Made in accordance with Article 3(5) of the Statute of the European Ombudsman^[1]

The background to the complaint

1. This case concerns an EU grant made under the Lifelong Learning Programme, the EU’s 2007-2013 programme for education and training[2]. The complainant is an Austrian non-profit association. It was a member of a consortium chosen to carry out a project under a grant agreement managed by the Education, Audiovisual and Culture Executive Agency (EACEA). The project ran from November 2010 to March 2013.

2. In November 2013, the EACEA held that the members of the consortium should pay back some of the pre-financing paid at the beginning of the project. The EACEA’s view was that all staff costs and certain travel and subsistence costs declared by the complainant were ineligible for funding.

3. The EACEA re-examined the matter following an appeal, but maintained its conclusion that the complainant’s staff costs were ineligible. The EACEA decided that the complainant’s travel and subsistence costs were not part of the appeal.

4. In July 2014, the complainant turned to the Ombudsman.

The inquiry

5. The Ombudsman opened an inquiry into the complainant’s concerns that:

1) The EACEA’s decision on the complainant’s staff costs and travel and subsistence costs was wrong.

2) The EACEA committed substantive and procedural errors in its assessment of the appeal.

6. In the course of the inquiry, the Ombudsman received the EACEA’s reply to the complaint and, subsequently, the complainant’s comments on that reply. The Ombudsman’s inquiry team also carried out an inspection of the relevant EACEA file. The Ombudsman’s solution proposal takes into account the arguments and views put forward by the parties.

Staff costs and travel and subsistence costs

Arguments presented to the Ombudsman concerning staff costs

7. The EACEA noted that the “staff member” concerned by the staff costs was the legal representative, Secretary General and board member of the complainant. The offer for carrying out the tasks under the project had been submitted by this “staff member” as a “self-employed natural person”, which constituted subcontracting. This conclusion was supported by the contract signed between the complainant and the person concerned. However, such subcontracting was not in line with the rules of the grant agreement[3] and the project handbook[4]. According to the EACEA, subcontracting tasks to board members was not in line with sound financial management.

8. The EACEA explained that in order for the remuneration of a person to be considered as eligible staff costs, the person concerned has to have an employment contract or relationship with the beneficiary.

9. The complainant argued that such a rigid interpretation of what constitutes eligible staff costs would exclude all organisations that do not have staff that fall within the definition set out in the project handbook, for example, sole proprietors. Such an approach would not be consistent with the diversity of organisations participating in the Lifelong Learning Programme. The complainant further argued that the “staff member” concerned was, as Secretary General, answerable to the General Assembly of the complainant.

10. The complainant argued further that the EACEA had not respected relevant Austrian case-law and legislation, which strongly recommends that board members do not to enter into common employment contracts with their association, as this could lead to the official dissolution of the association.

11. The EACEA argued that even if the complainant’s “particular arrangement” complied with Austrian case-law, it did not comply with the rules laid down by the grant agreement.

12. Finally, according to the complainant, during the EACEA “Infoday”[5] in November 2009, an EACEA staff member had confirmed that the staff contracts used and approved in the previous programme could also be used for the new Lifelong Learning Programme. The complainant therefore used the same type of contract it had used for the same staff member in question under the previous programme. In 2013, the same EACEA staff member referred the complainant to another staff member regarding the matter. The complainant sent an e-mail explaining that it had used this kind of contract as it had been confirmed at the Infodays that this was possible. According to the complainant, it did not receive any reply to this e-mail.

The Ombudsman’s preliminary assessment concerning staff costs leading to the solution proposal

13. According the project handbook “[c]osts relating to the following categories of staff are considered: statutory staff, having either a permanent or a temporary employment contract with the partner; [...] Costs related to agents working through subcontracting shall be included under the appropriate category (see heading "subcontracts")”^[6] (emphasis added).

14. The first question that arises is whether the person for whom staff costs were claimed was indeed a staff member of the complainant.

15. In order to prove the eligibility of the costs claimed, the complainant submitted to the EACEA several documents relating to the “staff costs” of its Secretary General: a contract for services (“Werkvertrag”), an “offer” and a “preliminary contract for the conclusion of a contract for services” (“Vorvertrag zum Werkvertrag”) within 6 months.

16. In its appeal following the EACEA’s initial rejection of the staff costs, the complainant explained that “the offer [to the complainant] has been submitted by [the Secretary General] as a self-employed natural person” (emphasis added). Furthermore, the contract for services signed by the Secretary General (as the contractor) states that “the contractor [...] shall not be under instructions from [the complainant]” and states that the contractor can make use of proxies. Finally, the contract states that “the contractor acknowledges that no employment relationship can be derived from this contract” (emphasis added).

