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2. Delivery mechanism for the AKIS strategies

advisory services

operational groups of the EIP

simplified cost options

budgeting and reporting

administrative procedures

documentation

Simplified cost options (SCOs) for CAP interventions

Description of the topic

SCOs are a method of calculating the eligible costs of an operation to be used as an alternative to the traditional method: the calculation is made on costs actually incurred and paid [article 67, paragraph 1, letter a), of the Regulation n. 1303/2013, "real costs"].
The eligible costs of an operation, where simplified cost options (SCOs) are used, shall be calculated with a predefined method based on outputs, results or other costs that are clearly identified in advance by reference to an amount for unit or by application of a rate.

Benefits and insights for using simplified cost options

Since the European programming period 2007-2013, the use of SCOs is strongly endorsed and progressively simplified by the EC to promote the administrative simplification by reducing probatory documentation for budgeting and reporting of co-funded interventions.
The use of SCO is highly recommended, by the EC and the ECA, for the following cases and reasons:

  • reducing administrative burden and workload: with SCOs, it’s no longer necessary to trace each euro of co-funded expenditure back to individual supporting documents. Furthermore, the collection and verification of (financial) documents is less resource-intensive by both public administration and beneficiaries.
  • reducing the error rate in public funds management. Over time, the European Court of Auditors (ECA) has repeatedly recommended to the European Commission to encourage and extend the use of SCOs. Finally, during the programming period 2014-2020, these demonstrated to be highly effective in reducing the risk of error and the administrative burden of the beneficiaries and managing authorities of rural development programmes (RDPs). Apparently, projects using SCOs are less prone to error than the ones using real costs.
  • to focus on outputs: the use of SCO is well-suited by a managing authority/policy maker that prefers focusing on outputs rather then on resources committed relating to the funded intervention, because ex-ante estimations about the expected realizations are easier to run. This is just the case of CAP 2023-2027.
  • bridging the gap of common methodologies/standards or of probative documentation for certain type of interventions/operations. This is case, for example, of the fees of advisory services or the remuneration of the farmer/forester for the time spent on joint actions of the operational group (OG).
  • Consistency of public support: the use of SCOs certainly helps balancing the efforts with the possible small amounts of support or little impact of the specific interventions.

Besides, the use of SCOs implies:

  • availability of reliable data on the financial and quantitative execution of funded operations for which the SCO are put in use;
  • SCOs methods already exist for similar types of operations and beneficiaries under other EU or national funds/framework or they can be defined based on robust data and methodologies of calculation.

Scope, types of simplified cost options (SCOs) and conditionalities

Simplified costs are one of the eligible forms of grants and repayable assistance foreseen for the ESIF by article 67.1 of the Regulation n. 1303/2013. Within this scope, for each specific ESIF and at Programme level, the managing authority may to decide to make the use of SCOs optional or mandatory and for all the types of operations or for just some of them.
There are three options simplified costs (EC Regulation n. 1303/2013 art. 67 c. 1b, 1.c, 1d):
Outside of these cases, administrations can choose which reporting mode to use, whether at real costs or with a simplified option.

Indeed, the Regulation laying down the common provisions (Regulation (EU) 1303/2013 for the 2014-2020 programming period and Regulation (EU) 1060/2021 for the 2021-2027 programming) provides options for the ESI Funds to calculate the eligible expenditure of grants and repayable assistance on the basis of real costs, but also on the basis of SCOs. The use of SCOs must be defined ex ante. The Common Provisions Regulation (DRC) explains that grants provided by Member States to beneficiaries can be made by:

  • reimbursement of costs actually incurred and paid for the implementation of operations (real
    costs);
  • standard sales of unit costs, lump sums, flat rate financing (simplified costs);
  • a combination of the previous forms.

In case of standard scales of unit costs, all or part of the eligible costs of an operation shall be calculated on activities, inputs, outputs or quantified results, which shall be multiplied using standard tables of predetermined unit costs. In case of lump sums, all or part of the eligible costs of an operation shall be calculated on a predetermined lump sum. The grant shall be paid if the default terms of the assets and/or outputs agreement are met.

In case of flat-rate financing, specific categories of clearly identified eligible costs shall be calculated by applying an ex ante fixed rate for one or several other categories of eligible costs. Amounts and rates established by Member States need to be a reliable proxy to real costs. Periodic adjustments are a good practice in the context of multiannual programme implementation to take into account factors affecting rates and amounts. In order to ensure compliance with the principles of transparency and equal treatment of beneficiaries, the scope of the simplified cost options to be applied, that is the category of projects and activities for which they will be available, should be specified and published in the call for applications.

Methodologies for calculate SCOs

Some simplified cost options can be directly used without having to carry out any calculation: in this case they say «ready to use». This is the case with the following flat rates, indicated directly by the Regulations:

  • Calculation of indirect costs: flat rate up to 15% of direct eligible personnel costs;
  • Calculation of personnel costs: flat rate up to 20% of direct costs other than personnel costs;
  • Calculation of remaining eligible costs: flat rate up to 40% of eligible direct staff costs;
  • Calculation of indirect costs: flat rate up to 7% of eligible direct costs (news of 2021-2027
    programming);
  • Staff cost calculation (hourly rate): last documented gross annual labour cost/ 1720 hours.

The following types of SCOs require well-prepared methodologies:

  • flat rate for calculation of indirect costs (up to 25% of eligible direct costs)
  • standard scales of unit costs
  • lump sums.

Methodologies may be developed on the basis of:

  • statistical data, other objective information or expert assessments;
  • verified historical data of individual beneficiaries;
  • draft budgets drawn up on a case-by-case basis and approved ex ante by the body selecting the operation (where the total cost does not exceed € 200,000);
  • in accordance with the rules for the application of the unit costs, lump sums and flat rates applied by the Member State for similar types of operation;
  • flat rates and specific methods provided in the Fund Regulations.
  • application of normal cost accounting practices of individual beneficiaries.

Methodologies for calculation of SCOs must be fair (reasonable, based on real data), equitable (not favouring some beneficiaries or types of transactions to the disadvantage of others) and verifiable (based on documentary evidence that can be verified).