I. Simplified Cost Options (SCOs) are a new method of reimbursement for certain rural development measures. Projects under these measures were, before 2014, reimbursed on the basis of costs incurred.

II. Granting of support on the basis of reimbursement of costs incurred is difficult and prone to error. As a result, there has been great interest in looking at simpler methods of calculating the EU financial contribution to projects and activities. Member States may now (in the 2014-2020 period) choose from three new methods (known as SCOs) to establish the support payable:

• standard scales of unit costs;
• lump sums; and
• flat-rate financing.

III. This report presents the findings of our audit of SCOs in rural development. Our main objective was to assess whether SCOs lead to simplification while ensuring economy and producing better results. We examined whether SCOs:

• simplify administration;
• ensure economy; and
• are widely used and increase the focus on policy objectives.

IV. Overall, we conclude that using SCOs can bring simplification and may decrease the administrative burden for both beneficiaries and Member State authorities. By basing payments on output, SCOs shift the focus away from invoices but do not increase the focus on results.

V. We found that SCOs can keep the costs of rural development projects under control, but only if set at the right level and based on a fair, equitable and verifiable methodology. However, as the role of the Certification Bodies in auditing SCOs is not specified, this creates a risk which needs to be addressed.

VI. We also noted that the new SCOs remain a marginal part of rural development spending. The main reasons for this are the diverse nature of rural development projects and the investment needed for developing methodologies.
VII. Based on these findings, we make the following recommendations:

• The Commission should update its guidance on SCOs to cover key principles for developing methodologies.
•  The Commission should clarify who is required to check the methodology and
  calculations for SCOs.
• To facilitate the appropriate use of SCOs, the Commission should explore the options for developing more optional off-the-shelf SCOs and update its definitions of key and ancillary controls to reflect the use of SCOs.
• The Commission should examine the potential for moving away from reimbursement of costs incurred towards reimbursement based on results, taking on board experience gained to date.

EU rural development policy
1. The aim of the EU’s rural development policy is to help rural areas in the EU to address a wide range of economic, environmental and social challenges. The EU spends around 14 billion euro on this policy each year through the European Union (EU) budget. Rural development spending accounts for around 25 % of common agricultural policy (CAP) spending. Member state co-financing represents a further 7 billion euro annually.

2. For around half of the spending on rural development from the EU budget, payment is based on farmed areas or animal numbers. For the remainder, support may take the form of fixed amounts or percentages linked to activities undertaken, or to the costs incurred by the beneficiary. Box 1 sets out the mechanisms involved.

Box 1 – How rural development support is paid

For the measures paid based on area or animals, support is granted annually and paid per hectare or livestock unit. The support is, according to the relevant legislation2, calculated on the basis of standard additional costs and income foregone.The rural development regulation introduces fixed payment methods for certain measures.

For example, start-up aid for young farmers, new non-agricultural activities in rural areas and the development of small farms are paid as predefined amounts.

Download here full report issued by ECA.

Source: European Court of Auditors