This image shows the workflow for Legal and Financial Validation. Click the image to see a larger version.
LFV is carried out centrally at the Research Executive Agency by the Validation Services team.
The workflow is as follows:
- The Organisation's representative must register using the Unique Registration Facility (URF) in the Participant Portal.
- As soon as the organisation is registered it will receive a temporary PIC.
- The coordinator will then receive an email invitation to access a NEF Negotiation Session and generate the LFV lite, which contains instructions on how to:
- Request a PIC
- appoint a LEAR
- Supply the required documentation for financial validation
- The coordinator sends details of the person nominated as the Legal Entity Approved Representative (LEAR), according to the instructions in the LFV Lite.
- If the organisation is validated by the Validation Services team, the Lear access is granted within two weeks.
Why Does the Commission Perform Legal and Financial Validation?
Legal and Financial Validation (LFV) rules are in place to help ensure the proper implementation of the project by verifying the particulars of the beneficiaries, and to protect the financial interests of the European Community. In general, the Commission must verify the legal existence of any organization (for example, legal data such as name, address, VAT number, etc.), before entering into a contractual relation with it.
The commission must also ensure that all successful applicants have stable and sufficient resources of funding to maintain their activities throughout the period during which the action is carried out. They must have, or will have in due time, the professional competencies and qualifications required to complete the proposed action. These criteria must be examined with respect to both the consortium and the participant.
The rules are laid down in the Commission Decision 2012/838/EU, Euratom of 18 December 2012 and 'CIP rules'.
Who is subject to LFV
The criteria for who is subject to legal validation and who is subject to financial validation are not the same. See the two sections which follow.
All beneficiaries in the project must be legally validated. If a beneficiary has been involved in a previous FP7 project, it may already have been legally validated.
It is up to the coordinator to contact the partners and make sure all of them go through the validation process. If any legal data is incorrect, it is up to the beneficiary to correct it or to arrange for it to be corrected.
All Coordinators of FP7 and CIP projects as well as all beneficiaries requesting more than €500,000 (FP7) or €25,000 (CIP) over the whole project are subject to a financial evaluation, with the exception of:
- Public bodies,
- International organizations as detailed in the decision tree laid down in above mentioned Commission Decisions,
- Secondary and higher education establishments,
- Participation guaranteed by a Member State or an associated State.
If your organisation is subject to a financial viability check you need to provide to the Commission services for the last financial year for which the accounts are closed, the following documents:
- Balance sheets
- Profit and loss accounts and
- Statutory audit report on these financial statements -if available.
For a legal entity subject to a verification of its financial capacity requesting an estimated European Union financial contribution exceeding EUR 500.000 the audit report certifying the accounts of the last available financial year is mandatory. The requirement of an audit report applies only to the first application made by a beneficiary to an authorising officer in any one budgetary year.
How does LFV take place?
An organization willing to participate in CIP/FP7 must register on-line using the Unique Registration Facility(URF), accessible through the Participant Portal.
The legal check is carried out centrally at the Research Executive Agency by Validation Services. The legal check will focus on whether the organization is a legal entity or not. This means any natural person, or any legal person created under the national law of its place of establishment, or under Community law or international law, which has legal personality and which may, acting in its own name, exercise rights and be subject to obligations. It will aso verify what type of legal entity it is (Natural Person, Legal Person or Enterprise).
The steps for registration are as follows:
- Register your organisation using the Unique Registration Facility(URF) in the Participant Portal.
- You will receive a temporary PIC.
- You will then receive an email invitation to access NEF and generate the LFV lite, which contains instructions on how to appoint a LEAR, Request a PIC and Supply the required documentation for financial validation.
- Send details of the person nominated as the Legal Entity Approved Representative (LEAR), according to the instructions in the LFV Lite.
If your organisation is validated by the Validation Services team, the PIC becomes valid within two weeks.
Beneficiaries subject to financial validation must provide the most recent (not older than 18 months) closed financial statements (balance sheet and profit & loss accounts).
The Legal Entity Apppointed Representative (LEAR) of the beneficiary will be invited by e-mail to encode and upload the financial data and upload documents directly in URF through the Participant Portal. The appropriate tabs will be available only if this e-mail has been sent, and the submission of the requested data and documents is compulsory and blocking any other update request.
- For FP7: REA-FVC@ec.europa.eu
- For CIP: RTD-VALIDATION@ec.europa.eu
It is mandatory for the beneficiary to appoint a LEAR and forward the LEAR's contact details to the Commission. Financial Validation cannot take place until a LEAR is appointed to upload the frequired financial documentation.
The financial validation of beneficiaries which do not have closed financial statements (start-ups) is based on other documents (for example capital assets or business plan). These companies are subject to a different assessment.
Required Documentation for SMEs
Since SMEs (Small or Medium Enterprises) can claim 75% of their indirect costs, an organisation applying as an SME must provide documentation proving their SME status.
The following documentation is required:
- SME Checklist Duly signed and bearing the name of the legal representative.
- Balance Sheet Clear mention of company's total assets and liabilities (Annual Balance Sheet Threshold)
- Profit and Loss Account Clear mention of company's turnover (Annual Balance Sheet Threshold)
- Statement of Staff Headcount In case there is no mention on any of the Balance Sheet, the Profit & Loss account or accompanying note
- Business Plan In the case of start-up companies.
LFV - Visibility in NEF
The image below shows the Organisation Status screen in NEF which displays the information uploaded by the LEAR of the organisation. This information is visible by both the LEAR and the PO. The Organisation Status data will lead to one Indirect Cost Model or another.
LFV Lite is accessible by the coordinator or the beneficiaries in NEF. It provides a list of all the documents required by each participant. Documents which have already been provided are indicated by a green check mark.
Validation Status of the Participant
The validation status is visible in NEF in the Legal data screen for the relevant participant.
- If, as in the example below, the participant has been validated, the status is "Valid".
- If Validation Services decides that the participant is not acceptable, the status will be "Rejected".
Click here to view a presentation on the Registration process and the Legal and Financial Validation process
Note: This Link provides a User Guide for the Unique Registration Facility.