ICT-PSP Reporting / payments

Willy Van Puymbroeck23 June 2011

••• 2

Overview

• ICT-PSP Payments – essentials (excluding ‘lump sum’ Thematic Networks)

• Business workflow• Periodic reporting including financial statements• Costs reporting @participant level • Submission of the periodic report by the coordinator• Payment modalities

• Certification of financial statements (CFS)• Controls and audits• Some best practices

• ‘Lump sum’ Thematic Networks

••• 3

Payments in ICT-PSP-Essentials (excluding ‘lump sum’

Thematic Networks)

• Basic principles– Cost reimbursement – Eligible and non-eligible costs– No-profit and co-financing– Direct Cost – Indirect Cost – Reimbursement rate – Maximum Union contribution– Requested Union contribution

••• 4

EssentialsSome legal references

• Article II.4 sets the reporting obligations

– Reporting periods are defined in Article 4 of the core grant agreement – includes the submission of individual financial statements

• Article II.5 sets the approval of reports and deliverables, time-limit for payments

– Includes the payment of interest by the Commission in case of late payments

• Article II.28 sets the frame for financial audits

– During the project and up to five years after the date of final payment.

• Article II.29 sets the frame for the technical review

– During the project and up to five years after the date of final payment

••• 5

EssentialsEligible costs

• Actual

• Incurred by the beneficiary

• Incurred during the duration of the project …

• Determined in accordance with its usual accounting and management principles

• Necessary for the implementation of the project

• Recorded in the accounts of the beneficiary

• Indicated in the indicative breakdown of the budget

••• 6

EssentialsNon-Eligible costs

• Costs of capital employed• Provisions for possible future losses or charges• Interests owned• Exchange losses• Provisions for doubtful debts• Resources made available to a beneficiary free of charge• Value of contributions in kind• Unnecessary or ill-considered expenses• Marketing, sales and distribution costs for products and services• Indirect taxes and duties, including VAT*• Entertainment or hospitality expenses**• Any cost incurred or reimbursed in respect of, in particular,

another Community, international or national project

* Unless the beneficiary can show that it is unable to recover it** Except reasonable expenses accepted by the Commission as being absolutely

necessary for carrying out the project

••• 7

Essentials No-profit and co-financing

• The Community contribution may

not give rise to any profit for any

beneficiary … For each beneficiary,

the Community contribution may

not exceed the total costs minus

the receipts of the project

(see Art. II.25.3)

••• 8

EssentialsIndirect costs and funding rate

• Pilots

– Indirect costs: flat rate of 30% of personnel costs*

– Funding rate: 50% of eligible costs

• Best Practice Pilots

– Indirect costs: No indirect costs

– Funding rate: 80% of eligible costs

* For calls 2007 and 2008 actual indirect costs could be used

••• 9

EssentialsReporting requirements

• During the project– Periodic report (within 60 days of the end of each reporting

period defined in Article 4) including the last reporting period

– Deliverables identified in Annex I

• End of the project (within 60 days)– Final Report, including publishable summary covering

results, conclusions and socio-economic impact of the

project • After receiving the final payment (within 30

days)– Report on the distribution of the EU financial contribution

between beneficiaries

••• 10

EssentialsPayment modalities

• The Commission shall evaluate the project reports and deliverables … and disburse the corresponding payments within 105 days .. unless the time-limit, the payment or the project has been suspended

• Payments shall be made after the Commission’s approval of the reports and/or deliverables

• The Commission may proceed with an interim payment in part if some reports or deliverables are not submitted as required, or are only partially or conditionally approved

• The total amount of pre-financing and interim payments shall not exceed 90% of the maximum Community contribution

• The payments of the Commission shall be regarded as having been effected on the date on which the Commission’s account is debited

• On expiry of the time limit for approval of the reports … the beneficiaries shall be entitled on late interest payment …

• Payment to the coordinator on behalf of the beneficiaries

••• 11

Business workflow – new ways of cooperation

…………………………………Project runs ………………………………………………………….

