1 Comav CFS CoM. Disclaimer. can be held

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1 FREQUENTLY ASKED QUESTIONS (FAQ) CERTIFICATES ISSUED BY EXTERNAL AUDITORS Table of Contents 1. Acronyms General issued related to CFS, CoM and Comav CFS - specific issues related to Certificates on Financial Statements CoM - specific issues related to Certificates on Methodology for personnel and indirect costs CoMav - specific issues related to Certificates On Average personnel costs Disclaimer This document is aimed at assisting beneficiaries and auditors. It is provided for information purposes only and its contents are not intendedd to replace consultationn of any applicable legal sources or necessary advice of a legal expert, where appropriate. Neir IMI nor any person acting on its behalf can be held responsible for use made of se guidance notes 1. Acronyms CFS: Certificate on Financial statements CoM: Certificate on methodology for personnel and indirect costs CoMAv: Certificate on average personnel costs. FP7: Seven Framework Program. Please refer to IMI Guidance notes for beneficiaries and auditors in IMI 1 Projects for furr details. Annex II to SOP on preparation submission and assessment of CFS of IMI1 projects Ref. IMI2/INT/ Document version 2.0 of 25/05/2017

2 2. General issued related to CFS, CoM and Comav # TOPIC: QUESTION: ANSWER: 1. Qualifications of auditors Multiple-countries 2. Statutory Auditor Who can deliver Certificates (CFS, CoM and CoMAv)? Is it possible for an auditor (who is properly authorised to issue Certificates on Financial Statements or on Methodology in an EU country) to certify costss of a beneficiary located in a different Member State? Should statutory auditor provide Certificate on Financial Statements (and/or on Methodology)? Is re a contradiction in using statutory auditor? If external auditor already beneficiary's audits financial statements and/or provides or services such as tax, consulting etc. does this not restrict auditor s independence, in as much as re is an economic link between two parties? - The beneficiary is free to choose a qualified external auditor (including statutory auditor) provided that external auditor is independent from beneficiary and qualified to carry out statutory audits of accounting documents in accordance with national legislation implementing Directive on statutory audits of annual accounts and consolidated accounts. - Competent public officer - please refer to question 3. - YES. - Auditors who are qualified to provide a Certificate on Financial Statements or on Methodology in one Member State are qualified to provide a Certificate on Financial Statements in any or Member State. The advantage of using statutory auditor ( same auditor of beneficiary s annual financial statements) to provide certificates is that y are familiar with in-house procedures, which is one of aspectss reviewed. However, this is not an obligation and beneficiary is free to choose auditor. - There is no contradiction. - Beneficiaries may use ir statutory auditors, provided that y are independent. The fact that beneficiary usually engages same auditor does not affect independence of latter. Page 2

3 3. Competent public officer 4. Certificate on Financial Statements and on Methodology templates How does a public body establish legal capacity of internal audit unit to act as competent public officer? Can competent public officer be a stafff member of audited organisation, as long as y are not involved in grant agreement activity? How do we demonstrate that competent public officer is completely independent of grant agreement activity - scientifically, administratively and financially? Do we have to name competent public officer to IMI in advance of a financial statement? Is an internal auditor of an International Organisation eligible to deliver Certificate on Financial Statements organisation? to that Would it be possible for internal audit service to present an invoice for service to department? Are model Certificates on Financial Statements provided in IMI1 Model Agreement and on Methodology provided i n EC FP7 Model Grant Agreement d? Relevant national authorities establish legal capacity of internal audit unit (of a given public body) to act as competent public officer. YES, competent public officer can be a member of staff but his/her independence has to be established by relevant national authorities. An organisation chart and/or a job description of organisation can show that competentt public officer is not involved in processing financial claim (Form C). Internal audit officers usually have this independence. NO, name of competent public officer does not need to be given in advance. International organisations are treated as public bodies for purposes of IMI grant agreements. Accordingly, such organisations can opt for an internal auditor. N.B.: An internal auditor for a public body must meet criteria describedd in IMI financial guidelines. - The principle of using a public competent officer within same organisation to prepare Certificate on Financial Statements means thatt real costs (excluding any profit margin) of carrying out that work would be eligible. - It is not possible to charge a market price (profit) for work carried out by same beneficiary within IMI Grant Agreement - YES, model certificate provided in Annex VI-Form Grant Agreement is mandatory. D of IMI1 Model - YES, model certificate provided in Annex VII (certificate on methodology) of EC FP7 Model Grant Agreement is mandatory. Page 3

