Reporting in European projects

How and why to talk about reporting

Reporting is one of the concepts most frequently associated with the world of europlanning. In some cases, it is also one of the processes considered most difficult by those who approach it.

To identify in first summary the main points of the issue, “reporting” is a process that:

It concerns financial planning, management and reporting;
It is closely related to the other aspects of project life (proposal development, budgeting, activity execution, project archives, partner relations, monitoring, reporting);
It is framed within a number of general principles, which we will discuss in this in-depth discussion, and within a number of more specific procedures and criteria laid down in programs and calls for proposals, for which a case-by-case, timely analysis is required;
It is necessary to obtain the disbursement of European funds. Poor reporting can result in a considerable amount of additional work, failure to disburse part of the funding, or a demand for its repayment by the Managing Authority. In contrast, good reporting supports and is supported by good monitoring and technical execution of project activities;
It has its foundation and guidelines in a number of Basic Regulations, but these leave the definition of the specific nature of the supporting documents accompanying payment requests (a central aspect of reporting) to the authorities managing the various programs.

Procedures, criteria, and required documentation-and consequently, reporting arrangements-may therefore vary depending on the type of funds, programs, and internal organization of individual calls. For this reason, it is not possible to provide a universal, comprehensive and exhaustive treatment of the topic, but it is possible to provide the basic tools to deal adequately with reporting.

The basics of reporting: the Reference Regulations

Regulation 2018/1046 of July 18, 2018 (“Financial Regulation”) sets out the financial rules applicable to the general budget of the Union. In fact, “European projects” (generically understood, and in turn declined into various types and modes of implementation) are the main means through which the community budget is executed. The Financial Regulations provide, in particular:

A specific indication of the rules and instruments applicable to directly managed programs, managed directly by the European Commission departments and its executive agencies;
Some general rules covered indirectly managed funds (delegated to third countries or other bodies, with details on applicable rules specified in special agreements) and Structural Funds (whose management is shared with member states and which have specific rules).

Provisions and instruments specifically concerning Structural Funds are contained in Regulation 2021/1060 of June 24, 2021 (“Common Provisions” applicable to Structural Funds and other funds whose management is shared with member states).

We resume below some of the most important concepts made explicit in these Regulations. Remember to refer to the individual Programs and Calls for Proposals for more precise and specific directions. In fact, there are various reporting methods, and some discretion is left to the various Fund Managing Authorities with respect to their application.

The forms of contribution (and reporting)

In the context of grants, i.e., the form of “European project” most extensively covered in our Guide, contributions from the European Union can take one of the following forms, from which various forms of reporting follow.

Reimbursement of eligible costs actually incurred: a form of contribution related to the most typical mode of reporting, i.e., reimbursement for eligible items of expenditure documented through supporting pieces and reported on time to the beneficiary.
Unit costs: a contribution made with reference to an “amount per unit,” covering all or certain categories of eligible costs (where both the cost category, unit amount, and maximum number of units are clearly identified in advance). Reporting in this case consists of appropriately documenting the number of units to which the default amount is applied, and correctly executing the formula for the calculation.
Flat-rate (or lump-sum) financing: a contribution that covers specific categories of eligible costs, for which a (predetermined) percentage is applied to the amount of other eligible costs. In this case, the reporting process requires adequately documenting the “base” of eligible costs on which the fixed rate is calculated, and correctly calculating the stated percentage.
Lump sums: a contribution that generally (and indeed, lump sum ) covers all or specific categories of eligible costs (clearly and in advance identified). The disbursement of the grant may be conditional on the achievement of “macro” criteria defined upstream (for example: the production of an output or the achievement of a project “milestone”).
Funding not related to the costs of operations: contribution covering, for example, the operation and ongoing activity of organizations deemed (in itself) particularly important to the fulfillment of the EU’s mission.

The different forms of contributions can combine within the same program or project. The applicable modalities are defined (by programs, calls and fund managing authorities) consistent with the type of intervention required, its objectives and the accounting methods of its potential recipients.

