INTERNATIONAL ORGANISATIONS QUESTIONS

Transcription

1 INTERNATIONAL ORGANISATIONS QUESTIONS A. General 1. What is an International Organisation? An international Organisation can only be considered as such under the Financial Regulation if the following criteria are met: - it is international; - it is a public sector organisation; - it is set up by intergovernmental agreements. The specialised agencies set up by these organisations will also be considered international organisations. The following entities are assimilated to international organisations: - The International Committee of the Red Cross; - The International Federation of National Red Cross and Red Crescent Societies; - The European Investment Bank and European Investment Fund. 2. How can the European Union finance the actions of an International Organisation? There are two possible ways by which the European Union can finance, in full or in part, the actions of an International Organisation: - Joint management (see Section B below ). - Grants: use of call for proposals or direct award cases (see section C below); The graph below represents the legal arrangements as in force from 13 March 2013 (under the previous Financial Regulation, grants to international organisations were also contracted via SCA).

2 How to finance an action from an IO? Grants under Centralised/Decentralised Management Contribution under Joint Management Call for Proposals Exceptional cases Direct award of grants Transfer of tasks Grant Contract Grant contract SCA Page 2/21

3 B. Joint Management 3. What is joint management? Joint management is a specific budget allocation modality ("method of implementation" or management mode of the European Union (EU) budget or the European Development Fund according to EU terminology) applicable to international organisations by which the European Commission entrusts some of its implementing tasks to an international Organisation complying with international standards with regard to the "four pillars" (i.e. accounting, internal control, audit and procurement) (see Question 5). Despite its name, the EU funds entrusted to an International Organisation under joint management are not jointly managed between the European Commission and the International Organisation. The management of the tasks related to the implementation of these funds is delegated by the European Commission to the International Organisation. The European Commission, however, keeps some prerogatives of control and verification, as required by the Financial Regulation. 4. When can joint management be applied? This specific budget allocation modality ("management mode" or "method of implementation" in EU terminology) is decided by the College of the European Commission when adopting the relevant financing decision for a specific action, when the conditions for joint management are met. These conditions, which apply to International Organisation as defined by the Financial Regulation and offers guarantees equivalent to internationally accepted standards, are the following: a) in case of Multi-Donor Action, that is where at least two donors pool their contribution to the action (the second donor could be the International Organisation itself) and these contributions are not earmarked for specific items or categories of expenditure (also referred to as "joint co-financing" or "multi-donor actions"); or b) Where a long standing framework agreement has been concluded with an International Organisation (e.g the FAFA with the UN agencies, the framework agreement with the World Bank ); or c) Where the project or programme is jointly elaborated with the International Organisation. These cases are not cumulative. One of them would suffice to use the joint management modality. Before the revision of the EU Financial Regulation in May 2007, the only possibility to use joint management was in case of multi-donor actions (condition a) above). After the entry into force of that Financial Regulation, joint management can be applied even in cases of single-donor actions (when one of the conditions b) or c) above applies). The use of joint management does not exclude the possibility for the International Organisation to receive EU funds through other allocation modalities (e.g. call for proposals open to international organisations, or a grant directly awarded, see Question 14). The authorising officer should choose the International Organisation in an objective and transparent manner. 5. What is the four-pillar review? Joint management can only apply if the International Organisation applies in its accounting, audit, control and procurement procedures standards, which offers guarantees equivalent to internationally accepted standards. Each authorising officer should assess whether these organisations offer such guarantees. This can be done in two ways: 1) The authorising officer can rely on a review already carried out by another service. It has to be noted that the main UN agencies as well as the World Bank have already been assessed with that respect. The list of the organisations whose assessment is ongoing and/or completed is published and regularly updated in the AIDCO Intranet at the following address: Page 3/21

