OPEN DAYS

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 2007-2013 programming period Laurent SENSDG 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 2007 2013: 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. Direct costs = 113 772 € 1. Personnel cost 100 763 1.1 Internal personnel – remuneration 60 895 1.2 Int. pers. - transport home/work 622 1.3 Internal personnel – travel costs 104 1.4 External personnel – remuneration 39 143 1.5 External personnel - travel costs 0 2. Participants 0 3. Product develop and consumption 13 009 3.1 Non depreciable consumption goods 9 056 3.5 Publicity 3 096 3.6 Organisation costs 857 3.7 Other costs 0 Total costs : Indirect costs = 15 191 € 3.1 Personnel costs (management) 12 000 3.4 Equipment and immovable goods 54 (depreciation) 5.1 Internal administration, accountancy, management 563 5.4 General documentation and publicity for courses and structure 906 5.5 Office supplies 856 5.8 Telephone, post, fax 20 5.9 Taxes and insurance 201 5.12 Movable material (depreciation) 109 5.13 Immovable goods 0 5.17 External accountancy costs 536 5.18 Other costs 0 128,963 € Overview of the simplified cost optionsCurrent situation:Costs fully justified (‘real costs’) 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 optionsFlat 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 = 113 772 € 1. Personnel cost 100 763 1.1 Internal personnel – remuneration 60 895 1.2 Int. pers. - transport home/work 622 1.3 Internal personnel – travel costs 104 1.4 External personnel – remuneration 39 143 1.5 External personnel - travel costs 0 2. Participants 0 3. Product develop and consumption 13 009 3.1 Non depreciable consumption goods 9 056 3.5 Publicity 3 096 3.6 Organisation costs 857 3.7 Other costs 0 Indirect costs = flat rate rule Indirect costs = 13 % of direct costs = 113 772 x 13% = 14 790 € Indirect costs (€) = 14 790 TOTAL CERTIFIED: 128,562 € Overview of the simplified cost optionsFlat 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 optionsStandard 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. 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 Overview of the simplified cost options Standard scale of unit costs Justification: Number of hours x trainees & standard scale of unit cost.

11. Overview of the simplified cost optionsLump sums • Pre-established lump sum in accordance with pre-defined terms of agreement on activities and/or results • For all orpart 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 • End of implementation: 11 additional children looked after during one year • Condition fulfilled • Payment of the lump sum grant of 38,753 EUR. • 1.1 Internal personnel – remuneration 32 000 • 1.2 Int. pers. - transport home/work 600 • 3.1 Non depreciable consumption goods 500 • 3.4 Equipment and immovable goods 347 • (depreciation) • 5.1 Administration, accountancy, management 4 520 • 5.8 Telephone, post, fax 207 • 5.9 Taxes and insurance 43 • 5.17 External accountancy costs 536 • Lump sum amounting to 38,753 EUR to look after 10 additional children during one year. Before implementation Closure of operation

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?