In particular, unit-cost, flat-rate, and lump-sum contribution modes are particularly used where the activity performed and the identified parameters allow for payment on a simpler but still objective basis (e.g., production of a “material” and specific output, reimbursed as a lump sum; reimbursement of work days at a predefined unit cost; etc.).

Fixed-rate financing can be used to cover the indirect costs of a project, that is, those incurred in the general operation of the activity but not directly attributable to the project itself. In this case, indirect costs are reimbursed as a fixed percentage of eligible direct costs. The percentage is predefined by the managing authority, while the amount of eligible direct costs on which the percentage is applied must be documented and reported.

Fixed-rate financing can also be used to simplify reporting: for example, it may be required to express direct personnel costs as a default percentage of other eligible and reportable direct costs; or conversely, other direct costs as a default percentage of eligible and reportable direct personnel costs.

The ways in which European funds are used

What has just been outlined (and in general, what has been proposed in this in-depth study) can apply to various forms of use of European funds, but it is particularly appropriate for one specific form: grants, which are the best-known way in which European funds are used.

For completeness, we list below the possible ways of using European funds, each of which is the subject of specific rules within the Financial Regulations.

a. Grants: co-funding given to an organization to carry out a project (or activity) consistent with the objectives of community institutions. They are the predominant form of funding for nonprofit organizations, the one we normally refer to when talking about “European projects,” and the one most extensively covered in our Guide to Europlanning. They are in turn divided into two main categories: action or project grants (the best known and most widespread category) and operating grants (to finance the work of specific bodies whose action is inscribed under an EU policy).

b. Procurement: Payments for the provision of goods, works or services, specifically required to meet timely and specific needs of community institutions. They are normally intendedfor private organizations that specialize in providing a specific type of product, work or service.

c. Prizes: Payments made in recognition of competition winners (deserving individuals or organizations).

d. Loans: financing provided against a commitment to repay, usually with some interest. They are usually managed by financial institutions or financial intermediaries. Both loans and guarantees (see next point) are chosen as a form of intervention by community institutions especially for interventions where there is a need to mitigate market conditions adverse to normal lending by private banking or lending institutions (e.g., the rates adopted by banks are not affordable for beneficiaries or the interventions financed provide too uncertain or long-term an economic return to be financed by a private entity).

e. Guarantees: funds used to facilitate lending by third parties (financial institutions or financial intermediaries). The creditor (i.e., the lender of a loan) can retaliate against the collateral provided if the borrower fails to repay.

f. Contributions: sums disbursed, normally at the national or regional level, to facilitate activities and investments in areas where economic operators would be at a disadvantage in terms of physical (e.g., adverse geographic conditions) or market (e.g., economically unsustainable revenues).

The eligibility of costs and general principles of reporting

In order to be included in a project budget and, in particular, to be eligible for reimbursement under a grant, costs must be eligible, i.e., fall into one of the categories (specifically provided for in the program or call) for which community co-financing is allowed. Eligibility covers several dimensions:

The type of activity (e.g., training activities, exchange of best practices, development of a product or service, communication, etc. may be considered eligible);
The type of cost (e.g., travel costs, labor costs of staff or outside lenders, room and space rental, printing of materials, purchase or rental of materials and equipment, indirect costs, etc.) may be considered eligible;
The geographical scope of reference (programs or calls define the countries or territories in which project activities can be carried out);
The time frame of reference (costs must be incurred and temporally referable to the period of project implementation or eligibility of expenses. With rare exceptions, reimbursable costs cannot relate to times prior to the start of the project or after its completion, projects that have already started or actions that have been completed, regardless of whether or not the relevant payments have already been made).

For the purposes of meeting the various eligibility criteria, the grant agreement (the contractual basis for the execution of a project) should include (as minimum elements) an indication of the date and duration of the project, a description of the planned activities, the maximum amount of funding, an estimated budget for the action, and the form of the grant.

