COSME WebinarERASMUS FOR YOUNG ENTREPRENEURS

11 February 2019

Financial management and reporting

COS-EYE-SGA-2016-4-01

AIMS OF THE WEBINAR

To provide beneficiaries with a set of guidelines and best

practices on:

- Appropriate financial management

- Correct reporting

To avoid recurrent errors identified during ex-post audits

For questions:

easme-cosme-communications@ec.europa.eu

2

WHY IS REPORTING IMPORTANT?

3

In final implementation phase, reporting is near!

Report should cover entire project duration

Do not repeat project proposal Focus on results!

Tell a true story – What went well, and what wrong

What changed?

Any staff changes?

Did you have issues with subcontracting?

Did you shift the budget from one heading to another?

Any other major changes during implementation?

Which deliverables performed well, and which faced difficulties?

Were your amendments effective?

INTELLECTUAL PROPERTY RIGHTS (GDPR)

Which deliverables are private, and which ones are public?

WHY IS REPORTING IMPORTANT?

4

Focus on achievements

What performance indicators were measured?

How did you manage the risks / unforeseen circumstances?

What is in plan for the future?

Focus on continuation and sustainability

Talk about lessons learnt

Highlight how the results fit into the general EU policy

WHY IS REPORTING IMPORTANT?

5

Last but not least!

Work on publishable summary

Think about style, include a photo or two, and highlight results

Spellcheck!

Prepare one Technical Final Report, but remember

ALL partners contribute to the final report (Financial Report):

encode actual costs

DOs (1)

1st February: All partners to check access to the periodic reporting

Inform EASME/project coordinator immediately should you not receive a notification

+ contact EC-Research-IT-Helpdesk@ec.europa.eu in case of problems

DOs (2) Finalise the Continuous Reporting (Deliverables, Milestones before sending report) coordinator (Work Package leader)

Relationship data:

• In the Financial Statements: total amount for each beneficiary

• EASME provides the state of relationship data as encoded in the EYE IT tool on 1 February 2019. Please send the file back as Annex to your Technical Report and explain discrepancies between it and your financial statement (if any)

Conflicts/disagreements between partners and LIO: to be solved before report submission ( consortium agreement)

DOs (3)

Make sure that both LEAR and PFSIGN are validated and appointed (e.g. after change in your organisation)

otherwise submission of report without that partner (or

delayed)

Respect both EYE funding ceilings:

75% of programme management costs

(direct personal costs, other direct costs, subcontracting, indirect costs)

+

up to 100% NE budget

DOs (4)

• Unit costs for SME owners/natural beneficiaries without salary

• Possible Helpdesk interventions in case this category is not available (contact your PO)

• Declare the number of actual hours worked by the SME owner at the unit rate

DONTs (1)

• Don't wait until the end of the submission deadline to gather data from partners

• Don't submit any supporting document unless explicitly asked to do so

• Don’t modify the templates provided

• Don't mix cost-categories

• Don't contact the EYE Support Office regarding Final Reporting

FINAL REPORTING

11

• Technical Report

• Financial Report

REPORTING – FINANCIAL DOCUMENTS

12

Final report

• Final technical report

• Final financial report, including:

• Individual financial statement (see annex 3)

• Explanation of the use of resources

• Final summary financial statement

• CFS (see annex 4), if applicable

SOME DEFINITIONS TO BEGIN WITH

• Eligible costs

• What are not eligible costs

• Direct and indirect costs

• VAT

13

• Costs actually incurred, identifiable and verifiable,

recorded in the accounts, etc.

• non-deductible VAT paid is also eligible Actual costs

• Direct costs of providing financial support to thirdparties

• Costs for SME owners working on the action withoutreceiving a salary

•

Unit costs

• A percentage to be calculated on the direct costsFlat rate

• Not applicable

Lump sum

Forms of cost

14

BUDGET CATEGORIES AND FORMS OF COSTS

Personnel Subcontracting

Financial

support to 3rd

parties

Other

Actual costs

Unit costs NA

Flat-rate

costs

Lump sum

costs NA

INDIRECT

COSTS

DIRECT COSTS SPECIFIC

CATETORIES

OF COSTS

FORMS OF

COSTS

BUDGET CATEGORIES

15

EXAMPLES OF GENERAL ERRORS DETECTED IN EX-POST AUDITS

• Amounts claimed in financial statements do not reconcile with the costs incurred and booked in the accounting system

