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Management provisions largely determine the effectiveness of the NGO Programmes. Below are several issue areas that were identified in the course of the evaluation:

4.1. General rules and their fit with the nature of the NGO Programmes

The NGO Programmes are regulated by a number of documents – the Regulation, the Rules on appointment of a Fund Operator, the Guideline for NGO Programmes, the Programme

Implementation Agreements (PIA) and the Programme Agreements (PA)¹¹ with each Operator, as well as a number of guidelines and manuals of the EEA grants. As outlined by the Operators in the Warsaw meeting (June 2014), issues of different interpretations of provisions were raised during Programme implementation and consumed a lot of energy and resources of both the FMO and the Operators.

As outlined by the management of the FMO, the Regulation was designed for different types of Programmes in the framework of EEA and Norway grants – Programmes of much larger scale (the normal threshold of grants assistance is normally € 1 million and managed by public institutions). All these Programmes are contracted through the NFP and managed by appointed public institutions that are implementing public policy in the relevant area.

The NGO Programmes are different. They are focusing on the development of civil society by seeding value-based initiatives and enabling NGOs and civic groups to act as catalysts that mobilize citizens and voice out their interests to improve policies in priority areas. This requires a lot of flexibility, innovative ideas, creative actions and organizational development. Sizes of the grants are much smaller, with a great number of them between € 5,000 - 50,000, and the project promoters are NGOs, not public institutions.

Due to these differences the NGOs are present in the Regulation as an exclusion to the general rules for the other EEA Grants Programmes. Most of the Programmes covered by this evaluation therefore fall under Art 5.13 (contracting directly with the FMO). Although as a result the Regulation does not apply to these Programmes, many of its provisions are translated in the PIAs.

The PIAs also repeat many of the clauses of the Guideline for NGO Programmes. The Guideline on its behalf is applicable to NFP contracted Programmes and “not directly applicable” (art. 3.2.) to the FMO contracted ones. It also instructs that in the cases of direct contracting the Operators’

Terms of reference and PIAs “shall be broadly based on the provisions of both the Regulation and the present Guideline”.

Special and clear rules, especially for the directly contracted NGO Programmes, were obviously needed but were not developed, maybe also due to the fact that still 4 out of 17 Programmes were contracted through the NFP and in order to operate they needed clarification in the overall Regulation. The PIAs and PAs signed with each Operator are currently the guiding documents that translate the Regulation and the Guideline for the concrete Programme on a country level, but their length and complexity imposes additional administrative burden on FMO and Fund Operators, particularly for amendments.

4.2. Management fee and resources for implementation

The management fee of the NGO Programmes is following the provisions of the Regulation (Art.

7.10) and is calculated as a percentage of the total eligible expenditures of the Programmes depending on their size¹². Several issues related to management fees were raised during the evaluation:

• Insufficient resources for management.

The majority of the NGO Programmes (11 out 17) are below € 10 million. The management fee for Programmes below this threshold is 10% (up to 15% if funds for Capacity building and Complementary actions are included, see below). This resulted in very limited funds to cover management costs especially for the smaller programs that are below € 6 million (e.g. Cyprus, Estonia, Malta, Lithuania, Slovakia and Slovenia). Though smaller as overall funding, the management of these Programmes entailed a significant workload to respond to administrative requirements, as well as to meet the demand from the sector as to the level of project applications.

11 PIA is signed with each Fund Operator directly contracted by the FMO. PA is signed with the NFP that contracts Programme Operators to manage the NGO Funds.

12 10% of the first 10 Mln, 7% of the next 40 Mln, 5% of the next 50 Mln and 4% of the remaining amount

• Costs for external audits of the projects to be provided by the Operators, as stipulated by the PIA.

In a number of countries the PIA requirement for financial audit of a part of the funded projects was understood by the Operators as costs for the relevant actions of their own accounting staff.

The clarification that the audit should be external to the Operator came at a later stage. This affected both smaller and larger Programmes. Just several examples. In the case of Estonia, where the programme and respectively the management cost is small, this is currently causing issues with finding relevant funding to provide for the external audit which is an expensive exercise.

