<\/p>\n
Yes, and most donors accept it. Yet this is the arrangement that produces the largest share of disallowed costs in audits, because organisations use a service contract for what is in substance employment. Below is the line beyond which a donor or the tax authority reclassifies the contract, and the document set that keeps you on the right side of it.<\/p>\n
A note on terms: a private entrepreneur in Ukraine is a FOP, an individual registered for business activity, usually on the simplified tax regime. Donors often see FOP contracts as the local equivalent of an individual consultant agreement.<\/p>\n
The problem is almost always the same: the person is in substance an employee. The indicators of an employment relationship are listed in Article 21 of the Ukrainian Labour Code, and the auditor looks at exactly those:<\/p>\n
Where several indicators are present, the contract is treated as employment by substance whatever its title. For the donor this is an ineligible cost; for the tax authority it means assessed personal income tax, military levy and social contribution; for the organisation it adds a fine for an unregistered employee.<\/p>\n
If the person is needed permanently, works to the organisation’s schedule and performs a process rather than a one off deliverable, an employment contract is cheaper from the start. In the budget it is a personnel cost line, donors accept it, and the risk of tax assessments and disallowed costs disappears. Trying to save on taxes through a FOP in such cases costs more than the saving.<\/p>\n There is no formal prohibition, but it is a direct conflict of interest and donors disallow such costs in almost every case. If the work genuinely requires this person, the decision is taken by the board without their participation and the contract is approved by the donor in writing before signature.<\/p>\n<\/details>\n A specific list: what was done, in what volume, for which period, referring to the terms of reference. If there is a tangible deliverable, name it and attach it. The phrase “services rendered in full, the parties have no claims” without detail is not accepted by the auditor.<\/p>\n<\/details>\n It depends on the threshold in the donor rules, commonly three quotations above a certain amount. The quotations must be collected before the contract is signed and kept together with the selection decision and its justification.<\/p>\n<\/details>\n It depends on the role. A project accountant or office manager is an administrative cost and counts towards the admin ceiling. A trainer, researcher or developer is a direct activity cost. Misclassification leads to breaching the administrative cost ceiling and disallowance of the excess.<\/p>\n<\/details>\n We have audited international technical assistance projects since 2000 and see FOP contracts in every project. Tell us the donor and the period, and we will say which contracts to look at first and which documents are missing. A proposal follows once we have reviewed the assignment.<\/p>\n <\/p>","protected":false},"excerpt":{"rendered":" The line between a service contract and employment, seven documents required for every contractor and five errors that cost money.<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"class_list":["post-4367","page","type-page","status-publish","hentry"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\n","aioseo_head_json":{"title":"MK Audit \u0410\u0443\u0434\u0438\u0442","description":"Can you engage private entrepreneurs in a grant project Yes, and most donors accept it. 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What should the acceptance act say to be accepted<\/summary>\n
How many quotations are needed before selecting a FOP<\/summary>\n
Is a FOP an administrative cost of the project<\/summary>\n
If you need a review<\/h3>\n