1 The simplified cost options: Flat rate for indirect costs, standard scale of unit costs and lump sums OPEN DAYS Workshop 06D06 – Simplification of Cohesion Policy regulations: the programming period Laurent SENS DG Employment, Social Affairs and Equal Opportunities Brussels, 6 October 2009

2 OBJECTIVES OF THE PRESENTATION Present the three simplified cost options and their origin Build a common understanding on these options Provide a few guidance on how to implement and audit them

3 The origin of the simplified cost options ESF Regulation : possibility to declare indirect costs on a flat rate basis Majority of errors found by ECA in structural actions expenditure due to the complexity of the rules  ECA 2007 annual report: making a greater use of ‘lump sum’ or ‘flat rate’ payments instead of ‘real costs’ Options already exist in the Financial Regulation November 2008, European Economic Recovery Plan: accelerate the implementation of structural funds. Proposal extended to ERDF => Same provisions for ERDF and ESF

4 Why the ESF initially ? Why is it a simplification? ESF supports the development of human resources immaterial expenditure mainly financed through grants Justification of expenditure based on the accounts: Many different types of costs and a large proportion of the supporting documents needed to justify a minor part of expenditure (a lot of small amount expenses) Equitable allocation of indirect costs Many small operations / small beneficiaries with limited financial management capacities Archiving supporting documents during many years Risk of financial corrections only due to mistakes

5 The amendments to the ESF/ERDF Regulations Not applicable to work or service contracts established following a public tender! With the amendment there are now 4 options to manage grants co-financed by Structural Funds –real cost, –flat rate for indirect costs (new for ERDF, but already existing for ESF). 2 new options for both funds: –standard scale of unit cost and –lump sums

6 Overview of the simplified cost options Current situation: Costs fully justified (‘real costs’) Direct costs = € 1. Personnel cost Internal personnel – remuneration Int. pers. - transport home/work Internal personnel – travel costs External personnel – remuneration External personnel - travel costs 0 2. Participants 0 3. Product develop and consumption Non depreciable consumption goods Publicity Organisation costs Other costs 0 Total costs : Indirect costs = € 3.1 Personnel costs (management) Equipment and immovable goods 54 (depreciation) 5.1 Internal administration, accountancy, management General documentation and publicity for courses and structure Office supplies Telephone, post, fax Taxes and insurance Movable material (depreciation) Immovable goods External accountancy costs Other costs 0 128,963 € Training, with a number of 21,400 hours x trainees realised (sum of hours of training undergone by every trainee) Justification: Each Euro & number of hours x trainees.

7 Overview of the simplified cost options Flat rate rule for indirect costs Indirect costs reimbursed on a flat rate basis, as percentage of paid direct costs Rate and definition of direct costs to be established ex ante, i.e. agreed before or in the grant agreement No supporting documents for indirect costs required any more  Audit: –Detailed supporting documents only for direct costs –Justification of the rate applied

8 Direct costs = € 1. Personnel cost Internal personnel – remuneration Int. pers. - transport home/work Internal personnel – travel costs External personnel – remuneration External personnel - travel costs 0 2. Participants 0 3. Product develop and consumption Non depreciable consumption goods Publicity Organisation costs Other costs 0 Indirect costs = flat rate rule Indirect costs = 13 % of direct costs = x 13% = €  Indirect costs (€) = TOTAL CERTIFIED: 128,562 € Overview of the simplified cost options Flat rate rule for indirect costs Training, with 21,400 hours x trainees realised Justification: Each Euro of direct costs & number of hours x trainees & rate

9 Overview of the simplified cost options Standard scale of unit costs Payment based on quantified activities, outputs, or outcomes multiplied by standards scale of unit costs May comprise all or part of the operation (unit cost for training, for follow up, per diem allowances for trainees,…)  Audit: not the actual costs will be audited, but: –Justify quantities –Justify the cost and the choice of the standard scale of unit

10 Overview of the simplified cost options Standard scale of unit costs Training, with 21,400 hours x trainees realised. For this type of training, the standard scale of unit defined by the national authorities is: €6 / hour x trainee => The grant paid will be: €6 x 21,400 = € 128,400 Justification: Number of hours x trainees & standard scale of unit cost.

11 Overview of the simplified cost options Lump sums Pre-established lump sum in accordance with pre-defined terms of agreement on activities and/or results For all or part of the costs of the operation For small operations or small bodies (capping), but not exclusively. Well adapted also when no quantifiable outputs exist to apply unit costs  Audit: not the actual costs, but: –Justify that the objectives were reached –Justify the ex ante calculation of the lump sum

12 An example of lump sum: new activity for a NGO managing a ‘crêche’ (childcare) 1.Draft detailed budget to calculate ex ante the amount of the lump sum 1.1 Internal personnel – remuneration Int. pers. - transport home/work Non depreciable consumption goods Equipment and immovable goods 347 (depreciation) 5.1 Administration, accountancy, management Telephone, post, fax Taxes and insurance External accountancy costs Lump sum amounting to 38,753 EUR to look after 10 additional children during one year. Before implementationClosure of operation 3.End of implementation: 11 additional children looked after during one year  Condition fulfilled  Payment of the lump sum grant of 38,753 EUR.

13 Calculation of flat rate for indirect costs, standard scales of unit costs and lump sums No method defined by the Regulation but conditions that the methods will have to fulfil. MSs will define the method. 4 conditions to be respected: key issues for sound financial management –Established in advance –Fair –Equitable –Verifiable

14 Calculation of flat rate for indirect costs, standard scales of unit costs and lump sums: a few examples By type of operations: Analysis of historical data: survey, statistical analysis, dedicated study, … Similar scales already used by national/regional authorities (daily allowances for example) Market prices, … Operation by operation: On the basis of draft budgets with real costs and + comparison to similar operations

15 Don’t forget … An important step towards simplification National authorities have 4 possible options for grants. No choice = use of ‘real cost’ principle Choice to do => fully understand the three simplified cost options and their consequences

16 THANK YOU FOR YOUR ATTENTION QUESTIONS?