EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR EDUCATION AND CULTURE Directorate R - Resources

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EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR EDUCATION AND CULTURE Directorate R - Resources Unit R3 Accounting and finance METHODOLOGY FOR ASSESSING THE FINANCIAL CAPACITY OF THE BENEFICIARIES OF

1 EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR EDUCATION AND CULTURE Directorate R - Resources Unit R3 Accounting and finance METHODOLOGY FOR ASSESSING THE FINANCIAL CAPACITY OF THE BENEFICIARIES OF GRANTS One of the tasks of the Directorate-General for Education and Culture (DG EAC) is to provide a direct financial contribution, in the form of grants, to projects or organisations which support the interests of the European Union or which participate in the implementation of an EU programme or policy in the field of culture and education. In general, the parties interested in receiving grants reply to public calls for proposals. The grant applications submitted by the interested parties are subjected among other things to an assessment on the basis of the selection criteria, including verification of the applicants' financial capacity. In order to ensure the assessment of financial capacity, DG EAC has set up a methodology in line with Articles 131 and 132, 1 of the Financial Regulation (FR), and Article 202 of its implementing rules (IR). This methodology describes the scope, the documents requested of the beneficiaries and, where an actual analysis is performed, the financial ratios used and the interpretation of the results obtained. The proposed financial analysis is based on the general guidelines (liquidity, solvency, profitability) of the Directorate-General for Budget (DG BUDG). The ratios used and the thresholds applied are also those proposed by the same DG. 1. SCOPE Assessment of financial capacity as a selection criterion applies to all grants. Under Article 131 of the Financial Regulation, and on the basis of a risk analysis, the authorising officer is not required to request proof of financial capacity for grants worth EUR or less. Taking account of the specific nature of the grants administered by DG EAC, the decision was taken to perform a financial capacity analysis when the value of the pre-financing exceeds EUR For values above this threshold, proof of financial capacity will be required on a case-by-case basis according to the hypothetical cases presented in points 3.2, 3.3 and 3.4 below and the financial analysis will be performed as described in point 4. 1

2 2. ENTITIES SUBJECT TO THE EXAMINATION OF FINANCIAL CAPACITY All grant applicants (or representatives of this applicant, where the applicant has no legal personality). For affiliated entities, all the entities concerned. Exceptions: It is important to underline that, according to Article 131 of the FR "the verification of financial capacity shall not apply to natural persons in receipt of scholarships, to natural persons most in need and in receipt of direct support, to public bodies or international organisations". In accordance with the Erasmus+ programme "Public bodies, as well as schools, higher education institutions and organisations in the fields of education, training, youth and sport that have received over 50 % of their annual revenue from public sources over the last two years shall be considered as having the necessary financial, professional and administrative capacity to carry out activities under the Programme. They shall not be required to present further documentation to demonstrate that capacity". 3. DOCUMENTS TO DEMONSTRATE THE FINANCIAL CAPACITY OF THE APPLICANTS 3.1. Grants with a pre-financing value of EUR or less For grants of this type, proof of financial capacity is constituted by a declaration on the honour by the grant applicant (Annex 1). However, in case of doubt and only for grants exceeding EUR , the assessment committee reserves the right to request supporting documents and to carry out a financial analysis as described in point 4 below (cf. Article 131(3) of the FR) Along similar lines, and also for grants exceeding EUR , entities falling into one of the following high-risk categories must provide proof of their financial capacity (see points 3.2, 3.3 and 3.4 below) and are required to undergo the financial analysis provided for in point 4 below: Newly-created entities in existence for less than a year and for which no financial history is available New entities in existence for between one and three years Entities against which one or more expired and unpaid recovery orders have been issued by DG EAC Entities that are the subject of suspicions of or findings relating to serious administrative errors or fraud Entities against which legal proceedings have been brought for serious administrative errors or fraud Pilot project/new activity. 2

