Financial Audits carried out by the Commission
It is of vital interest to the EU to guarantee the correct and purposeful use of taxpayers’ money spent on research projects within the Research Framework Programmes. Independent scrutiny of EU spending is crucial in preventing errors. In order to detect and correct any errors, the Commission in 2007 reinforced its audit strategy for FP6 and FP7 aiming to clear approximately 40% of the framework programmes’ overall budget by carrying out ex-post financial audits (also called second level audits) at beneficiaries’ premises.
The audits are accomplished either by EU staff or by private audit firms mandated by the EU. They can be conducted at any time during the contract and up to five years after the end of a project. The audits aim at verifying whether participants’ cost claims have been correct (“legal and regular”), i.e. based on eligible costs as stipulated in the FP grant agreement and the rules for participation.
Which organizations will become subject to an ex-post audit?
Large organizations receiving the highest amounts of funding and participants considered by EU staff as "high-risk" are especially likely to be controlled. In addition, participants are selected on a random basis for ex-post audits. Furthermore, the European Court of Auditors is also conducting its own audits.
Thus, every beneficiary of an FP7 project needs to be prepared for an ex-post audit at any time. This includes that utmost attention should be paid to the eligibility criteria for the reimbursement of costs before any claims are submitted to the European Commission. Beneficiaries should be able to guarantee that there is a sound documentation and financial management implemented within every project.
A first consequence when ineligible cost claims are detected is the recovery of that amount or – in running projects – compensation with the next payment. In case the error is found to be of a recurrent nature, the audit findings will be extended to all other projects of the beneficiary that are subject to similar funding conditions. This procedure is called "extrapolation".
On top of that sanctions might be introduced. They can be three-fold:
- The Commission might claim liquidated damages.
- In case contractual obligations are violated, additional financial penalties might be imposed.
- Any intentional overstatement of costs may lead to the exclusion from further FP participation and even to criminal court proceedings.