Cost recovery

In preparing the budget, the Principal Recipient (PR) should include all relevant direct costs and indirect overhead costs.

The PR is responsible for negotiating any indirect and overhead costs to be charged by Sub-recipients (SRs) and other implementing entities. If such entities are international nongovernmental organizations (NGOs), the relevant indirect cost recovery policies on SR costs apply. Local NGOs should include all charges as direct costs.

When formulating Global Fund budgets, UNDP policy is adhered to with respect to cost recovery. UNDP distinguishes between two types of costs in the implementation of its activities. These are:

1. Costs that are in addition to direct project costs, representing the costs to the organization that are not directly attributable to specific projects or services, but are necessary to fund the corporate structures, management and oversight costs of the organization. These costs are recovered by charging a cost recovery rate, known as General Management Support (GMS) fee; and
2. Direct Project Costs (DPC) (or Delivery enabling services) - direct costs of programme, administrative and operational support activities, that are part of the project input.

General Management Support

GMS is defined as indirect costs incurred by an organization as a function and in support of its activities, projects and programmes. The key feature of these costs is that they cannot be traced unequivocally to specific activities, project or programmes.

The agreed percentage fee for GMS between UNDP and the Global Fund is non-negotiable. GMS is to be categorized as overhead and included as a budget line for all grants. Based on the exceptional approval of UNDP’s Executive Board for existing corporate framework agreements, the GMS rate between the Global Fund and UNDP is 7 percent. This GMS rate is applicable for the Principal Recipient role and when UNDP is providing technical support to a Global Fund Principal Recipient or Sub-recipient through a Financing Agreement. Any deviations to the GMS rate must be approved by the BMS Director prior to any negotiations with the donor. Refer to UNDP Programme and Operations Policies and Procedures (POPP) on Resource Planning and Cost Recovery for detailed guidance on GMS.

Direct Project Costs (or delivery enabling services)

Direct Project costs (DPCs) are organizational costs incurred in the implementation of a development activity or service that can be directly traced and attributed to that development activity (projects & programmes) or service. Therefore, these costs are included in the project budget and charged directly to the project budget for the development activity and/or service.

DPC are driven by either: (i) Programme implementation and implementation support activities - costs incurred by UNDP to support project implementation by Operations Units, including services related to finance, procurement, human resources, administration, issuance of contracts, security, travel, assets, general services and information and communications technology; or (ii) Development effectiveness – activities and costs that support programme quality, coherence and alignment and relate to results in country and at regional levels. These are activities of a policy advisory, technical and implementation nature essential to deliver development results. In UNDP Country Offices (COs), these are the costs associated with Programme Units and Programme Support Units.

Direct project costs shall be identified during the project initiation phase. All anticipated programmatic and operational inputs, including development effectiveness activities and implementation support arrangements, need to be identified, estimated, and fully costed during the preparation of the project budget and annual work plan. DPC costs are to be calculated based on the actual costs required to provide implementation project support.

The below are the options for implementing DPC for the GF projects:

• Application of the CO workload study results, combined with multiple funding lines for post.
• Application of the Universal Price Lists (UPL) or Local Price List (LPL) for transactional costs recovery.
• Refer to UNDP POPP Resource Planning and Cost Recovery for detailed guidance note on Planning and Costing Global Fund (GF) projects.

Please refer to POPP/PPM Design/Prepare Fully costs Budgets for Projects/Guidelines for GF projects: Guidance Note on Planning and Costing Global Fund (GF) Projects

Audit costs

The audits that are carried out by the Office of Audit and Investigations (OAI) cover only the Principal Recipient (PR) activities as managed by a given UNDP Country Office (CO) or Regional Service Centre (RSC). 

Practice Pointer

Should the Country Office have a Financing Agreement (FA) to provide technical support to a non-government organisation or a national partner then the activities will be included in the audit of the Country Office and not part of the UNDP PR OAI audit. Therefore, there should be no audit costs include in the programme budget for a FA.

Effective 19 September 2017, UNDP and the Global Fund agreed to a tailored audit cost recovery process, in alignment with OAI’s risk-based approach to audit, as formalized in the Framework Agreement.

The process agreed with the Global Fund is as follows:

1. Budgeting – COs and RSCs managing Global Fund grants are advised to budget for the OAI audit costs as follows:

   • High risk countries should budget for the audit costs of US$85,000 once in two (2) years. For high risk countries the timing of the budget should take into account the date the last OAI audit report for Global Fund programmes was issued.  For example, if a high risk country was last audited in 2021, they should make a provision for a budget in 2023.

   • Medium risk countries should budget audit costs of US$85,000 once in three to four (3-4) years.

   • Low risk countries should budget audit costs of US$85,000 once in four to five (4-5) years.

   • In all cases, should a country not be audited in a particular year, then they should re-phase the audit budget to the following year until an OAI audit takes place and payment is made.

   • The risk ratings per country are updated by OAI every year in Quarter 4.

   • The risk ratings will be communicated by the UNDP Global Fund Partnership and Health Systems Team (GFPHST) to the concerned COs and RSCs.

   • New Countries should use the previous year’s country risk rating to guide them in terms of the frequency of the OAI audits and should budget accordingly.

   • For countries with more than one grant agreement the costs should be apportioned across the respective grant budgets (including C19RM), based on the total signed grant amounts.

   • The audit costs are planned and budgeted under the account for “Professional Services” (74100).

   • In the event there is an ‘unsatisfactory’ OAI audit rating, there will be a follow-up audit in the subsequent year as per UNDP guidelines. The CO or RSC should, therefore, request a budget reallocation to cover the costs of the follow-up audit.

   • In Quarter 1 of the last year of the Implementation Period, UNDP will review the utilization of the audit costs and agree with the Global Fund on reprogramming of the savings, if any.

   • For the active grants that do not have a budget line for OAI audits, COs or RSCs shall submit a request to the Global Fund for the budget reallocation of savings to include the audit costs in the respective grant budgets and the cash forecast for the annual Disbursement Request.

2. OAI’s annual Global Fund audit plan – In December of each year, the UNDP Global Fund Partnership and Health Systems Team (GFPHST) will share with the Global Fund and the COs and RSCs the OAI audit plan for the subsequent year and a proposal for the distribution of audit costs for the respective countries. For all grants selected for audit the CO or RSC should include audit costs in the cash forecast for the annual Disbursement Request. 

3. Upon the upon the issuance of a draft audit report by OAI, the $85,000 for audit costs will be charged to the respective grants to an expense account 74110 -Audit fees, with a prorating of the cost (based on the signed amounts of active grants (including C19RM) for countries with more than one grant and credited to the UNDP Global Fund Partnership Health System Team’s COA.

Technical assistance

UNDP and the Global Fund have agreed to charge a lump sum of $50,000 to the budget of the relevant Global Fund grants to cover direct costs incurred by UNDP headquarters or regional offices for providing technical assistance to relevant national entities to prepare them for assuming the role of PR in line with capacity development or transition plans approved by the Country Coordinating Mechanism and/or the Global Fund. Further guidance on Cost Recovery related Technical Assistance can be found here.

1% coordination levy

The 1% coordination levy endorsed by Member States on 31 May 2018 through the United Nations General Assembly resolution 72/279 on the Repositioning of the United Nations development system (paragraph 10) does not apply to contributions from the Global Fund.