Horizon Europe involves a structured financial framework to ensure responsible fund management. Beneficiaries must comply with guidelines on cost eligibility, co-funding requirements and documentation requirements.
Horizon Europe operates under the rules defined in the EU Financial Regulation (2024/2509). The Financial Regulation outlines principles, rules and procedures for managing EU funds, such as regarding cost eligibility, procurement, grants and financial reporting.
Within Horizon Europe grant agreements, basic rules include that eligible costs need to be incurred during the project period and be necessary for project implementation. Moreover, costs should reflect market conditions and be substantiated by appropriate documentation, demonstrating that they are both reasonable and necessary. They need to be identifiable and verifiable, i.e. backed by supporting evidence such as invoices or receipts.
One frequent error that can occur is to misclassify costs in the budgetary table. There are rules for each cost category. For example, actual personnel costs need to be based on employment contracts and properly documented hours worked. Misclassifying costs, such as recording subcontracting expenses as personnel costs or indirect costs as direct costs, can lead to expenses being rejected during assessments. Proper classification is essential to comply with grant agreements, maintain transparency and ensure accurate reimbursement.
One source to better understand the cost categories, is to look into Horizon Europe’s Annotated Model Grant Agreement (AGA) to ensure costs are classified correctly from the onset.
Another common mistake is to not track personnel costs properly by not having a proper time tracking system in place.
What happen frequently as well is that an audit reveals inconsistencies between time sheets and accounting records. For example, a staff member who reported working full-time on one project cannot claim hours on a different project as well.
It is therefore important to have a robust time-tracking system implemented that records hours daily. From a project management perspective, regularly reconcile time sheets to ensure alignment with project necessities.
When costs are found ineligible during an audit, this will result in a funding reduction. To avoid this, consult the list of ineligible costs in the Annotated Model Grant Agreement. There, you can find further explanations about how to determine eligible costs according to the rules that apply.
Examples of non-eligible costs could be a gala dinner with entertainment due to excessive spending, or if unrelated guests have been invited to a project event lunch or dinner. Besides, beneficiaries must carefully document the purpose of a project lunch or dinner to justify its relevance to the project activities, such as networking, fostering collaboration or enabling scientific discussions, and not being merely social events. An agenda can be an appropriate piece of justification and documentation.
If in doubt, validate questionable expenses with your project officer before incurring them.
Another example of ineligible costs is unapproved subcontracting. Costs for subcontracted work that were not foreseen or approved in the grant agreement cannot be claimed.
Identify all subcontracting needs at the proposal stage and include them in the budget. If the subcontracting was forgotten or became justifiably necessary during project implementation, an amendment to the grant agreement would need to be requested.
Any subcontracting carried out within a Horizon Europe project needs to comply with EU and national procurement rules, as well as with the general practices within your organisation. Different rules for procurements under EU projects compared to the usual purchasing of goods and services are not allowed. Document the subcontractor selection process, including tender invitations and evaluation criteria.
Budgetary tables and financial reporting have to be done in Euros. In cases where costs and invoices are not in Euros, the correct exchange rate has to be calculated. For invoices in other currencies than the Euro, you need to convert the amounts into the average of the daily exchange rates published by the European Central Bank. The rate then needs to be calculated over the corresponding reporting period.
Besides, bear in mind that losses due to exchange rate fluctuations are not eligible as costs.
During financial reporting, missing or inadequate documentation can lead to rejected costs. Also, without adequate supporting documents such as receipts, invoices or timesheets, auditors may reject expenses, so that they need to be paid back to the Union budget by the beneficiary.
Moreover, missing documentation can raise doubts about the proper use of project funds and thus lead to closer checks and possible issues during audits or reviews.
To avoid such issues, maintain a comprehensive documentation system and preferably digitise your records, ensuring they are readily accessible for payment reports and audits.
Last but not least it happens that coordinators miss a financial reporting deadline due to delays in collecting data from partners.
To avoid this, develop a detailed reporting timeline with sufficient internal deadlines for consortium partners.
To avoid financial pitfalls in Horizon Europe projects, it is crucial to lay a strong foundation by understanding the basics before submitting your funding proposal. Familiarise yourself with the programme’s rules, including eligibility criteria, cost categories and reporting requirements, to ensure your proposal and the later financial implementation of your project align with the expectations of the European Commission.
Take the time to carefully read all guidance documents provided for the Call. These documents contain essential information about budget planning, evaluation criteria and compliance with the EU Financial Regulation, which are key to a successful application and financial management.
Additionally, make the most of events organised by the European Commission and other entities, such as info days and grant management and implementation sessions. These events provide valuable insights, tips and updates directly from experts, helping you navigate the complexities of project planning and management.
During project implementation, organise meetings or workshops about finance for the consortium partners. This can help prevent errors and give an understanding which supporting documents have to be delivered. Invite financial experts to such sessions to clarify Horizon Europe requirements.
Clearly communicate within your consortium at all times, emphasising the importance of adhering to financial guidelines. A proactive approach can avoid last-minute errors.
Horizon Europe projects require careful financial management. By understanding common pitfalls and implementing best practices, your organisation can avoid costly mistakes and ensure project success. Stay informed and organised, and leverage the resources available to navigate Horizon Europe’s financial rules with confidence.
This article is written by Astrid Mechel, EU Funding Expert.
This is an excellent webinar. Really informative, well paced with key issues covered. Many thanks. I will recommend the recording to all our project participants.
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