6.6. Audits

Once the project has ended, it is extremely important to keep records and other supporting documentation for at least 5 years after its closure in order to be able to prove the proper project’s implementation and the costs claimed in case of an audit.

What is an audit?

The audit is an administrative control (in the form of desk–based and/or on-the spot verifications) carried out on projects receiving European Union funding. The main objectives of an audit are:

• checking the legality and regularity of project expenditures, i.e. compliance with laws and regulations and with applicable contractual rules and criteria,
• verifying whether project funds have been used effectively and economically, i.e. in accordance with sound financial management,
• ensuring the proper implementation of the project.

Types of audits

External audit (first-level audit) 

In some cases, a project may be required to have its financial statements audited by an external auditor. This is often the case for larger projects, or when the project is implemented by a consortium of partners and a high level of financial complexity is involved.

An external audit provides an independent verification of the project’s financial statements and can provide reassurance to both the Managing Authority and the project implementers that the financial management of the project is sound.

However, an external audit is not always required. The need for an external audit will be determined by the rules of the specific fund, the size and complexity of the project, and the requirements of the Managing Authority.

In any case, whether or not an external audit is required, all projects must ensure that they have robust internal controls and financial management systems in place to ensure the proper use of EU funds. It’s also important to keep accurate and comprehensive records of all project activities and expenditures, as these will be needed in the event of an audit.

Managing authority

These audits help to ensure that funds are used appropriately, in line with EU and national rules, and achieve their intended outcomes. Here is a general process and set of principles guiding these audits:

1. Selection of Projects for Audit: Managing Authorities typically use a risk-based approach to select projects for audit. They may consider various factors such as the size of the project, its complexity, previous audit findings, and the track record of the beneficiary in managing EU funds.
2. Audit Procedures: The audit usually includes a review of project documentation, financial records, and physical verification of project results (where applicable). This involves checking the project’s compliance with application procedures, procurement rules, eligibility of expenditure, and the achievement of project targets.
3. Audit Findings and Follow-up: Following the audit, the Managing Authority will issue an audit report detailing any irregularities or non-compliance issues found and recommending corrective actions. Depending on the severity of the findings, this could lead to financial corrections (i.e., repayment of funds) or changes to the project’s implementation.

The objective of these audits is not just to ensure financial compliance, but also to improve the quality of implementation, increase the impact of the projects, and contribute to the simplification and reduction of administrative burden.

While audits are critical, they can also be seen as an opportunity for learning and improvement. The feedback from the audit process can help project managers to identify potential weaknesses in their project management and control systems and to take corrective action to improve their performance.

The specific audit procedures may vary between countries and programs due to differences in national rules and administrative structures.

European Commision

While the primary responsibility for managing and controlling EU funds, including conducting project-level audits, lies with the Member States, the European Commission (EC) also has the power to carry out audits of its own. These EC audits are typically aimed at checking the effectiveness of the management and control systems put in place by the Member States, but they can also include audits of individual projects.

The EC’s project-level audits are generally the exception rather than the rule. They are typically carried out when there are serious concerns about the management and control systems in a Member State, or when there are specific concerns about a particular project. In most cases, the EC relies on the audits carried out by the Managing Authorities in each Member State, and the EC’s role is more about verifying that these audits are being conducted properly and that the Member States are fulfilling their responsibilities.

Keep in mind that, in case of non-compliance, costs will be considered ineligible and will be rejected and you will be subject to administrative and financial penalties.

Providing evidence

When subjected to an audit, you will be required to provide evidence for the expenditure claimed. Remember that original documents (or authorised digital copies) are needed. The Commission/agency will accept any document considered an original under national law. When these are missing, the spending they cover will be rejected. 

Be aware that, to be considered eligible, the costs must be:

• actually incurred (not estimated, budgeted or imputed),
• incurred by the beneficiary,
• incurred during the duration of the project and used for the sole purpose of the project.