Lessons Learned – EU H2020 Audit

We underwent our first EU Second Level Audit last week covering the first reporting period in three of our ongoing H2020 actions. First level is when you certify your own financial statements. Second level is when the commission comes for a visit. Below are some of the things we learned, a new software platform we’ve launched and a new service we offer. Feel free to add comments on this article to share your experiences on this topic nobody typically wants to talk about.

Process:

  • 20% of audits are conducted by the EU itself and 80% are outsourced to firms. We were part of the 20% with internal EU auditors.
  • We were notified two months in advance and could select the week that fit our schedule best
  • There were questionnaires to fill in pre-audit and samples of purchases, travels and timesheets also to send in advance. We asked questions and we got answers.
  • CVs of the staff involved and working contracts were sent in advance for selected personnel.
  • We had 3 projects audited, each still ongoing (hence an audit of the first reporting period). A separate list of potential projects to check if problems were uncovered was also identified.
  • The audit lasted 5 days.  Inbrief – audit days – outbrief.
  • The audit consisted of a presentation from the audit team about the audit process overall and then turned over to us for a general presentation of our company, a general presentation of the projects under audit by the project managers, interviews with up to 5 people from each project (over the upcoming days), constant interaction with our administrative department, interaction with our company accountant and interaction with company leadership and project managers
  • Auditors can get audited – hence there are certain steps they must take and certain documentation they must collect and present. In H2020, the auditors guidelines have become more specific / directed.
  • Not all audits are equal and auditors do have room for judgement, hence our experience is ours alone

Lessons Learned & Major Take-Away Points:

Group dinners or group expenses: As a rule of thumb, each partner and each individual should pay for their own expenses. It is not uncommon that one partner offers consortium dinners or pays for an expense involving 4-5 people. However, since there is no record of who is part of joint expenses and for what reason, they can be rejected. Catered lunches (to save time) are more likely to be accepted than consortium dinners (after the working day).

EU Acknowledgements: The auditors checked each purchased item/equipment to make sure we had the appropriate label / sticker / acknowledgement on the purchased item. Our drone, posters, thermal testing units, etc. They took photo evidence to show in their report.

Annual working hours: There are three different options companies have to do this (fixed, standard, actual). If not using the fixed method (we’ve applied actual) you really have to pay attention to all the involved variables (such as how holidays fall each year, sick leave, vacation time, etc). We will likely adapt to the fixed rate moving forward to simplify everything.

Proof of Payments and their Registration: Checks didn’t end with what we do and retain in the office but also continued with our accountant with the intent to show proof that each purchase, travel or invoice is logged appropriately in national accounting systems to include bank transfer proof of payment information.

Company Policies: They want to see company policies for travel, project management, time tracking and procurement. Many (young) SMEs haven’t formalized all their policies yet. Our auditors recommended we put on paper a few additional lines about several policies.

Consistency and evidence: On timesheets, a first check is to see if any person’s recorded working hours conflict with holidays, commercial travels, unrelated conferences, sick time and so on. For all travels, they request evidence of the travel and its linkage to the project. Signature sheets from project meeting are a simple example. Providing evidence for a stakeholder meeting or workshop may be less simple. It is good to think about capturing evidence in planning any travel so that when you conduct the travel, you think to take pictures, record evidence and so on.

Post Audit Process:

  • Within approximately 60 days we’ll get a formal report on the outcome of our audit
  • We’ll have 30 days to respond to that if we elect to dispute any of the findings or add additional evidence
  • The report will then be turned over to the operational and financial units of the European Commission for decisions on the findings.
  • At the macro level, if there are systematic problems during an audit (20% systematic error on the hourly rate for example) those findings can be extrapolated to your entire research portfolio or an additional expanded audit can be conducted to check everything on a larger scale.
  • If projects are still ongoing, audit findings become part of the running project financial process. If projects are closed and there is a negative adjustment, that can result in a request for a bank transfer for that balance.

Our Audit result:

In our case, the audit was a healthy exercise that validated our approach, systems and conduct of EU research. We had a few errors to correct that are easy to address and we are now postured to move forward with increased confidence.

New Product: Commercial Launch of our Project Planning, Management and Cost Claiming Tool.

As our research project portfolio has expanded and began to include different types of funding instruments (national, EU and other programs), it became impossible to manage our staff and projects with an excel-based approach. As a result and over the past two years, we have constructed a cloud based system that allows us to set targets for our staff, allows them to record and file timesheets, allows project managers to check those off and that allows a simple print directly to a Form C cost claiming with protective stops for common errors and analytics that allow various birds eye views along the way. The tool is also handy anytime a project requests interim financial reporting / estimation (any range of dates can be entered and analyzed immediately).  Our recent audit now gives us the validation to market and sell this cloud based platform (they were impressed). If you have the need for such a system, contact us. Timesheets are the core of the audit and you have to get those right. Getting timesheets right begins with setting targets. You can read more about that system on the R2M webpage here.

New Service: Launch of Audit Pre-Check / Corporate Systems Consulting.

We always wanted to have someone that could come in for a day or two, look at what we were doing and make some sample checks to make sure we were more or less on track. If you have that same need, contact us. We now have enough experience to offer such a service with confidence. You can read about more about our service offering here.

We may also have some suggestions about credito di imposta if you are not using that (in Italy).