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European Union Cohesion Policy
Eligibility: Simplified costs The COCOF Guidance note & scope of application Laurent SENS “Train the trainers” European Commission seminar for managing and certifying authorities 17 June 2010
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Objectives of the presentation
Presentation of the COCOF working document on the simplified cost options Scope of application of the simplified costs options
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Triggering event: the amendments to the ESF/ERDF Regulations
With the amendment there are now 4 options to manage grants co-financed by Structural Funds real cost, flat rate for indirect costs (already existing for ESF but new for ERDF). 2 new options for both funds: standard scale of unit cost and lump sums The simplifed cost options only applies for grants, not to work or service contracts. With this amendment, a managing authority will have the possibility to choose between four options to manage grants co-financed by an ESF/ERDF programme: - Two options exist already: (a) all real cost, including both direct ad indirect costs , and (b) direct costs on a real cost basis, with indirect costs on a flat rate basis (new for ERDF) - and two new options for both Funds proposed by the amendment (c) flat rate costs calculated using standard scales of unit cost, (d) lump sums.
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Drafting the COCOF guidance note
a single document including all the options and all the management and audit issues. Based on: Information note to the Council with additional details and ESF ‘acquis’ Discussions during the ESF Technical Working Group, COCOF Technical Meetings, COCOF meetings Discussions with the national audit authorities and the European Court of Auditors
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Structure of the Guidance note
5 parts + annex: INTRODUCTION CHAPTER 1: Indirect costs declared on a flat rate basis CHAPTER 2: Flat rate costs calculated by application of standard scales of unit costs CHAPTER 3: Lump sums CHAPTER 4: Common horizontal provisions ANNEX: Legal bases
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The Guidance note: Introduction
Origin of the options Purpose of the working document Need for an audit approach Link to national eligibility rules Restriction to grants An important simplification introduced in the ESF Regulation allowed the Member States to declare indirect costs (overheads) on a flat rate basis, up to 20% of direct costs of an operation. The simplification of charging flat rates for indirect costs was welcomed by all stakeholders, including the European Court of Auditors. The European Court of Auditors has suggested that the majority of errors found in structural actions expenditure are partly due to the complexity of the legal and implementing framework. For this reason it recommended in its annual report for 2007 to simplify "the basis of calculation of eligible cost and making greater use of lump sum or flat rate payments instead of reimbursement of 'real costs". The Financial Regulation applicable to the general budget of the European Communities and its implementing rules already allowed such approach for direct management expenditure.
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Restricted to grants! Simplified cost options apply only to grants: If the operation or project is subject to public procurement, no possibility to use the simplified cost options. Why? : In the case of public procurement payment is made on the basis of a fixed price included in the contract (that could already include standard scales of unit costs). Operation = project … or group of projects! where the simplified cost options are applicable to the operation, determine if it can be applied to all projects of the operation.
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The Guidance note: I- Flat rate rule for indirect costs
Implemented by ESF OPs since the beginning of the programming period: no change (‘ESF acquis’). Copy paste of the existing ESF note (except audit part). 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 For the ESF the amendment does not change in any way the provisions on and implementation of the flat rate for indirect cost rule as adopted in 2006, which has, since then, been discussed in great detail with Member States. The rule enables indirect costs to be reimbursed without supporting documents or calculations, based on a pre-agreed proportion paid direct costs. The Managing Authority establishes the rate which can be applied. Beneficiaries and national or EU authorities are in those cases no longer required to analyse, register and archive the underlying documents regarding indirect costs. In case of audit, detailed financial supporting documents will be required only for direct costs. The justification of the rate itself may also be audited, once for all the comparable operations using this rate.
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The Guidance note: II- The standard scales of unit costs / III- Lump sums
Same structure for this chapter and the one on lump sums. General principles Consequences in terms of financial management Key points for the managing authority: calculation, correlation quantities / payments, justification of quantities, choice of the standard scale Audit approach
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The Guidance note: IV - Common horizontal provisions
Calculation General audit approach Retrospective entry into force Combination of options Impact on certification of expenditure Cross financing Compatibility with state aid rules
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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 Never forget the purpose of these cost options that is to simplify the management of the Funds and via this simplification to reduce the error rate. It has been shown that a large proportion of the supporting documents inspected by controllers and auditors are needed to justify a minor part of expenditure. This means that a great deal of the human resources and administrative effort involved in the management of the structural funds is absorbed in accumulating and verifying documents, rather than focusing on the achievement of policy objectives. It is expected that the application of these provisions will lighten the administrative burden on beneficiaries and management bodies and will contribute both to a more efficient and correct use of funds. When defining their systems, or selecting one rule rather than another one the national authorities should keep that in mind. The simplified cost options are an occasion for all the stakeholders to reduce the administrative workload and the number of supporting documents required to justify the expenditure – even if there are still supporting documents required. It is a unique occasion to improve the efficiency of the management by concentrating human resources on the outputs and on the main expenditure related to operations. However as all the new concepts these options will have implications for the management and control of the structural funds : all actors involved will have to adapt their working methods and practices in order to achieve the positive effects of simplification without compromising the legality and regularity of expenditure. That’s the reason why the national authorities fully understand how to implement the three cost options and their consequences.
