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Eligibility of Administrative Costs in Projects of Structural Funds and Cohesion Fund

Eligibility of Administrative Costs in Projects of Structural Funds and Cohesion Fund. Challenges raised by the European Commission's auditors:. Traceability of administrative costs of projects

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Eligibility of Administrative Costs in Projects of Structural Funds and Cohesion Fund

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  1. Eligibility of Administrative Costs in Projects of Structural Funds and Cohesion Fund

  2. Challenges raised by the European Commission's auditors: • Traceability of administrative costs of projects • Time registration stipulated in the legislation of the Republic of Latvia does not constitute sufficient grounds for eligibility of administrative costs, since it can fail to reflect the actual situation • 9.4 M EUR account for withheld payments and all potentially non-eligible administrative costs in the projects of the European Social Fund

  3. Solution offered by the European Commission: • Calculation of proportion for a sample of existing projects: • The existing costs do not exceed proportion – no correction • Costs exceed proportion – correction of administrative costs at the account of the state budget 2. Proportions and flat-rates are calculated by implementation regarding administrative costs to the new projects of EU funds

  4. Explanation of proportion: • Taking into account administrative costs of the institution by fulfilling its basic functions which are similar to activities of the Structural Fund's project, it is possible to calculate a proportion of the institution's administrative costs which can be attributed to project of the EU funds. • Administrative costs are justified with supporting documentation and explanation of proportion's calculation

  5. Flat-rateexplanation: • By evaluation of amount of administrative costs justified by similar beneficiaries (in similar projects), a fixed proportion between direct (implementation) costs and indirect (for example, administrative) costs is established • Amount of such costs (as % of direct costs) can be included in every disbursement claim without separate justification for indirect costs • Available only to ESF

  6. Initial offer of the Ministry of Finance : 1. While an independent auditor is conducting a sample check and working on proportion and flat-rate methodology approved by the European Commission: • administrative costs (company/service agreement) are eligible and < 5% of total eligible costs of the project • administrative costs (employment agreement, etc.) are not eligible and < 5% of total eligible costs of the project • Managing Authority can prepare methodology to calculate the proportion and include it in the draft Cabinet Regulation 2. Upon receipt of auditor's opinion: • proportion for the ERDF and CF • proportion or flat-rate for the ESF • company/service agreement can remain as an option

  7. Potential Risks (1) Conclusions after 19/03/2008 seminar on calculation of proportion conducted by the ESF auditors of the European Commission: • method for calculation of proportion is complicated, • parameters to be used in calculation are not clearly defined, different in every project, • Intermediate Bodies have to undertake a risk to provide a clear description and explanation of the method for calculation of proportion to the beneficiary, • Intermediate Bodies have to provide for competent employees who will check the accuracy and conformity of the proportion's calculation to the methodology, and an explanation to the beneficiary.

  8. Potential Risks (2) Company/service agreement: • Difficulties to define procurement purpose, • Problems to define deliverables in order to ensure monthly payment, • Split procurement, • Amount of the procurement, • Nonconformity of title and content of the agreement.

  9. Offer of the Ministry of Finance for Next Steps (1): in the projects of ESF: • While an independent auditor is conducting a sample check and working on flat-rate methodology approved by the European Commission: • administrative costs are not eligible and < 5% of total eligible direct costs of the project • Upon receipt of auditor's opinion: • flat-rate of ESF

  10. Offer of the Ministry of Finance for Next Steps (2): in the projects of ERDF/CF: • Administrative costs are not planned as project expenditure. • Particularly justified exceptional cases administrative costs of a state budget institution can be planned as non eligible costs, not exceeding 5% of total eligible direct costs of the project.

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