• Declaration of costs based on budget estimates instead of amounts spent

• Lack of supporting documents to substantiate costs(lack/incomplete timesheets, miscalculation of

daily/monthly rates, lack of supporting documents related to procurement procedures…)

• Costs incurred outside of eligibility period

• Miscalculations of costs

• Durable equipment not depreciated / purchase costs not reasonable / no link to project

16

PERSONNEL COSTS

PERSONNEL COSTS Errors identified during the ex-post audits

Lack of supporting documents

Lack of reconciliationbetween the

FS and accounting

records

Clericalerrors

Indirect costs

claimedas direct

costs

Unreliable time records

Differences in time units between

timesheets and FS

Ineligibleelements

included in the rate

Eligible elements

not included in the rate

Incorrect methodology

for calculating the rates

Incorrect calculation of

the annual productive

hours

Wrong classification

of costs

18

ERRORS RELATED TO PERSONNEL COSTS

• Wrong calculation of annual productive hours

• Lack of timesheets (or other evidence) to record the time worked on the project

• Timesheets do not comply with the minimum requirements as set in Grant Agreement

• Days/months claimed cannot be supported / unrealistic number of days/months claimed

• Salary costs include ineligible elements or they do not include eligible elements

19

ERRORS RELATED TO PERSONNEL COSTS

• Consultants or external staff costs are incorrectly declared as personnel costs

• Beneficiaries without personnel wrongly declare personnel costs

• Charging of 'billable hours' (commercial rate) instead of actual costs

• Criteria for in-house consultants not met

• Costs of SME owners not receiving a salary are declared in the wrong cost category

20

1.Categories of personnel eligible under staff costs:

• Employees: Staff working for the beneficiary under a

written employment contract (or equivalent appointing act)

• Natural persons working under a direct contract with

the beneficiary other than an employment contract (in-

house consultants)

• Seconded by a third party against payment

• SME owners without a salary

21

2. Categories of personnel to be considered assubcontracting:

• A person employed under a contract with a third intermediaryparty (e.g. interim action employment, consultancy company).

• Natural persons working under a direct contract with thebeneficiary other than an employment contract, if:

the contract fixes only a global remuneration (withoutspecifying time to be worked), the remuneration is based ondeliverables;

or when the eligibility criteria for being considered as in-houseconsultant under staff costs are not met

22

3.Category of personnel to be considered as other

direct costs:

• Trainees, including the costs of their recruitment and

remuneration

Prior approval of EASME is necessary for being

claimed in the financial statement!

23

Components of the annual personnel costs for the

person

Must be limited to:

1.The gross salary stated on payroll

2. Social security contributions

3. Taxes included in the remuneration

4. Other costs included in the remuneration

(e.g. fee paid by the beneficiary for a complementary healthinsurance scheme for the employee, 13th month, complementfor hazardous work or night shifts, transportation allowance,lunch vouchers etc.)

24

Annual personnel costs

Annual productive days/months

Actual Personnel Cost =

Days/Months worked for the project x Daily/monthly rate

Daily/Monthly rate =

The daily/monthly rate is to be calculated per financial

year

If the financial year is not closed at the time of reporting,

the beneficiary must use the last closed financial year available.

Actual personnel costs: calculation

25

Two methods for the calculation of yearly productive time

1. For staff working exclusively on the action, the annualpersonnel costs for the person shall be divided by 12 to get theindividual monthly rates.

2. For staff working part-time for the action, the beneficiaryneeds to use daily rate for the person multiplied by the number ofactual days worked on the action.

26

Reporting period (example)

2017 2018 2019

01/10/2017 31/03/2019

Monthly / Daily rates of 2018 will also be used

for these months

ADVANTAGES FOR THE BENEFICIARIES

NO ADJUSTMENTS TO BE DECLARED IN THE NEXT PERIOD

LEGAL CERTAINTY: NO DOUBTS ABOUT WHAT PERIOD AND WHAT DATA MUST BE USED FOR THE CALCULATION

REMOVES ERRORS DUE TO INCORRECT CALCULATIONS FOR FRACTIONS OF A YEAR

Use of the last closed financial year

Actual personnel costs: Calculation

27

Example of calculation of individual annual productive days:Dr Rossi -full-time project manager. His contract includes 22 working days ofannual leave, plus 8 days of public holidays. In the financial year covered bythe reporting period, Dr Rossi worked 2 days of overtime and was on sickleave for 5 days.