17. The EACEA was thus correct in stating that the contract for services differs from an employment contract (“Arbeitsvertrag”) in several ways. The fact that the “staff member” might have been subject to instructions from the complainant in her capacity as Secretary General is not relevant in this regard, as her role as Secretary General falls outside the scope of her service contract.

18. The Ombudsman notes that a self-employed natural person signing a contract for services is not an employee. The contract submitted to the EACEA by the complainant is thus not an employment contract.

19. The EACEA argued that the contract in question actually constitutes subcontracting parts of the project (in this case, the handling and management of the project for the complainant). According to the project handbook, such subcontracting can generally be considered eligible for reimbursement: “Costs entailed by procurement contracts for the purposes of carrying out a part of the project are considered when awarded by a partner to an [...] individual (This refers to individuals who may be self-employed e.g. who are responsible for their own social security or social contributions, pensions and taxes)”^[7] (emphasis added).

20. However, the EACEA considered that the complainant had not followed grant agreement’s rules for subcontracting. In particular, the project handbook prohibits subcontracting the management and the general administration of the project^[8] and requires prior approval by the EACEA for such contracts^[9]. The complainant did not argue that it was in compliance with the subcontracting rules of the grant agreement. It stated that the incurred costs should be seen as staff costs, not subcontracting costs. 

21. In view of the above, the Ombudsman considers that the EACEA was not wrong in deciding that the staff costs claimed by the complainant did not constitute reimbursable costs under the applicable rules of the grant agreement.

22. However, it remains to be determined whether the decision to recover the staff costs is fair and proportionate[10]. In order to decide whether this is the case, it is necessary to strike a balance between the expectation of a project participant to be paid for work done in good faith and the purpose of the relevant reimbursement rules, which is to prevent paying undue amounts to the detriment of European taxpayers.

23. In the present case, the following arguments have been considered as relevant for determining this ‘balance’. Tthe complainant argued that: (a) it was prevented by Austrian law and/or case-law from hiring its Secretary General as an employee; (b) an EACEA staff member had confirmed that the type of contract used for previous projects would again be eligible for reimbursement; (c) the EACEA had accepted such contracts for previous projects; and (d) the project had been completed successfully.

24. First, it is necessary to examine the complainant’s argument that the contract used is in line with, and required by, Austrian law.

25. The Ombudsman notes that the EACEA did not contest the fact that the contract used complied with Austrian law.

26. The EACEA indeed sometimes accepts costs incurred under contracts other than employment contracts when the legislation in a specific Member State prevents the signing of employment contracts in certain situations (for example, for managers of their own company). However, in line with principles of sound financial management, such contracts should provide for the same remuneration regardless of whether work is done on an EU project or on something else. Otherwise, there is a risk that EU reimbursement rules are being used to make an undue profit. In the present case, the contract for services was entered into for the purpose of paying for work done for that specific EU project (“Projektleitung und -Management, Projekt-Mitentwicklung und Abwicklung für das [Projekt]”). The person concerned thus did not receive remuneration similar to that of an employee.

27. The complainant claimed it was prevented by law from employing its Secretary General. To supports this argument, the complainant referred to case-law that states that a non-profit association, such as itself, would risk dissolution by seeking to make a profit and by being a mere vehicle to disguise gainful activity by its members or third parties^[11]. Employing a member of the association’s board would increase such a risk^[12].

28. According to the complainant’s by-laws, its purpose is to “support, develop and research the economic, technological, academic and personal cooperation as well as relationships between EU citizens, citizens of the accession countries and selected export destinations”. In order to achieve this purpose, it offers a multitude of activities, including courses, seminars, workshops, training and study trips. The complainant has successfully participated in multiple EU projects, earning awards for its work. Taking into account this vast area of activities, it appears doubtful that the association could be considered “a mere vehicle to disguise gainful activity” of a single board member. In general, Austrian law does not appear to prevent a non-profit association from employing its members^[13].

29. The Ombudsman is thus not convinced that the complainant was prevented by law from employing its Secretary General. Nevertheless, the Ombudsman understands how the complainant could, convinced by the correctness of its legal position, decide to use a contract for services instead of an employment contract. As the complainant points out, the contract was signed between it and its Secretary General to enable the work on the project to be carried out by a member of the association. The contract used is thus not a “typical” subcontracting contract, usually used to outsource certain activities to a different entity, and, in fact, bears some similarity to an employment contract.