3 3.2. Grants with a pre-financing value of EUR or more For grants of this type, proof of economic and financial capacity is provided by the following documents: the declaration on the honour certifying the economic and financial capacity of the economic operator (Annex 1); the economic and financial capacity analysis form showing the financial data of the economic operator, completed and signed by the operator (see Annex 2 "Analysis of economic and financial capacity"); for economic operators required under national law to keep a complete set of accounts: the balance sheet, profit and loss account and annexes of the last financial year for which accounts have been closed; for economic operators required under national law to keep a simplified set of accounts: the schedule of actual expenditure and income and the annex showing assets and liabilities for the last financial year for which accounts have been closed Special cases a. Grants with multiple beneficiaries For grants with multiple beneficiaries and with a pre-financing value greater than EUR , proof of financial capacity must be provided as follows: For the co-ordinator: the documents provided for in point 3.2 above; For the joint beneficiaries: only the declaration on the honour provided for in point 3.2 above. If the value of the pre-financing is EUR or less, the declaration on the honour provided for in point 3.1 is sufficient and must be provided by both the coordinator and the joint beneficiaries. b. Recently-created entities (in existence less than one year) In the case of recently-created undertakings for which no accounts have yet been approved and which are thus considered high-risk, DG EAC will request an interim report on their annual accounts for all grants in excess of EUR These interim accounts must cover the period between the date of creation of the entity and the date of publication of the call for tenders. They must be accompanied by the declaration on the honour and the analysis form provided for in point 3.2 above. For low-value grants the declaration on the honour in Annex 1 will suffice. 3

4 c. Applicants without legal personality In accordance with Article of the FR and Article 198 of the IR, in the case of grant applicants without a legal personality, the representatives of this applicant must provide proof of their capacity to enter into legal commitments on behalf of the applicant. They must also prove their financial capacity using the documents or means provided for above for legal persons, according to the appropriate hypothetical cases presented in point 3 "Documents". d. Affiliated entities With regard to affiliated entities, Article 199 of the IR states that "Where several entities satisfy the criteria for applying for a grant and together form a single entity, that entity may be treated by the authorising officer responsible as the sole applicant, provided that the application identifies the entities involved in the proposed action or work programme as part of the applicant". Proof of financial capacity will be provided for each of the affiliated entities, according to the appropriate hypothetical cases presented in point 3 "Documents". e. Recent acquisitions, mergers and incorporations for which consolidated accounts are not yet available Financial capacity will be checked for all the entities concerned by these incorporation, acquisition and merger operations on the basis of the above-mentioned documents, according to the hypothetical cases presented in point 3 "Documents". It should be noted that there may be a combination of special cases Action grants > EUR and operating grants > EUR In addition to the documents required in points 3.1, 3.2 and 3.3 above, Article 196 of the IR states that for action grants exceeding EUR or operating grants exceeding EUR , an audit report produced by an approved external auditor must be presented and must certify the accounts for the last financial year for which figures are available. It also provides for exceptions: the obligation to provide an audit report applies only to the first application by a given beneficiary in a given budget year; it does not apply to public bodies or to the international organisations referred to in Article 43 of the IR; it is possible to decide, on the basis of a risk analysis, to exempt from this obligation teaching establishments and training institutes and, where there are several beneficiaries, the beneficiaries which assumed joint and several liabilities or which had no liability. 4

5 4. FINANCIAL ANALYSIS AND INTERPRETATION OF THE RESULTS The financial analysis involves calculating a series of financial ratios based on the financial data declared on the economic and financial capacity analysis form (Annex 2) and verified on the basis of the financial documents requested Financial ratios Two types of calculation are used by type of economic operator, differentiated by the requirement to keep either a complete or a simplified set of accounts. a. Economic operators keeping full accounts Financial independence = own funds/total liabilities Financial independence makes it possible to determine the proportion of own funds in total liabilities and therefore to measure the degree of organisational independence in relation to third-party funds. A ratio of less than 20 % is considered to be negative. Liquidity = (available funds + claims)/short-term liabilities This ratio measures whether total short-term assets actually cover short-term liabilities and therefore indicates whether the economic operator will be able to meet its shortterm commitments. The value of this ratio must be equal to or higher than 1. Otherwise, current assets do not suffice to cover short-term liabilities, and the economic operator may not be able to meet its commitments in the very near future (in less than a year). Debt ratio = own funds/medium- and long-term liabilities This ratio measures the solvency and independence of the operator, by analysing the composition of the liabilities on the balance sheet. A ratio of less than 30 % will be considered negative. Capacity to co-finance using own funds = (Net project cost/duration in years)/own funds This concerns determining whether the body has the capacity to finance the cost of the project using own funds. A ratio higher than 75 % shows a low capacity for cofinancing using own funds. Ratio of project cost covered by self-financing capacity = (net project cost/duration in years)/self-financing capacity This ratio measures the proportion of project costs which could be covered by the selffinancing capacity for the year. A value higher than 75 % must be considered to be negative. 5

