European Social Fund

European Social Fund

European Social Fund in the Czech Republic: What are the current funding rules and what do we know about future developments?

In mid-August, the Czech Ministry of Finance came up with a new proposal to change the conditions for the payment of European subsidies from the European Social Fund (ESF). In practice, this proposal could have a major impact on clients of non-profit organizations drawing European money, for example on social services and education. How does the ESF project funding system now work? Who is spending money on projects ex-ante and who ex-post?

The European Social Fund at a glance

The European Social Fund is an important instrument for supporting so-called soft projects, which are designed, for example, to promote education, employment or social services. It has been operating in Europe since 1957 and the Czech Republic started to draw its first funds after its accession to the EU. The current seven-year programming period ends in 2020 and builds on the two previous ones. Funds to support social projects are currently managed under three so-called operational programs:

Discussions are currently underway on setting conditions for the upcoming period (2021-2027). In particular, a possible increase in the co-financing rate by beneficiaries and the abolition of pre-financing considered by the Ministry of Finance are addressed. In this article we will therefore focus on the current state and rules of drawing subsidies from the European Social Fund and the likely scenario of development for the future.

Non-profit organizations usually receive 100% funding, other applicants co-finance mostly 5 or 15%

Project applications are submitted by applicants to so-called calls, which are announced by individual managing authorities. Each call has its own specific conditions and is defined by a number of criteria – thematically, target groups, territorial focus, minimum and maximum amount of required funds and length, range of eligible applicants (mostly NGOs, schools, municipalities, regions, business corporations etc.) or rate of financial support.

The level of support varies from call to call. In the case of non-profit organizations, the most common case is up to 100% of the financing of the project costs, with EU funds covering in most cases 85% of the costs and the share of the Czech state budget is 15%. For other types of organizations applying for a grant, the co-financing rate is most often between 5 and 15%. However, there are also cases of 50% co-financing by the beneficiaries, especially in case of business corporations. Self-financing of applicants reduces the contribution from the state budget of the Czech Republic and the organization has to cover it from its own resources.
Below is an illustrative example of the most frequent support rates in the Operational Program Employment managed by the Ministry of Labor and Social Affairs of the Czech Republic:

  • Non-governmental non-profit organizations performing publicly beneficial activities, state universities, etc.: 0% co-financing
  • Public universities, schools and school facilities registered in the school register, regions, municipalities, voluntary unions of municipalities, etc.: 5% co-financing
  • Business corporations, self-employed, professional chambers, etc.: 15% co-financing (less often 50%)

In addition to the type of organization of the applicant, other factors have an impact on the co-financing rate. These include in particular the territorial focus of support. If applicants focus on supporting more developed regions, such as Prague, the co-financing rate may increase. An example is some calls from the MEYS in the OP RDE program.

Grants are most often paid in advance

After approval of the project application for funding, the Managing Authority concludes a legal act with the beneficiary of the subsidy. It specifies conditions for drawing the subsidy, including the method of financing the project. The scope of the documentation to be provided by successful applicants before signing the legal act differs for particular operational programs. These are mainly information concerning the bank account, indebtedness, or evidence of sufficient financial capacity, etc.

The most common way of paying grants for the implementation of social projects is in the form of advance payments, ex-ante, which the beneficiaries subsequently report to the relevant managing authority. The amount of the first advance payment varies across particular programs and calls. Most often it ranges between 30 and 40% of the total project costs. Further advance payments are granted on the basis of the actual costs incurred up to the total eligible costs of the project.

In rare cases, the ESF calls also include cases of ex-post financing, when applicants receive funding only after submitting interim reports on project implementation (the most common are six-month or shorter monitoring periods). These cases concerned, for example, corporate training projects for employees in MLSA calls, the costs of which were financed by simplified reporting.

Project costs are accounted for on an ongoing basis based on payment requests and regular project implementation reports. Applicants are obliged to submit a statement of the so-called direct costs, which is most often 75% of the budget, and to prove the realized expenditure by accounting documents, pay slips, bank account statements etc. The remaining costs are considered indirect costs and do not have to be reported by the applicants. Most often, these are overheads and costs spent on project management and administration.

In less frequent cases, administration is simplified where the amount of aid is not determined on the basis of actual expenditure but on a flat-rate basis based on statistics and normal cost calculations and applicants do not have to provide evidence of expenditure.
Outlook for 2021-2027

The final framework of the new programming period is still in the negotiation phase. It will be influenced both by the political and economic development of the European Union and the Czech Republic. The European Commission’s interim proposal to finance projects from the European Social Fund amounts to EUR 2.74 billion. In the previous programming period (2014–2020), the allocation of ESF funds to support projects in the Czech Republic amounted to EUR 3.43 billion.

In the new period we should again meet similar operational programs, which are now managed by the MLSA and MEYS. Their announced focus largely thematically covers the areas supported also in the current period – support for education, social services, social inclusion, equal opportunities, etc. However, the rules for the payment of subsidies and the resulting amount of co-financing remain an open question.

(According to the most recent reports, the Minister of Finance Alena Schillerová asked for a thorough analysis of the possibilities of the beneficiaries. Subsequently, she plans to discuss prospective changes with representatives of other ministries.)

Author of the article
Zdeňka Havrlíková

Zdeňka is the founder of the social impact consultancy called AVITEUM. It helps organizations and individuals who strive to solve challenges in our society to turn their strategic visions into reality. AVITEUM focuses on grant writing, project management and strategic development of non-profit organizations and their capacity building.

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