The impact of a European audit can extend beyond a single project

An audit by the European Commission can have financial consequences that extend beyond the project under examination. When auditors identify shortcomings arising from widespread practices within an organisation, their findings may also affect other EU-funded projects. This risk, particularly relevant for organisations managing several European projects simultaneously, calls into question a still widespread assumption: that audit preparation begins when the notification arrives.

Zabala Innovation’s experience in advising beneficiaries shows that many seek specialist support only after receiving the auditors’ findings and facing potential funding reductions. Although they can still submit comments and provide additional documentation at this stage, certain shortcomings are difficult to rectify retrospectively. The question, therefore, is not simply how to respond to an audit, but whether an organisation can demonstrate, at any time, that its expenditure meets the eligibility conditions required for funding by the European Commission.

The cost of late preparation

Notification of an audit marks the beginning of a particularly demanding period. Deadlines for submitting documentation may be less than a month, leaving little time to review calculations or locate supporting evidence that has not been properly retained.

The main challenge is not gathering documents, but demonstrating consistency between declared expenditure, accounting records and the activities carried out. An invoice, for example, does not in itself prove that a cost is eligible. It is also necessary to verify who incurred the cost, how it was allocated and whether it meets the eligibility conditions set out in the grant agreement.

Pre-audit reviews should therefore be seen as a risk identification exercise rather than a mere administrative check. Identifying inconsistencies before submitting documentation makes it possible to prepare well-founded explanations and prevent errors in interpretation or supporting evidence from jeopardising costs that could otherwise be eligible.

Personnel costs account for a significant share of the risks

Personnel costs deserve particular attention, both because of their typically substantial share of project budgets and the complexity of the applicable rules. The European Commission identifies them as one of the main sources of errors in audits of programmes such as Horizon Europe.

The most common issues include incorrect daily rate calculations, errors when converting hours into day-equivalents, inappropriate application of limits on declarable costs and discrepancies between the working time declared and the available records. The underlying problem, however, is not always an isolated calculation error. In some cases, shortcomings reveal that an organisation has misinterpreted a rule and incorporated that interpretation into its standard procedures.

Time-recording systems illustrate this situation. It is not enough for staff to have actually worked on the project: reliable evidence must be available to establish the time they devoted to it and link that time to the funded activities. The European Commission allows alternative evidence to be used when time records are deficient, but its acceptance depends on whether it sufficiently substantiates the time declared.

When an error can affect several projects

The distinction between an isolated instance of non-compliance and a systemic one is crucial when assessing the consequences of an audit. Systemic or recurrent errors are particularly concerning because they may reveal incorrect practices repeated across different projects within the same organisation. If auditors find, for example, that an inappropriate method is systematically used to calculate personnel costs, the problem may not be confined to the sample examined.

Under certain conditions, and through the applicable procedures, financial corrections may be extended to other projects affected by the same shortcomings. For organisations with extensive portfolios of European projects, the cumulative financial impact can be considerable.

This dimension of risk calls for an examination not only of individual costs, but also of the internal procedures governing how costs are calculated, recorded and substantiated. Correcting a specific issue may not be enough if the practice that caused it remains in place.

Prevention must be embedded in project management

The European Commission emphasises that audit preparation should begin during project implementation. This recommendation has a practical implication: the ability to withstand a financial audit is built long before auditors become involved. Establishing appropriate procedures, regularly reviewing expenditure reports and retaining reliable supporting evidence make it possible to identify discrepancies early and reduce exposure to recurrent errors.

At Zabala Innovation, we apply this approach both through our specialist audit support and through our comprehensive services: Full Project Management, which covers the entire project lifecycle, and EU Project Office, through which we work alongside each organisation’s internal team to provide additional capacity or specialist expertise whenever needed. Our extensive experience in project management and financial reporting enables us to anticipate risks and support beneficiaries in preventing them.

Ultimately, an audit should not be regarded as an exceptional administrative exercise, but as a test of the robustness of an organisation’s management systems. Preparing in advance does not eliminate every risk, but it does make it possible to address potential issues before they jeopardise funding for one or more European projects.