IST Programme Pilot on Audit Certificates

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IST ProgrammePilot on Audit Certificates
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Contracts - Audit certificates

• When the contractor has
• A cost of more than 250 000 Euros for the first
  12 month period of the project, the audit
  certificate to be provided with first interim
  cost statement (or 125 000 Euros for the first 6
  months)
• A total project cost exceeding 250 000 Euros for
  the total duration, the audit certificate to be
  provided (covering all the periodic cost
  statements) together with the cost statement for
  the final period, also for those that have
  provided audit certificates with their first
  interim cost statement
• In case a contractor as result of restrictions in
  its statutes or other national legislation is not
  in a position to provide an Audit certificate, no
  Audit certificate will be required

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Contracts - Audit certificates (Contd)

• Audit certificates must be issued and certified
  by independent and qualified auditors approved by
  the competent authorities of legal residence of
  the contractor
• Eligible costs (under the specific cost category)
• Community financial contribution shall not exceed
  4000 Euros per audit certificate
• Guarantee retention is increased from 15 to 20
• In all cases where a certification in an Audit
  certificate is required, costs for which there is
  no such certification shall not be considered as
  eligible costs
• As part of the Pilot the Commission (or any
  representative authorised by it) would like to
  have the right to assess the Audit work
  performed.
• A model for an Audit certificate is
  availablehttp//www.cordis.lu/ist/manage.htm

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Court of Auditors Annual Report (1999)

• Structural overcharging in research contracts.
  Contractors overstate or incorrectly state costs,
  typically overheads and labour effort.
• Overcharging usually not detectable without on
  site audits. Too few audits performed.
• Note lt5 total of CoA Commission.
• Rate of overcharging in targeted audits by the
  Commission is high gt 16 for DG INFSO.
• Average detected by CoA spot checks? gt 10 ?
• No incentives to contractors to avoid
  overcharging
• (i.e. no penalties, no risks)
• CoA recommendation
• Commission should simplify / improve cost claim
  control system
• and consider requesting audit certificates

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Details of IST Pilot

• Audit certificates introduced as follows
• all remaining calls for proposals (6-7-8)
• only RTD contracts (80 of the 1.1 B of calls
  6-7-8)
• 1st cost claim (contractors exceeding 250
  k/year) and final cost claim (contractors
  exceeding 250 k/project)
• retention ceiling raised from 15 to 20
• reimbursement of audit certificates eligible
  under cost category other specific project
  costs
• ceiling to community contribution 4 k per audit

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Details of IST Pilot

• Estimated cost and coverage of pilot
• 1st interim claims 23 of contractors, 84 of
  costs
• Final consolidated cost claims 65 of
  contractors, 89 of costs
• 1 of call budgets (12 M of 1.1 B)
• cost / benefit 12 M / 120 M ?
• Benefit to contractors faster payments (by half
  the time)
• currently 4-6 months contractually 2 months
  time for extra information 60 days

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Evaluation of pilot

• Criteria
• Effectiveness of measure (including views of
  contractors)
• Accuracy of cost statements (checked through spot
  checks)
• Coverage / cost (actual / estimated)
• Speed of payments (with / without certificates)
• Assessment
• Group including contractors, external auditors,
  ISTC delegates, Commission scientific and
  financial staff
• first meeting after call 6 evaluation (end June
  2001). First payments end 2002 (for 6 month
  periods).

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Conclusion

• Pilot aims to
• Improve / simplify cost claim processing
• Greatly reduce overcharging (/- 100 M / year ?)
• Decrease time to payments (by half)