Attention, beneficiaries of government grants or EU programmes!

Have you ever heard of the Certificate on Financial Statements (CFS)? If your project received support from Horizon 2020[1] or Horizon Europe, you definitely have to be up to date with that.

The word “audit” can be frightening for any business person. If you have decided to get funding from the Estonian state budget or European Union (e.g. through Horizon 2020 or Horizon Europe), you have to be prepared for external parties to evaluate and monitor your activities. If you receive taxpayer money for carrying out your project, get ready for an audit of your activities and expenses. Every funding source has its own requirements for verifying project costs. For example, those receiving support from Horizon 2020 or Horizon Europe must order a CFS at the end of the project. A similar requirement has been established by a number of other grant providers.

What is a CFS?

A CFS is obligatory for all Horizon 2020 projects that received more than 325,000 euros and for Horizon Europe projects that received more than 430,000 euros. The certificate must be issued by an independent auditor and you are required to submit it to the European Commission together with the project’s final report.

How does the process of issuing the certificate work?

1. Find an auditor who will audit your project’s financial statements. While the audit obligation was established by the European Commission, you can choose your own auditor (the auditor is also subject to relevant qualification requirements and the audit has to meet certain standards). The key point is to find an independent, competent auditor. The good practice is to select an auditor with previous experience in auditing Horizon projects. This will certainly streamline the certificate issuance process.
2. Using a sample, the auditor verifies the eligibility of the project costs and their conformity to the grant rules (best price to quality ratio, personnel cost calculation methodology etc.). The project’s indirect costs incurred in the course of issuing the certificate are not audited.
3. After the review, the auditor issues the CFS, which includes a list of findings – discrepancies from the requirements, instances of non-compliance with rules, comments. Like the project financial statements, the CFS must be prepared in the required format.
4. The certificate is to be submitted to the European Commission along with the final report within 60 days of the project end date. If your grant exceeds 325,000 euros, you will be unable to successfully complete the project or receive the final payment without the certificate.
5. The European Commission will accept your project’s final report and make the final payment, taking in consideration of the findings in the certification document. 

Since the CFS audit is fairly time-consuming, be sure to start the project early to avoid delays in approving the project report and processing the final payment. Good news is that the cost of the CFS audit is eligible so you can build it into the project budget.

What is your main duty as a beneficiary?

The beneficiary’s main obligation is to make all data and documents available to the auditor. The auditor will use financial reports, data on contracts, purchase orders and procurements related to the project, documentation related to procurement procedure, records on receipt of goods and completion of ordered work and payment of costs. The auditor may also take an interest in documents related to business trips like company travel policy, supporting documents for each trip,  and, for the purposes of verifying personnel expenses, documents related to employees such as payroll, employment contracts, service contracts, time sheets and other underlying documents deemed necessary. The auditor will check all documentation that is the basis for preparing the project’s financial reports.

What happens if the auditor discovers errors?

It is quite unlikely that auditors will not find any misstatements at all in your financial statements, but a number of technical errors can be corrected in the course of the audit. More significant errors are usually found in accounting for personnel expenses (for example, time sheets might be missing or incorrect methodology for calculating hourly personnel rates has been used) or procurement procedures (procurement rules not followed) but other errors can also occur. The auditor describes their findings in the report accompanying the certificate. The impact of non-performance of obligations is determined by the European Commission, which may decide not to compensate certain expenses to the beneficiary or recover part of the funding already received.