Corrections for breaching the call rules and the grant agreement – tariff and practical examples

Corrections for breaching the call rules and the grant agreement may lead to a reduction of the support awarded, part of the expenditure being deemed ineligible or an obligation to repay funds. The type of sanction, its amount and the basis for calculating it depend primarily on the programme, the call rules, the grant agreement and the annexes to that agreement.

A similar shortcoming may result in a reduction calculated on the total grant amount, on indirect costs, on a specific item of expenditure or on the part of expenditure affected by the irregularity. Therefore, before starting the project, you should analyse not only the grant application but also all the obligations arising from the programme documentation.

What are corrections for breaching the grant agreement?

A financial correction is a mechanism for protecting public funds where a project is implemented in breach of the law, the call rules, the approved application or the grant agreement.

Different terms may be used in the documentation of individual programmes, including:

• financial correction,
• reduction of funding,
• reduction of the grant amount,
• deeming expenditure ineligible,
• reduction of indirect costs,
• repayment of funding,
• recovery of funds together with interest.

These terms are not entirely synonymous. However, their financial effects may be similar – the beneficiary receives a smaller amount than expected or has to repay part of the funds already paid out.

A correction may concern both specific expenditure and organisational obligations not directly related to a purchase. Examples include errors in reports, failure to implement post-audit recommendations, improper project management or failure to comply with information and promotion obligations.

Is there a single EU tariff of corrections?

There is no single tariff setting rates for every possible breach of the call rules or the grant agreement across all EU programmes.

At EU level, general obligations of beneficiaries are laid down concerning, among other things, informing about the support, marking materials, publishing a description of the project and using posters or plaques. In accordance with Article 50 of Regulation (EU) 2021/1060 of the European Parliament and of the Council , failure to fulfil visibility and communication obligations, combined with a lack of remedial action, may lead to the cancellation of up to 3% of the support from the funds for the operation concerned. In doing so, the institution should take into account the principle of proportionality.

However, the EU Regulation does not state that the absence of a poster always means a 0.25% correction, or that the absence of information on the website always leads to a 0.5% reduction. Such detailed rates are set in the documentation of individual programmes.

This means that a distinction must be made between:

• general obligations arising from EU and national legislation,
• the detailed manner of fulfilling the obligations set out in the programme documentation,
• specific correction rates set out in the agreement or its annexes.

Example tariff of corrections for breaching the call rules and the agreement

An example of a programme for which a detailed tariff has been prepared is the PFRON grant project “Dostępna stomatologia” (Accessible Dentistry), implemented under the European Funds for Social Development 2021-2027 programme.

In the documentation of this project, Annex 6 to the model grant agreement sets out reductions for failure to comply with the obligations arising from the call rules, the agreement and the information and promotion rules. The maximum total reduction for all the listed shortcomings may not exceed 6% of the grant amount.

The full documentation, including the tariff, has been published on the PFRON website page for the “Dostępna stomatologia” project.

Improper management of the undertaking – 3%

A reduction may be applied if the grant undertaking is implemented improperly and numerous shortcomings of a key nature in project management have been found on the part of the grantee.

This should not be equated with a single administrative error. The wording of the tariff indicates that it concerns breaches of a broader and significant nature affecting the proper implementation of the undertaking. Example risks may include:

• implementing the project in a way inconsistent with the approved scope,
• no effective supervision of expenditure and deadlines,
• repeated breaches of the provisions of the agreement,
• no division of responsibilities within the project team,
• improper documentation of the activities carried out.

Failure to implement post-audit recommendations – 2.5%

Another reduction concerns failure to implement, within the set deadline, recommendations resulting from an audit or a monitoring visit.

This sanction refers to recommendations of key or significant importance that do not directly concern the repayment of ineligible expenditure. In practice, this may involve, for example, the need to supplement documentation, correct a procedure, introduce a proper method of record-keeping or ensure that project implementation complies with the agreement.

The mere fact that an audit has been carried out does not automatically mean a correction. The risk arises above all when the beneficiary received specific recommendations, knew the deadline for implementing them and nevertheless failed to take the required action.

Recurring errors in reports – 3%

A reduction may also be applied where the grantee repeatedly submits low-quality partial reports, provides incomplete source documents or submits documentation late.

Of particular importance is the recurrence of shortcomings. A one-off error corrected upon request should be assessed differently from systematically sending documents containing the same errors. The risk of a correction increases when the beneficiary:

• does not respond to the institution's earlier comments,
• does not use the current document templates,
• presents data inconsistent with the accounting records,
• does not attach the required confirmations,
• misses the deadlines set out in the agreement,
• resubmits documents containing previously identified errors.

