Friday, 1 June 2018

Complex but clear

When the first H2020 projects began, EC auditors advised that the cost eligibility rules for third parties were “complex but clear” and should be read carefully. They covered subcontracting (obviously), contracting (what’s the difference?), contributions-in-kind made free of charge (if its free, how can it be an eligible cost?), contributions-in-kind made against payment (isn’t that subcontracting?) and linked third parties (don’t ask). Then there is the possibility to claim the cost of natural persons who are not employees but under direct contract (similar but not identical to FP7’s in-house consultants). Altogether, there is a bewildering array of options and corresponding rules facing an organisation which wants to use the skills of a person not their employee and claim the related cost.

Now add the SME “instrument”: funding up to €2.5 million specifically for individual small companies with large ambitions. This relaxes the usual H2020 rule that subcontracting may cover only a limited part of the project. Mixing small companies in a hurry with complex cost eligibility rules for potentially large outsourcing contracts looks like a recipe for disaster when auditors come to check. But no! The EC anticipated the problem and – exceptionally – allowed applicants for this funding to justify their choice of subcontractors in their project proposal. If the proposal evaluators accepted their justification, then auditors could not question their choices. So all will be OK.

Well, not quite. Some SMEs interpreted acceptance of their outsourcing choices as licence to subcontract the tasks identified, and changed their minds about which supplier they would use. So now the EC agency administering the SME instrument is checking carefully subcontract costs claimed in the progress reports submitted by the SMEs and rejecting those which were not awarded to the supplier identified in the proposal. This could, of course, spell financial disaster for SMEs with large value subcontracts in their projects.

Fortunately, quite a number of them have set up companies specifically for this H2020 funding, separate from their existing business and assets, thus insulating them from death by audit.

Kind regards
Singleimage Limited

Friday, 27 April 2018

#H2020 Simplification fails

In preparing for H2020, the EC proposed measures to simplify claiming costs which they felt would reduce errors found when auditing. One addressed the topic of productive hours, where they proposed that the grant agreement should – unlike its predecessors - contain the number of annual productive hours to be used for the calculation of hourly personnel rates. As a result, the H2020 grant agreement includes three detailed options for calculating productive hours.

At a number of H2020 coordinators’ days held by the EC, their audit staff presented their forecast of errors which they expected to find in financial statements once H2020 auditing began. These were (i) direct costs apportioned, not measured (ii) timesheets missing or unreliable (iii) best value for money in subcontracting and purchasing not achieved (iv) confusion between basic and additional remuneration and (v) cost of in-house consultants not justified. Errors in productive hours did not feature.

In April, EC audit staff presented their first analysis of the H2020 audits (see table). The unit of measurement is the number of audits which found the error type listed. Many of the forecast errors can be seen there. “Direct costs apportioned, not measured” are in both the equipment category and other goods and services, the latter restated as “indirect costs claimed as direct”. Timesheets are in “incorrect time” and contribute to “other” in personnel costs. “Best value for money” appears directly and also as “inadequate supporting documents” and additional remuneration occurs under personnel costs. Consultants don’t feature – maybe they are hiding in “incorrect remuneration”, though this might also cover mistakes in personnel costings using the last closed financial year method– an H2020 simplification not forecast by the EC auditors to produce problems. But the biggest source of errors is “incorrect productive hours calculation”, which is also not in the EC auditors’ forecast top five, with a prize-winning 31% of the total!

Kind regards

Thursday, 29 March 2018

#H2020: Simplification is complicated!

So says a briefing paper written by the European Court of Auditors (ECA). And since they audit the European Commission (EC), they must be right.

The briefing paper was requested by the European Parliament and the Council of Ministers as an input to discussions on FP9, the successor to H2020. As usual, the ECA advocates wider use of “lump sums”: a fixed amount of money given if the proposed work is carried out satisfactorily, as well as unit costs (fixed numbers with limited relationship to actual costs, as used in the Marie Sklodowska-Curie programme) and flat rates, such as the current 25% of direct costs provided as a substitute for overheads. Not surprisingly, all of these produce lower error rates in audits than using actual costs, though they often generate funding for beneficiaries which is lower than actual costs.

But one of the ECA’s observations points in the opposite direction: reducing the rigid interpretations auditors place on the existing legal rules. They point out that auditors sometimes use examples given in the 750 page advisory document “Annotated Model Grant Agreement” as the only acceptable interpretations of the legal rules in the grant agreement and legislation. The ECA says that such examples should not limit the room for different interpretations. Now all they have to do is convince the EC’s auditors!