Period ends

financial statements in PDF format by e-mail to the

coordinator

Max 60 days Max 105 days

Pro

ject re

vie

w

7

Beneficiaries fill financial statements

EC creates NEF session

Coordinator submits the Periodic Report

e-mail to coordinator to access NEF through Participants Portal

EC validates report

yesno

1

2

3

45

5

6

Coordinator collects signed financial statements

e-mail sent to coordinator

EU check signed financial statements

EU executes Payment

Coordinator sends periodic report with all signed originals to EU

EU check costs

••• 12

Periodic reporting Use of Participant Portal/NEF

• Contractual reporting requirement– By the Coordinator

– By the beneficiaries

• Use of NEF– Participant Portal - Getting access: coordinator

(submits), beneficiaries (data entry)

– Reporting/Payment sessions –several iterations possible;

• Commission verifies at this stage whether all information has been received. The eligibility of costs is checked once the progress report has been submitted

••• 13

Periodic reporting Use of Participant Portal/NEF

• Advantages– Pro-active management

– Re-use rather then re-entry of contractual data

• Efficiency

• Consistency between data in the grant agreement and data in the financial statement

– Improve time to payment

– Reduce of errors

– Use known mechanism of ‘electronically interaction’ with the Commission

••• 14

Cost reporting @participant level

• Financial statement (see guide to financial issues) for each reporting period– Costs

• Direct costs

• Indirect costs

– Receipts

– Interest

– Certificate on the Financial Statement

– Beneficiary’s declaration on its honour

• The individual financial statement is also to be used for adjustments to previous periods

••• 15

Financial statement-Costs

• Direct costs– Personnel. Persons

• Must be directly hired• Work on the sole technical supervision and responsibility of the

beneficiary• Be remunerated in accordance with the normal practices of the

beneficiary– Subcontracting

• Subcontracts may only cover the execution of a limited part of the work (specific conditions for pilot A)

• Must be duly justified in Annex I• Recourse to subcontracts may not affect rights and obligations of

the beneficiaries regarding background and foreground• Annex I must indicate the tasks to be subcontracted and an

estimation of the costs– Other direct costs (travel, durable equipment, consumables,

…)• Indirect costs

– According to the grant agreement

••• 16

Financial statementIn NEF

••• 17

Financial statement –Receipt

• Receipt may arise from

– Resources made available by third parties by means of financial transfers or contributions in kind which are free of charge

• Shall be considered a receipt if contributed specifically to be used on the projects – it is not a receipt if the use is at the discretion of the beneficiary's management

– Income generated by the project

• Shall be considered a receipt when generated by actions undertaken in carrying out the project and from the sale of assets purchased under the grant agreement – it is not a receipt when generated from the use of foreground resulting from the project

• To be declared at each reporting period by each participant – to be accounted for at the end of the project (no-profit!)

••• 18

Financial statement –Interest

• Pre-financing remains the property of the Commission until the final payment

• The Commission shall recover from the coordinator for each reporting the amount of interest generated when such pre-financing exceeds the amount fixed in the Financial Regulation and its Implementing Rules

– Currently the Implementing Rules the amount has been fixed at when the amount of the pre-financing exceeds 50.000€

– The provision applies only to the share of pre-financing not distributed or distributed late by the coordinator to the other beneficiaries

– The share of pre-financing the coordinator uses to implement the project is treated in the same way as the pre-financing distributed to the other beneficiaries

••• 19

Financial statement‘Other’ in NEF

••• 20

Financial statement‘Signature’ in NEF

••• 21

Submission of periodic report by the coordinator

• One original (paper) and one electronic copy needed (Article II.4(4))

• Electronic copies are provided through NEF

• Paper copy with all original signatures to be sent by post

••• 22

Submission of periodic report by the coordinator

Action in NEF

Progress report

1. Declaration by the project coordinator Upload scanned copy of signed declaration (coordinator)

2. Publishable summary Upload (coordinator)

3. Project Progress Upload (coordinator)

4. Use of resources (only for pilots) Upload (coordinator)

Financial statements and financial certificates

5. Financial statements and Summary financial report*

Fill in online (all)

6. Certificates for Financial Statement Upload scanned copy (where required)

*simplified for TN

••• 23

Declaration by Project Coordinator

• Signed by Coordinator– The periodic report is an accurate description of

the work carried out for this reporting period

– The project (tick as appropriate)

• Has fully achieved its objectives for the period;

• Has achieved most of its objectives for the period with relatively minor deviations

• Has failed to achieve critical objectives and/or is deviating significantly from the schedule

– The public web site is up to date

– To the best of my knowledge, the financial statements are consistent with the report on the resources used for the project (only for pilots)

••• 24

Submission of periodic report by the coordinator

••• 25

Business workflow – new ways of cooperation

…………………………………Project runs ………………………………………………………….