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THANK YOU FOR YOUR ATTENTION!
QUESTIONS?
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Simplified cost options: restricted to grants
Explain Point 4. of the introduction of the working document on simplified cost options In order to clarify when these options are applicable or not Based on examples, from the simplest one to more complex examples. This slideshow has to be considered as a whole given it will start by simple cases to go towards more complex ones. 13
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Operation? Operation = project Beneficiary
An operation is a project or … 14
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Operation? Operation = project … or group of projects Beneficiary (ies) … group of projects selected by the managing authority implemented by one or more beneficiaries. However given the variation of what is considered as an operation or a project it is necessary to give some guidance on how to determine the exact scope of use of the simplified costs options. Variation of what is considered as an operation or a project 15
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Are simplified cost options applicable to the operation to be supported?
Start with the simplest case = the operation includes only one project. Before applying the simplified cost options a basic question has to be answered: are they applicable to the supported operation? In fact he simplified costs options concern only operations and projects implemented in the form of grants, for which otherwise the real costs principle is usually applied i.e. all declared expenditure is justified by paid invoices and other accounting documents of equivalent probative value. Therefore, simplified cost options are not available to operations or projects subject to public procurement contracts Given the variation of what is considered as an operation or a project it is necessary to give some guidance on how to determine the exact scope of use of the simplified costs options. This slideshow starts with the simplest cases of operations to go to more complex one. 16
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Point 4. Is the operation subject to public procurement contract?
Working Document: Point 4. Is the operation subject to public procurement contract? By operations "subject to public procurement contracts" the Commission aims at designating the operations implemented through the award of public contracts in accordance with Directive 2004/18 (including its annexes) or public contracts below the thresholds of the same Directive. 17
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Simplified Cost Options not applicable
Working Document: Point 4. Is the operation subject to public procurement contract? YES Simplified Cost Options not applicable 18
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Point 4. Is the operation subject to public procurement contract? NO
Operation = 1 project Working Document: Point 4. Is the operation subject to public procurement contract? NO Training Beneficiary Working Document: Point 4.1. Is the project subject to public procurement contract? In the case where the simplified cost options are applicable to the operation, one has to determine if it can be applied to all parts of the operation. This depends on the nature of what is considered as an operation by the Member States. In some Member States an operation consists of and is implemented through a group of projects (the definition depends on the set-up of the operational programmes, supported by the Funds under their respective scope of assistance). In order to assess in which projects of the operation the simplified costs options can be applied, it is necessary to define the projects constituting the operation at the lowest possible scale. In this case the operation is a constituted by a single project. 19
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Simplified Cost Options not applicable
Training Operation = 1 project Working Document: Point 4. Is the operation subject to public procurement contract? NO Beneficiary Working Document: Point 4.1. Is the project subject to public procurement contract? YES If the beneficiary outsources the implementation of some of the project, in its entirety, via public procurement contracts (training, seminar, personalised support), the simplified cost options cannot be applied to this project subject to public procurement contract. Simplified Cost Options not applicable 20
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Simplified Cost Options applicable
Training Operation = 1 project Working Document: Point 4. Is the operation subject to public procurement contract? NO Beneficiary Working Document: Point 4.1. Is the project subject to public procurement contract? NO If the beneficiary does not outsource the implementation of some of the project, in its entirety, via public procurement contracts (training, seminar, personalised support), the simplified cost options can be applied. Simplified Cost Options applicable 21
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Case 1: all projects implemented on the same basis
Are simplified cost options applicable to the operation to be supported? But some operations include more than one project… operation = group of projects Case 1: all projects implemented on the same basis 22
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Operation = group of projects
Training Training Training Training Training Training Training Training Training Training Training Beneficiary(ies) 23
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Operation = group of projects
Working Document: Point 4. Is the operation subject to public procurement contract? NO Operation = group of projects Training Beneficiary(ies) Working Document: Point 4.1 Are the projects subject to public procurement contracts? In the case where the simplified cost options are applicable to the operation, one has to determine if it can be applied to all parts of the operation. This depends on the nature of what is considered as an operation by the Member States. In this example the operation is implemented through a group of projects. In order to assess in which projects of the operation the simplified costs options can be applied, it is necessary to define the projects constituting the operation at the lowest possible scale. 24