In addition to complying with eligibility rules, costs for which reimbursement is claimed must comply with several general principles:

Relevance. Costs must be consistent with definitions and cost items, quantities and limits, unit values, and total values explicitly stated in the approved project budget, call for proposals, and program scope;
Necessity. The costs reported must be necessary to implement the actions envisaged by the project, as indicated in the submitted and approved proposal (results, activities, work plan), and traceable to them;
Effectiveness. The costs reported must be actually incurred by the beneficiary and clearly referable to the project;
Verifiability. Reported costs must be demonstrable, i.e., there must be adequate documentation to prove disbursement (e.g., receipted invoices or documents with the same value); or there must be a documentary basis to authorize reimbursement (e.g., lump sums, fixed rates, or unit costs provided for in the call and in the approved project);
Traceability. Reported costs must be traceable through proper and complete record keeping. In particular, they must be recorded in the beneficiary’s accounting, budgeting and financial management documents in accordance with the accounting principles and rules it applies under current legislation;
Legality. Reported costs must be in line with legal requirements (national budget, tax and social security regulations);
Reasonableness. Reported costs must be in line with the principles of economy, efficiency, effectiveness and sound financial management. Grantees are required to act with “economic reasonableness” to avoid unnecessary costs, redundant costs, or costs that are too high, trying to keep them at the lowest levels consistent with what project activities and outcomes are expected in terms of quantity and quality.

Co-financing (and related aspects)

With some exceptions, the resources needed to implement a project must not come entirely from the community grant and be the result of co-financing. The resources required for co-financing can take various forms: third-party funding, economic resources of the beneficiary, income generated by project actions, or in-kind contributions. Some additional constraints need to be considered in this:

Prohibition of accumulation. Only one grant may be awarded for the same action under the same community funding line. An action may be jointly funded on separate budget lines. The applicant must give information regarding any multiple applications and multiple grants related to the same action;
Prohibition of double funding. Under no circumstances can the same costs be financed twice. Indeed, it is necessary to indicate in advance the sources and amounts of Union funding received or requested in connection with the same action. For example, the costs of the same staff person, even if employed on multiple European projects, cannot be claimed for reimbursement in an amount that exceeds his or her total time commitment (which would imply double funding);
Prohibition of profit. While co-financing through project income is possible, grants do not have the purpose or effect of producing a profit for the recipient. Profit is defined as surplus of income over expenditure, calculated on balance and strictly on what has been achieved and generated by project activities. However, exceptions to this rule are possible (e.g., proceeds suitable for ensuring continuity of activities after the funding period).

The justification of expenses

Justification of actual expenses incurred within a project, which is necessary for reporting activities and reimbursement claims, requires, in general terms, documents to prove the following aspects:

The origin of the performance or supply, that is, the document on the basis of which a particular good or service was provided. The reference documents are contracts (labor or for the provision of services), engagement letters, purchase orders, etc;
The description of the service or supply, which can be found (in addition to the above documents in general terms) in other, more timely and specific documents: invoices, receipts, coupons, activity reports, and timesheets-documents to prove the quantity and quality of the goods and services not only agreed upon, but also actually provided-and their actual relevance to the project;
Actual payment for the service or supply, which is typically proven through copies of wire transfers, bank statements, and receipts;
The relationship of the service or supply to the project and to the specific items budgeted and considered eligible according to the rules of the tender. In order to prove this, it is necessary to organize these documents and prepare summary reporting to reconstruct their relationship to project activities and budget.

All of these documents serve to prove compliance with the eligibility criteria and reporting principles already explained (eligibility by type of activity, type of cost, geographic and temporal scope; principles of relevance, necessity, effectiveness, verifiability, traceability, legality and reasonableness).

These documents are the stuff on which the reporting process is based, much of which consists of their collection, filing, organization, verification and synthesis. For reporting to be effective, it is necessary:

Upstream, that the budget (cost lines) and project activities (work plan) have been developed realistically, truthfully, and verifiably through these documents;
Ongoing, that there is a system, process and human resources dedicated to the collection and proper storage of these documents;
Downstream, that there is an effective job of summarizing information and preparing reports, based on the procedures in the call and program.

Reporting is obviously easier if the applicable procedures provide for unit costs, fixed-rate financing, or lump sums, but in all cases it is necessary to justify the existence of certain parameters to accompany a claim for reimbursement (e.g., unit to which unit costs are to be applied, basis on which fixed rates are to be calculated, output or other parameters for lump sum payments).

