Certificate on Financial Statements (CFS)

A Certificate on Financial Statements (CFS) is an independent audit certificate that validates the eligibility and accuracy of costs declared by a beneficiary under an EU Grant Agreement. When a beneficiary's cumulative claimed costs exceed a defined threshold, the beneficiary must engage a qualified external auditor to examine the financial statements and issue a certificate confirming that declared expenditures comply with the Grant Agreement's eligibility rules and the beneficiary's usual accounting practices.

How It Works

EU grants operate on a trust-based model: beneficiaries declare their costs, and the funding body accepts those declarations subject to verification. The CFS provides an additional layer of assurance for higher-value claims, sitting between the beneficiary's self-declaration and a full ex-post audit by the European Commission or the European Court of Auditors.

Triggering the requirement. The CFS obligation is activated when a beneficiary's cumulative eligible costs across the entire project reach or exceed 430,000 euros. This threshold applies per beneficiary, not per reporting period. The cumulative calculation includes all direct costs declared plus the flat-rate contribution for indirect costs (typically 25 percent of eligible direct costs in Horizon Europe). A beneficiary with modest claims in early reporting periods may only trigger the CFS requirement at the final reporting stage when cumulative costs breach the threshold.

Scope of the audit. The auditor examines the financial statements submitted by the beneficiary and verifies that:

Declared personnel costs reflect actual time spent on the project at the correct hourly rates
Direct costs (travel, equipment, subcontracting, other goods and services) are supported by invoices, contracts, and proof of payment
Costs comply with the eligibility conditions set out in the Grant Agreement (actual, economic, necessary, identifiable, verifiable, incurred during the eligible period)
The beneficiary's internal accounting practices are consistently applied
Indirect costs are calculated correctly using the applicable flat rate or methodology
There is no double funding from other EU or national grants

The auditor does not assess scientific merit, project outcomes, or whether the activities were well-managed -- those aspects fall under technical evaluation by the funding body.

Timing. The CFS is submitted together with the final periodic report. Beneficiaries do not need to obtain a CFS for each interim reporting period; one certificate covering the cumulative declarations across all periods is sufficient. This simplification, introduced in Horizon 2020 and maintained in Horizon Europe, significantly reduces the audit burden compared to earlier framework programmes.

Auditor qualifications. The CFS must be issued by a qualified independent auditor who meets the requirements of Directive 2006/43/EC on statutory audits. In practice, this means:

A statutory auditor or audit firm registered in an EU Member State
An external, independent auditor (internal auditors are not acceptable)
An auditor with no financial relationship or conflict of interest with the beneficiary
In some Member States, the national audit office or public-sector audit body may perform CFS audits for public entities

The European Commission publishes agreed-upon procedures that the auditor must follow, ensuring consistency across the programme.

CFS costs. The cost of obtaining a CFS is an eligible project cost. It falls under the "other goods, works, and services" cost category and is subject to the applicable funding rate. For beneficiaries with a 100 percent funding rate (typical for REC, HES, and PUB entities in Research and Innovation Actions), the full cost of the CFS is reimbursed. For entities with a 70 percent rate (PRC entities in Innovation Actions), 70 percent of the CFS cost is covered by the grant.

Consequences of CFS findings. If the auditor identifies ineligible costs, the beneficiary should correct them before submitting the financial statements. If the CFS is qualified (meaning the auditor notes exceptions or reservations), the funding body will review the findings during the final payment assessment. Material discrepancies may lead to cost rejections, recovery orders, or further investigation. A clean CFS significantly reduces the risk of problems during the Commission's own ex-post audits.

Legal Framework

Article 190 of the EU Financial Regulation (Regulation 2018/1046) provides the legal basis for requiring certificates on financial statements for grants. The article empowers the authorising officer to require an independent audit certificate when the complexity, volume, or risk profile of the grant justifies additional assurance.

The specific thresholds and procedures for CFS are detailed in the Model Grant Agreement (MGA) for each programme. For Horizon Europe, Article 24 of the MGA specifies the 430,000-euro cumulative threshold, the timing of submission, the auditor qualification requirements, and the agreed-upon procedures.

Regulation 2021/695 (establishing Horizon Europe) and its implementing rules complement the Financial Regulation by specifying programme-level audit and control requirements. Recital 62 of the Horizon Europe Regulation emphasises the need to balance audit assurance with administrative simplification, reflecting the ongoing effort to reduce bureaucratic burden for beneficiaries.

The General Conditions of the MGA also establish the beneficiary's obligation to keep proper records for five years after the final payment, enabling the Commission, the European Court of Auditors, and OLAF (the European Anti-Fraud Office) to conduct ex-post audits even after the CFS has been accepted.

