At the end of every month, the same scene plays out in many NGOs: a finance coordinator waits for the scan of a fuel receipt worth a few euros, a field logistician searches for a mislaid invoice, and headquarters already dreads the audit where a single missing document will turn a legitimate expense into an ineligible one. Justifying every euro down to the cent consumes a considerable amount of time, strains cash flow when reimbursements are delayed, and places constant pressure on teams that are already overstretched. Yet another approach exists and is gaining ground with donors: simplified cost options. Instead of proving an expense item by item, you prove that an activity was carried out or that a result was achieved.

This article unpacks what simplified costs are, the forms they take, what they change in practice for your organization's budget monitoring, and their advantages and limitations. We then propose a five-step approach to implement them without compromising your compliance, and we explain how Abvius helps you steer this new model while maintaining an impeccable audit trail.

Simplified costs for NGOs: easing expense justification without giving up compliance

Reading time: ~13 min

1. Simplified costs for NGOs: what are we talking about?
2. The forms of simplified costs recognized by donors
3. Actual costs or simplified costs: what does the switch to SCOs change?
4. Advantages and limitations of simplified costs for NGOs
5. Implementing simplified costs: 5 steps for NGOs
6. Steering your simplified costs with Abvius
7. Simplified costs for NGOs: the mini-FAQ

Simplified costs for NGOs: what are we talking about?

Simplified cost options (SCOs) refer to a set of reimbursement methods in which the donor no longer reimburses the actual costs incurred, justified one by one, but instead amounts calculated according to rules defined in advance. Rather than linking each expense to an invoice and a proof of payment, you are reimbursed for an activity, a deliverable, a result or a volume, on the basis of a rate, a scale or an amount set before the project begins.

This approach originated in the European Union's cohesion policy, where it is now deeply embedded for the 2021-2027 period. It is gradually spreading to financing for external action and development cooperation, and is increasingly inspiring the practices of national and institutional donors. For an NGO or CSO juggling several grants, understanding this logic is no longer optional: it has become a financial skill in its own right.

The paradigm shift is profound. With actual costs, the finance team spends most of its energy on justifying the expense: the right invoice, the right receipt, the right cost-center allocation. With simplified costs, the focus shifts to the ability to justify the delivery: did the activity take place, was the deliverable produced, was the result achieved and documented? Rigour does not disappear; it shifts.

Why are donors encouraging simplified costs in 2026?

There are two reasons: to reduce the administrative burden and to reduce the risk of error. Audits based on actual costs generate a considerable volume of financial corrections linked to missing or non-compliant supporting documents, without these necessarily indicating fraud. By reimbursing on the basis of predefined methods, donors speed up payments, streamline controls and refocus the assessment on what really matters: the results achieved in the field.

The trend is accelerating. For the 2026-2027 programming, the European Commission has stated its intention to allocate a majority share of the budget of certain flagship programmes through lump sums, prioritizing medium-sized grants. The message sent to the sector is clear: simplified costs are no longer an exception reserved for small projects, but a management standard set to become widespread. Organizations that prepare for it now will gain a head start.

The forms of simplified costs recognized by donors

There is not just one way to simplify costs, but a toolbox. Donors mainly recognize three broad forms of simplified costs, to which, since the 2021-2027 period, a results-focused approach has been added. Distinguishing between them clearly is essential, because each addresses a different use case and calls for different evidence.

The flat rate

The flat rate consists of calculating a category of costs by applying a percentage to another category that has already been justified. The most common example is the rate of up to 7 % of eligible direct costs, introduced for 2021-2027 to cover indirect costs without specific supporting documents. Other rates exist depending on the programme, for example a percentage of direct staff costs to cover other expenses. The benefit is immediate: there is no longer any need to break down and prove every overhead. To go further on this sensitive category, see our dedicated guide to NGO indirect costs.

The standard scale of unit costs

Here, eligible costs are calculated by multiplying a quantity of activities, outputs or results by a unit cost scale set in advance. For example, you are reimbursed a cost per training day, per beneficiary supported, per kilometre travelled or per meal distributed. What must be proven is no longer the expense, but the volume: the number of days, beneficiaries or units actually delivered. This form is particularly well suited to repetitive and measurable activities.

The lump sum

The lump sum corresponds to a fixed amount paid when a deliverable, a milestone or a set of activities is completed and accepted. The logic is binary: the milestone is reached, the amount is paid in full; it is not, and nothing is paid. This form requires a very precise definition of the deliverables up front and solid documentation of their completion. It is also the form that is developing fastest among major donors.

Financing not linked to costs

Added for 2021-2027, this fourth option completely disconnects payment from expenditure: the payment is made on the basis of fulfilling predefined conditions or achieving predefined results. It is the most results-oriented form, and it foreshadows a lasting shift in the relationship between donors and organizations.

Actual costs or simplified costs: what does the switch to SCOs change?

Understanding simplified costs is not enough: you also need to measure what they transform in your day-to-day work. The switch from actual costs to simplified costs is not just a change of accounting method. It changes the very nature of the evidence, the workload of the teams, the risk map and the way the auditor examines your project.

With actual costs, your compliance rests on the completeness of the supporting documents: every invoice, every receipt, every statement must exist, be compliant and be correctly allocated. With simplified costs, your compliance rests on two pillars: the soundness of the calculation method you have established and agreed with the donor, and the documented proof that the planned activities, volumes or deliverables have indeed been delivered. The following table summarizes this shift.

What the auditor now checks

A persistent misconception holds that simplified costs mean "more control". This is false. The auditor remains demanding, but looks elsewhere. First, they verify that the method for determining the rate, scale or amount is fair, equitable and verifiable: the calculation must be reasonable, based on reliable data and reproducible. Then they ensure that the deliverables invoiced actually took place: attendance sheets, beneficiary lists, activity reports, validated deliverables. An NGO that does not rigorously document its deliverables exposes itself to corrections just as severe as under actual costs.

