1. ESF Flat rate for indirect costs in the Czech Republic
Zdenek Foltyn
ESF Management Department
Ministry of Labour and Social Affairs
9 June 2009
Brussels

2. Content of the presentation
General background regarding ESF flat rate in the Czech Republic
Definition of indirect costs in CZ ESF OP’s
Outputs of the analysis of ESF OP’s
Features of CZ flat rate system

3. General background
3 ESF operational programmes in , 3 different managing authorities
Overall ESF coordination in CZ – Ministry of Labour and Social Affairs
Preparation of one common CZ proposal on indirect costs that was submitted to the EC for approval (late August 2008)
The CZ proposal was approved by EC on 8th October 2008
First calls with indirect costs in Human resources and employment OP launched in July 2008 (after agreement with Ministry of Finance)

4. Definition of indirect costs (1)
CZ decided for the option of exact definition of indirect costs
The other costs, if eligible, are direct
Reasons:
projects differ too much not possible to define a list of direct costs
open list of indirect costs disables to calculate a precise percentage of the flat rate risk that some project might be impossible to implement

5. Definition of indirect costs (2)
Basic definition
Costs that are not or cannot be unambiguously associated with a concrete activity of a given project
CZ extension of the definition
Costs that could be linked to a concrete activity, but the declaration of this link is complicated, time consuming and disproportional to the size of the expenditure
Costs added to indirect costs for regulatory reasons (e.g. publicity)

6. Definition of indirect costs (3)
Main categories of indirect costs:
Staff not directly connected with the project
Domestic travel expenses
Rent, water, fuels and energy in spaces used for the administration
Depreciations of buildings used for the project
Depreciations of equipment serving for the projects administration
Renting or operational leasing of equipment for the project administration

7. Definition of indirect costs (4)
Publicity expenditures
Costs for consumables and office materials for the administration of the project
Refreshments for project staff and target groups
Cleaning products and tools
Charges for internet, phone, fax, postal charges
Bank charges
Notarial and administrative charges
Tax and legal advice and consultation
Insurance of assets

8. Analysis of projects in 2004-2006 (1)
Sample of 79 projects from two ESF OP’s
Representative sample according to three main criteria
different measures (all measures with grants)
different size (large, medium and small projects)
different beneficiaries (NGO’s, enterprises, others)
Correlation between these three criteria and the flat rate declared was tested

9. Analysis of projects in 2004-2006 (2)

10. Conclusions of the analysis (1)
Negative correlation between the size of the projects and the percentage of the flat rate
Correlation between the flat rate and the type of beneficiary or measure was only secondary – through the size of the project
61% of the analysed projects had indirect costs above flat rates used in
In financial terms, the median of indirect cost represented 21,9 % of the project budget  more than allowed by the ESF regulation for
Almost 73 % of invoices attached to payment claims concerned the indirect cost

11. Conclusions of the analysis (2)
73 % of the effort and human resources were spent on verifications and controls of invoices that represented only 22 % of the financial allocation and did not have a clear link to the outputs and results of operations
Based on the conclusions above:
Degressive rates are applied – the higher the direct cost, the lower the percentage of the flat rate
Subcontracting over a certain limit in the project leads to reduction of the percentage of the flat rate

12. Limits of indirect costs (1)
Limits approved by the EC are as follows:
Limits used in HRE OP (for the first calls)
Direct costs minus cross financing
Flat rate (%)
Up to 5 mil CZK
20-14 %
Between CZK 5 million and 10 million
18-12 %
Above CZK 10 million
16-8 %
Direct costs minus cross financing
Flat rate (%)
Up to 4 mil CZK
18 %
Between 4 to 6 mil CZK
16 %
Between 6 to 10 mil CZK
14 %
Between 10 to 15 mil CZK
12 %
Above 15 mil CZK
10 %

13. Limits of indirect costs (2)
Reduction of flat rate as a reason of high portion of subcontracting
Proportion of purchase of services for overall direct eligible costs of project
Reduction in proportion of indirect costs announced in call
Up to 60 %
No reduction – the proportions designated by the call apply (see previous slide)
Between 60 % and 90 %
Reduction by ½ of proportion designated by the call
90 % and more
Reduction by 100 %, indirect cost are not charged

14. Practical implications
The application of the designated proportion of indirect costs is mandatory for all projects under given call – the beneficiary cannot ask for a different % of the flat rate
Any payment to the beneficiary includes the fixed percentage of indirect costs (advance payments included)
The costs included among indirect cannot be declared as the direct costs of the project
Indirect costs are not proved by any invoices and are not a subject of controls

15. Changes to direct costs
If direct cost are reduced (changed), the indirect cost must be reduced (changed) in the same manner as well in order to preserve the percentage of indirect cost
The percentage is fixed in the Decision of a grant provision and is therefore binding for the entire duration of the project implementation

16. Thank you for your attention! ESF Management Department
ESF Management Department
Ministry of Labour and Social Affairs of the Czech Republic