4 The findings of these assessments may be provided for upon request of the authorising officer concerned. 2) If the Organisation has not been subject to the review indicated above, the authorising officer should perform the "four pillars" review him/herself. In that case, he/she should inform units EUROPEAID/R.2 and EUROPEAID/R.3 in advance. The name of the organisation assessed as regards the four pillars will be published in the list mentioned in (1) above. Before such review is completed, joint management could only be used on the basis of "presumption of conformity" stemming from the experience of the European Commission of long-standing and problem-free cooperation with the International Organisation and the consequent assessment of low-level of risk, it being understood that the four pillars review shall have to be carried out within a reasonable period of time. 6. What happens if the "4 pillar" review is not satisfactory as regards one or more pillars? The following pillars are reviewed in this process: accounting; audit; internal control and procurement procedures. Joint management, may only be used in the event this 4 pillar review outcome is satisfactory: they all offer guarantees equivalent to internationally accepted standards. If the only failing pillar is procurement procedures, Joint Management can still be used if the required guarantees are provided, for instance using the PRAG. 7. Which Framework Agreements have been signed by the European Commission? The Commission has signed the following framework agreements with international organisations: - The Financial and Administrative Framework Agreement ("FAFA") with the United Nations (see Question 10); - The Trust Fund and Co-financing Framework Agreement with the World Bank. Also the European Commission has also signed framework agreement with several international Organisations (e.g. World Trade Organisation, Organisation for Security and Cooperation in Europe, Organisation for Economic Co-operation and Development, Council of Europe and World Organisation for Animal Health (OIE) in order to adapt the Standard Contribution Agreement to their specific requirements). 8. What is a "project or a programme jointly elaborated with the International Organisation"? A project or programme shall be considered to be jointly elaborated when the European Commission and the international Organisation jointly assess the feasibility and define the implementation arrangements. This may be the case for instance the description of the action is jointly designed by the International Organisation and the European Commission. 9. What does Multi-Donor Actions mean? Does it correspond to the notion of joint management? Multi-donor action covers those cases where the European Commission funds are pooled with those of other donors (the implementing international Organisation may be one of the other co-financing donors), and not earmarked for specific items or categories of expenditures. When the funds are earmarked, then this is a case of parallel co-financing (i.e each donor will contribute to specific categories of expenditures) (and not of joint co-financing) and, hence, this case shall not be considered as a case of Multi-Donor Action. However, should one of the other conditions for joint management be fulfilled, then joint management would be considered. Since 2007, a Multi-Donor Action is not any longer the only case where Joint management can be used. Whether an Action is/is not a Multi-Donor Action has to be defined in the Special Conditions of the standard contribution agreement and shall be used for the purpose of interpreting some of the provisions of the General Conditions of the standard contribution agreement in the light of the Financial and Administrative Framework Agreement (FAFA) with the United Nations. 10. What is the scope of application of the Financial and Administrative Framework Agreement (FAFA) with the United Nations.? Page 4/21

5 The Financial and Administrative Framework Agreement ("FAFA") is a framework agreement signed in 2003 between the European Commission and the United Nations and which applies to all contributions of the European Commission to actions managed by the United Nations entities listed therein, and by those UN specialised agencies which have subsequently acceded to it (Euratom has also acceded to the FAFA through a specific exchange of letters between the European Commission and the UN Secretariat. Updated list of the signatories of FAFA can be found at the following address: The FAFA shall apply to all contribution agreements concluded by all the European Commission services, except the EU's Framework Research Programme and the LIFE Programme. 11. Which contract is to be signed with an International Organisation under joint management? Under joint management, the European Commission's services should use the Standard Contribution Agreement which applies to all the International Organisations offering the guarantees according to the four pillars review (see Question 5). For grants under centralised/decentralised management, see Question n 17 below. This model of contract gives flexibility and allows the international Organisation to use its own rules and procedures. For the World Bank, the Administration Agreement models ("AA") attached to the Trust Fund and Co-financing Framework Agreement must be used instead which is basically the model of the Standard Contribution Agreement adapted to the specificities of the World Bank. 12. When can the European Commission fully finance an action implemented by an International Organisation under joint management? Co-financing is not any longer a pre-requisite for the use of joint management (see Question 4). As a consequence, full financing by the Commission is possible in the two following cases where: (a) a long-standing framework agreement (i.e. the Financial and Administrative Framework Agreement (FAFA) with the United Nations, Framework agreement with the World Bank ) has been concluded with an international organisation; or (b) the project or programme is jointly elaborated with the international organisation. C. Grants to International Organisations 13. How can a grant be awarded to an International Organisation? An International Organisation can be awarded a grant in response to a call for proposals or directly (see Question 14). 14. When can a grant be awarded by direct agreement to an International Organisation? As any other entity, an International Organisation can be awarded a grant by direct agreement in the exceptional cases (i.e. cases of humanitarian and crisis management; a body with a de jure or de facto monopoly; urgency ). The authorising officer needs to duly substantiate this in the award decision. Please note that International Organisations are not treated differently than other grant beneficiaries (e.g. NGOs). For instance, before arguing than an Organisation has the monopoly to implement certain actions, the relevant authorising officer needs to make sure that such international Organisation is the only entity, being public or private, who can actually carry out the required action. A direct award of grant to an international Organisation would no longer be advisable when the conditions for joint management (see Question 4) are met. 15 Can a grant finance in full an action of an International Organisation? Page 5/21

