Donor rules: eligibility, procurement, equipment and visibility

1What is an eligible cost?

Donors use different wording, but the eligibility criteria for a cost are similar everywhere. A cost is generally eligible if it is:

• Necessary for implementing the project and planned in (or compatible with) the approved budget.
• Reasonable: a prudent buyer would have paid this price (principle of sound financial management: economy, efficiency, effectiveness).
• Incurred during the implementation period of the contract (not before the start date, unless agreed, nor after the end date, except authorised closure costs).
• Actually incurred, recorded in the accounts, identifiable and verifiable, with original supporting documents.
• Compliant with local law (tax, social) and the contract rules (procurement, nationality, origin).
• Consistently charged: the same method for all projects, without double funding.

Common ineligible costs: debts and interest, provisions for future losses, exchange losses (often), fines and penalties, extravagant expenditure, gifts, costs already funded by another donor, recoverable VAT, purchases made outside procedure, expenditure without supporting documents, and expenditure outside the period.

An expense can be useful, honest and ineligible. Eligibility is checked before spending, not at reporting time.

2The main families of donors

Each donor has its own rules; you must always read the contract and its annexes. Some general characteristics:

• European institutional donors (the European Commission and its humanitarian aid service, national agencies): detailed rules on procurement, visibility, interim and final reports, audit or expenditure verification; indirect costs often capped at 7%; framework partnerships with prior vetting of the organisation.
• US federal rules (2 CFR 200, the "Uniform Guidance") for organisations receiving federal funds: principles of reasonable, allocable and consistent costs; a negotiated indirect rate or the minimum rate (15% of modified total direct costs since the 2024 revision); a single audit above a threshold of annual federal expenditure for US organisations; strict rules on equipment and procurement.
• UN agencies as donors to partners: partnership agreements with their own rules, the HACT approach (partner assessment, payment modality adapted to risk, spot checks, audits), support costs often limited.
• Pooled funds managed by OCHA (country-based pooled funds): partner capacity assessment, a risk level that determines instalments, checks and audit; they fund many national NGOs.
• Foundations and private donors: rules often more flexible, but transparency commitments and sometimes restrictions on overhead costs.

The same project may be co-funded by several donors: each expense must then follow the rules of the donor it is charged to, and you must be able to prove that no expense is funded twice.

3Procurement rules

Procurement accounts for a large share of disallowed costs. Contracts impose thresholds that determine the procedure: direct purchase below a small amount, comparison of at least three quotations above it, restricted or open tender for large amounts. The exact thresholds vary by donor and by internal policy, which must be at least as demanding as the donor's.

Common requirements:

• A complete procurement file: approved purchase request, quotations or bids, comparative analysis signed by a committee, purchase order or contract, delivery note, invoice, proof of payment.
• A ban on split purchasing: dividing a purchase into several orders to stay below a threshold.
• Screening of suppliers against sanctions and debarment lists.
• Rules on the nationality and origin of goods for some donors, with waivers to be requested.
• A conflict of interest declaration by members of the procurement committee.

Example. Three-quotation threshold: 5,000 USD. Over two months, an office orders 6 batches of office supplies from the same supplier at 4,200 to 4,900 USD each, 27,600 USD in total. An auditor will consider this a single split requirement: the purchases are at risk of being declared ineligible, and the question of possible collusion will be raised. Good practice is to plan the annual requirement and set up a framework agreement after competitive bidding.

4Equipment, assets and disposal

Goods bought with funding (vehicles, generators, computers, medical equipment) are subject to rules on ownership and use:

• They are recorded in an asset register with a number, original funding source, date, value, location and person responsible.
• They serve the project for its duration; use for other activities must be limited, documented and, where possible, recharged.
• At the end of the project, their disposal follows the contract: transfer to beneficiaries, partners or the authorities; retention by the organisation for a project of the same nature; sale with the proceeds refunded to the donor; or return to the donor. A disposal without approval, where approval is required, may lead to repayment of the asset's value.
• A physical inventory, at least annual, compares the register with reality (tags, serial numbers).

Vehicles deserve particular attention: logbooks (mileage, trips, driver, fuel), maintenance, insurance, and allocation of costs between projects according to actual use. Abnormal fuel consumption relative to kilometres is a classic indicator of misappropriation.

5VAT, taxes and social charges

VAT and indirect taxes are eligible only if the organisation cannot recover them. In many countries, NGOs benefit from exemptions provided for by a host country agreement or by law: requesting, documenting and applying them is part of good management. VAT paid when an exemption was available may be judged unreasonable.

Payroll taxes and social charges are eligible and mandatory. Not paying them (for example by employing staff as "consultants" or "volunteers" to avoid charges) exposes the organisation to reassessments, disputes and ineligible costs. Donors increasingly require proof that tax and social obligations are met.

Example. An office paid 18% VAT on 200,000 USD of purchases although an exemption was provided for in the agreement with the state and a refund was possible. VAT paid: 36,000 USD. The donor may disallow these 36,000 USD as an avoidable cost; the organisation must request a refund from the tax administration and put the exemption procedure in place.

6Visibility, records and organising compliance

Visibility obligations (logos, acknowledgements in publications, communication) are part of the contract, with possible exceptions where display creates a security or protection risk: the exception is requested and documented.

Other obligations are often forgotten: record retention (often 5 to 10 years after final payment depending on the donor and the law), reporting suspicions of fraud within a set deadline, personal data protection, safeguarding policies (protection from sexual exploitation and abuse, child protection), and conditions relating to sanctions.

To organise compliance, mature organisations use:

• A grant summary written at signature: dates, amounts, instalments, flexibility, indirect rate, procurement and nationality rules, equipment, visibility, reports (dates and formats), audit, retention, contacts.
• A kick-off meeting with programmes, finance, logistics, HR and MEAL, so that everyone knows their obligations.
• A tracking table of all grants with their deadlines.

Most costs disallowed during audits stem from a rule that field staff did not know about. The grant summary and the kick-off meeting are the two most cost-effective controls.