Ministers’ Deputies
CM Documents

CM(2010)143       28 October 20101

1099 Meeting, 23-25 November 2010
11 Administration and logistics

11.5 Administrative expenses levies on extrabudgetary resources

Secretariat memorandum prepared by the Directorate General of Administration and Logistics

Item to be prepared by the GR-PBA on 18 November 2010

1. In February 2005 (915th meeting, point 11.4) the Committee of Ministers approved the implementation of a system of administrative expenses levies on extrabudgetary resources. The applicable rates have already been reviewed once in 2008 (1032nd meeting, point 11.1).

The Committee of Ministers is invited, within the approved framework:

    1. to approve the proposal to raise the rate of levy on extrabudgetary contributions from 1.5% to 2.3% (cf. paragraph 22 below);

    2. to fix the amounts for annual levies per position financed by these contributions to:

- €18 000 per position occupied by a staff member based in the Strasbourg, Paris or Brussels premises (€16 100 since February 2005) (cf. paragraph 24 below);

- €3 300 per position occupied by a staff member based in the Graz or Lisbon premises (paragraph 25 below).

Opinion of the Budget Committee

2. In its October 2010 meeting report, the Committee recommended the proposed changes to rates of levy while emphasising that these changes did not prejudge the introduction of another calculation method in the future (cf. CM(2010)137, paragraphs 44-48).

Introduction

3. The annual amount of extrabudgetary resources (voluntary contributions and EU contributions to joint programmes) has grown considerably with time, increasing from €10.8 million in 1999 to €28.8 million in 2009. Over the same period member states' contributions to the Ordinary Budget increased from €153 million in 1999 to €205 million in 2009, including the financing of the two reinforcement programmes for the Court of Human Rights.

4. The structure of the Organisation's programme/budget has been modified and now makes it possible to have an overview of all of the Organisation's resources, including its budgets (general budget and partial agreement budgets) and the European Union's contributions to joint Council of Europe/EC programmes. This helps to clarify the link between the Ordinary Budget programmes, those financed by the partial agreements and the European Youth Foundation (some €40 million in 2010) and the joint programmes (€28.8 million in 2009). Only voluntary contributions, the amount of which is by nature to a large extent unforeseeable, are not indicated in full.

5. These supplementary programmes can however be implemented only by utilising the Organisation's administrative and logistical structures. This situation has moreover long been acknowledged in the case of the partial agreements since, in accordance with Article 21 of the Financial Regulations, a system whereby the partial agreements contribute to the Organisation's general operating costs has existed since 1974 ("fixed sum contributions"). The Budget Committee last examined this system in 1989 and, at the time, did not wish to change the rules in force.

Review of the current situation

Partial Agreements
6. The fixed sum contributions system is based on three separate "baskets" of expenses: the first includes general services expenditure covering services used by all entities of the Organisation, the second covers services used by all partial agreements based in Strasbourg apart from the EDQM, which finances its own premises and partly has its own IT systems, and the third solely includes general services expenditure covering services used by the partial agreements not based in Strasbourg and having their own premises: the Lisbon North-South Centre and the Graz Centre.

7. The total expenditure in each basket is divided by the total number of staff concerned (plus the judges of the Court and the Commissioner for Human Rights), and the result is re-allocated on the basis of the number of staff of each partial agreement.

8. By way of illustration, in the 2010 budget, the total of the basket to be allocated to all entities based in Strasbourg calculated according to the approved method (basket 1) amounted to €16 843 000 for a total of 2 366 staff, corresponding to a fixed cost of €7 100 per member of staff. The total of the supplementary basket (basket II) to be allocated to all entities based in Strasbourg apart from the Pharmacopoeia amounted to €40 997 000 for a total of 2 146 staff, corresponding to a fixed cost of €19 100 per member of staff. The amount calculated for basket III, applicable to the partial agreements not based in Strasbourg, was €6 200.
The calculation of the contribution payable by the Pompidou Group partial agreement, based in Strasbourg and having twelve staff members, was accordingly: €7 100 x 12 + €19 100 x 12, giving a total of €314 400.