6 Yes,. 16. What is the difference between a grant and joint management? Joint management and grants are both used to provide financial support to an action implemented by an International Organisation. However, joint management implies at the same time the delegation by the European Commission of implementation tasks to an International Organisation. In other words, the element of delegation of the management of the EU funds to an international Organisation (organising tenders, sub-granting schemes, payments to third parties) can be an essential element under joint management. The use of joint management is more flexible than the grants procedure: - the European Commission may directly transfer the contribution to the International Organisation (selected in an objective and transparent manner), while in the case of grants, the Contracting Authority must follow a call for proposals procedure or, exceptionally, duly justify a direct award according to a limited number of circumstances (e.g. monopoly). Thus, joint management is more flexible in procedural terms since the decision of the authorising officer to delegate the implementation of tasks to an international Organisation needs to be reasoned but does not need to be justified on the basis of pre-established criteria (like it is the case of a decision justifying a direct award of grants); - the use of joint management also means that the implementing International Organisation will have in contractual terms, more flexibility to manage the entrusted EU funds: more flexibility is given with regards to interests on pre-financing (see Article 15.7 of the General Conditions of the Standard Contribution Agreement) and use of provisions (see article 14.2 of the General Conditions) where the rules of the international Organisation would apply under joint management. - also, under Joint Management, there is no limitation for the International Organisation when the International Organisation gives financial support to third parties ("re-granting") (see Question 20). The choice (contribution under Joint Management or grant under other method of implementation) shall be established by the Financing Decision. 17. Which agreement model is used in case of grants? A) Within calls for proposals launched before 13 March 2013, if the International Organisation respects the basic principles of tendering procedures provided for in Article 120 of the Financial Regulation and, in general, their institutional "pillars" offer sufficient guarantees for the European Commission to rely on their procedures (see Question 5), the Standard Contribution Agreement or any other contract template agreed between the international Organisation concerned and the European Commission (i.e. Administration Agreement in the case of the World Bank) should be used instead of the standard grant contract. This applies irrespective of the management mode: centralised or decentralised. The possibility for the International Organisations to use an Standard Contribution Agreement or Administrative Agreement instead of the standard grant contract should be clearly indicated in the guidelines of the call for proposals (cf. Section 2.6 of the Guidelines for grant applicants attached to the Practical guide to contract procedures for EU external actions). Where the four pillar review shows that the institutional capacities are not considered sufficiently sound due to one or more failing pillars, a Standard Contribution Agreement may be signed, where the failing pillar concerns procurement procedures only. In that case, a contribution agreement may be signed if the International Organization applies EU procedures (which correspond to international standards). On the other hand, in case of a negative assessment of the other pillars (audit, internal control and accounting), no Contribution Agreement may be signed, and the standard grant contract shall be used instead. B) For direct award of grants and contracts within calls for proposals launched after 13 March 2013 the standard grant contract must be used. 18. Are there any differences between a Standard Contribution Agreement signed in the context of Joint Management and a Standard Contribution Agreement signed in the context of a grant? Page 6/21

7 The standard contribution agreement has been used under joint management and, until 13 March 2013, for direct award of grants and calls for proposals launched before such date. The Standard Contribution Agreement (applicable to all international organisations except for the World Bank) is more flexible than the standard grant contract. The differences are basically limited to the applicable rules to bank interests on pre-financing (Article 15.7 of the General Conditions), and use of provisions (Article 14.2 of the General Conditions). It is important to note that different rules on sub-granting also apply (see Question 20): - in case of interests on pre-financing, the rules of the International Organisation will apply for joint management Which is not always the case in grants. - In case of joint management, cost of staff assigned to the action can take the form of provisions. - Sub-granting: under Joint Management, there is no limitation for the International Organisation, while limitations exist in the context of grants. The relevant Financing Decision establishes whether the agreement is concluded under Joint Management. (see Question 16). 19. Void 20. May the Organisation sub-grant funds to third parties with funds received from the European Commission under the form of a grant? In general yes, but the maximum amount may vary depending on the specific contract. In case of a grant received from the EU (i.e. outside cases of Joint Management) before 2013 the International Organisation could only re-grant (i.e. provide grants to third parties) under the following conditions: sub-granting is not the primary aim of the action and the maximum amount of financial support that can be paid to third parties by a beneficiary is 100,000 with a maximum of 10,000 per each third party (see Article 1 General Conditions). In contracts signed since January 2013 the same rule applies if the Action is funded by the European Development Fund. However, when the grant is funded by the EU Budget the maximum amount per third party has been increased to 60,000 EUR and no limit applies in cases where giving financial support in the form of sub-grants is the primary aim of the action. D. Standard Contribution Agreement 21. When does the Standard Contribution Agreement have to be used? The Standard Contribution Agreement, or the Administration Agreement in case of the World Bank, has to be used in case of delegation of tasks to an Page 7/21