Lack of this funding is among the reasons, why the Operator will not be able to keep all of its Programme staff until the end of the current Programme. Another example is the Bulgarian Operator – OSI has a long history and experience in auditing financed projects by its internal auditor. The requirement for an external audit came as a surprise after the Programme proposal was submitted, and there was no budget allocated for it. The same was the case with Poland.

• Insufficient resources for capacity development, strategic communication and work at the sector level.

The management costs are spent on overheads and administration of the fund. This guarantees the operation of the NGO programs as regranting mechanisms (administration, financial oversight, announcing and organizing of calls, events related to this, monitoring, processing of reports, etc.), but it does not provide for capacity building and sector level work by the Operators. In order to overcome this gap the donors included additional costs for capacity building (up to 3% of the overall fund). Complementary action was also included, with both regional and country level dimensions. According to the Regulation, all these costs together with the management cost should not be more than 15% (Article 7.10, 7.11).

As these additions for capacity building and complementary action are also designed like a flat percentage of the overall eligible costs, they are also facing issues with proportionality. For small Programmes they are really insignificant. In addition, for all Programmes the current level of resources for capacity building confines it to technical assistance for project application and raising the administrative capacity of supported NGOs. Allocated resources are not sufficient to meet the objective of the Programme, which requires a more proactive approach in growing functional capacities of the sector - related advocacy, collaborative initiatives and innovation.

• Bank guarantee or retaining % of the management fee for risk mitigation

A guarantee to cover financial risks or irregularities at the project or Programme level is required for the direct contracts with FMO. The requirement is not present for the Programmes contracted by the NFPs (including the other Programmes of the EEA and Norway Grants), as it is the NFPs that are accountable in the event of financial risk. The 13 directly contracted Operators could choose from two options: (1) providing bank guarantee for certain percentage of the allocation (plus the FMO retaining up to 10% of the management cost portion of every advance and interim payment) or (2) the FMO retaining 30% (instead of 10%) of the management cost. The details of how it will be handled are specified in the relevant PIA with each Operator.

Four of the directly contracted Operators have chosen the option for a bank guarantee –Bulgaria, Slovakia (SK10), Estonia and Hungary. Seven Operators have the provision that 30% of the advance and interim payment of their management are retained by the FMO, and in two countries this share is lower – 10% in Slovenia and 15% in Lithuania.

Based on the interviews with all Operators, these risk mitigation measures present another resource management challenge. They are especially difficult for Operators of small Programmes, which have insufficient management costs, and if 30% are retained this puts a lot a stress on the organizations managing the fund. All of the Operators are NGOs/Foundations and (with few exceptions among the bigger ones) have difficulties in allocating their own resources in order to support costs of the management fee to be paid after the end of the Programme.

Obtaining bank guarantees for five years, especially for an NGO, is a challenge by itself, and the bank charges can be very high. Some of the Operators (e.g. Ekopolis in Slovakia) are willing to freeze their own funds for the guarantee and not use a bank guarantee. But the bigger question is the merit of the guarantee at all. As phrased in one of the interviews “Covering the risk for the donor brings high risk for the Operator, creates cash flow problems and does not help but deteriorates the Fund Operator’s capacity”.

• Management and control systems

In addition, all Operators had to develop Management and Control Systems (MCS) and provide independent auditor’s opinions on them. The involvement of auditors (contracted by the Operators from among renowned international companies) proved to be counterproductive for two reasons.

First, there was no guidance on behalf of the FMO in terms of expectations, especially in respect of the “assessment of the proportionality of the management and control systems’ requirements in relation to the effectiveness of achieving the objectives of the Programmes”. Secondly, where the Operators worked with the auditors for refining their traditional MCSs (e.g. Bulgaria) the final product was a rigid system of multiple checklists quite similar to the procedures applied by public institutions managing EU funds and surpassing the FMO requirements.

5. Interaction with the National Focal Points and linkage with other EEA and Norway