Operational conclusions of the 14th annual meeting of the EU-UN FAFA WORKING GROUP. Rrussels, 19 October 2018

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Ref. Ares(2018)6599119-20/12/2018 Operational conclusions of the 14th annual meeting of the EU-UN FAFA WORKING GROUP Rrussels, 19 October 2018 1.

1 Ref. Ares(2018) /12/2018 Operational conclusions of the 14th annual meeting of the EU-UN FAFA WORKING GROUP Rrussels, 19 October Welcome, introduction, overview of EU-UN relations within the current development landscape The 14th annual meeting was hosted by the European Commission in Brussels, followed by a ceremony for the 15th anniversary of the FAFA. It was co-chaired by Ms Marjeta Jager (Commission, Deputy Director-General, Directorate General for International Cooperation and Development - DEVCO) and Mr Pedro Antonio Guazo Alonso (UN Deputy Controller). Introductory remarks were also delivered by Mr Luc Bagur, Director for Resources in DEVCO, who took over from Ms Jager after point Cooperation between EU and UN 2.1 Reform of the UN Development System Mr Guazo presented the three pillars of the ongoing reform of the UN, focussing on the repositioning of the Development System. The Resident Coordinators System will be delinked from UNDP and will coordinate the United Nations Development Assistance Framework (UNDAF). It was also clarified that Resident Coordinators Offices will be made up of at least 5 staff. However, each UN agency will mobilise and implement on their own behalf, as the Resident Coordinators will not have resource mobilisation nor implementation capacity, they will act as advisors for the system, replacing part of the coordination work that is currently being carried out by UNDP at country level and increasing the coherence and consistency of the system. 2.2 Status of implementation of commitments taken at the 13th FAFA Working Group Meeting. The Working Group was briefed on the implementation of the 7 action points agreed in Some of those points will require more work on both sides and complementary expected outcome are outlined below. 2.3 Statistics on EU-UN cooperation DG BUDG (Mr Magnusson) presented statistics on the cooperation between the EU and the UN. The increase in the bulk of EU contribution channelled through the UN System since 1999 was shown, with a record high 3.6 BLN EUR committed in The increase in recent years would be largely attributed to the refugee crises in the EU neighbourhoods. 2.4 Adaptation of the EU-UN FAFA: main changes and interpretative guidance

A joint presentation by DG DEVCO (Ms Bartelt) and the UN/OLA (Mr Poženel) on the adaptation of the EU-UN FAFA highlighted the reasons for the adaptation (changes in the EU regulatory and policy

While most of the novelties were to be addressed in-depth in specific sections of the meeting, this presentation gave an overview of the main items, such as the clarifications of signatory parties,

2 A joint presentation by DG DEVCO (Ms Bartelt) and the UN/OLA (Mr Poženel) on the adaptation of the EU-UN FAFA highlighted the reasons for the adaptation (changes in the EU regulatory and policy framework which occurred since the 2014 addendum) and the main areas of intervention. It was clarified that this was not meant to be a full-fledged revision. While most of the novelties were to be addressed in-depth in specific sections of the meeting, this presentation gave an overview of the main items, such as the clarifications of signatory parties, the possibility to carry out joint evaluations and monitoring, the introduction of a consultation mechanism for the prompt resolution of implementation issues. A point was made on the indirect costs (called also remuneration ), where both sides reaffirmed the applicability of Article 4.1, although acknowledging that guidance was needed on how to set the actual percentage of indirect costs going up to 7% of total eligible direct costs. This guidance, to be further elaborated by the EC and the UN, would help to identify parameters which would potentially allow flexibility in respect of the indirect support cost rates (e.g. in the context of large scale cash transfer programmes) but should not lead to negotiation on a case-by-case basis by EU delegations. It is to be noted that eventual reduction of the percentage of the indirect costs might be subject to prior approval by UN entity s governing body. 2.5 EU Restrictive Measures DG NEAR (Mr Komninos) explained the nature and rationale behind the need to ensure the respect for EU restrictive measures. The UN (Mr Poženel) explained that while the UN is not subject to the EU restrictive measures, the UN can respect donor s wishes regarding the purpose for which funds were provided and will cooperate with the Commission in assessing whether third parties selected by the UN to be recipients of EU funds would fall within the EU restrictive measures. The Working Group welcomed the compromise reached after lengthy negotiations. The newly agreed clause will be inserted into the FAFA adaptation. Until the latter enters into force, the clause will be inserted it in signed-to-be contracts under Article 7 of the special conditions and internal Commission instructions to EU Delegations would be drafted to that effect. It will be for each UN Organisation to decide how to operationalize this clause. It was recalled that the EU restrictive measures shall not impede the effective delivery of humanitarian assistance to persons in need in accordance with the humanitarian principles and relevant provisions of International Humanitarian Law and that the exceptions provided in the EU legislation will apply. The scope of the exceptions will be further clarified in a side letter. 2.6 Cross-reliance on audit The possibility to rely on the organisation s audit, provided by the EU Financial Regulation 2018, was explained during a joint session (Mr Rommen from DG DEVCO and Mr Watson from ILO representing UN-RIAS & UN-RIS), showing the scope of assurance needed by the Commission. A dialogue was opened with UN-RIAS in May 2018 in order to explore this avenue, which is of great interest in view of the possibility to reduce the number of verifications carried out by the Commission. This approach will