8 International Organisation under joint management (see Question 4) 22. Is there a format for establishing budgets, descriptions of the action and reports? The Standard Contribution Agreement does not impose a template and hence International Organisations are free to use their own format, save for call for proposals (see below). Therefore, an International Organisation can use its own templates/form (e.g. resources-based budget or activity based budget). The budget structure (Annex 3 of the Contribution Agreement) should reflect the one normally used by the Organisation in its own accounting system. It is not advisable to impose models which do not reflect this structure (for instance, Annex III of the EU Grant Contract may not necessarily match). The advantages of reflecting the budget structure of the Organisation include more robust financial reporting and audit trail showing the link between the financial report and the underlying accounting methods. For the Organisation it should considerably reduce project transaction costs. However, regardless of the model used, clarifications on the budget should be sought by the Contracting Authority's services during the negotiation process in order to ensure a good understanding of the information contained in the document provided by the International Organisation and to avoid any dispute at a later stage. This information should be used for the purpose of the reporting requirements. In particular, the structure of the budget for the action will determine to a great extent the structure of the financial reports to be provided by the International Organisation: see also section C2 of the joint UN-EC guidelines on reporting that can be consulted at the following address. In case of reports Article 2 of the General Conditions sets out minimum requirements that the financial and narrative reports must comply with. These reports should ensure that the Contracting Authority is duly informed about the implementation of the action by the International Organisation. This Article foresees one report every twelve-months. This frequency of reporting is in principle considered sufficient by the Contracting Authority under normal circumstances (for instance, where reporting by the International Organisation generally complies with the requirements established in Article 2 in terms of timely delivery, quality of the report and result-oriented approach). To request more than one report per year represents an exception to this general rule. Where specific circumstances require an increase in the frequency of reports, this will be agreed by the parties, and explicitly stipulated in the contribution-specific agreement. In case of a Standard Contribution Agreement signed with an UN entity, please refer to the Joint Guidelines on reporting obligations under the Financial and Administrative Framework Agreement (FAFA) with the United Nations. 23. What are the contracting arrangements to be specified in the description of the action? Article 10 of the General Conditions requires the International Organisation to state what parts of the action it intends to contract out, which types of contracts are foreseen and what procedures will be followed for such contracting. In deciding which activities will be contracted to other entities and which ones will be implemented directly, the international Organisation shall consider cost as one of the determining factors, considering that contracting should not lead to increased costs over direct implementation by the international Organisation itself. It does not require the International Organisation to provide specific names of consultants that it intends to hire for carrying out the Action nor does it require the International Organisation to inform the Contracting Authority of any non-substantial change in that respect. Such level of detail needs to be included only in the final report. 24. Can the Organisation extend the Action unilaterally? Page 8/21

9 No, since this is a modification which affects the basic purpose of the action. This modification will be set out in writing in an amendment. A letter sent by the International Organisation to the Contracting Authority is enough to amend the contract in some limited fields (see Question 25 and 27). Page 9/21

10 25. Within what limits can the International Organisation modify the budget unilaterally? How do I establish the 15% threshold? Pursuant to Article 9.2 of the General Conditions, the International Organisation may modify unilaterally the Description of the Action and/or the Budget of the Action provided that the basic purpose of the Action is not affected and that the financial impact of the change concerns either the reallocation of funds within the same heading or the transfer of funds from one heading to another, as long as the total amount of each concerned heading does not deviate by more than 15 % from the original amount set out in the contract for each of those headings. Original amount means the amount set out in the contract, as the case may be modified by formal addendum/a. The basic purpose could refer to the specific objective of the project, target groups and/or location of activities. In case of doubts, it is advisable to check with the Contracting Authority that the proposed modifications are acceptable and do not impact on the basic purpose of the Action. The 15% variation is calculated on both the original value of the heading where funds are taken from, and the original value of the heading where the funds are to be added. The modifications to the budget made by the International Organisation are taken into account in a cumulative way. This means, if a budget heading was increased by, for instance, 10% of its initial value (as set out in the Budget of the Action) through unilateral modification, that same heading can be further increased only by up to 5% of that same initial value set out in the budget of the Action (thus reaching in total up to 15% variation of its initial value). Therefore, it is not possible to proceed with several reallocations of 14% each! When the cumulative variations of a given budget heading exceed 15% of the budget heading s value in force, it is necessary to process a formal budget revision (Addendum) for which the EU s formal approval is required. Any amount in excess of the 15% ceiling which is not covered by an Addendum is not eligible for EU-financing. The 15% is calculated on the total value of the heading (i.e. the total amount for all years in case of multi-annual actions and/or multi-donor actions) set out in the actual Budget of the Action (original one or as put into force through an Addendum), not just on the EU's contribution. For reallocations between items within the same budget heading, there is no limit (i.e. a 100% modification including deleting or inserting new items is allowed). Just to remind it, within the parameters specified above (and provided the basic purpose of the action is not affected), the Organisation can, for instance, adjust the unit rates or monthly fees which are indicative (estimate) at the time when the agreement is signed. The unit rates included in the budget headings are considered as an average and can therefore change over the time of implementation. These changes are subject to the same conditions as explained above and as set out in Article 9.2 of the General Conditions. Any costs which are covered by the part of the Budget of the Action financed by the EU must always meet the eligibility criteria set out in Article 14 of the General Conditions. The International Organisation may not amend unilaterally the headings for indirect costs or the contingency reserve (unless the contingency reserve is subject to other agreed procedures see FAQ 53). In particular, it is important to inform the Contracting Authority about the changes introduced in the Description of the Action or in the Budget of the Action, to make sure that the changes are acceptable and do not affect the basic purpose of the action. This has to be done in writing as soon as possible and at the latest at the next report due in line with Article 2.4 of the General Conditions. For substantial changes (those which fall out of the unilateral modification method foreseen in the Article 9.2 of the General Conditions), the International Organisation must formulate a request for addendum and submit it to the Contracting Authority one month before the amendment is intended to enter into force and, in any case, one month before the end of the execution period, unless there are special circumstances duly substantiated by the Organisation and accepted by the Contracting Authority. Page 10/21

