Frequently asked questions FP7 Financial Guide Budgetary matters Eligible costs of a project What are the criteria for determining whether the costs of a project are eligible? First of all, costs must be actually incurred. When a certificate on financial statements is being prepared and costs have not yet been incurred, the closest possible estimate of costs should be declared. With regard to equipment, the percentage of its depreciation should be calculated for the period in which it was used, within the time period of the project. Costs associated with preparing and submitting the project proposal CANNOT be included in project costs. The costs for each beneficiary must be calculated according to the applicable accounting rules of each country. Specific accounting principles should not be created for FP7 projects. When a beneficiary opts to calculate indirect costs using a flat rate, by definition it is not necessary for these costs to be backed by supporting documents. It is important to follow the principles of economy, efficiency and effectiveness in accordance with the standard for sound management of public resources. Costs corresponding to personnel, durable equipment, travel and subsistence, subcontracting, consumables, etc. may be considered as eligible costs, in accordance with the definition of eligible costs in the ECGA and as long as they are incurred in the context of the activities permitted by the instrument. Article II.14 of the ECGA, p. 30 Identification of direct and indirect costs Depending on the characteristics of the operation in question, some costs may be considered as either direct costs or indirect costs, but they cannot be taken into account twice (as both direct costs and indirect costs). Direct costs 1
Direct costs are all those eligible costs that can be attributed directly to the project and are identified by the beneficiary as such. Personnel must be directly hired by the beneficiary in accordance with corresponding national legislation. Personnel must work under the beneficiary s responsibility. Personnel costs should reflect total remuneration: salaries plus social security charges (holiday pay, pension contribution, health insurance, etc.) and other benefits established by law. Personnel must be remunerated in accordance with the beneficiary s normal practices. Only the costs of the actual hours worked by the persons directly carrying out work under the project may be charged to the project. The time worked by personnel that is attributed to the project should be recorded in a reasonable manner: daily, weekly or monthly. The records of time worked must be authorized by the project manager or another superior. When it is the usual practice of the beneficiary to consider the costs of certain types of personnel (such as administrative or support personnel) as indirect costs, the costs of such personnel cannot be charged as direct eligible costs, but rather only as indirect costs. Article II.15, p. 42 When can work be subcontracted? When some part of the work cannot be carried out by project partners or when it is more efficient to contract a third party to carry out certain activities. The subcontracted organization does not have any specific interest in the overall project and therefore will not have access to the project s final results, and will not be able to claim intellectual property rights generated through the project. A subcontracted business or organization will maintain a direct relationship with the partner that subcontracted its services, and that partner is responsible for the subcontracted activity. Also, the partner that subcontracts a business or organization must assure that the latter can be audited by the Commission or the Court of Auditors. Subcontracting between beneficiaries is not acceptable, since all beneficiaries by definition contribute to and have an interest in the work that will produce the project s expected results. The criteria for selecting a business or organization for subcontracting prioritizes the quality of the work to be performed, although it is also necessary to consider the cost that such work will incur. 2
The subcontracted entities do not need to be identified, however the subcontracting procedure must assure conditions of transparency and equal treatment. Subcontracting costs are considered to be direct eligible costs. Subcontracting costs must be specified in the financial statement report (Form C in Annex VI to the ECGA). Article II. 7, p. 26 Consultants Can external consultants be hired within a project? Consultants are natural (physical) persons working for one or more beneficiaries in FP7 projects. They may be self employed or may work for a third party. The conditions in which consultants work must be in line with the principles outlined in Article III.14 of the ECGA (economy, efficiency and effectiveness, according to the standards for sound management of public resources). A consultant may work on the beneficiary s premises or elsewhere, and must work on the basis of a contract and under the beneficiary s instructions. The results of a consultant s work belong to the beneficiary. The costs of a consultant s work should be similar to the personnel costs of employees in the same category