the funds spent under its responsibility.

3 be further followed up. UN-RIS delivered a presentation on its structure and purpose within the UN system s investigation services. 2.7 Verifications In its presentation, DG DEVCO (Mr Rommen) focussed on the purpose of verifications, which is compliance with the Commission's obligation to be accountable with regard to the use of the funds spent under its responsibility. The main thrust of the proposed changes in the FAFA related to verifications was explained: relevant provisions contained in the current annex will be moved to the main text. Concerning sampling, Mr Rommen indicated that the EC proposes the notion of processes and sampling limitations in absolute number be replaced by a reference to a statistically representative sample of transactions proportionate to the reported expenditure and that when opting for result-based financing, verifications will not target costs. The UN representatives agreed that an internal review of the proposed text would be initiated at short notice, particularly in light of the restrictions imposed by the single audit principle. Discussions between the Commission and the UN (including representatives of UNRIAS/UNRIS) will continue after the meeting. Terms of Reference for verification missions will be proposed by the EC following the adaptation of the FAFA. 2.8 Enhanced consultation process To improve the consistent interpretation and application of the ЕС-UN contractual framework, the Working Group agreed to develop a system for escalation of issues within the EC and UN. 3 New regulatory framework EU Financial Regulation and new contribution agreement templates The Commission/DG DEVCO (Ms Bartelt) gave a presentation on the new EU Financial Regulation and contribution agreemènt template. The first caters for extended reliance on partner's procedures through various means, which entails a simplification at the contractual level. It was recalled that the contribution agreement template is a corporate Commission template, which will be used with all implementing partners. The Financial Regulation 2018 introduced the possibility to use the same template for pillarassessed entities regardless of the management mode and nature of the action. To mention a few relevant novelties: the deadline to conclude the second-level contracts (D+3) will no longer apply; provisions on tax avoidance, tax fraud and tax evasion have been introduced; the EUR ceiling for the authorisation to use simplified cost options has been deleted; and performance-based financing appears as a new option in addition to the existing methods, i.e. actual costs and simplified cost options. Points deserving clarification will be addressed in the Manual that will accompany the template. Aside, the specificities relating to the ЕС-UN contractual framework which might not be appropriate to feature in the manual will be addressed in other form (side/interpretative letters, Frequently Asked Questions & Answers) easily available to

