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Module 9

Module 9. Cost Recovery. Cost Recovery. Objective of the module:. From this module participants should understand Cost Recovery and its application in the 3 fund management modalities. Cost Recovery Explanation.

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Module 9

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  1. Module 9 Cost Recovery

  2. Cost Recovery Objective of the module: From this module participants should understand Cost Recovery and its application in the 3 fund management modalities.

  3. Cost Recovery Explanation Each time an agency assumes the management and administrative responsibility of a programme, that agency incurs additional costs (variable indirect costs) which need to be recovered. Normally this is through the application of a flat percentage fee (sometimes understood as “overhead”). For Other Resources, in the case of the ExCom Agencies, this cost recovery fee is 7% which is levied on programme expenditures in joint programme arrangements. This harmonised rate has addressed some of the concerns donors and UNCTs have expressed over the lack of a harmonised rate. Meanwhile note that other agencies recover at different rates.

  4. Cost Recovery Within Parallel Fund Management Each organisation manages its own funds and programme delivery, whether funds are coming from Regular or Other Resources. Each agency applies its own recovery rates on those funds defined as income to the agency For UNDP, WFP, UNICEF, UNFPA this is 7 %

  5. Cost Recovery Within Parallel Fund Management Donor Donor Donor RR Agency A 13% Agency B 7% Agency C 7% Agency D 0% (Sub-) National Partners (Sub-) National Partners (Sub-) National Partners (Sub-) National Partners The Joint Programme

  6. Cost Recovery Within Pooled Fund Management Agencies pool their funds together to one Agency called the Managing Agent (MA) The agency’s standard cost recovery rate is applied by the agency acting as MA. For WFP, UNICEF, UNDP and UNFPA the current prevailing cost recovery rate is 7%

  7. In order to avoid double recovery, (using Other Resources provided by an agency In the pooled modality) Participating Agencies (PA) agree to encourage donors to provide funding directly to the MA whenever possible. When not possible, UNDP, UNICEF, UNFPA and WFP agree to only charge a fee of 1% (as a pass-through fee) for channeling funds to the pool managed by the MA.

  8. Cost Recovery Within Pooled Fund Management Donors RR Donor RR Agency A (0%) Agency B (1%) Agency C (0%) Managing Agent (7% Standard Rate) (Sub-) National Partner The Joint Programme

  9. Cost Recovery Within Pass-Through Fund Management Under this option donors channel funds through a single Agency The agency receiving and distributing the funds is called the Administrative Agent (AA). Pass-Through enables donors to support different UN agencies but deal with only one The AA is entitled to charge an administrative fee of 1%, (lower limit must be more than USD20,000 and an upper ceiling less than USD100,000) Each participating Agency will charge cost recovery in accordance with its policies.

  10. Cost Recovery Within the Pass-Through Fund Management Donor Donor Donor Administrative Agent Fee 1% ≥20,000 or ≤ 100,000 (Also Agency A) Agency A 7% Agency B 7% Agency C 7% Agency D 13% (Sub-) National Partner/s (Sub-) National Partner/s (Sub-) National Partner/s (Sub-) National Partner/s The Joint Programme

  11. Donor Caps on Cost Recovery Fees Donors are encouraged to contribute directly to the MA in pooled joint programmes to limit donor costs. Donors may have an upper cap for combined cost recovery rates Example: European Commission (EC) has a cost recovery ceiling of 7%. If an Agency charged 1% of Other Resources (Donor funds) channeled to the MA. Then the MA would charge its own fee (e.g. 7% if WFP). In this case the fee would be an accumulative 8%. 1% over the EC’s limit. UNCTs should consult with relevant HQ units to discuss possible options regarding cost recovery rates in these circumstances. Some agencies’ policies already accommodate this by granting a 1% reduction to the fees of the MA when this is in the interest of advancing the UN Agencies in a JP

  12. Cost Recovery Practical Examples Note: The following examples are given for illustrative purposes only. Some agencies may calculate cost recovery slightly differently. Consult relevant HQs Units for more information, if necessary.

  13. Cost Recovery Practical Examples Costs Recovered Example 1: Parallel Funding Agency A: 130,000 Agency B: 70,000 Donor 1 $1mil. Donor 2 $1mil. RR $1mil. Agency C: 0 Total Costs: 200,000 Agency A 13% Agency B 7% Agency C 0% $870,000 $930,000 $1,000,000 (Sub-) National Partners (Sub-) National Partners (Sub-) National Partners The Joint Programme

  14. Cost Recovery Practical Examples Costs Recovered MA: 209,300 MA: 279,300 MA: 70,000 MA: 139,300 Example 2: Pooled Funding Agency A: 10,000 Donors 1. $1mil. Donor 2. $1,2mil. RR $1mil. RR $1mil. Agency B: 0 Agency C: 0 Total Costs: 289,300 Agency A (1% of $1mil.) Agency B (0%) Agency C (0%) $990,000 $1,000,000 $1,000,000 Managing Agent (7% Standard Rate) Agency D $930,000 $920,700 $930,000 $930,000 (Sub-) National Partner The Joint Programme

  15. Cost Recovery Practical Examples Costs Recovered Example 3: Pass-Through Funding AA: 30,000 Donor 1. $1mil. Donor 2. $1mil. Donor 3. $1mil. Agency A: 128,700 Agency B: 69,300 Agency C: 69,300 Administrative Agent 1% (Also Agency C) Total Costs: 297,300 $2,970,000 Agency A 13% Agency B 7% Agency C 7% $862,000 $920,700 $920,700 (Sub-) National Partner/s (Sub-) National Partner/s (Sub-) National Partner/s The Joint Programme

  16. Cost Recovery Practical Examples Example 4: Calculation of Cost Recovery Amount If the programme had a total value of USD1 million Distributed to: UNICEF USD 400,000 UNDP USD 350,000 UNFPA USD 250,000 The overheads are to be charged on these amounts Not the USD1 million Each agency should calculate their overhead only on the amount they receive, NOT on the total joint programme funds.

  17. End Module 9

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