working under a labor law contract for the beneficiary. Costs for a consultant s travel and subsistence for activities related to the project must be paid directly by the beneficiary in order for such costs to be eligible. Purchasing durable equipment Are the costs of purchasing equipment considered to be eligible costs? Only equipment purchased specifically for use within the project can be charged as a direct cost. In order for a cost to be considered eligible, it must be determined according to the beneficiary s usual accounting practices. Each beneficiary must apply its usual depreciation system for durable equipment. Depreciated costs of equipment can never exceed the equipment s purchase price. Are the costs for certificates of financial statements and certificates of methodology eligible costs? Costs incurred for certificates on financial statements and certificates on (accounting) methodology constitute eligible direct costs and are charged under management costs, which are included under Other activities. After a proposal has been accepted, when are Commission contributions received? The European Commission makes only one pre financing payment (advance payment), and it is made at the beginning of the project. Such payment will be received within 45 days of the date the 3
grant agreement enters into force. The contribution will be distributed to the other beneficiaries, after they have signed and returned Form A (accession form) to the project coordinator. Prefinancing is equivalent to 160% of the average EU contribution per period (generally, one year periods), unless the specific circumstances of the project require otherwise, such as when a very heavy initial capital investment is necessary. The remaining amounts corresponding to the EC contribution will be received as periodic reports are approved, and the final contribution (10% of total) is received when the final report for the entire project is approved. For projects with one or two reporting periods, the amount of the pre financing could be between 60 80% of the total EC contribution. Any interest generated by the pre financing amount in the coordinator s or beneficiaries accounts belongs to the European Commission until the final payment is made. Article 6, p. 9, 10 When pre financing is less than 50,000 euros, it is not necessary to declare the interest it generates. Thus, it is not necessary to report the interest generated when the coordinator transfers the proportional parts of the pre financing to the beneficiaries. At any rate, the only party required to declare the interest generated from pre financing is the coordinator of the consortium. Article II.19, p. 76, 77 What is the maximum amount of an EC contribution to a project? Projects may have a cost that is greater than the amount of the EC contribution, and the maximum amount of the EC financial contribution is defined in each call for proposals. Article 5, p. 7 Can changes be made in the breakdown of project expenditures? Since the breakdown table included in Annex 1 (Description of Work) gives an estimate of the costs for each activity, the transfer of budget resources between activities and beneficiaries is permitted without an amendment to the grant agreement, as long as the technical content of the proposal is not affected. At any rate, reimbursement will take place in the stipulated manner (100% for coordination activities, 50% for research activities, and 75% in the case of nonprofit institutions). Article 5.2 of the ECGA, p.7 Is it necessary to open a bank account to receive EC contribution funds? 4
It is recommended that EC contribution funds be received in a bank account used exclusively for handling project funds. This makes it easier to identify how funds are handled and to identify the interest generated, and it helps to facilitate the audit process. This applies primarily to the project coordinator. All expenditures must be reported in euros, which are calculated on the basis of the date on which costs were incurred, or the exchange rate on the first day of the month following the period reported. In both cases the exchange rates are those established by the European Central Bank, and can be verified at the following website: http://www.ecb.int/stats/eurofxref/ Article 5.3 of the ECGA, p.9 What is the percentage retained for the Guarantee Fund? Consortium partners will together contribute 5% of the total EC contribution for the project to the Guarantee Fund, and this amount will be retained at the time of the initial pre financing. Article 6, p.10 and II.20, p. 78 Part B on financial stipulations Certificate on financial statements What is the purpose of the certificate on financial statements? The certificate on financial statements (CFS) is submitted to the EC after costs have been incurred and reimbursement is being requested. This certificate is mandatory when the EC contribution is equal or superior to 375,000 euros. This certificate is not necessary for indirect actions that are reimbursed completely under the lump sum or flat rate systems. The certificate must include all eligible costs, even when there are other costs not derived from the EC financial contribution. There is also an option for some beneficiaries to submit a certificate of (accounting) methodology before they request reimbursement of costs incurred. This certificate will be used to identify personnel costs and indirect costs, and must be authorized by the Commission. This certificate is not mandatory but rather optional for the beneficiary. Certificates of financial statements and certificates of methodology must be submitted by filling out the forms provided in Annexes D and E of the Grant Agreement, and this can only be done electronically at the following website: RDT FP7 Cost Methodology Certification@ec.europa.eu 5