We provide below a review of the way in which some of the most common cost items may be handled in the context of a reporting activity.

Obviously, the same expense items must be reported uniformly by the lead organization and project partners. This requires the lead organization to provide clear guidance, tools, templates and support to all partners. In fact, the lead partner is responsible for the collection, synthesis, and consistency of reporting for the entire project, and it is in his or her interest that the activity is carried out effectively and consistently at all levels and by all project partners.

The types of costs: personnel costs

Personnel costs can be an important component of the total cost of implementing a European project, the activities of which in many cases have as their primary focus people, or the work of people to achieve a common goal.

For a reporting of personnel costs based on actual cost, the following are typically required for support: the employment contract, pay stubs, F24s for payment of related taxes and contributions, an internal task order identifying the duration and amount of hours the person is to devote to the project, a timesheet (with activities, time spent, and signatures of the person and the person in charge), and the person’s CV (to prove the identified person’s years of experience and specific experience).

Similar elements may apply for external or VAT-registered staff and collaborators, with the possible additional advantage (in terms of simplicity and linearity of reporting) of being able to provide an ad hoc contract and payment for project-related activities.

Obviously, the list is indicative: some calls and programs may require different or fewer documents than indicated, particularly in cases where reimbursement of personnel costs on a unit cost basis (predetermined amount per day by type of job profile) or on the basis of a fixed rate (application of a predetermined percentage on other types of eligible costs).

The reporting of personnel expenses requires some specific arrangements. For example:

Personnel costs are a separate category from administrative and office expenses and overhead costs, which are normally treated separately (e.g. as part of so-called indirect costs-see next paragraph);
It is not possible to report personnel expenses as such, but only expenses for activities actually and specifically carried out on and for the project (these cannot be activities that would be carried out in any case). These activities (and related human resources) must obviously be budgeted for and in the project work plan;
When reporting on projects involving different countries, one must be prepared to deal with different labor regulations (regarding contractual forms, hours, leave, absences and vacations, social security, etc.).

The types of costs: administrative and office costs

A very wide range of costs can fall into this typology:

Infrastructure-related costs (e.g., leases, cleaning, maintenance, furniture);
Utility costs (e.g., electricity, water, heating, telephone and internet connections);
Costs for office consumables (e.g., paper, stationery, refills);
Costs for office activities (e.g., accounting, filing, reception, secretarial).

These are costs for which it is almost always difficult to demonstrate a direct link to the project and its activities. In fact, many of the costs listed in this category are not considered eligible by many calls and projects. In case they are considered eligible, this is normally done:

Or because they have direct relevance to the project, and therefore fall under other cost types. For example: 1) costs for specific software or computer equipment needed for a certain type of activity, which fall under the type of cost analyzed in the next paragraph; 2) costs of administrative staff directly dedicated to project activities, which fall under the cost type analyzed in the previous paragraph;
Or because the project or call rules treat them as indirect costs, providing for their reimbursement in lump-sum terms by applying a fixed rate to other categories of eligible costs (direct costs) more clearly and directly related to project execution.

The types of costs: equipment and materials (and external services)

This category of costs includes equipment and tangible goods purchased and directly necessary for the execution of the project. These can be IT materials (hardware or software) or other goods and equipment, durable or consumable, as long as they are directly and uniquely needed for project activities.

Indeed, it is required to specify its direct relevance to the project and its actual use for project activities during its period of execution. This cannot be equipment and materials used for the general business of the organization. In the case of consumable goods, their use should be totally during the period of project execution, while in the case of durable goods, their annual depreciation should be calculated, so that their cost is parameterized to the period of project execution.

Costs for equipment and materials must be supported by formal, written contracts or agreements, purchase orders, invoices and transfers, and clear evidence of the nature and use of the products supplied. They must be necessary for the project activity and included in advance in the budget and work plan.

It may be necessary to provide evidence of the selection process followed for the purchase to prove that it meets the criteria of economy, efficiency, effectiveness and sound financial management. In some cases, particularly for large performances, supplies and services or in more formalized settings (e.g., public institutions), it may be necessary to follow specific procurement rules or call for a specific tender.