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Point 4. Is the operation subject to public procurement contract? NO
Working Document: Point 4. Is the operation subject to public procurement contract? NO Operation = group of projects Training Beneficiary(ies) Working Document: Point 4.1 Are the projects subject to public procurement contracts? YES If the beneficiary outsources the implementation of the projects, in their entirety, via public procurement contracts the simplified cost options cannot be applied to these projects subject to public procurement contracts. Simplified Cost Options not applicable 25
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Point 4. Is the operation subject to public procurement contract? NO
Working Document: Point 4. Is the operation subject to public procurement contract? NO Operation = group of projects Training Beneficiary(ies) Working Document: Point 4.1 Are the projects subject to public procurement contracts? NO If the beneficiary does not outsource the implementation of the projects, in their entirety, via public procurement contracts the simplified cost options can be applied to these projects. Simplified Cost Options applicable 26
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Case 2: projects implemented on different bases
Are simplified cost options applicable to the operation to be supported? But some operations include more than one project… operation = group of projects Case 2: projects implemented on different bases 27
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Operation = group of projects
Working Document: Point 4. Is the operation subject to public procurement contract? NO Operation = group of projects Management costs Training Personalised support Personalised support Personalised support Beneficiary(ies) Working Document: Point 4.1. Are the projects subject to public procurement contracts? In the case where the simplified cost options are applicable to the operation, one has to determine if it can be applied to all parts of the operation. This depends on the nature of what is considered as an operation by the Member States. In this example the operation is implemented through a group of projects. In order to assess in which projects of the operation the simplified costs options can be applied, it is necessary to define the projects constituting the operation at the lowest possible scale. 28
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Operation = group of projects
Working Document: Point 4. Is the operation subject to public procurement contract? NO Operation = group of projects Management costs Training Personalised support Personalised support Personalised support If the beneficiary outsources the implementation of some of the projects, in their entirety, via public procurement contracts (training, seminar, personalised support, etc see example 1 below), the simplified cost options cannot be applied to these projects subject to public procurement contracts. Working Document: Point 4.1. Are the projects subject to public procurement contracts? NO YES 29
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Point 4. Is the operation subject to public procurement contract? NO
Working Document: Point 4. Is the operation subject to public procurement contract? NO Operation = group of projects Management costs Training Personalised support Personalised support Personalised support If the beneficiary outsources the implementation of some of the projects, in their entirety, via public procurement contracts (training, seminar, personalised support, etc see example 1 below), the simplified cost options cannot be applied to these projects subject to public procurement contracts. Working Document: Point 4.1 Are the projects subject to public procurement contracts? NO Simplified Cost Options applicable YES Simplified Cost Options not applicable 30
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Simplified Cost Options applicable
Working Document: Point 4. Is the operation subject to public procurement contract? NO Point 4.2 Simplified Cost Options applicable Point 4.1. Are the projects subject to public procurement contracts? NO The beneficiary implements itself the project: the simplified costs options are applicable, even if some of the budget lines or expenditure items within the project are outsourced. ! Assess impact of outsourcing on flat rate for indirect costs. Detailed Budget Internal personnel costs External personnel costs Transport home/work Travel costs Rental costs Purchase of consumables Telephone, fax, postal costs Water and electricity Publicity Depreciation of equipments Cleaning services … Personalised support If the beneficiary implements itself a project (keeping full control on the management and implementation of the project), the simplified costs options are applicable, even if some of the budget lines or expenditure items within the project (part of the project execution like cleaning services, external expertise, purchase of furniture, etc) are outsourced. In the case of flat rate for the indirect costs it should be taken into account that the extent of outsourcing by the beneficiary can have an impact on the proportion of indirect costs. Therefore, Member States should assess the impact that the extent of outsourcing within operations has on the proportion of indirect costs and hence the flat rate. Mitigating measures should be introduced in the methodology. If the extent of outsourced activities has a significant effect on the proportion of indirect costs, the flat rate should either be reduced proportionally to the extent of outsourcing or the flat rate should be applied only to those costs which are not outsourced. However, it may also be that the extent of outsourcing has no effect on the proportion of indirect costs or that this effect is insignificant. In this case no mitigating measures might be needed. The effect of outsourcing should however be analysed (for example on the basis of similar past measures or the previous projects) and should be taken into account when establishing a methodology for the application of the flat rate. 31
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