questions

32. How do I calculate the rate of exchange? DonationsIn-kind Approval of timesheets Digital timesheets and digital signature Over time calculation Effective hours calculation In house consultants (self employed) Transfer of money between partners Pre-kick-off meeting Frequently asked Questions

33. Certificate of methodology (com) Contractor refusing access to individual personal records Vat in non-profit organization Reimbursement of employees including Vat IP expenses. Frequently asked Questions