5 most common mistakes in H2020 Financial Reporting
Although reporting the eligible costs of a Horizon 2020 project is the sole duty and responsibility of each Beneficiary, the mistakes and errors made during the calculations show some typical patterns. Some of these errors come from misunderstanding the Grant Agreement, and some from the complexity of the Grant Agreement itself. And last but not least, many come from financial mismanagement that could be easily avoided.
1. Incorrect identification of the eligible salary costs
Identifying what the eligible basic salary cost of a researcher or project manager in an H2020 Grant is a fundamental step in financial reporting. By default, the gross salary of a staff member for his or her usual work, and the mandatory employers charges on top of this gross salary is accepted assuming that no further costs (like liabilities, internal overheads, rates, etc.) are included. The problem usually comes when one has a too general or too specific contract which may raise certain issues, or when adding specific salary components such as parental leave, bonuses, or fringe benefits.
2. Inconsistent calculation of the hourly rates
Beneficiaries must use the same method for calculating the hourly rates of each and every of their employees. This is either the financial-year based calculation, or the monthly-based calculation. Often, Beneficiaries prefer switching from one method to the other just because it is simpler: like for general employees working part-time on the project, they use the financial-year based calculation, while for staff-members working full-time on the project for some months they adapt the monthly-based calculation. This in NOT allowed, and would be considered an inconsistency in financial reporting.
3. Misuse of the “in-house consultant” option
The in-house consultant scheme has been a very popular and widely-used method for charging personnel costs to the projects since FP5. Until H2020, the in-house consultant could be self-employed or employed by a third party. The same conditions applied to make it an eligible personnel cost. Now in Horizon 2020, the in-house consultant must be a natural person, with whom the Beneficiary shall have a direct contract. Therefore, contracting a person even through his own company is normally not eligible as personnel costs. Another typical mistake here is that although it may be allowed by the Grant Agreement, some Member States laws do not tolerate such contract(s) as it may be considered hidden employment scheme therefore this must be avoided.
4. Subcontracting or other services
Article 10 of the Grant Agreement now specifies what other services are in Horizon 2020:printing, catering, publication costs, translations, website development, even the costs of the Certificate on the Financial Statement (formerly audit certificate). On one hand, this is a great improvement as in FP7 audits there were many fights with the auditors whether a major invoice on catering of a project event is subcontracting or other direct costs. On the other hand, the way how the differences between Subcontracting (Article 13) and other services are defined in the H2020 GA will definitely lead to many further arguments with the project officers and EC auditors, as it is not always clear what is considered assistance for a so-called complete action/task (as written in the AMGA) and what is not.
5. Internally invoiced services and goods
Larger legal entities, generally universities, big research organisations or large companies, often use internal invoicing or recharges between departments or cost-centres. A typical example is when one department buys the goods needed for the entity and stores it, then invoices it to another unit within the same legal entity which uses it for its H2020 project activities. This internal recharge may be considered an eligible cost, but only when it can be proved that only the actual cost of the concerned item is charged to the project, and not the price or any kind of internal rate. So, it is the Beneficiarys sole responsibility to prove that what they reported represents the cost only, without any profit. Since September 2017, these costs must be reported separately in the Financial statement, so pay extra attention to calculating this correctly!
For more information on these typical mistakes and many other real-life tips and recommendations don’t miss your spot at our H2020 Project Management and Financial Reporting training course in Brussels 11-12 of April 2018, this time with an optional 3-day version where we will simulate a hands-on audit!