Procedures for entering a request and submitting a certificate of methodology can be found at: ftp://ftp.cordis.europa.eu/pub/fp7/docs/guidelines audit certification_en.pdf The Commission has 30 calendar days to accept or reject the request. However, the absence of a response within 30 days of receipt of the request cannot be considered as an acceptance. After the request has been accepted, the certificate must be submitted in the form of a factual findings report prepared and certified by an external auditor or an authorized entity (institutions of higher education or research). This form can be found in Annex VII of the ECGA (Form E). After the certificate (CFS) is accepted, it will be valid for all the subsequent financial statements submitted by the same beneficiary under the FP7, unless the methodology used by the beneficiary changes or if an audit or control by the Commission services or on their behalf demonstrates that the methodology certified cannot be maintained in the way it was presented. In this case, the beneficiary will have to submit another certificate of methodology. There is another type of certificate (of accounting methodology) that is used for declaring average personnel costs. When a beneficiary opts for declaring an average for personnel costs, this certificate is mandatory, unless a certificate of accounting methodology already exists. The information for submitting a certificate of personnel costs can be found at: ftp://ftp.cordis.europa.eu/pub/fp7/docs/guidelines audit certification_en.pdf The certificate must be submitted in the form of a factual findings report prepared and certified by an external auditor or an authorized entity (institutions of higher education or research). Certificates of financial statements must necessarily be submitted according to Annexes D and E of the Grant Agreement. Article II.4.4, p. 14 23 Indirect costs What are indirect costs? Indirect costs are those that cannot be identified as direct project costs, but which are necessary and can be justified as such. They are also known as overhead costs, referring to costs such as structural costs and costs for administrative, technical and logistical support that are vital for the operation of activities within the project. Indirect costs are calculated according to the usual accounting rules followed by each institution. 6
Beneficiaries can opt to declare their direct costs, plus 20% as indirect costs, excluding the amounts used for subcontracting. Methods for calculating indirect costs Actual indirect costs Beneficiaries who have an analytical accounting system that can identify and group their indirect costs in accordance with the eligibility criteria (for example, excluding non eligible costs) must report their real indirect costs or choose the 20% flat rate option. Simplified method This is a method for calculating indirect project costs for those institutions that calculate their indirect costs for the entire institution (without specifying the center or department), and is used when an institution does not have a detailed accounting system. It is used in accordance with an institution s usual accounting system, and does not require installing a specific accounting system for FP7 projects. In the case of an audit, the beneficiary should be able to demonstrate that indirect costs are fairly allocated to the project s research activities. This method does not require previous registration or certification by the Commission of the method used by the beneficiary for calculations. A certificate of accounting methodology may, however, facilitate the EC s understanding of the method used for calculating indirect costs. Article II.15, p. 52 Flat rate of 20% This option is open to any beneficiary regardless of the accounting system it uses. Accordingly, when this option is chosen, there is no need for certification of indirect costs (only of direct costs). How is the calculation for this 20% flat rate option made? The calculation of indirect costs takes into account 20% of the beneficiary s total direct eligible costs, excluding the costs for subcontracting and costs of resources made available by third parties but not used on the beneficiary s premises. In the case of Coordination and Support Actions (CSA), the only applicable rate (flat rate) is the 20% rate for calculating indirect costs, however the reimbursement of these costs will be 7% in all cases. Even when 20% or 60% is declared, reimbursement for Coordination and Support Actions will be only 7%. Lump sums for ICPCs (third countries) 7