4 Certificate on Methodology 5. The Certificate on Methodology (CoM) versus Certificate on Methodology for Average Personnel Costs (CoMAv) What is purpose of Section 1.8 of Annex VII (Certificate on Methodology)? Are certificates optional or compulsory? Sections 1.1 to 1.8 of Annex VII (certificate on methodology) are part of by Agreed-Upon-Procedures defined Commission and constitute minimum terms of referencee to frame works undertaken by auditor. Article 1.8 of Terms of Reference which makes reference to "Or Terms" is in itself an open point that allows beneficiaries and auditors to insert any specificc terms such as auditor's fees, liability, applicable law, etc. - Following Commission Decision C( 2011)174 on three measures for simplifying implementation of FP7 both certificates (CoM and CoMAv) are optional. Neverless, as described under point 2.1 below only certain beneficiaries of multiple grants are eligible to submit a CoM for personnel costs (actual or average) and indirect costs. - The new criteria for use of average personnel costs are defined in Commission Decision C( 2011)174. Page 4

5 6. Language of certificates 7. Costs What informationn needs to be provided when submitting a CoM/CoMAv? In what language should certificates be provided? Costs of audits services regarding certificates (CFS/CoM/CoMAv) - The Certificatee on Methodology should be composed of three separate documents: (1) A list of minimum terms (sections 1.1 to 1.8) required by Commission to be included in engagement letter between beneficiary and auditor. The engagement letter must be dated and signed by both parties. (2) The model auditor's Report of Factual Findings (section 1.9) to be issued on auditor's letterhead and dated, stamped and signed by auditor (or competent public officer). (3) A detailedd description (table of Annex VII - Form E) including statements made by procedures to beneficiary and be performed by auditor and findings expected to result re from. This table has to be dated, stamped and signed on one hand by beneficiary for statements in left-column and on or hand by auditor (or competent public officer) for procedures and factual findings. The certificates should be in language indicatedd in Art. 4 of grant agreement. - Costs incurred for Certificates on Methodology issued by external auditors are eligible direct costs charged under "Management" activity in "Subcontracting" category. They are refore subject to equirements of best value for money (Article II.7 of I M I1 model Grant Agreement). - However costs for Certificates on Methodology established by Competent Public Officers can be treated as "Or direct costs" under "Management" activity. Where it is usual practice of beneficiary to consider se costs as indirect costs, y cannot be charged as direct eligible costs. Page 5

6 8. Methodologies 9. Furr questions Cost incurred for CFS Cost incurred for a CoM/CoMAv Should cost for a CoM/CoMAv be claimed solely through one FP7 project or apportioned across m? Where can beneficiary find information with regard to establishment of methodology? Is a record of approved methodologies available? To whom can I address furr questions? The cost of CFS is an eligible cost in Grant Agreement for which certificate is submitted. The cost is linked to a specific project. The cost of CoM/CoMAv approved by Commission is an eligible cost in any of financial statement submitted in any IMI FP7 Grant Agreement. Please note that costs are eligiblee after acceptance of certificate. The cost of certificate can be claimed only once in lifetime of FP7 unless submission of a new certificatee is required due to a change of methodology. The cost has to be claimed once in one single FP7 Grant Agreement. Therefore it is recommended that consortium partners anticipate submission and identify estimated costs already at proposal/ negotiation stage in order to avoid that this cost disproportionally weigh a specific project. All necessary information and practical hints for establishment of CoM and CoMAv (as well as CFS) are available in Guidance Notes for Beneficiaries and Auditors on Certificates issued Cordis by external auditors available on (EC portal for FP7). Since each beneficiary will establish methodology in line with usual accounting and management principles depending on national legislativee and financial frame, approved methodology cannot be standardized. The IMII Helpdesk can be contacted at following address info@imi.europa.euu Page 6