9. Since the receipt is stable in nature (the contribution is levied whether or not the posts are filled), the total amount corresponding to these fixed sum contributions is included within receipts in the Ordinary Budget.

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Extra-budgetary contributions
10. In 2005 (915th meeting, point 11.4), the Deputies approved the implementation, with effect from 1 January 2005 of a system of levies for administrative expenses on extra-budgetary resources (joint programmes or voluntary contributions) to cover the administrative and logistical expenses incurred as a result of the implementation of externally financed programmes:

“The Deputies
1. authorised the opening of a Special Account entitled “Administrative Costs – Activities financed by external contributions” on the same basis as that governing the opening and management of Special Accounts adopted at their 431st meeting (27 November – 1 December 1989, item 42.a);
2. decided that this Account would serve to cover administrative and logistical support expenses incurred in relation to activities financed by external contributions;
3. decided that this Account would receive allocations from joint programmes and voluntary contributions to unfunded activities in accordance with the modalities set out in document CM(2005)1.”

11. The logic underlying this system was based on the marginal cost concept, that is the principle that the Organisation's fixed structures were already financed. It led to the introduction of a 1% levy on all contributions to cover all the related financial transactions resulting from the contributions and a fixed sum contribution of €16 100 per staff member based in Strasbourg and financed via a voluntary contribution or joint programme. This amount was calculated on the basis of the baskets principle, as described above for the partial agreements, but was adjusted so that it solely reflected the marginal cost of the staff (CM(2005)1).

12. As a result of changes in the management procedures following recommendations made by the external auditor in 2006, the accounting transactions relating to joint programmes represented a significantly greater burden. The rate of the levy was accordingly increased by the Deputies to 1.5% in 2008 for programmes signed on or after 1 August 2008 (1032nd meeting, point 11.1)2.

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Possible evolution of the levy system

13. The growing importance of activities financed with non-Ordinary Budget resources today raises two questions:
- Is the fixed sum contributions system for the partial agreements still satisfactory?
- Should the system of marginal levies on externally funded projects be modified?

Fixed sum contributions system
14. The new budget presentation now pinpoints, in the 4th pillar, all of the Organisation's common expenses. Some of these expenses are already included in the baskets, but others are not.

15. Historically, certain costs have not been included in the calculation of the fixed sum contributions, a decision which can be called into question. Specifically the costs of the Private Office of the Secretary General, of Protocol, of the Legal Advice Department, of External Relations, of Political Advice, Policy Planning and External Presence and of the Administrative Tribunal are not currently included in the calculation.

16. It may therefore now be desirable to revise this system. However, a major political event for the Organisation will assume primary importance in the coming months and will have an impact on any cost allocation system. This event is the European Union's (EU) accession to the European Convention on Human Rights. The EU event will very probably be called upon to contribute to costs relating to the Convention and hence generally those of the Court, of the Department for the Execution of Judgments and of the part of the Committee of Ministers dealing with execution of judgments. It is clear that the costs of these sectors cannot be confined solely to the current budget lines but will also have to include the cost of buildings, computer and telecommunications networks, central administration (human resources and finance) and above all the employer's share of pension costs (as recommended by the Cour des Comptes). The discussions on the accession conditions have not yet been concluded, and consequently no decision on the determination of the Union's contribution has yet been taken. Since it is possible that the way this contribution is calculated will lead to a complete overhaul of the cost allocation systems, it is premature to implement a partial revision of the system at present, as it will perhaps be necessary to come back to this matter in the very near future, in all probability in the course of 2011.

Levies on voluntary contributions and joint programmes
17. The level of voluntary contributions and joint programmes has been high for some years now, and it was initially considered whether they could not be incorporated into the partial agreements system. This possibility had to be discarded as the present system is based solely on the number of staff, which in the case of the programmes varies considerably since the expenditure linked to certain voluntary contributions may sometimes include no staff expenses, whereas in other cases it is almost entirely made up of staff expenses. This question could be reconsidered if the entire system has to be overhauled in the framework of the Union's accession to the European Convention on Human Rights.