• The individual annual workable days are:

365 days- 104 days (Saturdays and Sundays)- 22 days (annual leave)- 8 days (public holidays) =

231 days

231 days• Individual annual productive days for Dr. Rossi:

231 Annual workable days+ 2 overtime (days)- 5 annual sick leave=

228 days

28

Calculations of staff costs to be charged in the financial statements

• Daily/monthly rateTime unit charged to

the action(hourly/daily/monthly)

x

29

Be careful!

• The rate must be calculated by financial year (i.e. for 12-month period reported in the annual accounts of theBeneficiary)

• The rate has to be based on full closed financial year

• At the end of the reporting if the financial year is notclosed, data from the last full closed financial yearneeds to be used.

30

Declaration on exclusive work for the action

OR

In most cases you will need to record hours spent on the project.Please do it at least on a monthly basis, and have your timesheetscountersigned by supervisor!

Time recording

Time sheets

31

Timesheets should include the following minimum information

1. Title and number of the action, as specified in the GA;

2. Beneficiary’s full name, as specified in the GA;

3. Full name, date and signature of the person working for

the action;

4. Counter-signature from supervisor’s or other

relevant person - Every timesheet needs to be

countersigned !

5. Number of hours/days worked for the action in the

period covered by the time record, with at least month level

granularity.32

Natural persons working under a direct contract

33

Most frequent errors in relation to natural persons working under a

direct contract as staff costs identified during the ex-post audits:

Lack of consultancy agreement

Lack of invoices

Natural persons

costs do not meet the 4 cumulative

criteria

Costs not recorded

in the accounting

system

Consultancycontract with

a legalperson

34

Natural persons working under a direct contract

Cumulative conditions to be met for being considered eligible under staff costs:

1. There must be a direct contract between the natural person (individual) and thebeneficiary.

2. The person must work under the beneficiary's instructions and, unlessotherwise agreed with the beneficiary through a teleworking agreement, on thebeneficiary's premises.

3. The result of the work carried out must belong to the beneficiary.

4. The costs are not significantly different from those for personnel performingsimilar tasks under an employment contract with the beneficiary.

35

Natural persons working under a direct contract

For the time rate, the beneficiary must use one of the following options:

• if the contract specifies a monthly/daily/hourly rate: this rate must be used;

• if the contract states a fixed amount for the services of the natural person and

the number of hours to be worked: this global amount must be divided by the

number of months/days/hours to be worked for the beneficiary under that contract.

36

Natural persons working under a direct contract

• If the contract fixes only a global amount and does not specify thetime to be worked, the costs can NOT be declared as personnelcosts, but may be eligible as purchase of a service or a subcontract(see art 7 and 8 SGA), provided that the specific eligibility conditions setout in Article 5.1 and 5.2 are met.

• Beneficiaries who are using this type of contract should notify EASMEand should request a budget transfer from personnel tosubcontracting cost categories, at the latest at the time of submission ofthe final report.

37

SME owners working on the action without receiving a salary

38

• Personnel costs for SME owners not receiving a salary must be declared on the

basis of the amount per unit.

• At the time of the financial reporting, please declare the actual hours worked by the

SME owner.

Unit cost is fixed as per Commission Decision C(2017)1118 of 23.2.2017,

replaced by Commission Decision C(2017)5411 of 4.8.2017

PROCUREMENT/SUBCONTRACTING

Errors related to procurement: purchase of goods, works and services,

subcontracting

• Lack of evidence that procurement procedure was sound (best valuefor money, transparency and equal treatment)

• Where competitive tendering was not used, this was not sufficientlydocumented and justified

• Participant's own normal practice not applied

• Sub/contracting to a related party (conflict of interest)

40

Subcontracting

Article 8.1 SGA

“The beneficiaries must award the subcontractsensuring the best value for money or, ifappropriate, the lowest price. In doing so, theymust avoid any conflict of interests”

N.B:

In EYE projects, subcontracting is only allowed under Work Package 2 (in accordance

with the call provisions)

41

Basic principles of procurement

• The beneficiary must provide evidence that theprinciple of best value for money, transparency andequal treatment has been respected when selecting thesuppliers.

