Cover mCover options for fixed-amount financing
In budgetary practice, fixed-sum financing – especially at the state level – is becoming increasingly important. In the case of fixed-amount financing, the grant amounts to a fixed, non-variable share of the eligible expenses. The relevant grant amount can also be determined by multiplying a certain amount by a number of eligible individual measures or individual objects (examples: “x” euros per seminar participant; “x” euros per printed brochure; “x” euros per wind turbine). The grant recipient then receives funding in the form of lump sums. The fixed amounts are intended to facilitate the application process, the review of the application, and the review of the proof of use, and thus serve to simplify administration and give the grant recipient flexibility in project implementation. Lump sums are always used when it is not possible to provide evidence of individual costs or when they involve disproportionate individual costs.
However, it is inherent in fixed-amount financing or lump sums that the actual expenditure booked (e.g. for teaching materials, teaching staff) exceeds or falls short of the total of the lump sums.
To illustrate, here’s an example:
A university receives funding from an association D to support doctoral students. The association receives the funds for this from a federal ministry. The university receives a lump sum of X € per participant of the doctoral program. The university notes that
With regard to the problem of exceeding and falling short of the total funding amount, the regulations on which the respective grant is based (grant agreement, notification, ancillary provisions, project description, etc.) must be reviewed in each individual case. Due to the individual regulatory content in the respective conditions of approval, this article can in no way replace a case-by-case assessment. However, it does provide guidance on what should be given special consideration in fixed-fee funding. In addition, the following comments refer to experience with German subsidy law and cannot claim any validity for European subsidy law.
In many cases, the following system results:
If the total expenditure is higher than the funding amount, this usually means, due to the choice of a fixed-amount funding, that project expenditure in excess of the fixed amount is borne by the grantee, in this example the university. He does not receive higher lump sums for additional expenses (without an increase in the number of participants).
If, in the course of project implementation, the actual costs fall short of the subsidy amount, the funds cannot usually be used for purposes other than the specified subsidy purpose. In the example, the university could not use surplus funds to support a refugee program.
As a rule, however, it is not necessary to reassess and reclaim the grant due to the far-reaching possibilities for covering the purpose of the grant. This results in such cases from the following:
Often far-reaching coverage option due to broadness of funding purpose
The use of fixed-amount funding in the form of lump sums often grants wide-ranging coverage options for the use of funds.
The lump sums are used as fixed amounts in the assessment of eligible expenses. The fixed amounts are intended to facilitate the submission of applications, the examination of the application, and the review of the proof of use, and thus serve to simplify administration. Therefore, only the reason for the lump sum must be proven in the proof of use. This is because, unlike expenditure-based funding, it is not the individual cost items incurred for the funded project that matter, but only whether the reason for the lump sum – in the example with each participant in the course – has arisen. If these lump sums cannot be fully utilized, a deviation from the lump sum is not permitted, unlike in the case of expenditure-based funding. The grantee must claim the lump sums in full. The actual expenses incurred by the funded program are therefore not relevant.
This means that a lump sum is considered eligible as long as a corresponding e.g. participant can also be proven for this lump sum. Therefore, everything that flows into the funded project is eligible and basically serves the purpose of the grant, as long as the sum of the lump sums is covered by the corresponding number of participants. Due to the broadness of the purpose of the grant, funds that have not yet been used can be used for anything that serves to achieve the project goals (e.g. teaching materials).
Costs for “ongoing operations” also eligible (on a pro rata basis)
If there is no conclusive regulation on the eligible expenses in the grant agreement, notification or ancillary provisions (e.g. only for personnel), a distinction must be made in the individual case.
Due to the described broadness of the purpose of the grant, all expenses attributable to the project are eligible. This means that not only those expenses are eligible that are additionally incurred by the project funded. Therefore, expenses for “ongoing operations” must also be taken into account on a pro rata basis.
Often, in practice, only “additional costs” are allocated to the project. Thus, overhead costs (such as those for room use, provision of infrastructure, gas, electricity, water) or “anyhow costs” (such as teaching staff paid from budgetary funds, such as professors or teaching assistants) are not (proportionally) allocated.
Limit: Approval period is exceeded
However, fixed-amount funding does not exempt from the obligation that unused funds must be repaid at the end of the grant period (should such a period be regulated). Something else applies, of course, if the regulations on which the authorization is based stipulate otherwise.
For example, the grant agreement (or a grant notice) in the example given at the beginning could contain the following provision:
“The awarded grant is available to the grantee from Jan. 1, 2017, through Dec. 31, 2018, to fulfill the purpose of the grant in a timely manner.
The funds are earmarked and intended exclusively for payments in the specified period.
Appropriations may not be carried forward into the next fiscal year.”
If it is determined that funds remain after the end of the period specified in the regulation, they must be repaid. The residual amounts cannot be paid into the project retrospectively, but are subject to a claim for repayment either under a regulation underlying the grant or, in any case, under Section 812 of the German Civil Code (Bürgerliches Gesetzbuch – BGB), because there is no legal reason to retain them outside the grant period.
Funds no longer used for the grant purpose are due the day after the end of the grant period. The claim for repayment is then calculated from the difference between the amount of the grant and the funds remaining after the end of the grant period, as long as the following limit has not also been reached.
Limit: Expenditures within the appropriation period would no longer be economical and frugal
It should also be pointed out that fixed-amount funding does not generally exempt an organization from the obligation to repay funds not actually needed during the grant period. Of course, this does not apply if the regulations underlying the grant (e.g. in the grant agreement) stipulate that funds that are not required can be used elsewhere.
In accordance with general principles, subsidies must be used economically and sparingly.
If the total amount of funding is not required to achieve the purpose of the grant, the difference must generally be repaid. Only what is needed for the funding purpose then forms the funding amount. Anything beyond this cannot be retained and used for any other purpose.
However, because of the broad coverage of the purpose of the grant outlined above, all costs associated with the funded project are covered. Admittedly, there is a limit to economic efficiency and economy here. If this is exceeded, the purpose of the grant is no longer being supported with the risk of reclaim. From the point of view of economy and efficiency, it must be examined whether the project is suitable and necessary to contribute to the fulfillment of the purpose of the subsidy. However, since this is defined very broadly here, costs within the scope of the funding program – in the example of the course offering – are generally always suitable and necessary for the implementation of the courses, so that seemingly unused funds can be used for the implementation of the courses within the grant period. The Federal Court of Audit also writes on a repayment obligation if the eligible expenditures in the implementation of the project as a whole fall short of the approved grant: “In practice, however, this is likely to occur only rarely.”
If no way can be found here to use the funds within the scope of the course offering, in this case the claim for repayment of the grantor is calculated from the difference between the amount of the grant and the sum of the eligible expenses.
Recommendations for practice
If, after a review of the regulations underlying the respective funding, funds not required for the funding purpose are to be repaid, a three-step approach is recommended:
If, despite taking the aforementioned two steps, funds remain from the program lump sum, they must be refunded.
Do you want to get in touch with the author? Then call Jannike Ehlers at +49 (0)40 360994-5021 or write to her at firstname.lastname@example.org – she looks forward to hearing from you.
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