<\/p>\n
Staff costs are the largest budget line in most donor-funded projects and also the line auditors question most. The doubt is rarely about whether payments were real; it is about the fact that a donor pays not for an employee in general, but for a specific person’s contribution to a specific project. That contribution can only be proven with documents.<\/p>\n
Below we look at how to engage project staff, how to allocate costs across several funding sources and what exactly the auditor checks.<\/p>\n
A project team usually consists of two groups. The first are employees on employment contracts: the coordinator, the accountant, a component manager. The second are individuals engaged under civil-law service contracts: trainers, experts, translators, developers hired for specific tasks.<\/p>\n
A mistake auditors see regularly is arranging permanent work through a service contract. If a person works every day, follows internal rules and performs an ongoing function rather than delivering a one-off result, that is employment. The risk is twofold: reclassification by the tax authority and a donor finding that the organisation is avoiding taxes at the project’s expense.<\/p>\n
Conversely, for a short assignment with a clear deliverable a service contract is a perfectly normal instrument. What matters is an acceptance act describing the work actually done, rather than the wording “services under the contract”.<\/p>\n
A timesheet records how much time an individual spent on which projects during the month. Donors require timesheets almost always when a person works on more than one project or is partly funded from the organisation’s own resources.<\/p>\n
A workable timesheet contains: the month, the name, the position, the list of projects with codes, the hours or percentage for each, the total, the employee’s signature and the manager’s signature. It is completed monthly, not at the end of the project. Timesheets prepared retrospectively and signed on a single day for eighteen months are spotted by an auditor immediately.<\/p>\n
Common donor requirements: the monthly total must not exceed standard working time, and the percentages across all of one person’s projects must not exceed 100. An employee shown as full-time on two projects is an automatic finding in both.<\/p>\n
The salary of a person working across several areas is allocated according to time actually worked. The scheme is:<\/p>\n
Administrative staff, an accountant or an office manager, are often funded from several projects in fixed shares agreed in the budgets. In that case the evidence is not a timesheet but an approved allocation methodology applied consistently through the year. The general principles are described in our article on project-based grant accounting<\/a>.<\/p>\nWhat staff costs include<\/h2>\n
| Component<\/th>\n | Supporting evidence<\/th>\n<\/tr>\n |
|---|---|
| Salary or rate<\/td>\n | Employment contract, order, staffing table<\/td>\n<\/tr>\n |
| Allowances and bonuses<\/td>\n | Order, remuneration policy, donor approval where required<\/td>\n<\/tr>\n |
| Social contribution<\/td>\n | Payroll register, tax returns, payment documents<\/td>\n<\/tr>\n |
| Leave and compensation<\/td>\n | Order, calculation, leave schedule<\/td>\n<\/tr>\n |
| Service contract fees<\/td>\n | Contract, terms of reference, acceptance act describing the work, payment<\/td>\n<\/tr>\n<\/table>\n Donors treat bonuses differently: some allow them only where an approved remuneration policy exists, others do not accept them at all. This is worth clarifying before the payment is made, rather than after an audit finding.<\/p>\n Taxes and reporting<\/h2>\nGrant funding does not relieve the organisation of its duties as a tax agent. Personal income tax and the military levy are withheld, the unified social contribution is charged, and the corresponding returns are filed. The auditor reconciles the amounts in the project report to the payroll registers and to the filed returns: a difference between them signals that part of the payments was made outside the official payroll.<\/p>\n Typical audit findings<\/h2>\nHow to prepare<\/h2>\nThe minimum set to hold for each month of the project: the payroll register, timesheets for everyone involved, the allocation calculation, payment documents and an extract from the ledger with project analytics. If this set is assembled monthly, the audit of staff costs runs quickly and without adjustments.<\/p>\n Organisations running several projects at once often find it easier to outsource payroll and HR records together with project analytics: timesheets, allocation and reporting are then consistent by construction. We describe that arrangement on our accounting for NGOs and business<\/a> page.<\/p>\n |