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FP7 Financial Info and FAQs --> Overheads, Possible Methods, Direct Costs Vs Indirect Costs

Direct costs are those costs directly related to the project, which can be clearly identified and justified by the accounting rules and principles of the beneficiary. Overhead costs (also referred to as Indirect costs) are those costs which are not directly related to the project, not identified as direct costs and which do not include any costs already directly charged to the project. They are determined in accordance with the accounting principles of the beneficiary but must be related to the project, subject to audit trail and be real.

 

The calculated overheads could include the following types of costs:

·         in house technical service departments utilised by project such as QA, design services

·         allocations for internally funded R&D if it is normal practice

·         costs related to general administration and management;

·         costs related to ongoing professional training of staff

·         costs of office or laboratory space, including rent or depreciation of buildings and equipment, and all related expenditure such as water, heating, electricity, maintenance, insurance and safety costs;

·         communication expenses, network connection charges, postal charges and office supplies;

·         depreciation on common office equipment such as PC’s, laptops, office software;

·         miscellaneous recurring consumables.

 

The beneficiary should use his own “normal” accounting basis for calculating overheads, whether it is based on salaries only or on all direct costs. The reporting rate is based on historic accounting information per published accounts of the organisation.

The indirect costs claimed must be based upon the actual costs for the life of the project not on the last set of financial accounts. Only indirect costs relevant to the project are eligible and they have to be actual costs for each period concerned. While an estimate can be used to identify the expected costs over the life of the project, only actual costs may be claimed at each reporting period. Any necessary adjustments to reflect corrections to amounts claimed in a previous period must be identified in the subsequent period.

The basis for allocating and calculating the indirect costs must be calculated on a consistent basis for the life of the project. It is possible to use the figure from the period of the last financial accounts if their period is similar to the Form C reporting period - however it is preferable to use management accounts and figures from the organisations period trial balances. ideally the figures will be a composite rate based on audited accounts for two periods covering the form c report period (proportioned according to the number of months in each set of audited accounts. Often the short period to prepare and submit the Form C prohibits this, so often the first period is an estimate which is corrected in subsequent C Forms (if significantly different) as previous period adjustment. Only the indirect costs relevant to the project are eligible and they have to be actual and adjusted where they deviate from the estimates.

Going from AC to Full Costs
Overheads FAQs


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