For EU procurement contracts, a different assurance framework applies -- public contract payments are verified through contract management and acceptance procedures rather than CFS certificates. The CFS mechanism is specific to the grant context.

Practical Examples

A medium-sized research institute (REC type) participates in a three-year Horizon Europe project with a total grant of 850,000 euros. By the final reporting period, the institute has declared cumulative costs of 510,000 euros (including 25 percent indirect cost flat rate), exceeding the 430,000-euro threshold. The institute engages its usual statutory audit firm to perform the CFS procedures. The auditor reviews personnel timesheets, travel receipts, equipment invoices, and subcontracting contracts, and issues a clean certificate. The institute submits the CFS with its final report, and the European Commission processes the final payment without delay.

A university (HES type) coordinates a large RIA project with 18 partners across 12 countries. At the final reporting stage, 11 of the 18 beneficiaries have exceeded the CFS threshold due to the project's large budget. The coordinator reminds all partners to engage auditors early, as CFS preparation typically takes four to eight weeks. Two partners submit CFS certificates with qualifications (noting minor corrections to personnel hourly rate calculations), prompting the funding body to request explanations before approving the final payment.

An SME (PRC type) participates in a two-year Innovation Action with a budget share of 380,000 euros. Because the cumulative claimed costs remain below the 430,000-euro threshold, the SME is not required to obtain a CFS, saving several thousand euros in audit costs. The SME's costs are subject to the standard reporting procedures and may be checked during a random ex-post audit.

Key Considerations for Suppliers

Although the CFS is specific to EU grants rather than public procurement, entities that participate in both ecosystems should understand how the CFS fits into the broader accountability framework.

Plan early. Beneficiaries should identify well before the final reporting deadline whether they will exceed the CFS threshold. Engaging an auditor at the last minute can be costly, lead to rushed reviews, and increase the risk of errors or qualifications. Ideally, the auditor should be identified at the project start and invited to review procedures periodically.

Maintain impeccable records. The CFS audit is only as smooth as the underlying documentation. Beneficiaries should maintain time-recording systems for personnel, keep all invoices and contracts organised by cost category and reporting period, and reconcile project expenditures with their general accounting system on an ongoing basis. Retroactive record reconstruction is time-consuming and error-prone.

Understand eligible costs. The most common sources of CFS qualifications are personnel cost errors (incorrect hourly rate calculations, undocumented time allocation), ineligible subcontracting arrangements (failure to demonstrate best value), and costs incurred outside the eligible period. Familiarity with the specific eligibility rules in the MGA prevents surprises during the audit.

Budget for the CFS. The cost of the CFS should be included in the project budget from the proposal stage. Typical CFS audit fees range from 3,000 to 10,000 euros depending on the complexity of the beneficiary's cost structure and the number of reporting periods covered. Since this cost is eligible, failing to budget for it means under-estimating project costs.

Lump sum exception. For grants implemented under the lump sum funding model, CFS certificates are not required. Lump sum grants simplify financial management by paying on the basis of completed work packages rather than actual costs, eliminating the need for cost verification audits. This is a significant administrative advantage, particularly for smaller organisations.

The CFS is required of beneficiaries whose cumulative claims exceed the defined threshold. It relates to the grant funding instrument and the funding rate that determines how much of the CFS cost is reimbursable. Consortia must coordinate CFS timelines across multiple beneficiaries. The coordinator often assists partners in planning their CFS audits. Grant types such as CSA and RIA have different typical budget ranges that affect whether the CFS threshold is reached.

Frequently Asked Questions

What happens if a beneficiary does not submit a required CFS?

If a beneficiary exceeds the CFS threshold and fails to provide the certificate, the funding body will typically withhold the final payment to that beneficiary until the CFS is submitted. Persistent non-compliance may be treated as a breach of the Grant Agreement, potentially leading to cost rejections for the unsupported financial statements or, in severe cases, termination of the beneficiary's participation and recovery of previously paid funds.

Can a beneficiary use its internal auditor for the CFS?

No. The CFS must be issued by a qualified independent external auditor. Internal auditors, management accountants, or related parties do not meet the independence requirement. The auditor must be a statutory auditor or audit firm within the meaning of Directive 2006/43/EC, ensuring professional competence and independence.

Does the 430,000-euro threshold apply to each reporting period separately?

No. The threshold is cumulative across the entire project duration. A beneficiary that claims 200,000 euros in the first period and 250,000 euros in the second period has cumulatively exceeded 430,000 euros and must provide a CFS with the final report. The CFS covers all declared costs from project start to end, not a single period.

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