7 3. CFS - specific issues related to Certificates on Financial Statements This section applies to all participants in IMI projects. # TOPIC: 1. CFS QUESTION: When do I need a CFS? ANSWER: FOR EFPIA COMPANIES: - During interim periods only when cumulative requested IMI contribution is 375,000 or more. - With an accepted Certified Methodology on In-kind Contribution: CFS is only required at end of project. FOR BENEFICIARIES AND LINKED THIRD PARTIES - During interim periods only when cumulative requested IMI contribution is 375,000 or more. Which external format auditor does have to use for certificate? - In all cases in final period unless following conditions apply (not for efpia companies): -During ir participation cumulated IMI JU contribution does not exceed EUR , or -In final reporting period (at end of project) or, earlier, when a beneficiary(orr a linked third party) is terminating its participation two following conditions subsist: a CFS has already been submitted by concerned beneficiary/linked third party during lifetime of project and has been accepted by IMI2 JU, cumulative remaining amounts of IMI JU contribution and EFPIA receipts received by beneficiary do not exceed EUR With an accepted CoM: CFS is only required at end of project unless conditions above apply. - It is compulsory to use Annex VI Form D for issue of CFS. Page 7

8 2. Cost Can auditors perform different procedures from ones in table in annex VI? How much should a Certificate on Financial Statements cost? Is re an upper limit to cost of a Certificate on Financial Statements? To which activity should cost of Certificate on Financial Statements be charged? NO, but y can perform more procedures and provide more information if y wish to. - The cost of a Certificate on Financial Statements is determined by professional judgment of auditor, who must find right balance between carrying out procedures requested and on or hand, amount of work required (and directly related price according to market prices). - The cost of a Certificate on Financial Statements depends on auditor and testing procedures to perform. Generally t here is no upper financial limit set for certificate itself. As any or subcontract costs have to reflect a reasonable market price and general eligibility criteria of grant agreement (Art II.13 and II.14). - Costs incurred for Certificates on Financial Statements issued by external auditors are eligible direct costs charged under "Management" activity in Subcontracting" category. There are refore subject to equirements of best value for money (Article II.7 of IMI1 model Grant Agreement). - However costs for Certificates on Financial Statements established by Competent Public Officers can be treated as "Or direct costs" under "Management" activity. Where it is usual practice of beneficiary to consider se costs as indirect costs, y cannot be charged as direct eligible costs. Page 8

9 3. Eligibility costs of Is cost of a CFS eligible if IMI contribution is below 375,000 and CFS is not orwise required by IMI? - Only those costs incurred to provide mandatory CFS are eligible. The cost of certificate on Financial Statements is an eligible cost in Grant Agreement for which certificate is submitted. - If beneficiary decides to submit a certificate on financial statements voluntarily (when it is not required by Grant Agreement) ), cost of CFS will not be eligible. 4. Personnel costs - - Sampling of stafff - Form D (Procedures performed by Auditor), procedure 1 (Personnel Costs) reads: "For each employee in sample, Auditor obtained personnel costs..." How should this section be completed when full coverage refers to a sample smaller than 20? The size of sample proposed in this procedure is based on population of researchers or research-related persons involved in project. In this context, size of sample has to respect following: -if population is less than 20 employees, full coverage. - if population is equal or greater than 20 employees : - a minimumm of 20 employees - or 20 % of employees (whichever is greater) It is not allowed to change wording of procedures - exceptions where only in case of standard wording cann ot cover case. E.g. If population is less than 20 and full coverage is needed, standard wording it would say for example "in sample of 8 which is n not compliant with conditions. For se cases following temporary solution is to add "out of X". In example one would read "in sample of 8 out of 8" so it is clear that it was actually full coverage. Page 9