This method for calculating indirect costs does not require justification for costs incurred. It is recommended for ICPCs (third countries) since it is a fixed overall amount. It may be used only for research and technological development activities within a project. What is involved here is an EC contribution that is handled as a reimbursement based on eligible costs. This formula is selected at the time a Grant Agreement is signed, and is thus used during the entire duration of the agreement. Based on the EC s classification of countries by income, we have prepared the following table: Lump sum contribution for participants from third countries (ICPCs), by income group Economy of ICPC (third country) EC contribution in euros/researcher/year Low income 8, 000 Lower middle income 9, 800 Upper middle income 20, 700 Example: Mexico These amounts apply when the researcher works full time on project activities. When that is not the case, a percentage is used in accordance with the amount of time the researcher devotes to project activities. The resulting figures are expressed as, for example, 0.5 persons/month. The lump sum is deemed to cover all costs of a participant from an ICPC country, including not only the costs of personnel and travel, but also, equipment, consumables, subcontracts and indirect costs, for example. In this case beneficiaries are not required to submit certificates on financial statements, even if the EC contribution is above the threshold of 375,000 euros. Article II.18, p. 70 Transitional flat rate This rate refers to an amount corresponding to 60% of total direct costs (excluding subcontracting costs and the costs of resources made available by third parties and not used on the beneficiary s premises), charged as indirect costs. It applies to grants awarded under calls for proposals closing before January 1, 2010. Costs of third parties 8
What is a third party? A third party is a legal entity that does not sign the Grant Agreement. One example of a third party is a subcontractor. Normally, beneficiaries should be able to carry out project activities themselves, but in some circumstances, a request can be made for an entity not participating in the consortium to carry out certain activities. Even though this entity does not participate in the consortium, its activities should be stipulated in Annex 1. If the project is already underway, the inclusion of a third party must be approved by the Project Officer representing the European Commission. In any case the beneficiary has the sole responsibility for the work carried out by the third party, although in some cases the third party only makes its resources available to the beneficiary and does not actually carry out any part of the project. Article II.14.2, p. 34 How long does it take for the Commission to approve reports? Within 105 days after receiving project reports and deliverables, the Commission will evaluate and approve them, and will disburse the payments corresponding to the reporting period. Possible participants Who is considered to be a third party? A third party is, by definition, any legal entity that does not sign the Grant Agreement. An entity that provides subcontracted services is an example of a third party. The beneficiaries who have signed the Grant Agreement (GA) are responsible for implementing the project, and should have the capacity to carry out the project activities themselves. In some circumstances, however, the GA accepts some third parties whose costs may be eligible, if they are identified during the negotiation phase and are mentioned in Annex I. The responsibility for the work carried out by a third party lies with the beneficiary who contracted the work. Even though the project is already underway and participation by a third party was not anticipated, this should be discussed with the person within the Commission who is responsible for the project. Special cases In some cases a legal entity created or controlled by the beneficiary (it may have already existed) is in charge of the beneficiary s financial administration. This beneficiary (usually a public entity such as a university or ministry) has a prior agreement with a spin off company or a foundation stipulating that the latter will handle all the financial and administrative aspects of the 9
beneficiary s involvement in research projects, including all issues relating to the employment and payment of additional personnel, purchase of equipment and consumables, etc. The personnel hired for the project by the spin off company or foundation works on the premises of the university (beneficiary) and under its responsibility. In this case it is the university that should appear as the beneficiary and not the company or foundation, since the latter does not have the resources to carry out the work. As in other cases of contributions by third parties, those who appear as third parties and their tasks must be identified in Annex I of the ECGA. Article II.14.2 Special cases, p. 36 Non eligible costs Which costs are not eligible? Indirect taxes that can be identified. Usually the beneficiary can charge only the net value of the invoice to the project. When the VAT (value added tax) is clearly identified, it cannot be considered an eligible cost. Indirect taxes are permitted when they CANNOT be identified. An example is when the price indicated on an invoice is a gross amount that does not identify the proportion corresponding to the VAT. In any case, the beneficiary should be able to justify this in the event of an audit. In the particular case of airport taxes, because they are not real taxes in the sense of tax law, but are rather fees for a service, the beneficiary must use other means to prove that this so called airport tax is not a tax. Other non eligible costs: Duties Interest owed Provisions for possible future losses or charges Exchange losses, costs related to returns on capital Costs declared or incurred, or reimbursed in relation to another Community project (to avoid double funding) Debt and debt service charges, excessive or reckless expenditures. Article II.14.3, p. 41 Flat rates 10