• The beneficiary must avoid any conflict of interest whenawarding contracts.

• Public authorities need to follow national rules onprocurement, private entities their own rules andprocedures

• Compliance with the principles of procurement should beapplied in following costs categories:

Subcontracting

Equipment

Other goods and services

42

• Travel and subsistence

• Equipment

• Costs of other goods and services

43

Other direct costs

Travel and subsistence

In the travel category, action related travels of staff assigned to the action should be claimed only.

Certain travel costs cannot be claimed under travel and subsistence costs category, but can be declared under other categories:

• Travel costs of subcontractors should be claimed under subcontracting;

• Travel costs of trainees should be claimed under other direct costs;

44

Equipment

• The depreciation cost of equipment, infrastructure or otherassets are eligible if:• they are purchased in compliance with the basic principle of

procurements• the assets are included in the asset register of the beneficiary• the depreciation is recorded in the beneficiary’s accounts and is

calculated in accordance with international accounting standardsand beneficiary’s usual accounting practices.

• The basis for depreciation = acquisition value (excluding VAT,eventually discounts received).

• Only portion of costs which corresponds to the duration of theaction and the rate of actual use for the purpose of the actioncan be charged to the project

45

Example of depreciation calculation

(A/B) x C x D

• A = period the asset was used by the Beneficiary

• B = estimated useful life (total period of depreciation)

• C = actual cost of equipment

• D = percentage of use for the purposes of the action

Example: Purchase of a computer at a cost of €6,000. Estimated useful life of 3 years. Installed on 01/01/2014.

Action runs from 01/01/2013 to 31/12/2015.

50% used for the purposes of the action.

Which depreciation cost should be charged to the action

46

Equipment

= (24/36) * 6000* 50%= (0.6667) * 3000= €2000 = eligible depreciation cost for the project

47

Equipment

The cost of renting or leasing equipment, infrastructureor other assets are also eligible, if:

• If they do not exceed the depreciation costs of similarequipment

• And do not include any financing fees

48

BUDGET RE-ALLOCATION

Budget re-allocation

Budget transfers and re-allocation

Amendment needed?

From one beneficiary to another NO

From one budget category to another NO

Transfer of budget with substantial change of Annex I – Description of the Action

YES

Transfers between forms of costs (actual costs, unit costs, etc.)

YES if no budget was foreseen for the "form" receiving the transfer

New subcontractsYES (strongly advised. Please check

with your PA)

50

Example of Budget transfer for a co-beneficiary

51

The Maximum Grant amount cannot increase at Consortium level

CALCULATION OF THE FINAL GRANT AMOUNT – 4 STEPS

52

This amount is calculated by the Agency in the following steps:

• Step 1 – Application of the reimbursement rate to the eligible costs

• Step 2 – Limit to the maximum grant amount

• Step 3 – Reduction due to the no-profit rule

• Step 4 – Reduction due to improper implementation or breach of other obligations

Requested EU Contribution = declared costs X Reimbursement rates %:

• 75% programme management declared costs (direct personal costs, other direct costs, subcontracting, indirect costs) +

• 100% NE budget declared costs

Example of calculation of final grant

53

I. Actual costs incurred lower than estimated budget:

Estimated Eligible Costs Euro 110.000,00

Maximum Grant Amount Euro 95.000,00

% reimbursement = 100% Financial Support third Parties+

75% Other direct / Indirect Costs

1.

