2.13. Possible ineligible project costs

Owned by Varmo Pilt
02 December 2021
4 min read

Some costs incurred in a project may be ineligible. The most common ineligible costs for structural support are:

  • Remuneration for leave. Only the remuneration for leave for the period worked on the project is eligible for structural support; the university’s Payroll Division calculates the remuneration for leave based on all the financing sources without taking into account the days worked on the project. For example, if a person works on a project for only 1 month (either on the basis of an annex to the employment contract, a financial allocation decision or a directive on payment of additional remuneration), the person’s remuneration for leave paid from the financing source of the project shall be calculated for all the days spent on leave. Only 42 (number of leave days in the contract) / 12 (months) * 1 month (time worked on the project) = 3.5 days are eligible for funding from the project.

The ineligible remuneration for leave can be transferred to another financing source at the end of the project or covered by other funds in the financing source of the project.

 

  • Event related expenses, including catering expenses. Catering expenses may be ineligible if the number of participants actually attending the event differs from the units of food ordered. To avoid such expenses, the risks can be mitigated as follows: registrants shall be sent a reminder the day before the event, the e-mails of those who choose not to attend shall be added to the list, it shall be verified that all the attendees (incl. speakers) have signed the signature sheet (in the case of a physical event). In the case of multi-day events, the sheets must be signed for each day.

 

  • Costs pertaining to the acquisition of equipment, incl. computers, less than 12 months before the end of the project (except for infrastructure projects). In this case, it should be borne in mind that only the depreciation costs for the remaining months of the project can be charged to the project. The same applies to licenses if the validity period of the acquired license is longer than the overall project duration or the time remaining until the end of the project’s eligibility period.

 

  • Value added tax. At the beginning of a project, when planning the budget, it must be ascertained whether or not VAT on the project is an eligible cost. As a general rule, only VAT on the acquisition of fixed assets is ineligible, but in some projects funded by structural assistance, the funder may want to apply a uniform approach to the whole project and if both fixed assets are acquired and other activities are carried out in the project, the total VAT may be considered ineligible under uniform rules. In this case, the sources for covering the total amount of VAT must be planned at the beginning of the project so that the amount of ineligible costs would not come as a bad surprise. In the case of the acquisition of fixed assets, the part of the VAT refunded to the university by the Tax and Customs Board is transferred to the project financing source. The VAT recovery rate varies from year to year and is related to economic activity.

 

  • There two aspects that can affect the eligibility of procurements for projects – the goods, equipment or services requested have not been purchased under the current framework agreement or a procurement has not been conducted. Another potential error can occur when a procurement has been conducted, but an incorrect procurement procedure was applied or errors were made in the procedure.

 

The most common ineligible costs in projects funded by the European Commission are personnel costs (in 69% of the audits carried out by the European Commission in 2020 the recovery decision was based on incorrect calculation and declaration of personnel costs) and the acquisition cost of the fixed assets. Personnel costs cannot be charged directly to the project, but shall be calculated on the basis of an average hourly rate (Horizon 2020) or daily rate (Horizon Europe). If the hourly calculation is incorrect, ineligible costs are incurred, which must be covered from another source. The guide for calculating the hourly rate can be found HERE. The new guide for calculating the daily rate can be found HERE.

In the case of acquisitions of fixed assets in H2020 or HEU projects, it must be verified in advance whether the grant agreement or the conditions of the call for proposals allow fixed assets to be charged to expense or only the depreciation of fixed assets is eligible. In the latter case, it is crucial to acquire fixed assets at an early stage of the project so that depreciation for as many months as possible in the project lifecycle can be reported as an eligible cost. When declaring depreciation costs as eligible costs, it is also mandatory to maintain a laboratory log book of the equipment as a proof record of the use of the equipment.