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A European Union grant almost always requires an independent verification of expenditure. In EU external action grant contracts this exercise is called expenditure verification, and its output is a report of factual findings that the beneficiary submits together with the financial report. Without it, the donor will not accept the final report or release the final payment.<\/p>\n
For a Ukrainian organisation receiving its first EU grant, the procedure can look confusing: who the verifier is, which rules apply, what exactly is examined and why so many documents are requested. This article explains the logic of the verification and shows how to prepare in advance so that you do not lose money on ineligible costs.<\/p>\n
The MK Audit team has been performing grant audits<\/a> for more than 20 years and has seen typical beneficiary mistakes from both sides: as the auditor and as the outsourced accounting function of projects. Below is a practical overview of the requirements and a preparation checklist.<\/p>\n Expenditure verification of an EU grant is an agreed-upon procedures engagement performed under the International Standard on Related Services ISRS 4400. The auditor does not express an opinion on the financial statements; instead, the auditor carries out the procedures listed in the donor’s Terms of Reference and reports what was found. That is why the report speaks of factual findings rather than an audit opinion.<\/p>\n The Terms of Reference for expenditure verification are an annex to the grant contract. They define the scope, the requirements for the auditor, the list of procedures and the report template. The beneficiary selects the auditor, but the candidate must meet the donor’s criteria: typically membership of a professional body that belongs to the International Federation of Accountants (IFAC) or registration in the national register of auditors. MK Audit is listed in the Ukrainian register of auditors and audit firms (No. 4624) and is a member of DFK International, so our reports are accepted by European donors without additional questions.<\/p>\n The key concept in any EU grant is eligibility of costs. The auditor tests each selected transaction against the criteria set out in the grant contract. Under the general conditions of EU grant contracts, costs are eligible if they:<\/p>\n Beyond eligibility, the auditor looks at several specific areas.<\/p>\n Actual spending is compared with the latest approved budget. Transfers between headings are checked against the flexibility allowed by the contract, and material changes must be approved by the donor in writing.<\/p>\n EU external action projects follow the procurement rules set out in the contract and in the PRAG practical guide. The auditor checks whether the correct procedure was applied for the relevant threshold, whether requests for quotations, evaluation and a selection record exist, and whether rules on origin of goods and nationality of contractors were respected.<\/p>\n This is the largest heading in most NGO projects and the most common source of findings. The auditor reviews employment or civil-law contracts, HR orders, rate calculations, timesheets, and the calculation and payment of taxes and social contributions.<\/p>\n The auditor checks which rate was used to convert hryvnia costs into euro and whether it matches the method prescribed by the contract. The auditor also checks whether the organisation keeps separate analytical accounts for the project and whether the ledgers agree with the financial report.<\/p>\n Interest earned on grant balances and income from sale of assets or services within the project must be disclosed in the report. VAT is a separate matter: if the organisation is entitled to recover or be exempt from VAT, the tax amount is generally not an eligible cost.<\/p>\n The most common reason for delays is that documents are scattered between the accounting department, the project manager and partners. We recommend assembling a dedicated folder, paper or electronic, with the following structure:<\/p>\n One important point: the auditor is entitled to see originals. Scans are acceptable for preliminary review, but the sample is normally tested against originals or properly certified copies.<\/p>\n In our experience, verification of an annual report for a medium-sized project takes two to four weeks, provided the documents are ready. Build this time into your reporting schedule.<\/p>\n Most of these problems arise not from abuse but from project accounting being done after the fact, without separate analytics. The best preparation for a verification therefore starts in the first month of the project: a dedicated account, dedicated sub-accounts and the rule that no payment is made without a complete set of documents. If your organisation has no in-house accountant experienced with donor projects, consider NGO accounting support<\/a> from a team that knows EU requirements.<\/p>\nWhat expenditure verification is and who performs it<\/h2>\n
What the auditor examines<\/h2>\n
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Budget compliance<\/h3>\n
Procurement<\/h3>\n
Staff costs<\/h3>\n
Exchange rates and accounting<\/h3>\n
Project income and VAT<\/h3>\n
Which documents to prepare<\/h2>\n
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\n \nSection<\/th>\n Documents<\/th>\n<\/tr>\n<\/thead>\n \n Contract<\/td>\n Grant contract with all annexes, budget, amendment letters, donor approvals<\/td>\n<\/tr>\n \n Reporting<\/td>\n Financial report in the donor’s format, reconciliation to the accounts, previous reports and comments<\/td>\n<\/tr>\n \n Accounts<\/td>\n Project trial balances, bank statements of the dedicated account, cash book<\/td>\n<\/tr>\n \n Staff<\/td>\n Contracts, orders, payroll calculations, timesheets, payslips, social contribution and income tax returns<\/td>\n<\/tr>\n \n Procurement<\/td>\n Requests, quotations received, evaluation records, contracts, delivery notes, invoices, payment orders<\/td>\n<\/tr>\n \n Travel<\/td>\n Travel orders, budgets, tickets, hotel invoices, mission reports, event participant lists<\/td>\n<\/tr>\n \n Partners<\/td>\n Partnership agreements, partner reports, copies of their supporting documents<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n How the verification runs: stages and timing<\/h2>\n
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Typical findings and how to avoid them<\/h2>\n
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