11 As a general rule, the modifications may not have the effect of calling into question the award of the contribution. 26. What constitutes a budget heading and a budget item? As there is no standard template for the budget (except where the International Organisation responds to a call for proposals), there is room for discussion on what constitutes a budget heading. In order to avoid disputes at a later point, this should be clarified between the Contracting Authority and the International Organisation when a contract is being signed. For the purpose of interpreting the 15% flexibility rule mentioned in Question 25 above, a budget heading is an aggregate of individual budget lines. In inputbased budgets, a group of individual budget lines related to a particular type/nature of the input : for instance, in the EU template Budget for the Action, the sections 1"human resources", 2 "travel", 3 "equipment and supplies", etc would constitute a budget heading. The detailed categories of expenses within a heading respectively would constitute a budget item: (e.g, 1.1 "salaries -gross amount local staff", "Technical", "Administrative/support staff", 1.2 "Salaries - gross amount, expat/int. staff ). This is the way most budgets are drawn up. In results-based budgets, the aggregation of the resources required to implement an activity/result could be considered as the budget heading. However, as mentioned above, this should be clarified at the moment of contract signature. 27. Is an answer letter from the Contracting Authority necessary to officialise a change of address, bank account or budget (within the 15 % limit)? No. The letter sent by the International Organisation to the Contracting Authority is enough to amend the contract within these limited fields. A change of a bank account number would also require the international Organisation to provide the European Commission with a Financial Identification Form. 28. What are eligible costs? What are direct and indirect costs? Eligible costs are costs incurred by the Organisation for the implementation of an Action which may be reimbursed by the Contracting Authority under the conditions provided for in the applicable Contribution Agreement. Eligible costs can be direct or indirect. Direct costs eligible for EU funding should fulfil a number of conditions: be identifiable; demonstrable; have actually been incurred in the course of the implementation period of the action (except for costs linked to closure activities, such as audit or evaluation) and be directly linked to (and necessary for) the action. These conditions are defined in Article 14.1 of the General Conditions. Article 14.2 of the General Conditions sets out some examples, whereas Article 14.3 provides an exhaustive list of costs which can never be qualified as eligible even if they comply with the eligibility test. Indirect costs are costs indirectly related to the Action, but which are not easily identifiable with the degree of accuracy required to comply with the conditions for direct eligible costs under article 14.1 of the General Conditions (e.g. costs which cannot be identified and substantiated with invoices or timesheets so as to comply with article 14.1 of the General Conditions, etc). To cover such costs, a flat-rate funding of the International Organisation's indirect costs up to a maximum of 7% of total eligible direct costs for contributions is allowed (Article 14.4 of the General Conditions), (see Questions 33 and 36). Indirect costs do not necessarily equate to a specific category of costs (for instance, indirect costs do not mean "administrative costs" and vice versa). Indirect costs cover any other costs related to the Action but which cannot be substantiated as required by article 14.1 of the General Conditions and which cannot therefore be regarded as direct costs. Likewise, costs which could be regarded as administrative can be charged as direct costs if the conditions are met. For instance, if the Organisation assigns to an Action a project manager working at Headquarters and the time devoted by such manager on the specific Action can be identified and substantiated in compliance with article 14.1 of the General Conditions, the Organisation can charge the corresponding remuneration-related costs of such manager as direct cost (see also first indent of article 14.2 of the General Conditions). On the contrary, if the Organisation cannot substantiate such costs, they can only be covered for as indirect cost. The conditions for indirect costs are provided for in article 14.4 of the General Conditions. (for further information, see Questions 33 to 37). Page 11/21