10 5. Third parties (special clause 4 to I M I 1 model GA) In case of third parties, does threshold of 375,000 apply separately to beneficiary and third party or toger? - The threshold of 375,000 to submit CFS includes total IMI contribution (beneficiary + third party (ies)). - According to special clause 4 of Grant Agreement, third parties shall provide ir individual CFS independently from those of beneficiary. However, if beneficiary and third party have same auditor, IMI could accept one certificate comprising costs of both but identifying clearly which costs relate to whom. Page 10

11 4. CoM - specific issues related to Certificates on Methodology for personnel and indirect costs This section applies to beneficiaries who are also involved in FP6 and/or FP7 projects, in addition to IMI1 projects and have a certified methodology. # TOPIC: 1. Eligibility 2. Advantages of an approved Certificate on methodology for personnel costs and indirect costs (CoM) QUESTION: Who is eligible for CoM? What are advantages of CoM? ANSWER: Beneficiaries who fulfil following eligibility criteria are eligible: 1. Eir at least 8 participations in FP6 contracts with an EU contribution equal or above EUR 375, Or at least 4 participations in FP7 Grant Agreements signed before 1st January 2010 with an EU contribution equal or above EUR 375, Or, at least 8 participations in FP7 Grant Agreements with an EU contribution equal or above EUR 375,000 at any time during implementation of FP7. An approved CoM brings following advantages: 1. Early assessment of compliance to provisions of Grant Agreement when calculating personnel and indirect costs; 2. Waiving for interim CFS; 3. Valid throughout all FP7 and IMI projects; 4. Reduced costss for whole certification system. 3. Scope of CoM Can I submit a COM even if I charge individual actual costs? YES Can CoM cover only indirect costs? - NO, Certificate on Methodology can NOT be submitted only for indirect costs. - The and CoM must cover both personnel indirect costs. Page 11

12 4. Validity of a certificate 5. Submission Which possibilities do I have to claim indirect costs? What happens when beneficiary changes his methodology? Does beneficiary need a CoM for each of its companies that participate in a European research project? When can I apply for a CoM? Is it compulsory to ask for eligibility if I intend to submit a CoM? Beneficiaries who have an analytical accounting system that can identify and group ir indirect costs in accordance with eligibility criteria must report ir real indirect costs or choose 20% flat rate option. The beneficiary has to declare to Commission any fundamental change in its cost accounting methodology, including date of change (e.g. yearly updates of costing rates to most recent financial dataa are not considered as fundamental changes). A new Certificatee on Methodology has to be submitted according to procedure. Until acceptance of this new certificate, requirement to provide intermediate Certificate on Financial Statements will not be waived. - The CoM is to be submitted at level of Legal Entity. Different departments or cost centers which are integrating part of one legal entity will be certified within certificate of legal entity. Please note that a CoM may indeedd cover different practices used by various departments of legal entity. In such a case methodologies should be described in detail in table of Form E (and in annexes if necessary). - Companies (including affiliates) which have an independent identity from a legal point of view will need to submit a separate certificate. - Anytime during lifetimee of FP7, but at earliest on start date of project of first FP7 Grant Agreement signed with EU. YES. Page 12

13 How to submit a CoM? - Beneficiaries who consider to meet eligibility criteria may send a request any time during lifetime of FP7 to following functional mailbox RTD- FP7-Cost- Methodology- Certification@ec.europa.eu - The mail should contain Grant Agreement/contracts numbers (FP7 and/ /or FP6) in which y participate/ed. Page 13