Kind regards Singleimage Limited

Wednesday, 28 February 2018

#H2020 Travel time: eligible or not eligible?

A common question especially from those new to H2020 funding is whether the time spent beyond normal working hours travelling to meetings is an eligible cost. The answer is surprisingly complicated, as shown in the flow chart below.

The simplest case is if the researcher is not filling time records but instead uses the exclusive declaration. No time recording of the extra hours is required, but if extra payments are made for the additional hours, these are eligible costs.  

Next simplest are those working for an organisation with a flexible working policy. The extra hours spent travelling will later be balanced by an equal number of hours of additional holiday. The cost of travel time is eligible for H2020 funding.

If travel time cannot be balanced by additional holiday, then another possibility is that the organisation pays overtime. If it does not pay overtime, then the organisation is not incurring any cost for the extra hours, so there are no costs to claim.

If the organisation does pay overtime, then the costs are eligible, though calculating them depends on their method for calculating productive hours. Those using option 1 (1720 hours per year) or 3 (standard) will increase the cost of the person but not their productive hours, according to the EC. So the hourly cost will increase as well as the hours worked, with the result that eligible costs are greater than real costs. The eligible costs will only be capped if the overtime exceeds the time spent working on non-H2020 activities.

Option 2 – individual productive hours –is less complicated: the hourly rate adjusts for both overtime hours and overtime payments, so the real overtime cost will be eligible.

None of the paid overtime scenarios described above takes account of reimbursement based on last completed financial year. But that’s another story!

Kind regards

Wednesday, 24 January 2018

Brexit December agreement

The agreement reached between the EU and the UK in December includes provisions to support UK participation in H2020 until the end of the programme and completion of all projects.

To achieve this, the UK will contribute to the EU annual budgets for the years 2019 and 2020 as if it had remained in the EU. It will also contribute its share of the financing of the budgetary commitments outstanding at 31 December 2020. The UK also agreed that the UK and UK beneficiaries will respect all relevant EU legal provisions relating to participation in H2020.

So eligibility to apply to participate in EU programmes and EU funding for UK participants and projects will be unaffected by the UK’s withdrawal from the Union for the entire lifetime of such projects.

Singleimage - H2020 Training Workshops and Advice 

Friday, 1 December 2017

#H2020: How exclusive is exclusive?

The exclusive declaration was introduced in H2020 as an alternative for the often unpopular timesheet. One declaration would cover a 12 or 24 month reporting period, with no detail of hours actually worked on an H2020 project, so simplifying the researcher’s life.

But auditors are now checking whether researchers are really exclusively devoted to their H2020 project, which gave rise to a number of questions at a recent event held by the EC’s audit and legal staff. The results are:

·         auditors will check the internet including the beneficiary’s web site plus the researcher’s CV for evidence of non-exclusivity. They may also find evidence by interviewing the researcher to discuss their contribution to the project compared with the periodic report and – accidentally – while checking other expense items such as travel.
·         If the researcher spent a few hours assisting a colleague with, say, a new research proposal, that would be ignored, as would a few working hours spent carousing at a Christmas party.
·         But assisting a colleague with a new research proposal for two weeks or more would break the exclusivity, condemning the researcher to filling timesheets for the remainder of the reporting period. This would apply even if the time spent was actually outside the normal working hours of the researcher.
·         And attending training courses (unless this was explicitly anticipated in the project proposal) would be ineligible for funding, so attending one would break the period of exclusivity. But not providing such training possibly breaches article 32 of the grant agreement on career development of researchers.

Simplification comes at a cost!


Monday, 30 October 2017

Personnel costs eligible despite unreliable timesheets

The EC has agreed to a recommendation from the European Ombudsman to accept personnel costs despite the absence of reliable time records for an FP7 project. External auditors pronounced that the Belgian organisation’s time recording system was entirely unreliable. Despite this, in the case of one deliverable, the alternative evidence of the drafting and multiple redrafts and occasional emails was judged by the auditors sufficient to justify the personnel time claimed. For a second deliverable, the description of dissemination activities carried out by the organisation was considered sufficient by the auditors to justify the hours claimed. The costs of a further six deliverables were considered inadequately justified.

The EC decided to disallow all personnel costs. The Ombudsman considered this disproportionate, suggesting that the EC should reimburse the costs related to the two deliverables where the alternative evidence for the number of hours had been accepted by the auditors. On 6th October, the Ombudsman reported that the EC has accepted this recommendation.

Singleimage - H2020 Training Workshops and Advice