12 Before the signature of the Contribution Agreement, in case of ambiguity as of the direct nature of costs contained in the draft budget, it is important that such costs are thoroughly explained and that such explanations are documented in the file so that the eligibility of these costs is established with clarity. 29. How can the Contracting Authority control that costs qualify as "direct"? Prior to the signature of the agreement, the Contracting Authority should carefully study what are exactly the sub-items or elements included in these budget headings when discussing the budget with the International Organisation. During the implementation of the agreement, the Contracting Authority can also request clarifications of the financial reports (Article 2 of the General Conditions) and/or check the documents relating to these direct costs within the framework of a verification mission pursuant to Article 16.4 of the Standard Contribution Agreement ( see question 48). The International Organisation should be in a position to justify that direct costs arise as a direct consequence of the action and comply with Article 14.1 of the General Conditions. In case of doubt, the Contracting Authority should control that the qualification of such costs as "direct" is justified; These discussions/requests should be duly documented in the file. 30. When can taxes be considered eligible costs of the action? In particular what is the meaning of if allowed by the applicable regulatory provisions in the 7th bullet of Article 14.3 of the General Conditions? Taxes may be eligible when the International Organisation cannot reclaim them and if the applicable regulation does not explicitly regards these costs as noneligible. Most of the regulations governing the EU s external actions expressly forbid the payment of taxes out of Commission funds (European Development Fund is one exception). Article 3(7) of the Special Conditions specifies whether taxes are eligible or not. When an International Organisation asks for the reimbursement of taxes it cannot reclaim, the relevant Regulation must first be checked to ascertain whether this is allowed, and in the affirmative the impossibility for the International Organisation to otherwise reclaim the taxes must be demonstrated. 31. How can the Contracting Authority comply with the rules on eligibility of costs of the action when it contributes to a Multi-Donor Action covering costs that may not be eligible under EU rules? When an action is a Multi-Donor Action (for the definition of a Multi-Donor Action, see Questions 4 and 10), it may occur that the compliance with EU requirements regarding the eligibility of costs of the action would require some degree of traceability, which would make it difficult to conciliate with the nature of a Multi-Donor Action, where funds are fungible by nature (see e.g. EU rules on nationality and origin, restrictions on eligibility of local taxes, geographical scope of the instruments governing the EU funds, etc). In such case, it may be allowed to apply the "notional approach", according to which the relevant authorising officer may decide to consider that these EU requirements are met as long as the amount contributed by the other donors to the co-financed action is sufficient to pay for the activities which are ineligible under EU rules. The purpose of applying such a notional approach to certain areas is to allow the EU to contribute to multi-donor actions without having to require separate accounting for the EU s specific contribution. 32. Are the subsistence and travel expenses of the staff of the International Organisation's partners included in the eligible costs under Article 14.2 of the General Conditions? Page 12/21

13 Yes. The costs incurred by the staff of the partners taking part in the action are considered eligible costs in the same way as the International Organisation s. 33. Is the 7% for indirect costs a fixed figure? The 7% percentage is a maximum and not a fixed figure. When the policy of the International Organisation foresees to charge 7% as indirect costs this may be in principle acceptable for the EU. Notwithstanding the above, if for instance, the Contracting Authority services, consider that i) for comparable actions or in case of multi-donor actions, the proposed percentage is higher than for other comparable contributions; or ii) some of the costs covered by the flat-rate for indirect costs may already be included in another heading of the budget as a direct cost (for instance, in cases where headings such as "backstopping costs", "other direct costs" or "administrative/support costs" are included in the budget and costs are charged as lump sums), then this percentage may be subject to clarifications/negotiations before signing the agreement. These discussions should be duly documented in the file. See Questions 35 to 37 for further information. 34. Is it correct that, in order to judge if the requested indirect cost percentage is not higher than that requested from other donors to a multi-donor action, the Contracting Authority needs to have that information in the proposal-budget? Yes. Where there is more than one donor the amount recovered shall not, in percentage terms, be higher or lower than for other comparable contributions (up to the 7% maximum). 35. Are indirect costs subject to the eligibility test required for direct costs? No. Once the percentage of indirect costs incurred by the International Organisation for the action has been fixed and the agreement signed, indirect costs are not subject to the test of eligibility required for direct costs. (see Question 28). 36. How is the amount of indirect costs calculated? The flat-rate figure not exceeding 7% is calculated as a percentage of the final amount of the direct eligible costs to be paid/reimbursed by the Contracting Authority. The exact amount due to an International Organisations will only be known after the direct eligible costs have been established by the Contracting Authority on the basis of the final report. 37. If an international Organisation has higher than 7% indirect costs and includes part of these into the direct eligible costs, are the 7% then to be calculated on the basis of the new total? Indirect costs are calculated on the basis of direct costs. If an international Organisation normally charges a rate of indirect costs higher than 7% but some of these costs correspond to the definition of direct costs (see Question 28) and can be justified as such, the International Organisation may include them in the budget as direct eligible costs (see question 28). In such a case they will also be taken into account when calculating indirect costs. Article 14.4 of the General Conditions acknowledge the fact that some International Organisations may, in their own management accounting policies and practices use overheads exceeding 7%, however, it also insist on the fact that, regardless the policy applied by the International Organisation, the definition of direct costs and rules of eligibility under the Standard Contribution Agreement need to be applied in all cases. In short, it is just a reminder of the rules on eligibility and does not provide additional rules or rights to either of the parties to the Contribution Agreement. If an International Organisation wants to apply that provision, it would first analyse what kind of costs are included in its rates to check whether some of these costs are actually eligible direct costs under the Standard Contribution Agreement. Costs which are not direct according to the Standard Contribution Agreement are always subject to the 7% limit. Page 13/21

