Key aspects of audits in European projects

Funding for projects through European programs presents a valuable opportunity for organizations and entities across Europe. Most of these projects are collaborative, carried out by consortia formed by organizations from different countries in the European Union (EU) or associated countries, managed by a project coordinator. However, this funding entails a series of responsibilities and obligations, including the possibility of being audited by the European Commission, even after the project’s completion.

Upon receiving a grant, a grant agreement is signed, allowing for the execution of the project. Therefore, to ensure full funding, it is essential to comply with all established obligations. Our experience at Zabala Innovation, managing over 500 European projects, has taught us that being adequately prepared is crucial to overcoming these challenges.

What is an audit by the European Commission?

An audit by the European Commission is a process of review and verification, primarily at the economic level, although technical aspects or compliance with the clauses outlined in the grant agreement may also be reviewed. The objective of these audits is to ensure that the funds granted have been used appropriately, in accordance with the European laws and regulations governing the grant agreement.

Audits in European projects are a vital tool for ensuring the integrity, transparency, and effectiveness in the use of EU funds, thereby protecting the financial interests of the Union and ensuring that funded projects deliver the expected value. Additionally, they provide insights that help identify areas for improvement in project management, leading to recommendations for enhancing efficiency and effectiveness in fund utilization for those developing funding strategies across various European programs.

These audits may be conducted by the European Commission itself or by external auditors appointed by it. Furthermore, beneficiaries of European funds are subject to audits by other bodies such as the European Anti-Fraud Office (OLAF), the European Public Prosecutor’s Office (EPPO), or the European Court of Auditors (ECA).

Who can be audited by the European Commission?

Audits can be conducted at both the project level and for beneficiaries and/or affiliated entities. Other participating entities in the project, such as affiliated entities, associated partners, third parties providing in-kind contributions, subcontractors, and recipients of financial support to third parties (FSTP), may also be subject to these procedures. Therefore, it is important that agreements made with these participants reference the possibility of being audited by the Commission and the obligation of these third parties to provide the requested information.

When can an audit occur?

Audits in European projects can take place at any time during the execution of the project, involving all beneficiaries or only some of them. Additionally, once the project is completed, and for several years afterward, the Commission may request additional reports and clarifications from all beneficiaries regarding the documentation submitted.

Grant agreements typically specify a period during which the beneficiary must retain documentation and be prepared for a potential audit. This period may vary, being two years after the final payment in the Horizon Europe program.

How is an audit conducted by the European Commission?

The audit process begins with the European Commission sending a letter through the portal to the relevant beneficiary, informing them of the project(s) and period(s) to be audited. The name of the entity responsible for the audit is also provided, in case it is external to the Commission, allowing the beneficiary to request the selection of a different auditing entity if they have any conflict of interest.

The review of the requested documentation can be conducted either remotely or through on-site visits to the beneficiary’s facilities. In any case, the beneficiary must provide auditors with access to all requested documentation, supplying complete information in the required format and adhering to established deadlines. Failure to comply with these requirements may result in the rejection of unjustified costs and the demand for repayment of part of the funding received.

Once the process is complete, the beneficiary will receive a draft audit report via the portal, for which they will have 30 days to submit comments. After this period, the final audit report will be prepared and sent along with the audit conclusion letter, which outlines, if necessary, the actions to be taken (such as fund recovery, payment suspension, administrative and/or financial sanctions, etc.).

What is reviewed in an audit?

During an audit, several aspects of the project are reviewed, including:

• Financial documentation: Verification that all expenses are properly accounted for and eligible according to the criteria established for each European program.
• Objective compliance: Evaluation of whether the project has met its expected objectives and results, reviewing reports and deliverables.
• Management procedures: Review of internal management and control procedures to ensure that the entity’s usual practices have been followed.

It is essential to maintain records and retain supporting documents to demonstrate that the project has been managed and executed correctly. This includes maintaining records of eligible expenses and corresponding accounting.

Consequences of an audit of a European project

If irregularities are detected during an audit, the European Commission may take various actions, ranging from requesting corrections to the recovery of funds. In severe cases, additional sanctions may be imposed.

The possibility of an audit by the European Commission is an important consideration when managing projects funded by European programs. Maintaining good organization and documentation, as well as strictly adhering to the terms of the grant agreement, are key to ensuring a successful audit.

At Zabala Innovation, we currently manage 36 collaborative projects under Horizon Europe, with a total budget exceeding 180 million euros. We also manage projects funded by other European programs such as LIFE, Connecting Europe Facility (CEF), Innovation Fund, and Interreg. Our team of experts can assist you in meeting the necessary management requirements, ensuring compliance, and optimizing the results of your projects.