Transcript Financial viability check

Financial viability check new procedures
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Financial viability check
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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)
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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)
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Self-check Excel tool for participants is available on CORDIS
(soon to be replaced by “playground” on the portal)
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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
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Financial viability check
Quick overview
Step 1. PO/FO acts
NEF
LFV Lite: Automatic check for
validated entitites;
E-mail to REA; reasons stated
Step 2. REA acts
PDM
Flag in PDM-URF
E-mail to LEAR from REA
Step 3. LEAR acts
Step 4. REA acts
Step 5. PO acts
URF
LEAR uploads information
PDM
REA validates information
PDM displays ratios
NEF
NEF produces LFV reports,
displays validated PDM info;
checks ABAC for EWS;
calculates co-financing;
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Financial viability check - NEF
Legal and Financial Verification
LFV LITE - NEF
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Participant Portal - Organisation data
Organisation data tab managed by the LEAR
of the entity on the Portal
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Organisation data - Balance sheet tab
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Organisation data - Balance sheet tab
Enter the Simplified Balance Sheet information
Same view for the ‘LFV Simulation’ under the Portal
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Calculating the ratios
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Participant Portal – Organisation data
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Documents to be submitted
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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)
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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 cofinancing 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
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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)
Consequence: more in-depth analysis
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.
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Results – actions taken
If the result of the more in-depth analysis is
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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
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Weak: protection measures by the AOSD
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Insufficient: cannot participate unless duly justified reasons are
provided by the AOSD according to his/her own risk assessment.
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Assessment – Protections measures
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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.)
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