CEF Model Grant Agreement Audit Aspects Introducing Annex VII Certificate on Financial Statements

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1 CEF Model Grant Agreement Audit Aspects Introducing Annex VII Certificate on Financial Statements Ben Griffiths Head of External Audit, INEA

2 Content of Presentation Background to the Annex VII Certificate on Financial Statements (CFS) When is a CFS Required? What is a CFS? Key features of the CFS Who can provide a CFS? Ex-Post Audits under CEF Common Audit Findings Unit Costs for Personnel Costs Useful advice when preparing your cost claim

3 Background to the Annex VII Certificate on Financial Statements Certificate on Financial Statements (CFS) are a requirement for CEF Transport (and other CEF subprogrammes). Was not required under the TEN-T programme. Obligation under the Financial Regulation 966/2012 and Rules of Application 1268/2012 Article a Required by Article II.23.2 of the MGA

4 When is a CFS Required? Article II.23.2 of the Model Grant Agreement (MGA) Applicable for interim and final claims, subject to financial thresholds for each beneficiary for which the total contribution in the form of reimbursement of actual costs is at least EUR and which requests a reimbursement in that form of at least EUR (when adding all previous reimbursements in that form for which a certificate on the financial statements has not been submitted), a certificate on the financial statements and underlying accounts Larger projects will need one for each beneficiary and each interim claim, other projects with many partners or smaller budgets may not need to provide one at all

5 What is a CFS? Is it an audit? An agreed-upon procedures engagement is an engagement in which an auditor is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings. The recipients of the report form their own conclusions from the report by the auditor. No overall opinion is provided No sampling or findings are extrapolated A set of standard tests, which are not to be deviated from (no more, no less), with reporting of exceptions. The output is a 'Report on Factual Findings'

6 Annex VII of the MGA - Key features Annex VII is composed of the Terms of Reference, Reporting Template and the Agreed Upon Procedures (control steps) to perform with standard factual findings Procedures are split into several sections (Personnel, Contracting, Other Direct Costs, Use of exchange rates Section on procurement covers entities under public procurement requirements and those who are not Exceptions need to be reported and explained in reasonable detail for INEA as the user of the report to determine the next steps

7 Who can provide a CFS? Defined in Article II.23.2 of the MGA "This certificate shall be produced by an approved auditor or, in case of public bodies, by a competent and independent public officer and drawn up in accordance with Annex VII". Further detailed in section 1.2 of Model ToR in Annex VII An approved auditor must be qualified to carry out statutory audits in accordance with national legislation implementing Directive 2006/43/EC. An independent public officer should not be involved in the preparation of the cost declaration, or in the project implementation and have a right to carry out audit work in the entity. Costs incurred for the preparation of the CFS are eligible costs (even when incurred after the end of the eligibility period).

8 Ex-Post Audits under CEF Ex-post Audits of CEF projects will still occur by INEA or by appointed auditors (and the European Court of Auditors) Audits will be selected annually by INEA, on a sample basis using both monetary and other risk factors Ex-post audits will cover beneficiaries who submitted a CFS Audits will be based on a CEF multi-annual audit strategy Audits cover compliance with eligibility conditions (Art II.19, 20, 21 of the MGA, but also procurement (Art II.9, II.10 of the MGA) Extrapolation is an option available for detected systematic errors (audits may have a wider impact than the project audited) Art 135, EU Financial Regulation 966/2012

9 Common Audit Findings Costs 'Incurred' outside of the eligibility period Staff costs rates include overheads, time over declared Not relevant ('necessary') Public procurement (compliance with national law / EU Directives) Not using/avoiding EU level procedures - splitting Lack of publication / Unlawful selection criteria (e.g. excessively restrictive)/ Inconsistent award criteria (lowest price / MEAT) Amendments/additional works or services(to contracts) 'Unforeseeability' or 'Urgency' not justified from a legal/technical perspective

10 Unit Costs as Personnel Costs The concept of 'Unit costs' is new for CEF. A unit cost may be an average personnel cost rate Key conditions of an eligible unit cost are: the cost accounting practices used are applied in a consistent manner, based on objective criteria, regardless of the source of funding; the hourly rate is calculated using the actual personnel costs recorded in the beneficiary s accounts, excluding any ineligible cost or costs included in other budget categories; the actual personnel costs may be adjusted by the beneficiary on the basis of budgeted or estimated elements. Those elements must be relevant for calculating the personnel costs, reasonable and correspond to objective and verifiable information; and the hourly rate is calculated using the number of annual productive hours It should comply with all other 'general' eligibility requirements of Art II.19

11 Some useful advice when preparing your cost claim Do not limit cost declarations to the budgeted amount Be very aware of the eligibility conditions (MGA Art.II.19) if in doubt, do not declare, or refer to INEA Read the general conditions on and ensure all partners are fully aware of the eligibility requirements. Submit your questions early in the process If your CFS highlights a lot of exceptions (findings), reconsider if you want to declare these costs! If your 'usual cost accounting practices' are not in line with the grant agreement conditions, the specific grant conditions prevail!