Total NE Support Euro 35.000,0

Total Management Costs Euro 50.000,00

Indirect Costs 7% on management Costs Euro 3.500,00

-----------------------------------------------------------------------------

Total costs declared Euro 88.500,00

2. Rejected Direct costs - Euro 1.000,00

Rejected Indirect Costs 7% - Euro 70,00

Total Eligible accepted costs Euro 87.430,00

54

A. Maximum EU Contribution is 90% eligible costs (art. 4.2)

Euro 87.430,00 X 90% = Euro 78.687,00

B. Grant calculation=

Financial Support Third Parties 100% - Euro 35.000,00 +

Other Programme Accepted Costs 75% 49.000 - Euro 36.750,00+

Indirect Accepted Costs 75% (7% 59.000) Euro 2.572,50

----------------------------------------------------------------------------

Total Grant calculated on eligible costs Euro 74.322,50

C. Reduction 5% (calculated on the maximum grant amount art. 5.1) Euro 95.000 – 5% reduction = Euro 90.250,00

D. Maximum Grant Amount specified art. 4.1 Euro 95.000,00

Final Grant Amount to be paid is the lower amongst A, B and C in respect of the max grant amount specified at art. 4.1 of SGA

55

II. Actual costs incurred higher than estimated budget

Estimated Eligible Costs Euro 110.000,00

Maximum Grant Amount Euro 95.000,00

% reimbursement = 100% Financial Support third Parties+

75% Other direct / Indirect Costs

1.

Total NE Support Euro 60.000,0

Total Management Costs Euro 70.000,00

Indirect Costs 7% on management Costs Euro 4.900,00

-----------------------------------------------------------------------------

Total costs declared Euro 134.900,00

2. Rejected Direct costs - Euro 1.000,00

Rejected Indirect Costs 7% - Euro 70,00

Total Eligible accepted costs Euro 133.830,00

56

A. Maximum EU Contribution is 90% eligible costs (art. 4.2)

Euro 134.530,00 X 90% = Euro 121.077,00

B. Grant calculation=

Financial Support Third Parties 100% - Euro 60.000,00 +

Other Programme Accepted Costs 75% 69.000 - Euro 51.750,00+

Indirect Accepted Costs 75% (7% 69.000 ) Euro 4.147,50

----------------------------------------------------------------------------

Total Grant calculated on eligible costs Euro 115.372,50

C. Maximum Grant Amount specified art. 4.1 Euro 95.000,00

Final Grant Amount to be paid: 95.000 euro (lower amongst A, B and C)

In case of reduction:

D. Reduction 5% (calculated on the maximum grant amount art. 5.1) Euro 95.000 – 5% reduction = Euro 90.250,00

Final Grant Amount to be paid is the lower amongst A, B, C and D in respect of the max grant amount specified at art. 4.1 of SGA

Example of automatic reduction of the grant (1)

57

Formal communication “SGA-1 EASME final assessment methodology”, 06/03/2018:

A. Quantitative assessment

• step 1) Check of Minimum target (eligibility criterion) AND

• step 2a) Proportionality check - against project targets.

1)Check of Minimum target (eligibility criterion): 220 = target; if 215-219 RLTs achieved:

Max. Grant: 95.000 Euro

– Reduction: 4.750 Euro = 90.250,00 Euro

No tolerance under this assessment step is foreseen.

Example of automatic reduction of the grant (2)

58

2a) Proportionality check against project targets:

Has the project reached its set targets of relationships?

-> tolerance of 20% under this assessment step

-> 220 = target; 167 RLTs achieved = 75-79%

-> 5% reduction of max. grant = 4.750 Euro

In this case reduction under both scenarios is the same, but it can be different

2b) Possible compensation

Have projects spent 100% of estimated NE budget:

-> Up to 10% compensation on the previously calculated automatic reduction of the grant

USEFUL LINKS:

More guidance:

• "HOW TO" on the Participant Portal – external wiki

https://webgate.ec.europa.eu/fpfis/wikis/display/ECResearchGMS/Periodic+Reporting

• GOFUND – Reporting and Payment process info

https://webgate.ec.europa.eu/fpfis/wikis/x/PqXABQ

SPEAKERS

60

EASME Unit C.1 Finance

Sector C.1.5 COSME

Head of Sector – Cedric De Ridder

Senior Financial Officer – Paolo Roz

Financial Adviser – Simona Da Corta Fumei

EASME Unit A.1 COSME

Sector A.1.4 Entrepreneurship

Senior Project Adviser – Ralph Diestelhorst

QUESTIONS?

EASME-COSME-COMMUNICATIONS@ec.europa.eu

THANK YOU FOR YOUR ATTENTION

61