1

Financial viability check -new procedures

2

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)

3

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

4

Financial viability check Quick overview

Step 1. PO/FO acts

Step 2. REA acts

Step 3. LEAR acts

Step 4. REA acts

Step 5. PO acts

NEF

PDM

URF

PDM

NEF

LFV Lite: Automatic check forvalidated entitites;

E-mail to REA; reasons stated

E-mail to LEAR from REA

LEAR uploads information

REA validates informationPDM displays ratios

NEF produces LFV reports,displays validated PDM info;

checks ABAC for EWS;calculates co-financing;

Flag in PDM-URF

5

Legal and Financial VerificationLFV LITE - NEF

Financial viability check - NEF

6

Participant Portal - Organisation data

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

7

Organisation data - Balance sheet tab

8

Organisation data - Balance sheet tab

Enter the Simplified Balance Sheet informationSame view for the ‘LFV Simulation’ under the Portal

9

Calculating the ratios

10

Participant Portal – Organisation data

11

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)

12

Financial capacity check - elements1. 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 activitiesMore in depth analysis (if necessary)- Financial autonomy- Profitability 2Equity 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 check4. 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

13

Results of the FVC concise analysisWeak ifThe 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.

14

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.

15

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.)