14 It is therefore necessary that the services of the Contracting Authority adequately understand such allocation of costs in the budget of the action when negotiating the agreement with the International Organisation. 38. Is a contribution in kind eligible? No. However, the staff assigned to the action and whose remuneration directly linked to the implementation of the Action can be justified by for instance payslips can be regarded as direct eligible costs rather than as a contribution in kind. 39. Who decides about the percentage of the pre-financing in the Contribution Agreement? Article 15 of the General Conditions provides a level of pre-financing from 80% to 95%. Further instalments should cover the remainder of the budget for the previous year plus 80% to 95% of the forecast budget for the next 12 months. Thus at any time a maximum of only 20% of the budget for the current period can be retained by the Contracting Authority. It is for the authorising officer to make his/her own judgement on the basis of previous experience with the concerned International Organisation as well as the need to ensure that the International Organisation has sufficient funds in place to implement the programme. For that purpose, he/she may also rely on the experience of other authorising officers or even other donors. Where the past record of the International Organisation is good and subject to the final decision of the authorising officer it is recommended to duly reflect this in the level of pre-financing by establishing the instalment at 95%. If there is no past experience with the International Organisation, it is recommended to make full use of the range between 80% and 95%, preferably starting with a high rate for a first pre-financing, and adapting this for the further pre-financing in accordance with the Organisation's performance in relation to reporting. In any case, a written justification for the level of pre-financing decided should be included in the file. The Standard Contribution Agreement does not foresee that a percentage of the total programme budget be retained by the Contracting Authority. The level of pre-financing should not be used to avoid potential over-payments. Since the Contracting Authority has many ongoing contracts with the UN, over-payments, if they arise, may be recovered, if necessary through an offsetting against other programmes with that International Organisation. Guidelines on recovery and offsetting can be found at the following page: Which schedule of payment is to be used in the contribution agreement? In multi-annual actions (contribution agreements with duration longer than 12 months), unless otherwise agreed, the Special Conditions foresee the amount of the instalment for each of the twelve month periods referred to in the General Conditions. Consequently, there should be as many advance payments listed in Art. 4.2 of the special conditions as commencing" twelve months periods. The following provides an example of how to establish the amounts: If an Action has a duration of 30 months (i.e. there are 3 commencing twelve month periods ) there should be one pre-financing, two further instalments (two interim payments covering the remainder of the Contracting Authority s part of the actual budget for the previous period plus further pre-financing from 80% to 95% of that part of the forecast budget for the subsequent periods) and one final payment. Amounts corresponding to the advance payments would be specified in Article 4(2) of the Special Conditions one by one: First pre-financing (80-95% of the EU s contribution for period: months 1-12) Second instalment (5-20% of the EU s contribution for the previous period: months 1-12 plus 80-95% of the EU s contribution for period: months 13-24) Page 14/21