No information about the project on the website – 0.5%

If the beneficiary has a website, it may be required to publish a description of the undertaking on it. The scope of the description may include, among other things:

• the project title,
• information that support has been received from the European Union,
• the objective and planned activities,
• the target group,
• the expected effects and results,
• the project value,
• the amount of the contribution from the European Funds and the state budget,
• the required set of graphic logos.

The absence of a description or the omission of information about financing from European Union funds may result in a reduction of the grant amount by 0.5%.

No information on social media – 0.5%

A similar obligation may apply to the beneficiary's official social media profiles, if the entity has such profiles. The obligation does not always amount to a one-off publication of any information – the content should meet the conditions set out in the agreement and the programme documentation.

The beneficiary should retain evidence that the obligation has been fulfilled, for example:

• a screenshot of the publication,
• a link to the post,
• the date of publication,
• a file containing the published content,
• documentation of the logos used.

No marking of materials, documents or equipment – 0.25%

In the tariff analysed, a reduction of 0.25% may be applied where the required logos are missing from activities, documents, materials, products, equipment or apparatus related to the project. Depending on the programme conditions, the following may be required:

• the European Funds logo,
• the logo in the colours of the Republic of Poland,
• the European Union emblem,
• the statement “Co-funded by the European Union”,
• durable stickers on the equipment purchased.

Before ordering materials or stickers, you should use the current templates provided by the relevant institution. Modifying the proportions, colours or layout of the logos on your own may be deemed improper fulfilment of the obligation.

No poster or electronic display – 0.25%

A reduction may also be imposed for:

• no poster of at least A3 format,
• no electronic display, if it was chosen instead of a poster,
• use of an incorrect template,
• placing the poster in a location that is not visible or barely visible to the public.

In practice, the poster should be placed in a location accessible to the public, for example at the entrance, at reception or in a publicly accessible part of the premises. Placing it in a closed administrative room may not meet the visibility requirement.

How is the amount of the reduction calculated?

The calculation basis may be the total grant amount, the amount of funding, the value of the expenditure or indirect costs. Always check the exact wording of the tariff.

Let us assume that a facility has received a grant of PLN 500,000 and the agreement provides for reductions to be calculated on the total grant amount. Example values will be as follows:

If improper management valued at 3%, no information on the website valued at 0.5% and no poster valued at 0.25% are found, the total reduction will be 3.75%, i.e. PLN 18,750.

If the sum of the rates for all the shortcomings found were 8% and the tariff sets a maximum limit of 6%, the reduction should be capped at PLN 30,000.

Why is it necessary to check the basis on which the correction is calculated?

The same percentage does not always mean the same amount.

In the current model agreements used by PARP in FERS projects, corrections for certain breaches in project management may be calculated on the basis of indirect costs rather than the total amount of funding. For example, improper project management or failure to implement significant post-audit recommendations may lead to 5% of indirect costs being deemed ineligible. Recurring problems with payment claims, on the other hand, may result in a correction of 2% or 4% of indirect costs, depending on the circumstances set out in the agreement.

Example:

• project value – PLN 500,000,
• indirect costs – PLN 50,000,
• correction – 5% of indirect costs.

In this case, the reduction will amount to PLN 2,500, not PLN 25,000. The difference results solely from the different calculation basis.

Are the 0.25% and 0.5% rates standard?

Rates of 0.25% and 0.5% for breaches of promotion obligations appear in the documentation of many programmes, so they can be regarded as a commonly used contractual model. However, they do not constitute a uniform and directly applicable EU tariff. Each beneficiary should check the rates in the documentation of its own call.

What can be regarded as universal is above all the types of obligations themselves:

• posting information on the website,
• publishing information on social media,
• using the correct logos,
• marking materials and documents,
• labelling the equipment purchased,
• displaying a poster, plaque or electronic display.

The following, on the other hand, are programme-specific:

• the exact percentage of the correction,
• the basis for calculating it,
• the maximum limit of reductions,
• the method of adding up breaches,
• the possibility of waiving the reduction,
• the deadline and scope of remedial action.

Does every mistake mean a financial correction?

Not every mistake should automatically lead to a reduction of funding. Relevant factors include the nature of the breach, its scale, recurrence, impact on project implementation and the possibility of remedying the shortcoming.