In dealing with costs for equipment and materials, consideration should be given to the eligibility of specific cases, such as whether equipment purchased before the start of the project, second-hand equipment, or transportation and installation costs should be included in eligible costs. Renting or acquiring a license for the period and use strictly necessary for the project can be validated as an alternative (often more “agile” in terms of reporting than managing a durable asset and its depreciation).

Similar rules (with the obvious differences given the nature of the “product” in question) apply to the acquisition of specific benefits or services.

A separate discussion deserves a specific category of “products,” that of communication and promotion materials. These can include within them very different services, such as graphic design and printing work, processing of audio and video materials, production of websites, translation of produced media, and organization of public events.

These are typical activities in European projects, by their nature very closely linked to the project and almost always present among the eligible costs. Attention should be paid, however, to the visibility rules provided by the European Commission, managing authorities, and program and call specifications, which include criteria for logo placement, visibility of funders within events and communication materials, and inclusion of textual references to the project and the source of funding.

In the case of organizing public events, attention should be paid to the specific subcategories of eligible costs (e.g., room rental, catering, security, audio-visual systems, participant travel, audience and press materials, etc.) and the project rules applicable to each.

The types of costs: travel costs

Travel costs include, for example: air, rail, bus and ferry tickets; expenses related to the use of a car for project purposes (mileage reimbursement, insurance, fuel, tolls, parking, etc.); expenses for meals, overnight stays or per diem allowances; travel insurance, visas, CO2 compensation on air routes.

Although it is a seemingly more circumscribed category of costs, it may have different ways of treatment within European projects. Specifically, either actual costs or fixed allowances may be applied, such as “per diem” to cover flat-rate room, board and expenses per day (or night), or fixed reimbursement rates applied to distance in kilometers (for travel costs).

Careful consideration should be given to the rules applicable by the individual program or project, but the usual principles generally apply: costs should be closely related to the project (e.g. attendance at relevant meetings and events by project staff), be provided for in the budget and activity plan, not exceed any expenditure ceilings (total, per-day, or per trip), adopt a rigorous document support process, and use an economy criterion (when the route is equal, the most direct, advantageous, and economical solution should be chosen, respecting any limits in terms of travel class and hotel class that can be used for travel and overnight stays).

The types of costs: in-kind contributions

“In-kind contributions” are non-financial resources made freely available to a beneficiary by a third party: for example, the provision of land or buildings, equipment or materials free of charge, or research or professional activities or unpaid voluntary services.

Thus, these are not (by definition) reimbursable costs, but potentially countable resources (either under European programs or Structural Funds) for assessing the amount of co-financing provided to the project from “non-EU” sources. Again by definition, these are resources for which no payment has been made justified by invoices or documents.

Normally these types of resources are required to be submitted separately from other costs, and their contribution to total project co-financing must not exceed a maximum percentage. Their economic quantification is based on estimates, which may be provided as appropriate either upstream by the applicable rules, or by the applicant based on market values and/or costs of equivalent labor services.

The verification process

Reporting is thus the process by which the beneficiary of a European project undertakes to provide complete, reliable and truthful claims for payment, with eligible costs incurred and in accordance with the grant agreement, supported by adequate and verifiable supporting documents, as required by the Financial Regulations.

The program authority may require a certificate stating that the financial statements follow the methodology and procedures defined by it and that the costs claimed in the payment request are true, are accurately recorded, and are allowable in accordance with the grant agreement. This certificate, which is required on many European projects either with each payment or on the balance, is issued by a recognized external auditor to support the conformity of operations and expenditures and to provide assurance to the managing authority in its role as the person responsible for the regularity of the program and the funded projects. Items deemed ineligible by the external auditor are excluded from payment requests.

After the conclusion of a project, further control over the eligibility of expenditures and the correctness of reporting and related payments is possible. For those portions deemed ineligible, the corresponding portion of community funds disbursed is required to be returned. Therefore, it is necessary to keep all items and evidence related to reporting for several years after the end of the project, taking an approach of utmost caution in the manner and timing of storage (at least five years from the end of the last year in which payments were recorded).

