Why does hiring an auditor on time provide additional value to EU fund users?

Auditor’s advice:

A quality audit of an EU project benefits everyone involved if the audit starts at the same time as the project implementation phase 

By entering the European Union (EU), Croatia’s entrepreneurs have been given a great opportunity to co-finance their development by using EU funds. A good deal of these funds are intended for the growth and development of small and medium enterprises (SMEs), increasing the competitiveness of the private sector, bettering employment and strengthening export.  

We are witnesses of how entrepreneurs from other EU member states have successfully used and continue to use EU funds to strengthen their competitiveness. That is why it is imperative that Croatian entrepreneurs make the most of this opportunity by developing and rationalizing their businesses with the help of these same financial mechanisms. This will enable them to keep and improve their competitiveness on both the domestic and the EU market.    

Nonetheless, to reach the expected goals, a thorough and structured overview and preparation of the project is imperative because the project’s feasibility and sustainability rely on it. Fulfilling that requirement, in addition to being crucial to the entrepreneur, is the key to the application process being successful. This enables the project to meet the goals and high criteria of the application process, and also to be in accordance with the Operating program Competitiveness and cohesion 2014 – 2020.  

The defined key financial parameters of the co-financed project contractually bind the entrepreneur for a certain time even after the realisation of the co-financed investment. During this time both domestic and EU regulatory bodies have the right and duty to keep track of the efficiency of the realised project and to, if needed, penalize for not meeting stated objectives with fund reimbursement claims. 

There are significant risks that projects, whose financial support was approved, will not be implemented in accordance with the plan and thus cannot meet stated parameters. We can see these examples across all EU countries, countries that were, compared to Croatia, better prepared for the EU funds application process. Given Croatia’s relatively recent EU membership, Croatian entrepreneurs and other user have limited experience in this field. Nonetheless, these experiences, as well as experiences of other member states, show the risks of inadequately implemented projects whose planned goals were not met. Thus, they are valuable examples from which we can conclude many things.  

The lack of risk assessment in the parts of spending and cost validity, as well as errors in the implementation are some of the reasons for fund reimbursement claims. 

Here are some of the most common omissions that were found during audits made by the European Commission: 

– differences between purchased equipment and the one listed in the application, 

– being unable to finish construction or purchasing equipment according to the time frame defined in the project application,

– purchased equipment not being used according to the purpose listed in the project application,

– subsequent alterations of technical specifications that were not adequately documented, 

– undocumented and unexplained reasons for intellectual services, etc.

These examples resulted, as we previously emphasised, in fund reimbursements. In many cases the reimbursements were made with foreclosures, which present an additional risk to the entrepreneur’s business and his sustainability on the market.

Hiring an auditor is obligatory for most projects and is also considered an acceptable cost (co-financed in the same ratio as all other acceptable project costs).

Our experience, which also includes taking part in the grading process of applications and auditing different types of EU projects, has shown that entrepreneurs see audits as an obligation. They consider it an activity, forced upon them by implementation bodies, which should only be conducted in the final phase of implementation. 

This is why, in the interest of improving the project implementation process, it is our desire to share with you our experiences. Moreover, in the entrepreneur’s interest we would like to stress that we can, and should, change this very common practice, together. 

The role of audit is to verify costs of the implemented project. However, in the „post festum“ phase it is very hard, even nearly impossible, to correct mistakes made during the implementation. 

That is why it is very important to choose an auditor with adequate experience and references. Furthermore, it is also important to agree upon the audit dynamic designed while taking into consideration the nature and risks of the project, in such a manner, that the entrepreneur receives additional benefits from it. 

The entrepreneur can have far greater benefits from the audit if he sets up the audit in the earliest stage of implementation. By doing this, the auditor, can during the early stages of audit, help with identifying unforeseen risks so that they can be managed efficiently during the implementation (a similar process to preaudits during standard audits of financial statements).

In other words, by finishing the selection process on time and involving an adequate and professional auditor for EU funds, the fund users gains a partner. In his role as a partner, the auditor can assist the entrepreneur in the implementation with timely suggestions, which will enable him to avoid large mistakes and the resulting negative effects that manifest as fund reimbursement claims. 

For all parties included the goals, of applying for and using EU funds, are that the project is implemented, the funds are used purposefully, the results obtained and the project positively graded by the European Commission. Every successfully implemented project is a source of great pride and serves as a reference for everyone involved: the user, the national implementing bodies, and even the European Commission. It represents both that the society is mature enough to use funds, and that there are strong partnerships present on all levels. Equally, it is a way to open new grounds for any entrepreneur, securing long-term sustainability for his business, by applying the best practices and experiences. 

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