4 both sides and developed through joint task forces (e.g. Joint Reference Group could be used to that purpose). During the debate that follows, DG ECHO informed about its intention to revise the current IMDA (Indirect Management Delegation Agreement) building on new contractual template. 3.2 New/revised pillar assessments The Commission/DG DEVCO (Mr Rommen) gave a presentation on upcoming changes related to pillar assessments, reassuring that pillar assessments carried out in the past remain valid. Revised terms of reference are in preparation which will include pillars on publication of beneficiaries, data protection and exclusion from financing. The revised methodology is expected to be available for interested partner organisations early in The Commission will seek close coordination with all partner organisations concerned in order to come up with a realistic time-frame for updates of pillar assessments. 3.3 Simplified cost options The Commission/DG DEVCO (Mr Rommen) presented the novelties concerning budgeting and reporting of recurrent simplified cost options embedded in partner organisations' cost accounting practices. Ex ante assessments of such will be required but once positively assessed, the simplified cost options of the UN organisation will be accepted in budgets and reports submitted to the Commission. The methodology for the ex ante assessment is under development and is expected to be ready for internal and external consultations by mid-november. 3.4 Result-based financing A presentation was delivered by the Commission (DG DEVCO/ BUDG), explaining the Commission performance framework (30 indicators) as well as the alignment between the next EU multi-annual financial framework and the SDGs. The design methodology to verify results and sharing risks, which should help identifying suitable actions for result-based financing, is expected by end-ql Result-based financing components will be introduced in future EU-funded actions in As clarified by the Commission, this new modality will be optional, not compulsory. Detailed guidance on its application will be developed in due time, drawing also from the experience exchanged between the EC and the UN in those respective domains. 4 Awareness raising on counter-fraud and corruption, regularity, and on the Early Detection and Exclusion System (EDES) This module was shared by OLAF (the Commission s Anti-Fraud Office, represented by director Schnichels) and BUDG (Mr Rongvaux). OLAF recalled its mission to investigate fraud involving EU funds and stressed the need for cooperation between OLAF - which is an independent body within the Commission - and UN organisations. In this context, OLAF highlighted the importance of close cooperation in case of suspicion of irregularities or fraud, due information sharing with

From this, the obligations to inform the Commission of cases of detected fraud and irregularities with due respect to applicable privileges and immunities.

5 the EC during an investigation, access to relevant documents and help in OLAF s investigating of local implementing partners. On the Early Detection and Exclusion System, the obligation of implementing partners under indirect management were recalled, i.e. the main obligation to protect the Union's financial interests by preventing, detecting and correcting irregularities and fraud. From this, the obligations to inform the Commission of cases of detected fraud and irregularities with due respect to applicable privileges and immunities. The EDES will be possibly included in the new pillar on exclusion from financing. 5 Operational conclusions The participants agreed on the following action points: 1. Commit to the FAFA adaptation by the end of the year Endorse and publish the contribution agreement template, develop the relevant Manual and for what pertains to ЕС-UN specificities - develop adequate guidance (side/interpretative letters, EC-UN FAQs) through appointed task forces and/or reinvigorated JRG. 3. Endorse the agreed EU restrictive measures clause, which will figure in the FAFA and, until its application, will figure in the contribution-specific agreements. Clarify the application of exceptions. 4. Develop guidance on the manner in which the flexibility in application of indirect support cost rates is addressed between the Commission and UN. 5. Re-launch joint FAFA trainings. 6. Draft Guidance on result-based financing, drawing from EC and UN experience in this domain. 7. Jointly identify suitable actions for result-based financing. 8. Introduce simplified cost options (at the request of the Organisation interested in applying those in EU-funded actions). 9. Pursue the work that DEVCO and UN-RIAS have agreed to undertake to explore moving towards a practice of cross-reliance on the work of UN internal audit services and consequently diminishing the number of verifications. 10. Take into account relevant internal audit work of UNDP and UNICEF in DG DEVCO's verification plan Identify further UN organisations interested in a joint assessment of the potential benefits of reliance on audit work. 12. Joint Task Force will propose to adjust ToRs for verifications taking into account the FAFA adaptation and in particular the definition of the scope of verification missions Director for Resources, Directorate- General for International Cooperation and Development Pedro Guazo Deputy Controller United Nations

EUROPEAN COMMISSION DIRECTORATE-GENERAL HUMANITARIAN AID AND CIVIL PROTECTION - ECHO

EUROPEAN COMMISSION DIRECTORATE-GENERAL HUMANITARIAN AID AND CIVIL PROTECTION - ECHO EUROPEAN UNION INDIRECT MANAGEMENT DELEGATION AGREEMENT NO ECHO/ / /./.. APPLICABLE TO HUMANITARIAN AID ACTIONS FINANCED