Period ends

e-mail with forms C in PDF format to the coordinator

Max 60 days Max 105 days

Pro

ject re

vie

w

7

Coordinator collects signed financial statements

e-mail sent to coordinator

EC check signed financial statements

EC executes Payment

Coordinator sends periodic report with all signed originals to EU

EC check costsBeneficiaries fill financial statements

EU creates NEF session

Coordinator submits the Periodic Report

e-mail to coordinator to access NEF through Participants Portal

EU validates report

yesno

1

2

3

45

5

6

••• 26

Payment modalities

• Commission has 105 days to evaluate and execute the corresponding payment– No tacit approval of reports

– EC will pay interest on late payment

• After reception of reports the Commission may– Approve the reports and deliverables,

in whole or in part or make the approval subject to certain conditions

– Reject giving justification, if appropriate start the procedure for termination

– Suspend the time-limit requesting revision/completion

– Suspend the payment

••• 27

Payment modalities

• Pre-financing payment

– Usually 160% of average period Community contribution

• Interim payments

– Corresponding to the costs accepted for the period

– Payments until the 10% retention is reached

• Final payment

– Take into account the declaration of receipts at participant level

••• 28

Payment modalitiesExample

• Project – duration 32 months, 3 periods, Union

Contribution 3 Mۥ Pre-financing

– average Union Contribution/period = 3M€/3 = 1M€

Рusually 160% = 1.6 Mۥ 1st Interim payment

– suppose 1M€ accepted – payment 1M€

• 2nd Interim payment – suppose 1M€ accepted – payment 0.1M€ (retention 10%!)

• Final payment – 0.3M€ (proviso all conditions are met)

••• 29

Certificate on Financial Statement Requirements

• Requirement specified in Article II.4(7)

“ … for claims of interim payments and final payments where the cumulative amount of requests for payment by a beneficiary is equal to or superior to €325 000.“ *

• Auditor performs “agreed upon procedures” and provides report on factual findings

• The document “Certification of Financial Statements for ICT PSP projects” specifies compulsory Terms of Reference, procedures and reporting format

• The certificate shall certify costs, receipts and interest

* The Commission may request , on the basis of an analysis of risks, the submission of a certificate on the financial statement from any beneficiary at any time until the date of the final payment

••• 30

Certificate on Financial Statement What

• Auditors perform a standard set of checks and provide

information according to a specific format defined in agreed Terms of Reference (ToR) and give the Commission relevant elements to assess whether costs are claimed in accordance with the ICT PSP grant agreement

• ToR are given in ‘Certificate of Financial Statements for ICT PSP projects’ see (http://ec.europa.eu/information_society/activities/ict_psp/documents/certification_financialstatements.pdf)

• ToR correspond to international audit standards (International Federation of Accountants – IFAC – ISRS 4400)

••• 31

Certificate on Financial Statement Who

• Beneficiaries have free choice of external auditor*

• External auditors must be Independent and Qualified (Directive 2006/43/CE replacing 8thCouncil Directive)

• For public bodies it can be competent public officers if certain conditions are met

• Cost of the certificate on financial statements is an eligible cost in the grant agreement

* Services provided by the auditors are regarded as subcontracts and subject to the requirements of best value for money. Beneficiaries shall ensure that the rights of the Commission and the Court of Auditors to carry out audits are extended to the auditors

** Independence ‘in fact and/or appearance’

••• 32

– Requested EU contribution (cumulative/open amount)<325.000€:

-> No CFS to be submitted (not even at the end of the project)

– Requested EU contribution (cumulative/open amount)≥325.000€:

->CFS every time ≥325.000 €

* and when requested by the Commission

Certificate on Financial Statements

When*

••• 33

Certificate on financial statement Example

- Year 1 EU contribution= 185.000€ : No CFS because <325.000€

- Year 2 EU contribution= 200.000€ : CFS to be submitted(since 185.000€+200.000€ ≥ 325.000€)