15 Third instalment (5-20% of the EU s contribution for the previous period: months plus 80-95% of the EU s contribution for period: months 25-30) Forecast final payment (5-20% of the EU s contribution for period: months 25-30) To ensure that the payment of the consecutive instalments foreseen in the Special Conditions is subject to an acceptable level of expenditure, additional instalments are subject to the condition that at least 70% of the immediate preceding instalment (and 100% of the previous one if any) has been subject to legal commitment by the Organisation (cf. Article 15 of the General Conditions). When the Organisation complies with this threshold provided for in Article 15, it would be entitled to the next instalment foreseen in the Special Conditions. Such specified instalments are not subject to deductions or amendments unless through a formal amendment of the subject Contribution Agreement. 41. What are the consequences of failure to meet reporting deadlines? If the International Organisation fails to supply a final report by the final report deadline, and fail to furnish an acceptable written explanation of the reasons why it is unable to comply with this obligation, the Contracting Authority may refuse to pay any outstanding amount and recover any amounts unduly paid. In case of failure to meet reporting deadlines of interim reports, the International Organisation shall inform the Contracting Authority of the reasons why it is unable to do so, and shall provide a summary of the date of the progress of the action. If the International Organisation fails to comply with this obligation, the Contracting Authority may terminate the Contribution Agreement, refuse to pay any outstanding amount and recover any amount unduly paid. Failure to meet reporting deadlines may have also an impact in determining the precise percentage of pre-financing (see Question 39). 42. What is the currency in which reports are to be presented? Financial reports are always to be presented in Euros regardless the currency used by the International Organisation implementing the action. Whenever it is necessary to convert actual expenditure into euro, the date and rate used for calculation of the exchange rate are those used by the International Organisation when recording each instalment of the EU's contribution in its accounts. The rate and date cannot be changed unilaterally by one of the parties to the contract. The Parties may however agree to apply a different exchange rate. In such case, the exchange rate and the conversion method will explicitly be mentioned in article 4.3 of the Special Conditions. 1 : Final Report UN Organisation Step 2 : Preinformation Page 15/21 Step Action Example The UN Organisation submits its Final Financial Report. Expenditure presented in Euro (converted from USD to EUR as per the rate of exchange applicable for reporting expenditure) The UN Organisation specifies the amount of surplus balance in USD with an estimated amount in Euro according to its applicable exchange rate at the time when the report is processed The European Commission reviews and endorses reports, and on sends UN a pre-information notice in The UN submits the Final Reports on 7 th June The surplus balance on its accounts equals 50,307 US$. The UNORE in force at the time of processing is 1US$ = 0,819 as per the rates listed here: Estimated amount in Euro = EUR 41,201 The pre-information note (sent to UN on 25 th August) indicates the estimated amount EUR 41,201

16 notice European Commission Step 3 : Confirmation / Updates UN Organisation Step 4 : Recovery Order European Commission Euro The UN Organisation either confirms or updates the amount in Euro according to its applicable exchange rate at the time when the UN responds to the preinformation note The European Commission establishes the recovery order on the amount confirmed or updated by the UN and sends out the debit note for this amount, if possible, in the same month. On 2 nd September, the UN replies to the European Commission providing an updated amount in Euro (UNORE in force at that time 1US$ =0,787 ) (Updated) Amount in Euro = 39,592 A few days later, the UN receives from the European Commission a debit note for 39,592 Euro which is to be settled within 45 days of the issuing of the debit note (the due date is specified on the debit note) 43. Which exchange rate should be applied to the surplus balance at the closure of a project? If a surplus balance exists on the Organisation's accounts at the end of a project, the European Commission's procedure for establishing recovery orders and issuing debit notes shall be pursuant to the procedure detailed in the applicable Guidelines on Recovery Orders and Recovery by Offsetting under FAFA (this can be consulted here). Furthermore the debit note sent to the Organisation by the European Commission should include the reference number of the Contribution Agreement. In order to minimise the risk due to exchange rate fluctuations, Article 17.3 of the General Conditions of the Standard Contribution Agreement has been amended as follows: "In the event of a final surplus balance of total financing over expenditures at the financial closure of the Action, the Organisation shall specify in the final report the amount of the surplus balance in the holding currency used by the Organisation together with the estimated amount in Euro and where the exchange rate of the Organisation can be consulted. This surplus in the Organisation's accounts expressed in holding currency used by the Organisation shall be converted into Euro using the rate of exchange of the Organisation in force on the day when the Contracting Authority's internal recovery order is established, which amount is later reflected in the debit note sent to the Organisation. The resulting Euro equivalent shall then be refunded to the Contracting Authority. This provision shall not apply to the exchange rates used for reporting." In the case of the UN, an example of the step-by-step process is as follows: - The UN submits its final financial reports, drawn up in Euro (using the rate of exchange applicable to a given contribution agreement which is set in Article 2.7 of the General Conditions or under Article 4 (3) of the Special Conditions; or, in the case of humanitarian aid actions, the rate indicated in Article 10.4 of ECHO's General Conditions or under Article 8.2 of ECHO's Special Conditions). The amount of the surplus in the holding currency of the UN Organisation should be indicated together with the Euro equivalent of this surplus at the time when the report is processed. - Once the European Commission has made its analysis of the final report and established the amount of the surplus the Commission will issue a pre-information note (= advice of recovery) with the estimated amount in Euro. The UN shall either confirm that amount or revert with an updated amount representing the Euro equivalent of the residual balance established by using the UN Operational Rate of Exchange in force at the time when the UN responds to the Commission s preinformation note (the UNORE is available here: UN is encouraged to respond to the pre-information notice (i.e. give its agreement or Page 16/21