Behind the Audit Files — Part 2

When 39% of Project Costs Were Questioned

Alhamdulillah, the audit was finally completed.

This audit was conducted by external auditors appointed by the European Union (EU), the institution funding the project.

One month after the Leading Partner submitted the technical report, financial report, and external verification report to the EU, the auditors arrived to review the project once again. Their task was serious: to examine how project funds had been used from 2010 until 2014.

At the opening meeting, the auditors requested a long list of supporting documents:

• employment contracts,
• salary slips,
• timesheets,
• workshop attendance lists,
• meeting reports,
• invoices,
• bank statements,
• and many others.

In simple words, they wanted to ensure that every amount claimed by the project could be traced back to proper evidence and fully aligned with the agreement between the EU and the Leading Partner.

As audit expert J.P. Russell once explained:

“Audit criteria are the standards, procedures, or regulations against which an organization is evaluated.”

And in projects funded by grants, documentation becomes everything.

When the Audit Suddenly Stopped

From 22 October until 5 November 2014, the audit process was temporarily suspended.

Why?

Because the auditors found that approximately 37% of the Leading Partner’s expenditures contained issues or errors requiring further clarification.

The auditors then submitted a summary of findings and asked the Leading Partner to locate missing supporting documents, especially partner expense records and payroll documentation.

For one month, everyone searched for files, confirmations, signatures, explanations, and supporting evidence.

The auditors later returned from 1–4 December 2014 to continue the review. They clearly stated:

3 December would be the final deadline for submitting additional documents.

On 5 December, the auditors officially delivered their findings.

The report included:

• financial issues and their impact,
• budget and expenditure summaries,
• internal control weaknesses,
• and compliance concerns related to project management.

The Most Shocking Part

Two months later, on 13 February 2015, the auditors sent a draft financial findings report totaling 55 pages.

The result shocked both the Leading Partner and the Implementing Partners.

Almost 39% of the claimed costs were considered ineligible.

And this is the difficult reality of grant-funded projects:
even after a project officially ends, the work is sometimes not truly over.

A new phase begins:
the phase of responding, clarifying, correcting, and defending the reported costs.

Because the money had already been spent during project implementation.

What Did the Auditors Actually Want to Prove?

The auditors focused on two main questions:

1. Were the reported expenses and project income consistent with the agreement between the EU and the Leading Partner?
2. Were the project funds used according to the contractual rules and approved project purposes?

From these questions came many detailed findings.

Some related to:

• salary structures,
• currency exchange calculations,
• incomplete documentation,
• administrative adjustments,
• and unreported project income.

Other findings related to internal controls and compliance gaps.

For example:

• missing partner contribution reports,
• incomplete payroll evidence,
• or insufficient supporting documentation.

Different Systems, Different Problems

One interesting lesson was that each project partner had its own payroll system and organizational culture.

The auditors repeatedly questioned what they considered “double salary” situations.

In some organizations, project staff were permanent employees while also working partially on the grant-funded project.

To the auditors, this raised concerns.

But from the partners’ perspective, the reality was often more complex.

One partner explained that several staff members had later left the organization and formed a new consulting entity. They continued supporting the project externally, meaning they were no longer permanent employees.

This changed how salaries, taxes, and benefits were handled.

But proving this to auditors required more than explanation.

It required evidence.

And in audits, evidence always speaks louder than assumptions.