Financial viability check - new procedures

Financial viability check Initiated during negotiations if required on the basis of the Rules on verification of existence, legal status, operational and financial capacity (C (2007)/2466-13/06/2007) Only for three categories of participants: Coordinators (if not public bodies, international organisation, secondary or higher education establishment or guaranteed) Beneficiaries requesting more than € 500 000 EU contribution (if not public bodies, international organisations, secondary or higher education establishment or guaranteed) Others: exceptionally, if there are justified grounds of doubt (EWS (W2, W3, W4 codes), substantial findings of audits) Self-check Excel tool for participants is available on CORDIS (soon to be replaced by “playground” on the portal)

Financial viability check Supported by NEF, Portal, PDM-URF Pilot process for 3 RTD Directorates, standard process from 2011 1. Automatic check provided by NEF 2. REA informs the LEAR/available contact person: The e-mail specifies the way how the documents have to be provided: uploaded via the Portal (or sent to the negotiating officer in copy in INFSO projects). 3. Communication with the beneficiaries via the Portal: - The LEAR receives the request in an e-mail, request seen on the Portal - The LEAR has to upload supporting documents and fill in the simplified balance sheet data on the Portal. 4. Validation of data by REA Validated data can be seen from the Portal, available for internal COM staff. 5. Decision by the Authorizing Officer by Sub-delegation (AOSD) on the basis of all evidence

Financial viability check Quick overview NEF LFV Lite: Automatic check for validated entitites; Step 1. PO/FO acts E-mail to REA; reasons stated PDM Step 2. REA acts Flag in PDM-URF E-mail to LEAR from REA URF Step 3. LEAR acts LEAR uploads information REA validates information PDM displays ratios PDM Step 4. REA acts NEF produces LFV reports, displays validated PDM info; checks ABAC for EWS; calculates co-financing; NEF Step 5. PO acts

Financial viability check - NEF Legal and Financial Verification LFV LITE - NEF

Participant Portal - Organisation data Organisation data tab managed by the LEAR of the entity on the Portal

Organisation data - Balance sheet tab

Organisation data - Balance sheet tab Enter the Simplified Balance Sheet information Same view for the ‘LFV Simulation’ under the Portal

Calculating the ratios

Participant Portal – Organisation data

Documents to be submitted Supporting documents of the last financial year for which the accounts were closed: - balance sheet, - profit and loss account and the related notes of the financial statements - statutory audit report (Exception: if the entity is exempt from audit under the national legislation, the COM accepts unaudited statements provided they are recognised in the accounting system of the entity and are established according to the national legislation.) - audit report certifying the accounts, if above 500.000 € Simplified balance sheet data to be filled in: available via the Portal as seen in the Negotiation Guidance Notes Official documents: signed by the authorized representative of the entity, stamped, dated Documents to be submitted in any budgetary year once. Linked enterprises : Non-consolidated data should be provided, meaning the financial information per PICs - Exception: Start-up companies (provisional data is not part of the validated data of the entity)

Financial capacity check - elements 1. Financial viability check, Concise analysis Liquidity: capable of covering short-term commitments Solvency: capable of covering medium and long-term commitments Profitability 1: generates profit/able to self-finance its activities More in depth analysis (if necessary) Financial autonomy Profitability 2 Equity flag (comparing total debt to equity) 2. Co-financing capacity (if serious qualifications were raised in the audit report on the entity’s co-financing capacity) + financial exposure flag (if the co-financing check is performed and only for coordinators) 3. Early Warning System check 4. Checking whether there are serious audit findings or substantial findings relating to the financial capacity in the audit certifying the account for the past 2 years

Results of the FVC concise analysis Weak if The result of the concise analysis is 0-2 points Consequence: more in-depth analysis Weak, even if the concise analysis is acceptable/good, but An audit report of the accounts has been issued with serious qualifications, or Weak equity flag result, or Weak co-financing capacity or financial exposure flag result, or The entity has been subject to substantial financial findings relating to its financial capacity (last 2 years) protection measures If the entity is subject to an EWS warning (EWS 2,3,4): Protection measures have to be considered regardless the positive result of the FVC.

Results – actions taken If the result of the more in-depth analysis is Acceptable/good: no action if the co-financing, equity flag results are not weak, if there are no substantial audit findings or serious audit qualifications; otherwise protection measures by the AOSD Weak: protection measures by the AOSD Insufficient: cannot participate unless duly justified reasons are provided by the AOSD according to his/her own risk assessment.

Assessment – Protections measures Protective measures for weak participants: limited (no bank guarantees, no reduction of pre-financing, no blocked accounts etc.), but reinforcement of sanctions and penalties Weak entities (following a more in-depth analysis) cannot be coordinators but can participate as “normal” partners Exception: voluntary bank guarantee to allow weak entities to stay coordinators. For any weak entities the COM may initiate a financial audit during the implementation of an FP7 indirect action, which may be accompanied by a technical audit Subject to reinforced monitoring (additional reviews, on-spot checks, etc.)