ARTICLE 1: - emits - ESA

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ESA/REG/001, rev.2 Annex I,rev.1 Page 6 Article 1.2 Cost reimbursement / Ceiling Price to be converted into a fixed price The aim of a cost reimbursement audit is to ensure that the costs to be recovered by means of the application of rates are both reasonable and allowable, in accordance with the principles set forth in Annex 1 as amended by subsequent revision(s) of the General Clauses and Conditions for ESA Contracts (GCC). Such audits will allow, in particular, understanding and verifying the costs which are allocated through manpower and internal facility rates via a time recording system, the indirect charges as well as other direct costs (purchases) which are directly charged to the contract by means of an invoice. Furthermore, all charges must be assessed to be in pursuit of the contract’s performance and deemed to be reasonable in both cost and volume, be they direct costs or manpower hours charged at the agreed rates. Article 1.3 Co-funding The aim of the co-funding contracts audit process is similar to that for cost reimbursement contracts. An additional and important factor is to clearly establish that the company own-funded part, typically 50% or 25% of the total cost, can be verified based on the rules approved by the Member States for the co-funding contracts. Article 1.4 Financial viability The aim of a financial viability audit is to protect the Agency against placing contracts with companies facing potential insolvency that may not be able to deliver on their part of the contract due to financial constraints. Article 2 Audit Methodology Article 2.1 Yearly audit plan The ESA Industrial Auditing and Contracts Controlling Division establishes a yearly audit plan with a description of the companies to be audited and a target audit date. For industries located in Member States having National Audit Authorities the plan will be established in coordination with the national authorities (where relevant). The audit plan includes rate audits, cost reimbursement audits, and co-funding audits and is approved by the Head of the Procurement Department. Once a company is included in the yearly audit plan, within the context of Procurement Regulation 10.8, the audit is considered firmly planned and shall be conducted as scheduled. The IPC will be informed on a regular basis of the execution of the audit plan, including possible updates.
ESA/REG/001, rev.2 Annex I,rev.1 Page 7 Article 2.2. Audit Announcement and data to be provided by audited companies Once included in the audit plan, the audit is announced to the company by letter. In this letter the company is requested to provide the relevant ESA auditor with the information and supporting documents required, in view of the scope of the audit. Annex A of this Implementing Instruction contains a non-exhaustive list of documents requested prior to the conduct of the audit usually readily available from the company’s accounting and cost control systems. Article 2.3 Audit steps The following steps will be performed by the ESA auditor when conducting a cost audit with the collaboration of the audited companies. Article 2.3.1 Rates Audit 1.1. Profit & Loss reconciliation to the total cost and the establishment of the total cost base to be recovered via the hourly rate. 1.2. Determination of sellable/ non sellable cost centre structure (direct/indirect). 1.3. Identification of total hours base per cost centre. 1.4. Identification of mechanism for allocating overheads to cost centres. 1.5. Verification of allowability of cost included in the total cost base in accordance with the principles set forth in Annex 1 (currently under review) of the GCC. 1.6. Evaluation of productivity (ratio of sellable hours to total hours) per cost centre and evaluation of indirect charges per cost centre. 1.7. Negotiation and establishment of rates for the current year. 1.8. Establishment of the forward-looking rates for the next two years in accordance with the principles set forth in article 3 of this Implementing Instruction. Article 2.3.2 Audit of contracts based on cost reimbursement, co-funding and ceiling price to be converted into fixed prices 1.1. Identification of elements charged to the Contract (hours, materials, etc). 1.2. Verification of the correct application of ESA-audited rates. 1.3. Identification and verification of the audit sample.
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ARTICLE 1: - emits - ESA

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