Tips for project preparation

The foundations of reporting are laid right from the design and development of the project proposal.Leaders and project partners must have a clear detail of the following points, and be able to properly translate them into the technical and financial forms of the project. For each of these points we formulate some useful “control questions” to anticipate common problems.

Applications, eligibility criteria, grant and reporting forms, and templates under the call and program (knowing the call very well is a necessary precondition from both an operational and reporting perspective).
A detail of the different project components and related activities.
– Are the activities relevant and effective in achieving the project outcomes and objectives? (see section on the Logical Framework)– Are the project outcomes and objectives relevant to the call for proposals? Are the activities planned for the project eligible under the notice?– What is the timeline (indicative but realistic) for implementation of each activity? What activities are a necessary condition (and thus a potential brake) on project progress?– Were activities related to the technical management of the project, its financial management (and reporting), and coordination and communication aspects planned?
A detail of the resources (material, financial and human) needed for each activity.
– How much of the resources are already available, which of the resources need to be procured to implement the project, and how much time is needed to make them available?– Is the timing of implementation of the activities consistent with the resource commitment they entail over time?– What costs (or monetary values) can be associated with each of the needed resources?– Among these resources (and the activities to which they relate), which are eligible for funding through European funds? Which ones can be used for the purpose of co-financing (complementary to community co-financing)?– What supporting documents can be provided for each of the resources to be reported?– Which partner (and if possible, which person) is responsible for each activity and will need to manage the related resources? – Through what (single, consistent) system will supporting documents (by cost line and by partner) and reporting be collected and organized? Who will take care of it?
A budget forecast, in which each line is associated with the previously proposed parameters.
– Are the cost categories consistent with those in the call or program and their eligibility criteria? – Do the ceilings for each item comply with what is in the notice or program?– Are the activities, resources to be committed, and related responsibilities clear and accepted by all partners? Are they well balanced among partners and consistent with their operational possibilities?– How much of the total are resources that are not available to project partners and for which external resources must be found? Can they become a brake on the project and its sustainability?– Is the percentage of co-financing (or community funding) out of the total budget consistent with the parameters stated in the call or program?
A work plan, project proposal, and project budget consistent with the templates required by the program or call.
– How much elaboration is clear and effective even when translated into its final and official form? – Do discrepancies emerge between the final version and what was previously worked out, even in light of previous “control questions”?– Does what is proposed, in addition to being well organized on the reporting side, maintain the characteristics of innovativeness, originality, effectiveness, and added value necessary to make it a successful project?

Project implementation tips

It is clear that the process just described, as well as the subsequent project implementation phase, requires collaboration among different skills and professional figures, as well as among the various partners. In fact, the interactions involve the people who are concretely involved in writing the project and the budget (1), along with those who will have to manage and monitor its activities (2) and those who will have to manage its administrative and financial aspects and follow its reporting (3).

It is advisable for each of these three functions to have a point person in charge and for the interaction between these three people and functions to be continuous and effective during both phases of project preparation and execution.

In fact, on the reporting front, project activity continues with:

An adequate (and properly planned) resource mobilization process, from the standpoint of spending commitments (to keep commitments within budgeted limits) and administrative procedures (to make sure that each step is properly documented for reporting purposes);
The collection, organization and storage of documentation (in original and electronic format), divided by expenditure categories, budget lines and supplier/expenditure owner, using procedures, templates, checklists and identification codes shared by all partners;
Preparation of periodic reporting (usually semi-annually or annually), which includes both a technical part related to the activities carried out and the statement of expenses incurred, based on the templates and procedures provided by the call or program;
Preparation of final reporting (normally more detailed and all-inclusive than periodic reporting);
Interlocution with the managing authority of the program (throughout the duration of the project, in case of doubts or clarifications) and with the external auditor (on time, in case the project/program requires external certification of statements);
Retention of documentation (statements and archive of supporting documents) for as long as necessary and willingness to provide clarification in case of subsequent audits (normally, for at least 5 years from the year of project completion).