Monday, 29 October 2018

Calculated overheads rise from the dead

In FP7, the EC encouraged all beneficiaries to use calculated overheads, in particular by scheduling the removal of a 60% flat rate for overheads half way through the programme (with 75% funding of costs). However, they took a decision to keep the 60% for all of FP7 and then provided only a 25% flat rate – no calculated overheads - in H2020 (with 100% funding). The reason for this change of direction is that, when audited, they found many errors in the beneficiaries’ overhead calculations. Early results in H2020 audits suggest the removal of calculated overheads has led to 28% reduction in error rates compared with FP7.

However, the 25% flat rate penalised those using expensive equipment. The EC’s response, called Large Research Infrastructures (LRI), required certification by the EC and was limited to organisations whose “Infrastructures accounted for at least 75% of the total fixed assets”, so excluding most H2020 participants. Uptake of the LRI certificate has been even lower than that of CoMUC/CoMAv. Eventually, the EC changed its mind and added a new cost category called internal invoices, which allowed some overhead costs to be re-classified as direct costs, and no certificate required. 

For Horizon Europe, the EC proposes to add further overheads in costing these internal invoices, which the EC’s supporting documents suggest will involve “fair keys or drivers” to distribute the indirect costs. Is this the EC’s first step in defining standards for overhead cost accounting?

Wednesday, 3 October 2018

EU research grant pays mortgage on castle

In its report for 2017, the EC’s Anti-Fraud Office (OLAF) describes a fraud in which more than €1.4 million of EU research funding was misappropriated. An Italian led consortium with partners in France, Romania and the UK obtained funding for a project to build prototype hovercraft for use as emergency vehicles able to reach remote areas in case of environmental accidents. On-the-spot checks in Italy by OLAF and the Italian Guardia di Finanza discovered various disassembled components of one hovercraft, as well as another hovercraft which was completed after the end of the project.

They also discovered that the British partner only existed on paper: the company was in fact created and owned by the Italian partner. To simulate the development of the project and to divert funds, fictitious costs had been recorded. Analysis of more than 12,000 financial transactions showed that part of the EU funds received by the Italian and UK partners had been used to pay off a mortgage on a castle facing foreclosure.

But fraud in EU research funding is rare. According to OLAF, in 2017 only eight cases of fraud related to payments totalling €520k were detected in the Research and Innovation policy area. This amounts to about 0.01% of payments made that year, similar to the percentage for the period 2013-17. So not much money for castles!