14 5. CoMav - specific issues related to Certificates On Average personnel costs # TOPIC: 1. Use of average personnel costs QUESTION: Is it necessary to submit a CoMAv in order to claim average personnel costs in FP7 projects? ANSWER: Beneficiaries are no longer equired to submit a Certificate on Average Personnel Costs (CoMAv) for approval as a prior condition for eligibility of costs. Neverless, CoMAv remains as an option offering beneficiaries possibility to obtain prior assurance on compatibility of methodology used to calculate average personnel costss in FP7. If a beneficiary would like to use average personnel costs in ir FP7 or IMI financial statements following cumulative criteria for acceptance of average personnel cost methodologies shall apply: (1) The average personnel cost methodology shall be one declared by beneficiary as its usual cost accounting practice; as such it shall be consistently applied to all indirect actions of beneficiary under Framework Programmes; (2) The methodology shall be based on actual personnel costs of beneficiary as registered in its statutory accounts, without estimated or budgeted elements; (3) The methodology shall exclude from average personnel rates any ineligible cost item as defined in Regulations (EC) No 1906/ 2006 and (Euratom) No 1908/2006 and model Grant Agreements established by Decisions C(2007) 1509 and C(2007) 1625 (hereinafter " model Grant Agreements") and any costs claimed under or costs categories in order to avoid double funding of same costs; (4) The number of productive hours used to calculate average hourly rates shall correspond to usual management practice of beneficiary provided that it reflects actual working standards of beneficiary, in compliance with applicable national legislation, collective labor agreements and Page 14

15 2. Submission Process / Form E (of FP7 grant agreement) 3. Consequences of acceptance of a CoMAv 4. One person beneficiary What information needs to be submitted? Is approved CoMAv valid for all FP7 and IMI Grant Agreements? If I have an approved CoMAv, are intermediate CFS waived? Is CoMAv obligatory for physical persons? contracts and that it is based on auditable data. - The entire Form E consisting of 3 parts should be submitted. However, with regard to table of procedures in Form E only procedures 1, 2, and 3 (and not those relating to indirect costs) need to be completed. - No changes should be made to standard template. Any deviations should be reported under "exceptions". - This certificate can be introduced only by electronic mail to following functional mailbox: RTD-FP7-Average-Personnel- Rate- Certification@ec.europa.eu. - YES, an approved CoMAv is valid for all FP7 and IMI projects. - NO, certificate on average personnel costss does not waive obligation to provide an intermediate CFS (whenever threshold of EUR 375,,000 is reached). Neverless, auditor will only have to focus on checking compliance with certified methodology, omitting individual calculations. - N/A in FP7 and IMI grant agreements. Page 15

16 5 SME Owners What method is to be used by SME owners without a salary in accounts for declaring personnel costs? - The value of personal work of those SME owners shall be based on a flat rate to be determined by multiplying hours worked in project by hourly rate to be calculated as follows: - {Annual living allowance corresponding to appropriate research category published in 'People' Work Programme of year of publication of call to which proposal has been submitted / standard number of annual productive hours} multiplied by {country correction coefficient published in 'People' Work programme of year of publication of call /100} - FP7 'People' Work Programmes can be obtained at following address: http: ://cordis.europa.eu/fp7/find- doc en.html - Please note that employees of SME and who receivee a salary cannot use this flat rate. - Furr details are available in IMI Financial guidelines 6 Is it possible to withdraw an approved CoMAv? If an SME-owner has already an approved CoMAv and decides to opt for Marie Curie flat rates, can he use his approved CoMAv in a different FP7-project? - All SME owners having received approval of ir methodology are entitled eir to: - Continue applying approved methodology - Apply flat rate system - However, if beneficiary chooses to apply flat-rate system y will have to apply it for all cost statements in ongoing and future participations in FP7 and IMI projects. - It is recommended that beneficiaries in this situation inform both Commission and IMI on ir choice via functional mailbox of EC: RTD-FP7-Average-Personnel- Rate- Certification@ec.europa.eu And IMI: Page 16