The European Court of Auditors has published its annual report on the financial data for the fiscal year 2023. The report provides information on the audits conducted by the European Commission. The results of the audits for 97 projects—90 from the Horizon 2020 Program and 7 from the Horizon Europe Program—were evaluated. The beneficiaries audited were located in 20 member states and five non-EU countries. The report also noted that beneficiaries declared higher costs in their budgets due to high inflation, creating a buffer for ineligible costs.
It was stated that the majority of the errors identified in the Horizon 2020 Program were due to the incorrect declaration of personnel costs, and the same was said for the Horizon Europe Program. The most common errors are as follows:
In 22 out of 30 cases (73%), the main cause of the error was reported to be the incorrect application of the methodology for calculating hourly rates for Horizon 2020 and daily rates for the Horizon Europe Program.
Errors identified under personnel costs in the Horizon 2020 Program:
As stated in previous reports, the requirement to use annual hourly rated calculated using the most recently closed financial year data can lead to errors. This issue was also highlighted in the 2023 report.
Beneficiaries were found to calculate rates for the entire reporting period or for just the months covered by the reporting period, instead of calculating the hourly rate for a single fiscal year. In three cases, beneficiaries had allocated persons to the EU-funded project at a certain percentage, and claimed the costs according to that percentage, without calculating an hourly rate.
Additionally, in seven cases, it was found that incorrect hourly rates were used due to the inclusion of ineligible costs such as the parental leave, retroactive payments for salary increases, and ineligible bonuses
Errors identified under personnel costs in the Horizon Europe Program:
The European Commission offers two options for calculating daily rates: either calculating a single daily rate for the entire reporting period or calculating separate daily rates for each calendar year using applicable data for the relevant months. It was stated that having two different options causes confusion.
In two audited projects under the Horizon Europe Program, beneficiaries were found not to base their personnel cost declarations on calculated daily rates. In the provided example, the full cost of a person working exclusively on the project was declared, and according to records, the person worked on the project for 208.5 days throughout the year. As this is below the cap of 215 days, the declared cost was much higher than it should have been.
The double ceiling rule stipulates that the total number of hours declared for a person for a year in the case of EU-funded projects may not exceed the number of annual productive hours used to calculate the hourly rate. Moreover, the total amount of personnel costs declared (for reimbursement as actual costs) for any person for the given year may not exceed the total personnel costs recorded in the beneficiary’s accounts for the person concerned for that same year. This year’s report found that in 8 cases, these limits were exceeded, and beneficiaries declared and were reimbursed for personnel costs in excess of those actually incurred in the year.
Other errors in personnel costs included the declaration of ineligible months in the case of staff working exclusively on the project, and personnel costs (a) claimed in full in the absence of exclusivity declarations or timesheets, (b) claimed for persons whose link to the project could not be demonstrated.
A key condition governing the eligibility of costs is that they must be incurred in connection with the action and necessary for its implementation. There were eight cases where the requested costs did not meet this requirement. Beneficiaries declared travel and hospitality costs that were not necessary for the project, costs for general financial management consultancy services, and the renovation and furnishing of a laboratory where only consumables were allowed under the grant agreement.
Other errors found in other cost categories included ineligible internally invoiced goods and services, costs not incurred, missing supporting documents and incorrect exchange rates.
The report also noted that newcomers and SMEs are more prone to making errors. SMEs, which accounted for 11% of the total sample, contributed to 25% of the total errors. Twelve newcomers were audited, and errors were found in four of them. Two of these four beneficiaries were also SMEs.
You can access the full report published by the European Court of Auditors via the link. We strongly recommend paying attention to the audit-related points mentioned in the report.
For all your questions related to the relevant processes, you can contact us at ncpfinance@tubitak.gov.tr.