- Year 3 EU contribution= 250.000 : No CFS because <325.000€

  Year 1 Year 2 Final Period

EU Contribution 185.000 € 200.000 € 250.000 €

‘Open amount’ not covered by CFS

185.000 € 385.000 € 250.000 €

CFS Mandatory NO YES NO

(<325.000 €) (≥ 325.000 €) (<325.000 €)

••• 34

Certificates on Financial Statement

• Submission of certificate

– Electronically and signed original

• Form of Certificate

– A list of minimum requirements required by the Commission to be included in the engagement letter

– The model auditor’s report of factual findings to be issued on the auditor’s letterhead and dated, stamped and signed by the auditor (or competent public officer)

– A detailed description including the procedures to be performed by the auditor and the findings expected to result there from

• The language of the CFS should be written in the language indicated in Article 4 of the grant agreement

••• 35

Certificate on financial statement Procedures to be performed by the

auditor

• Personnel cost

– Recalculate the hourly rate and overhead rates for personnel based on

• Actual payroll information and productive hours

– Describe time recording

• Description of the time-recording system and individual timesheets

– Employment status and employment conditions

• Specific employment contracts for researchers in question as well as standard employment contracts

••• 36

Certificate on financial statement

Use of Average Personnel Costs

• Exceptional – only in case the relevant special clause ‘Personnel costs claimed in accordance with normal practices’* is inserted in the grant agreement

• In this case the auditor reconciles the following information with the accounting system of the beneficiary– The number of categories

– The pay range, median and average of each category

– The upper and lower percentage variation from the average (denominator is the average)

– The upper and lower percentage variation for productive hours from the average (if known)

– A list of average rates charged in each category for the prior years

• The FP7 certificate on the methodology is valid for ICT PSP

* ‘A beneficiary may claim personnel costs in accordance with its normal practices provided that the personnel costs determined in this way do not significantly differ from the actual costs incurred’

••• 37

Certificate on financial statement Procedures to be performed by

the auditor

• Subcontracting – best value for money under conditions of transparency and equal treatment– Matching with Annex I

• Contracts signed with 3rd party

– Award procedure• Report which describes how the offers were obtained and assessed

• Other Direct costs– Allocation of equipment subject to depreciation, travel cost

and consumables correctly identified and allocated to the project

• Extracts from the accounting records together with original invoices including company policy on travel costs

• Indirect costs – to be assessed in case the beneficiary uses actual indirect costs– Review detailed breakdown of indirect costs

• Details on the calculation together with a sufficient narrative description of the methodology

••• 38

Certificate on financial statement Procedures to be performed by

the auditor

• Exchange rates– Use of normal accounting practices

• Receipts– Examples include income from events, rebates

from suppliers, …

• Interest yielded– Coordinator is obliged to use an interest

bearing account*

* Unless exemption is approved

••• 39

Controls and audits

• Financial audits and controls (see Art. II.28)

– during the implementation of the project and up to five years after final payment

– by external auditors or by the Commission services including OLAF

– The European Court of Auditors has the same rights as the Commission

• Technical reviews (see Art. II.29)

– At any time during the implementation of the project and up to five years after the end of the project.

– The Commission may be assisted by external scientific or technological experts

••• 40

Controls and audits

• Financial audits to cover financial aspects, systemic aspects and other aspects such as accounting and management principles– Sampling– Risk based

• Professional scepticism

– Typically carried out by the external audit Unit of DG INFSO

• Technical reviews – Typically yearly– Risk based

• Use data mining techniques

– Use of external experts

••• 41

Controls and audits

• Reimbursement to the Commission and recovery orders (see Art. II.30)– Sums owned to the Commission may be recovered by

offsetting

– The Commission may adopt an enforceable decision formally establishing an amount as receivable from persons other than States

• Penalties (see Art. II.31)– Any beneficiary that has been guilty of making false

declarations shall be liable to financial penalties of between 2 to 10% of the value of the Community financial contribution received by that beneficiary. The rate may be increased to between 4 and 20% ..