18. A second possibility considered was to continue with the existing system, but identifying those expenses not included in the calculation of the 1.5% levy applied since 2008 and the cases for which no levy had been proposed.

19. The joint programmes' growing importance makes their evaluation absolutely essential. This was moreover underlined by the Organisation's external auditor, whose summary report on the 2009 accounts includes the following observation: "Since the Council of Europe is involved in numerous projects, particularly field activities in partnership with the European Union and other donors, evaluating these projects and programmes, in terms of their relevance and added value, the efficiency with which they are carried out, their effectiveness, and their impact and sustainability, is of key importance for the Organisation. We recommend that the Directorate of Internal Oversight should establish a methodology for evaluating programmes and projects as rapidly as possible."

20. Staff will clearly be needed to perform these evaluations and audit certain programmes; the Directorate of Internal Oversight has estimated this need at two full-time positions.

21. In addition, the various contracts concluded in respect of joint programmes or the payment of voluntary contributions generate a significant workload for the Legal Advice Department. Contracts are concluded not only when activities begin but also during their implementation. Moreover, it has been noted that about 30% of the files now submitted to the Tenders Board concern activities carried on outside the Ordinary Budget or the partial agreements. The additional staffing needs in these two sectors have been estimated at one person full-time equivalent.

22. Overall, the additional needs correspond to a supplementary levy of 0.8% (a global cost of €238 000 for total contributions of €28.8 million). It is therefore proposed to increase the rate from 1.5 to 2.3%.

23. Following a recommendation by the external auditors, it must be ensured that this levy is applied without exception to all extrabudgetary contributions paid to the Organisation.

24. With regard to the sum levied per staff member, the current rate (which only applies to staff based in Strasbourg) has remained unchanged since February 2005. The calculation method used at the time (CM(2005)1) can continue to be used while updating the data, but it would now appear appropriate to include certain human resources services which were not included in 2005 (training and career management) since, under the new staff policy, persons employed on positions have the status of permanent rather than temporary staff. On the basis of the 2010 data, the rate as recalculated would be €18 000 instead of €16 100.

25. For staff not based in Strasbourg, no fixed sum contribution has been applied so far, although resources are clearly required to manage them. It is therefore proposed to use the same basket as for calculating the fixed sum contributions of the Graz and Lisbon centres, but adjusted on the same basis as above, giving €3 300 for 2010. For staff assigned to offices of the Organisation such as the Paris or Brussels offices (or any other office of the same kind that may be set up), the same rate of contribution as for staff based in Strasbourg shoud be applied, since the services supplied in their case would be strictly equivalent. Furthermore, it should be noted that a direct cost-recovering charge of €4800 is included in the budgets of Joint Programmes for staff of joint programmes using the premises of Council of Europe field offices, the cost of which is borne by the Directorate General of Democracy and Political Affairs. This system may be reviewed in the future in the light of changes in the Council of Europe external presence policy.

26. In the specific case of joint programmes, the total amounts levied are offset against the fixed percentage for administrative overheads specified in the general conditions of the grant contracts concluded for external actions of the European Union: "A fixed percentage not exceeding 7% of the total amount of direct eligible costs of the Action may be claimed as indirect costs to cover the administrative overheads incurred by the Beneficiary for the Action, ..." Discussions with the persons dealing with these matters at the EU have shown that this 7% rate is at present an indispensable condition for the contract's signature and cannot be called into question.

27. All receipts generated by the levies on contributions paid and the contributions per post will continue to be included in receipts under the special account "logistical and administrative support for externally financed projects" (LS).

28. It should also be noted that the Council of Europe's contribution to joint programmes consists also of the working time of a number of staff charged to the Ordinary Budget, whose costs are included in the lines for the corresponding programmes.

29. A table illustrating the effect of proposed adjustments to the levies is appended hereto.

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APPENDIX

Note 1 This document has been classified restricted until examination by the Committee of Ministers.
Note 2 The rate of 1.5% will accordingly apply to all programmes once the programmes signed prior to 1 August 2008 have been completed.


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