Transitional flat rate of 60% This formula is referred to as a transitional flat rate because it will apply to grants awarded under calls for proposals closing before January 1, 2010. The objective is to help organizations during the transition from using a flat rate for calculating indirect costs, to an actual cost calculation. After January 1, 2010, the Commission will establish an appropriate level for this flat rate, which should be an approximation of the corresponding real indirect costs, and not lower than 40%. This option is exclusively for use by the following institutions: Non profit public entities Secondary and higher education establishments Research institutions Small and medium sized enterprises (SMEs) The flat rate is anticipated for those institutions that are unable to identify their real indirect costs for the project they are carrying out, or do not usually use the details of such costs. The flat rate is reserved for funding schemes that include research, technological development and demonstration activities: Networks of Excellence and Collaborative projects (including research for the benefit of specific groups, particularly SMEs). The basis for the calculation of the flat rate excludes the costs for subcontracting and the costs of resources made available by third parties. How are indirect costs calculated in the case of Coordination and Support Actions (CSAs)? In the case of Coordination and Support Actions, the maximum percentage for reimbursement of indirect costs is 7% of the direct eligible costs for each beneficiary, excluding costs for subcontracting and costs of the resources made available by third parties. In this funding scheme the EC s financial contribution can reach a maximum of 100% of eligible costs. What type of activities are funded 100%? Some examples of activities that may be funded 100% are: dissemination activities such as establishing websites, presenting projects at conferences or workshops and covering fees for publications; networking activities such as organizing a seminar to facilitate networking among participants; coordination activities such as organizing a meeting or travel for coordination purposes; intellectual property activities, including applying for patents; socioeconomic impact studies; and promoting the exploitation of project results, such as conducting feasibility studies for 11
creating spin offs. In all cases eligibility requirements (actual, economic, for the sole purpose of achieving project objectives) must be met. (Article II.14 of the ECGA) Salary costs of those providing training can be paid (however not the salary costs of those receiving training). Coordination and Support Activities (CSAs) are activities focused on coordinating and supporting research activities and policies. The costs of research, development and demonstration activities are not covered, however the EU contribution can cover 100% of funding for all direct eligible costs. In the case of indirect costs the funding amount may reach a maximum of 7% of direct eligible costs, excluding the costs of subcontracting (and costs of resources made available by third parties and not used on the beneficiary s premises). Receipts of the project Is a beneficiary of a FP7 project allowed to generate profit? EC financial contributions cannot be used for or have the effect of producing a profit for beneficiaries. For this reason, the total requested EC funding plus receipts cannot exceed the total eligible costs. Three types of receipts can be taken into consideration: Financial transfers or their equivalent to the beneficiary from third parties Contributions in kind from third parties Income generated by the project Beneficiaries must report income generated by a project in their financial statements (Form C). Such income will be taken into consideration by the European Commission when calculating final payments, and may lead to a reduction in EC contributions. Article II.17 What are lump sums for ICPCs? Lump sums are established for reimbursing eligible costs for International Cooperation Partner Countries (ICPCs): The upper funding limits to be applied for the different funding schemes are as follows: Funding scheme Non profit public entities, secondary and higher education establishments, research All other organizations 12