– Beneficiaries may be excluded from all Community grants

••• 42

Some best practicesGeneral

• Costs claimed must be actual• Use of budgeted, standard,

estimated, notional … costs is not allowed

• Costs that are not recorded in the accounts* are not incurred

• Costs must be properly documented

* In ICT PSP the ‘third party’ concept as there is in FP7 does not exist. Only costs incurred by beneficiaries – who signed the grant agreement – are eligible

••• 43

Some best practices Time recording

• Person-based full time-recording system– Per researcher/employee working on projects– Allocating time to the different activities (research,

education, management, administration, training, sickness, holidays)

– No estimates – Properly authorized.

• Why full time-recording system?– To be able to accurately calculate annual

productive hours which are the basis for the correct calculation of the hourly personnel rate

– To avoid double charging time of the same personnel to several activities/projects

••• 44

Some best practicesTime recording

• Basic requirements of timesheets– Full name of the beneficiary– Full name of the employee– Title of the project– Project account number– Time period concerned– Amounts of hours claimed on the

project– Full name and signature of the

supervisor

••• 45

Some best practicesDirect personnel

• Employment status– Directly hired or

– In-house consultants if following cummulative requirements are fulfilled:

Contract to engage a physical person Work under the instructions of the beneficiary Work in the premises (except if teleworking

agreement and this is common practice for the beneficiary)

Output belongs to beneficiary Cost in line with normal employment remuneration Renumeration is based on number of worked hours

••• 46

Some best practicesDirect personnel

• Hourly personnel rate calculated using a correct number of productive hours– Either using a standard number of

productive hours for all employees, or– By calculating an actual individual

number of productive hours– A figure of 210 working days – 1680

productive hours is considered representative in most cases

••• 47

Some best practicesAverage personnel cost

• Use of actual and not budgeted or estimated costs

• Have a sufficient number of categories

• Ensure that the methodology is applied in a fair manner

• Only when special clause is in the grant agreement

••• 48

Some best practicesSubcontracting

• Award of subcontracts must be justified in Annex I

• Tasks concerned and estimation of costs must be indicated in Annex I

• Subcontractor must be chosen according to the best value for money principle using transparent procedures – if the subcontractor is known the beneficiaries are nevertheless bound to demonstrate that these conditions are complied with

• May only cover the execution of a limited part of the work

• Invoices must have a reference to the project and provide details of service or supply

••• 49

Payments in ICT-PSP‘Lump sum’ Thematic Networks

• Simplified process based on lump sums – No definition of eligible cost– No actual cost reporting– No indirect cost– No justification of costs– No provision of certificates– No declaration of receipts

• Simplified summary financial report by coordinator (declaration of participants having actively participated in the period).

••• 50

Thematic Networks

• The implementation will be using a lump sum – scale of unit approach

Scale of Unit "Coordination costs"Lump sum

"Implementation costs"

Lump sum "Attendance of meetings costs"

Coordinator

3.000€ per year and per beneficiary for the first 10 beneficiaries

(incl. the coordinator) 2.000€ per year and per beneficiary

from the 11th beneficiary on No additional funding from the

21st beneficiary on

Costs for attendance of networks meetings and network related events are financed by a lump sum of 5.000€ per year per beneficiary

Other beneficiaries

3.000€ per year per beneficiary

••• 51

Payments in ICT-PSPThematic - Networks

••• 52

Payments in ICT-PSPThematic - Networks

••• 53

Thematic Networks –Summary financial report

Page 1/1

Interest

Coordinator23456789

10

Date & Signature

Coordinator’s Stamp (if applicable)

Requested Community Contribution

MEETING ATTENDANCE

(lump sum)

Requested Community Contribution

IMPLEMENTATION (lump sum)

TOTAL Requested Community contribution

dd/mm/yy

Project Nb

to:

Requested Community contribution

COORDINATION (flat-rate based on scale-of-unit cost)

Name of the Person(s) authorised to sign this Financial

Annex 3 - Summary Financial Report - Thematic Network (to be filled by coordinator)

We declare on our honour that:- the above organisations have actively participated to the project in the period to which this financial statement relates.

dd/mm/yy

Project Acronym

Reporting period from:

TOTAL

Beneficiary NbBeneficiary Short Name