6 b. Economic operators keeping simplified accounts Financial independence = own funds/total liabilities Financial independence makes it possible to determine the proportion of own funds in total liabilities. Sound financial autonomy is demonstrated by values above 20 %. Liquidity = (available funds + claims)/short-term liabilities This ratio measures whether total short-term assets actually cover short-term liabilities and therefore indicates whether the entity will be able to meet its short-term commitments. The value of this ratio must be equal to or higher than 1. Otherwise, there are insufficient current assets to cover short-term liabilities, and the entity may not be able to meet its commitments in the very near future (in less than a year). Adequacy of own funds = own funds/total revenue This is the ratio of stable resources to total revenue, and measures the number of periods available to the entity to maintain its activity using own funds. A high value is therefore an indication of the entity's "survival" capacity. A ratio of less than 25 % is considered to be negative. Capacity to co-finance using annual revenue = (Net cost of the project/duration in years)/total revenue This involves determining whether the body has the capacity to finance the cost of the project using its annual resources. A value higher than 75 % must be considered to be negative. Capacity to co-finance using stable resources = (Net cost of the project/duration in years)/stable resources This ratio determines the extent to which the body has the capacity to co-finance the project using stable resources. A value higher than 75 % is considered to be negative Analysis of the results A series of points from 0 to 2 are allocated according to the calculated value of each ratio. Adding the points awarded for the financial year under analysis results in a three-level classification of financial viability: INSUFFICIENT, SATISFACTORY, GOOD. In the case of a negative result, the Commission may either not select the applicant or take measures to protect its financial interests. 6

7 4.3. Assessment of the financial situation of the special cases provided for in point 3.3 "Special cases" For the special cases provided for in point 3.3 above, the economic operators concerned are authorised to prove their economic and financial capacity using the means described in the same point. For affiliated entities, the financial capacity of each entity will be analysed according to the appropriate hypothetical case. However, in addition to these individual analyses, an overall assessment will also be made. If financial analyses as presented in point 4 are performed, the overall assessment will be based on the results of these financial analyses performed for each of the affiliated entities, using the following formula as the basis for the calculations: m the number of points obtained by each affiliated entity α the part of the grant received by each affiliated entity (expressed as a percentage) Annex 1: Annex 2: Declaration on the honour by the applicant Economic and financial capacity analysis form 7

8 ANNEX 1 - DECLARATION OF HONOUR BY THE APPLICANT The undersigned [insert name of the signatory of this form]: in [his] [her] own name [for a natural person] or representing the following legal person: [only if the applicant is a legal person] full official name: official legal form: full official address: VAT registration number: hereby requests from the [Commission] [agency] a grant of EUR. with a view to implementing the [action] [work programme] on the terms laid down in this application. I certify that the information contained in this application is correct and complete and that the applicant has not received any other Union funding to carry out the [action] [work programme] that is the subject of this grant application. I declare that the applicant is fully eligible in accordance with the criteria set out in the specific call for proposals. I certify that the applicant has the financial and operational capacity to carry out the proposed [action] [work programme]. I acknowledge that according to Article 131 of the Financial Regulation of 25 October 2012 on the financial rules applicable to the general budget of the Union (Official Journal L 298 of , p. 1) and Article 145 of its Rules of Application (Official Journal L 362, , p.1) applicants found guilty of misrepresentation may be subject to administrative and financial penalties under certain conditions. If selected to be awarded a grant, the applicant accept the general conditions as laid down in the grant [agreement] [decision publicly available]. Last name, first name: Signature [and official stamp] of the applicant: Date: Your reply to the grant application will involve the recording and processing of personal data (such as your name,

