1. 1 Flat-rates for indirect costs Ex-ante assessment by DG Employment, Social affairs and Equal Opportunities and DG Regional Policy Myrto Zorbala- DG Regional Policy- Unit D1-Coordination Train the trainers European Commission seminar for managing and certifying authorities 17 June 2010

2. 2 Outline of the presentation 1. Why an ex-ante assessment? 2. How to present a flat-rate proposal?

3. 3 1. Why an ex-ante assessment for flat-rates? (i) It contributes to a common approach within the different ERDF & ESF programmes. For indirect costs, subsequent audits limited only to: - elements of the method not already assessed by DG EMPL or REGIO; - the correct application of the rate to the eligible direct costs of the operation; - no audit for supporting financial documents.

4. 4 1.Why an ex-ante assessment? Is the ex-ante assessment mandatory? (ii) There is no legal requirement for a mandatory ex-ante assessment; The ex-ante assessment is a « service » provided by the Commission to the national authorities; 22 flat rates proposals approved (20 ESF, 2 ERDF). Flat-rates methods can be applied without any ex-ante approval; in this case, Commission audits can cover both the method of calculation of the rate, its correct application and the underlying transactions.

5. 5 2. How to present a flat-rate proposal 2.1. Preliminary considerations 2.2. The scope of the flat-rate proposal 2.3. Definition of the rate 2.4. Definition of direct and/or indirect costs 4.5. Fair, equitable & verifiable calculation

6. 6 2. How to present a flat-rate proposal 2.1. Preliminary considerations (i) A flat-rate proposal necessitates preparatory work for the managing authority. Therefore, from the very beginning: Make sure that the national legal and administrative framework permits the use of flat-rates for the calculation of indirect costs; Seek the audit authoritys opinion (recommended for ERDF).

7. 7 2. How to present a flat-rate proposal 2.1. Preliminary considerations (ii) Main objective: Simplification for both managing authorities and beneficiaries! If the flat-rate is appropriate for the operations of the programme (e.g. low cost operations, labour intensive, trainings, recurring operations, R+D, SMEs, urban interventions, development of endogenous potential); Flat-rate is not always appropriate for projects implemented mainly through public procurement; A « critical mass » of projects to which the application of the flat- rate method would be appropriate and can apply is preferable.

8. 8 2.How to present a flat-rate proposal 2.1. Preliminary considerations (iii) It should also be considered (at regional or national level) if the proposal should cover: - One or more programmes (Convergence, RCE, ETC); - Given categories for operations or all operations of the programme; - One or more rates or method of establishment of the rate on a case- by-case basis. For simplification purposes, the Commission suggested common methods at national level.

9. 9 2.How to present a flat-rate proposal 2.1. Preliminary considerations (iv) The entry into force of the flat-rate avoid retroactive application; Application of the flat-rate to ongoing operations clearly define stages; Revert from flat-rates to real costs and vice versa not excluded but not recommended; if decided: close monitoring of individual operations + limited only in cases where this is absolutely necessary and the beneficiary is informed at an early stage + ensure equal treatment and transparency;

10. 10 2. How to present a flat-rate proposal 2.2. The scope (i) Only to operations or projects that generate indirect costs (eg. projects limited only to simple acquisitions, in principle, do not generate indirect costs); To operations or projects implemented through grants; For transfers from the managing authority or the intermediate body to a beneficiary in the form of State aid applicable EU and national legislation, aid ceiling and the eligible costs.

11. 11 2. How to present a flat-rate proposal 2.3. The definition of the rate- Method Two possibilities: Either the proposal defines a rate (or rates) or the proposal defines a method for the calculation of the rate on a case-by- case basis. Method: historical data- market studies Representative sample. So far, the proposals received in DG REGIO and most of the ones received by EMPL are based on historical data. « Historical data »: Not only data based on EU supported projects in the previous period; projects without EU contribution can be used, provided that they refer to operations or projects similar to the ones to which the flat-rate will apply.

12. 12 2. How to present a flat-rate proposal 2.4. The definition of direct and/or indirect costs No EU definitions of « direct » and « indirect » costs common approach. Minimun requirements: (i) eligible costs; (ii) stable reference (e.g. national eligibility rules certainty, transparency) (iii) clear definition ( certainty) (iv) limited list of costs ( no double co-finance); (v) avoid codes « other » ( confusion)..

13. 13 2. How to present a flat-rate proposal- 2.5. Ex-ante, fair, equitable & verifiable calculation (i) Definition of the rate (fair + simple): (i) Non -profit principle: no cost inflation; no systematic over- compensation. (ii) Project-based approach do not consider « indirect costs » of the beneficiary, which are not linked to the project. (iii) Average values If few projects of very high or very low value significantly distort the average, they might not be considered for the calculation of the rate; (iv) For outsourcing assess the impact & mitigating measures (e.g. degressive rate) if necessary.

14. 14 2. How to present a flat-rate proposal- 2.5. Ex-ante, fair, equitable & verifiable calculation (ii) Ex-ante, equitable and verifiable: The proposals presented so far seem to comply with these requirements. Ex-ante: At the latest, in the decision granting the assistance. In case of call for proposals, the rate / the method to calculate it should be indicated in the public call. Fair, Equitable: same/different rates between beneficiaries or actions have to be justified by objective features. Verifiable: Not only document retention but also explanation of the method.

15. 15 Thank you!