organizations and SMEs Collaborative project 75% 50% (1) Networks of Excellence 75% 50% (1) Coordination and support action 100% 100% Support for frontier research (ERC) 100% 100% Research for the benefit of specific groups 75% 50% (1) Support for training and career development of researchers (Marie Curie) Not applicable Not applicable (1) For security related research and technological development activities, it may reach a maximum of 75% in the case of capacity building in domains with very limited market size and a risk of market failure and for accelerated equipment development in response to new threats. The lump sum is deemed to cover all costs of a participant from a third country, including not only the costs of personnel and travel, but also others such as equipment, consumables, subcontracts and indirect costs. The payment of this contribution is made according to the same rules as standard pre financing, usually 160% of the average EC funding per reporting period. When beneficiaries are paid on the basis of lump sums, it is not necessary to submit certificates on financial statements, even if the EC contribution is above the threshold of 375,000 euros. Article 5.2, p. 8 It is possible to anticipate including more beneficiaries? An increase in the number of beneficiaries is allowed, but the original budget cannot be altered. Can modifications be made in the work originally proposed? Yes, the work plan may be updated annually. Who can participate? Any legally established entity, whether from member states, associated countries or ICPCs as long as the criteria specified in the call for proposals are respected. 13
Can international entities participate? Yes, they can. Ethical principles Can human tissue or animals be used in research conducted? It is necessary to guarantee freedom of research, and it is also necessary to protect the moral and physical integrity of human beings and the well being of animals. Research aimed at human cloning for reproductive purposes will NOT be funded, nor will research aimed at modifying the genetic heritage of human beings that could make such changes heritable. Research to create human embryos for the sole purpose of research or for stem cell procurement will NOT be funded. Filling out forms How should forms be filled out? Part A contains administrative information that identifies participants. Part B refers to the technical contents of the proposal. Institutions that submit a number of proposals should have a Participant Identification Code (PIC). This is obtained when designating the institution s Legal Entity Appointed Representative (LEAR) before the European Commission. Proposals are submitted on line, using only pdf documents with no more than 10M bytes (for Part B) and the size of the pages should be A4. Controls and sanctions Financial audits and controls When are audits carried out? At any time during the course of the project, and up to five years after the project is completed, the Commission may arrange for financial audits to be carried out. These audits may cover: Financial aspects Systemic aspects Other aspects such as accounting and management principles 14
Technical audits and review What is the purpose of technical audits? At any time during the course of the project, and up to five years after the project s completion, the Commission can arrange for technical audits to be carried out. These audits can cover: Scientific aspects Technological aspects Other aspects related to the proper execution of the project and the grant agreement. The technical audit or review may consider: The degree of fulfillment of the project work plan for the relevant period and of the related deliverables. The continued relevance of the objectives and breakthrough potential with respect to the scientific and industrial state of the art. The resources planned and utilized in relation to achieved progress, in a manner consistent with the principles of economy, efficiency and effectiveness. The management procedures and methods used in the project. The beneficiaries contributions and integration within the project. The potential impact in economic, competition and social terms, and the beneficiaries plan for using and exploiting project results. Occasionally, ethics audits may be carried out, to assess whether the project is being carried out according to fundamental ethical principles. Article II.23, p. 83 Reports The auditors will prepare a report to be sent to the beneficiary. The beneficiary can make observations on the report within one month after receiving the report. The Commission may decide not to take into account observations or documents sent after the deadline. On the basis of the experts recommendations, the Commission may inform the coordinator of its decision: To accept or reject the deliverables 15
To allow the project to continue without modification of Annex I of the ECGA or with minor modifications To consider that the project can only continue with major modifications To initiate the termination of the Grant Agreement or of the participation by any beneficiary, according to Article II.38 of the ECGA To issue a recovery order regarding all or part of the payments by the Commission and to apply any applicable sanction. Article II.23, p. 83 Source: Guide to Financial Issues relating to FP7 Indirect Actions Version 02/04/2009 Useful link: http://www.finance helpdesk.org/front/showcategory.aspx?catid=30 16