9 2 address and CV), which will be processed pursuant to Regulation (EC) No 45/2001 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data. Unless indicated otherwise, your replies to the questions in this form and any personal data requested are required to assess your grant application in accordance with the specifications of the call for proposals and will be processed solely for that purpose by [fill in the name of the entity acting as data controller]. Details concerning the processing of your personal data are available on the privacy statement at the page: Your personal data may be registered in the Early Warning System (EWS) only or both in the EWS and Central Exclusion Database (CED) by the Accounting Officer of the Commission, should you be in one of the situations mentioned in: - the Commission Decision 2008/969 of on the Early Warning System (for more information see the Privacy Statement on or - the Commission Regulation 2008/1302 of on the Central Exclusion Database (for more information see the Privacy Statement on )

10 ECONOMIC AND FINANCIAL CAPACITY ANALYSIS (to be completed and signed by the applicant) - form to be completed by economic operators keeping a complete set of accounts - Last year for which the accounts have been Call for proposals No EAC/. /.. closed: 201x Name of applicant.. Start date of accounting year....../.../.... End date of accounting year....../.../.... Currency in which the annual accounts have been recorded (EUR, PLN..) BALANCE SHEET 201x FIXED ASSETS Intangible fixed assets Tangible fixed assets Financial assets CURRENT ASSETS Stocks Claims due in over a year Claims due in less than a year - advances and deposits paid on orders - client claims and related accounts - subscribed capital called but not paid - other claims Marketable securities Cash instruments Cash in hand and bank funds OTHER 1 TOTAL ASSETS OWN CAPITAL Share capital Premiums Revaluation surplus Reserves Result for the year Result carried over Grants Regulated provisions Other own funds PROVISIONS FOR RISKS AND CHARGES LIABILITIES Medium- and long-term financial liabilities Short-term financial liabilities Short-term operational liabilities - suppliers - advances and deposits received on current orders - taxes and social security contributions² - other operational liabilities Various liabilities³ OTHER 4 TOTAL LIABILITIES PROFIT AND LOSS 201x OPERATING INCOME, including: Turnover 5 Withdrawals from provisions OPERATING CHARGES, including: Purchases of raw materials, goods and other supplies Wages and salaries Social charges Depreciation allowance and depreciation OPERATIONAL RESULT FINANCIAL PRODUCTS FINANCIAL CHARGES FINANCIAL RESULT EXTRAORDINARY INCOME EXTRAORDINARY CHARGES EXTRAORDINARY RESULT Tax on profits NET RESULT FOR THE ACCOUNTING YEAR Done at, on.../..../. Name.. Signature.. 1 accruals and deferred income (charges to be distributed over several years, charges recorded in advance), loan redemption premiums, asset conversion differences 2 salaries, social charges, taxes 3 tax debts (capital gains tax, debts on fixed assets and accounts receivable) 4 income collected in advance, exchange rate charges 5 sales of merchandise + production sold (goods and services) 1

11 ANALYSIS OF ECONOMIC AND FINANCIAL CAPACITY (to be completed and signed by the applicant) - form to be completed by economic operators keeping simplified set of accounts - Call for proposals No EAC/. / Last year for which accounts have been closed: 201x Name of applicant... Start date of accounting year..../..../..... End date of accounting year..../..../..... Currency in which the annual accounts have been recorded (EUR, PLN,..) Total assets, including: Claims due in less than a year Cash in hand and bank funds Total liabilities, including: Stable funds (contributions, donations, subsidies, reserves, other) Total debts, including: Merdium- and long-term financial liabilities Short-term liabilities, including: Suppliers Liabilities vis-à-vis members Tax, salary and social liabilities Assets and liabilities 201x Total expenditure, including Remuneration Total revenue, including Operating income Income and expenditure 201x Done at, on.../..../... Name.. Signature.. 1

EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR EDUCATION AND CULTURE Directorate R Resources

EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR EDUCATION AND CULTURE Directorate R Resources Unit R3 Accounting and finance ANNEX 6 METHODOLOGY FOR EVALUATING THE FINANCIAL CAPACITY OF CANDIDATES/TENDERERS