Advantages and limitations of simplified costs for NGOs

Simplified costs are neither a magic formula nor a trap. They offer real benefits, provided you weigh up the trade-offs. An informed decision means considering both.

On the advantages side, the main points are:

• A lighter administrative burden: less collecting, filing and checking of supporting documents, which frees up time for steering and fieldwork.
• Faster reimbursements: as controls are simplified, donors pay faster, which relieves the often tight cash flow of NGOs.
• Fewer ineligible expenses: the risk that a missing or non-compliant invoice leads to a rejection drops sharply.
• A refocus on results: energy shifts from accounting justification to the quality and measurement of activities.
• Better budget predictability: as the amounts are known in advance, budget design and monitoring become clearer.

On the limitations and points to watch:

• A method to build and defend: establishing a fair, equitable and verifiable rate or scale requires reliable historical data and careful documentation.
• Proof of delivery remains essential: simplified does not mean without supporting documents; you must prove the volumes and deliverables.
• The all-or-nothing logic: with a lump sum, a milestone that is not reached can mean zero payment, even if part of the work has been done.
• Acceptance that varies from one donor to another: not all donors authorize all forms, and the rules differ from one programme to another.
• The complexity of mixed arrangements: combining actual costs and simplified costs on the same project requires unambiguous cost accounting to avoid double financing.

Implementing simplified costs: 5 steps for NGOs

Adopting simplified costs cannot be improvised. The following five-step approach allows you to undertake the transition in a controlled way, securing both compliance and your relationship with your donors.

1. Map your costs and identify the eligible items. Analyze the cost structure of your projects and identify the categories best suited to SCOs: overheads for a flat rate, repetitive and measurable activities for unit costs, well-defined phases for lump sums.
2. Choose the right form for each category. Each type of cost corresponds to a more relevant form of SCO. Avoid switching everything at once: start with the items where the administrative gain is clearest and the risk lowest.
3. Build and document a fair, equitable and verifiable method. Rely on your historical data (accounting, activity reports from past projects) to calculate realistic rates and scales. Keep a record of every assumption and every calculation: this is the methodological file the auditor will examine.
4. Adapt your monitoring tools. Evolve your management system to move from collecting supporting documents to collecting proof of delivery: attendance sheets, beneficiary lists, MEAL indicators, validated deliverables. Budget monitoring must link, in real time, the activities delivered to the amounts triggered.
5. Train the teams and lock down the audit trail. Make both the field and headquarters aware of this new logic, clarifying who documents what and when. Put in place validation workflows and a timestamped digital audit trail, so that the history of each delivery and each payment can be reconstructed at any time.

Steering your simplified costs with Abvius

The switch to simplified costs succeeds or fails on one point: the organization's ability to prove, without excessive effort, that the activities and deliverables have indeed been completed, and to link those deliverables to the amounts triggered. This is precisely the ground on which Abvius, the leading Finance, Operations and MEAL ERP designed for NGOs, CSOs and international solidarity organizations, adds value.

In practical terms, we help you to:

• Monitor your budget in real time by linking each activity delivered to the defined rates, scales and lump sums, so you can instantly see what has been triggered and what remains to be delivered.
• Guarantee complete traceability and a full audit trail: every proof of delivery, every validation and every amount triggered are timestamped and reconstructable, which secures your audits on simplified costs as well as on actual costs.
• Structure your validation workflows so that the documentation of deliverables follows a clear circuit, from the field to headquarters, with controls at the right checkpoints.
• Secure approvals through electronic signature, which anchors the validation of deliverables and milestones in an enforceable process.
• Centralize headquarters-field information in a single repository, so that finance teams and programme teams work on the same reliable data.
• Automate your donor reporting by generating statements consistent with the method chosen, whether actual costs, simplified costs or a mixed arrangement.

The aim is not to replace your judgement, but to give you the infrastructure that makes simplified costs safe and worry-free. To discover how to adapt your steering to this evolution, visit abvius.org.

Simplified costs for NGOs: the mini-FAQ

Are simplified costs accepted by all donors?

No, not systematically. Simplified costs are widely recognized by the European Union and by an increasing number of institutional donors, but the authorized forms and the ceilings vary depending on the programme. Always check the specific rules of the grant agreement before settling on an option.

Do you need to keep supporting documents with simplified costs?

Yes, but different supporting documents. You no longer have to archive every invoice linked to the simplified amount, but you must keep the documentation of the calculation method and, above all, the proof of completion of the activities, volumes or deliverables: attendance sheets, beneficiary lists, reports, validated deliverables.

How do you audit simplified costs?

The auditor checks two things: that the method for determining the rate, scale or amount is fair, equitable and verifiable; and that the declared deliverables actually took place and are properly documented. A timestamped digital audit trail makes this exercise much easier.

Can you combine actual costs and simplified costs?

Yes, many projects combine the two: for example, direct costs on an actual basis and a flat rate for indirect costs. The condition is to maintain unambiguous cost accounting in order to avoid any double financing of the same expense.

In summary

Simplified costs are not a mere accounting adjustment: they reflect a lasting evolution in the relationship between donors and NGOs, from controlling expenditure towards proving results. Well understood and well equipped, they ease the administrative burden, speed up reimbursements and reduce the risk of ineligibility, without ever dispensing with rigour. The key is to build sound methods, document the deliverables and rely on an impeccable audit trail. To go further, browse our articles on expense justification, the digital audit trail and preparing for a donor audit. And if you would like to discuss it with our team, write to us via the Abvius contact page.