In the case of information obligations, EU legislation points to the need to take into account the principle of proportionality and remedial action. If the beneficiary promptly adds the missing project description, corrects the marking or displays the correct poster, this may be of significant importance for further proceedings.

This does not mean, however, that every shortcoming can be remedied without consequences. You should check whether:

• the agreement provides for a request to take remedial action,
• the shortcoming can be remedied,
• the correction was provided for by the mere occurrence of the breach,
• the institution has set a deadline for correction,
• the beneficiary has previously received similar comments,
• the breach affected the correctness of the spending of funds.

What to do after receiving information about a possible correction?

The first step should not be to automatically accept the amount indicated or to limit yourself to a general explanation. You should analyse the documentation and the facts established.

Checking the legal and contractual basis

The institution should indicate which provision of the call rules, the agreement or the tariff the planned reduction is based on. You should establish:

• which obligation has been breached,
• which document establishes that obligation,
• which rate applies,
• on what value it is calculated,
• whether there is a limit on total reductions,
• whether remedial action can be applied.

Verifying the facts

The beneficiary should compare the institution's findings with the project documentation. It may turn out that the obligation was fulfilled but the evidence was not presented earlier or is kept in a different set of documents. Evidence may include, among other things:

• e-mail correspondence,
• confirmations of documents being sent,
• versions of reports,
• acceptance reports,
• screenshots,
• photographs of the markings,
• change logs,
• internal memos,
• confirmations that recommendations have been implemented.

Assessing the proportionality of the reduction

It is worth checking whether the institution has taken into account the scale and effects of the breach. A complete failure to fulfil an obligation should be assessed differently from a partial or short-lived shortcoming remedied after receiving a request.

Presenting remedial action

The response should present not only arguments concerning the past, but also measures to prevent the error from recurring. This may include:

• adding the missing information,
• correcting the markings,
• updating the procedure,
• appointing a person responsible,
• introducing an additional check of documents,
• implementing a reporting schedule,
• carrying out an internal review of the project.

Preparing explanations and arguments in response to the institution's findings is covered by support during project audits and evaluations.

How to reduce the risk of corrections in a project?

The most effective way to reduce risk is to turn the provisions of the agreement into specific operating procedures.

Preparing a register of obligations

After signing the agreement, it is worth drawing up a list covering:

• the name of the obligation,
• the basis in the agreement,
• the deadline,
• the person responsible,
• the required supporting document,
• the potential sanction,
• the status of fulfilment.

The register should cover not only expenditure, but also reporting, promotion, indicators, archiving, audits, project durability and the rules for making changes.

Introducing a check of documents before they are sent

Every report or payment claim should be checked before it is sent to the institution. The check should cover:

• completeness of attachments,
• consistency of financial data,
• consistency with the schedule,
• correctness of the description of physical progress,
• consistency with previous correspondence,
• use of the current document templates.

Documenting the fulfilment of promotion obligations

The beneficiary should create a separate folder containing evidence of the fulfilment of information obligations. It is worth keeping:

• the version of the description published on the website,
• screenshots of the website and social media,
• photographs of the poster,
• photographs of the stickers on the equipment,
• templates of materials and documents,
• dates of publication and marking.

Monitoring post-audit recommendations

Each recommendation should be recorded together with the implementation deadline and the person responsible. Implementing a recommendation is not enough if the beneficiary cannot demonstrate it. You should retain documents confirming:

• how the recommendation was implemented,
• the date of implementation,
• the scope of the change introduced,
• submission of the response to the institution,
• acceptance or closure of the recommendation.

Ongoing support in maintaining the register of obligations, reporting and payment claims is covered by the service of project implementation and settlement.

Summary

Corrections for breaching the call rules and the grant agreement are not limited to errors in procurement or in the settlement of invoices. A reduction of support may also result from improper project management, failure to respond to post-audit recommendations, recurring errors in reports and failure to comply with information and promotion obligations.

The rates of 3%, 2.5%, 0.5% and 0.25% presented are an example applied in a specific grant agreement. They are not a universal tariff for all EU projects. In each case, you should check both the amount of the correction and the basis on which it is calculated.

The full scope of support is described in grant advisory services. Those looking for new funding opportunities can use the free grant search engine with an AI Assistant and the Knowledge base.

Are you planning to implement a project, or have you received information about a possible reduction of funding? We will analyse the agreement, the tariff and the documentation confirming that the obligations have been fulfilled.Contact an expert