In the framework of the Revision of the EU Financial Regulation, Seamus Jeffreson, CONCORD director, took a part in an Awareness raising event on 6th April in Brussels. Discover below his views and recommendations on the revision, considering the decrease of public funding for NGOs and the increase of development and humanitarian challenges at the same time.

Before reading Seamus Jeffreson’ recommendations, we invite you discover the recent Position Paper of our confederation about the financial regulation:

In his intervention in April, Seamus Jeffreson  focused on the following points considering the current complex context of NGOs: a backdrop of declining public funding for NGOs, an administrative environment ever more complex, the growing development and humanitarian challenges.

  • How to ensure the revised Financial Regulation allows for Civil Society Organisations (CSOs) in all their diversity to bring that added value to EU cooperation.
  • How to maximise opportunities to show impact and results, while ensuring demonstrable accountability to the European public as well as to the people and communities we support.

3 key issues and considerations from CONCORD’s point of view:

1. We must simplify administration:

Simplified administration allows Civil Society to focus less time and resources on administration and more on the complex business of improving health provision, access to basic services and rights. But some of the measures proposed may not be so straightforward.

On lump sums – in principle the use of ‘Lump Sums’ can provide a way of cutting down on administration.

NOTE: A Lump Sum is a one-time payment for the total or partial value of an asset. For an explanatory video, have a look here.

We would like to see more detailed look at the experience in recent years (for example DG ECHO’s experience) to see if this actually does reduce administration in reality and if NGOs are willing and able to work more with lump sums. What is the evidence that this mechanism in practice leads to simplification? For many CSOs full cost recovery remains the key, and the ‘safe’ option for many NGOs remains reporting against actual incurred costs. Simplification of grant application and selection procedures, uniformity of approach and transparency on the process would relieve substantial administrative burden from CSOs – especially smaller ones.

Our experience is that reporting against lump sums/flat rates is not necessarily perceived as being less burdensome than reporting on actual incurred costs. In theory it simplifies but each Contracting Authority reserves the right to request supporting evidence of expenditure so in spite of the investment to put in place a system and negotiate it with say an EU Delegation, we may end up having to prove more than the procedure in place the real costs behind it. Without full understanding, confidence and tried and tested experience – we may find NGOs continue to shy away from this option.

How to progress?

  • We should measure to increase confidence that lump sum payments will not lead to losses.
  • We should ensure that lump sums/flat rates/unit costs do in fact cover the real costs.
  • We should accept NGOs internal policies for accounting certain type of costs according to the average of actual costs, like for instance average of actual costs for expatriate staff. These methodologies are based on actual costs which can be easily traced and eventually audited and should be acceptable.

Considering a more tailored approach to calculating the most commonly known flat rate is the Indirect costs with a maximum 7% set by the current Financial Regulation which in our experience often does not fully cover the costs for implementation of a project on the field – for example because HQ support is not eligible as it is not considered directly linked to the action. Other donors – some member states but notably USAID – have a more tailored calculation of ‘Negotiated Indirect Cost Rate Agreement’. Other donors require NGOs to identify and justify their ‘non-project attributable  costs’. These examples could point to ways forward.

Why not allow for a single assessment accepted by all Contracting Authorities? One single audit/verification performed every by an auditor to be uploaded on PADOR.

2. Harmonisation – among donors – to make life simpler for us and CSO partners in the South

This is a long standing effort and one most recently highlighted in a study by the humanitarian NGO network VOICE in their study ‘building evidence for simplification’. The report shows for example that NGOs still require different staff for different donors due to different reporting procedures and requirements and timetables. The need for harmonisation among donors of procedures is of particular importance for partners in the South – CSOs in EU partner countries.

The Financial Regulation may not be the priority instrument in this drive but should support harmonisation efforts.

We would also highlight the need for as uniform application as possible of the financial regulation across DGs, budgetary authorities and Delegations as possible.

3. How we measure results and what’s the evidence-base for how NGOs can engage with a results-based funding mechanism

I would like to argue for a wide understanding of what we mean by ‘results’ and to put this in context, before giving some thoughts on early evidence regarding ‘payment by result’.

In our sector – international development – we are dealing with some of the most complex issues the EU has to tackle – root causes of forced migration, addressing persistent poverty among left behind sections of the population. To achieve results requires a multi-faceted toolbox of actors, mechanisms and instruments. So the financial regulation needs to accommodate new actors, innovative approaches, risk, small and local organisations, youth organisations.

We need to reassure the European public that we are achieving results while being honest about the challenges faced and what success might look like. Recent research in the UK [BOND, 2016] suggests that the evidence-base in support of Payment by Result (PbR) in international development is still very limited, and it remains to be proven whether and when PbR may provide better value for money than other aid mechanisms.

This approach can stifle innovation (benefit of flexibility is offset by threat of financial loss); unless specified, and tends to favour ‘low hanging fruit’ projects, not necessarily the most marginalised. For example, in a call for water and sanitation proposals, challenging but priority environments like South Sudan received no bids.

We need to consider carefully which organisations have the skills and capabilities to engage with this type of mechanism and secondly which types of issues and challenges are best addressed through a payment by results approach.

The study goes on to explore other ways for donors to achieve their objective: allowing more flexibility in existing funding mechanisms; rewarding learning and innovation not just results particularly when addressing complex issues; requiring greater transparency and downward accountability.

I want to end by underlining the importance of an inclusive but also a collaborative approach in developing the new regulation in which all actors play their part. We have enjoyed good partnership with EU institutions in particular the European Parliament (negotiations over the Multi-annual Financial Framework). Our aim to promote accountability ‘upwards’ but also ‘downwards’ to ensure EU support goes to ensuring ‘no one is left behind’ (the mantra for the Agenda 2030 sustainable development framework – which maps out the challenges and aspirations for the years ahead).