30. Next, it is appropriate to address the complainant’s argument that an EACEA staff member confirmed that the contracts used under previous EU programmes could also be used for the new Lifelong Learning Programme.

31. The EACEA noted that the complainant did not provide any proof that an EACEA staff member had given such advice. According to the EACEA, the relevant project handbook did not yet exist at that point in time. Therefore, it would have been impossible for an EACEA staff member to give any advice on the eligibility of costs. In any case, any “misleading” information would have been corrected during the compulsory “kick off meeting” held in January 2011, aimed at explaining, in detail, the rules applicable to the grant and, especially, the rules on the eligibility of staff and subcontracting costs. The EACEA underlined that the rules on the eligibility of staff, travel and subcontracting costs were laid down in the grant agreement and its annexes, which were signed by the complainant and are legally binding.

32. The Ombudsman cannot determine whether any advice on the type of contracts to be used was given by an EACEA staff member. However, the inspected documents show that the EACEA did indeed respond to the complainant’s e-mail of March 2013 inquiring about the issue of staff costs, requesting additional information from the complainant.

33. It does appear to be correct that the EACEA did not object to the use of similar contracts for services in previous projects carried out by the complainant, for example under the 2005 Grundtvig programme^[14]. This thus provides some support for the complainant’s argument that it relied, in good faith, on the same type of contracts for the project in this case.

34.  However, while it might be correct that such contracts were accepted for previous projects, this does not mean that the same type of contracts must automatically be accepted under a subsequent program. As the EACEA explained in its “pre-information letter”, “the eligibility rules changed since 2005 with the new programmes 2007-2013. The work contract concluded for the [other] project [...] is irrelevant for the purpose of this project [...]”. Nevertheless, the Ombudsman acknowledges that it can sometimes be difficult for small project participants to keep track of changes to the complex reimbursement rules.

35. Overall, the Ombudsman notes that the project in question was completed successfully, obtaining a score of 6 out of 10 (acceptable). The work declared by the complainant corresponded to about a fifth of the entire management working time declared by all project partners. Taking this into account, and given that no argument has been put forward by the EACEA to suggest that the time declared by the complainant was not correct, it is unlikely that the project would have been successful without the contribution of the complainant.

36. In view of the above, it thus appears fair that the complainant receive at least some compensation for contributing to the success of the project, provided the compensated costs are verifiable and identifiable^[15].

37. The EACEA has confirmed that the time-sheets submitted by the complainant corresponded to the costs declared. The working hours declared by the complainant, multiplied by the hourly rate (EUR 50) agreed in the offer submitted and referred to in the contract (see paragraph 15), do indeed equal the “staff” costs declared.

38. The bank statements provided by the complainant correspond almost exactly to the costs declared. However, it is true that the majority of the bank statements (amounting to EUR 30,200) submitted by the complainant concern unidentified “EU projects” (emphasis added), and do not mention the specific project in question. This is problematic because the present project appears to have partially overlapped with another EU project in which the complainant participated^[16]. The remaining bank statements (amounting to EUR 21,880) name the specific project.

39. The Ombudsman concludes that, while the costs declared seem to be identifiable, only some of the costs are also clearly verifiable.

40. In order find a fair solution to this issue, the Ombudsman thus proposes the following solution to the EACEA: The EACEA should reimburse those “staff costs” of the complainant that are duly supported and justified by time-sheets and by bank statements clearly linked to the project in question.

41. These costs appear to amount to EUR 21,880.

42. The Ombudsman emphasises that agreeing to this solution proposal does not mean that the EACEA would automatically have to accept costs claimed on the basis of similar contracts in the future.

Arguments presented to the Ombudsman concerning travel and subsistence costs

43. The EACEA rejected parts of the subsistence costs because it did not accept that the complainant’s “travel policy” constituted “existing internal rules” on which the reimbursement of subsistence costs must be based under the grant agreement^[17]. As the Secretary General was acting as a self-employed service provider, the reimbursement of travel and subsistence costs should normally have been defined in her contract.

44. Furthermore, the EACEA considered that certain subsistence costs were not directly connected to specific and clearly identifiable project-related activities.

45. The complainant maintained that it had a travel policy, which it submitted to the EACEA in September 2013. The complainant argued that it had opted for daily allowances because it had no administrative staff or supporting back office. The complainant’s by-laws clearly set out that the daily allowance for “international and EU projects” is 75% of the limit allowed under EU rules on project expenses. The Secretary General, as an active board member of the complainant, was bound by its internal travel policy.

46. The complainant further contended that the EACEA had not taken into account certain supporting documents submitted and had rejected other supporting documents for unknown reasons.

The Ombudsman’s assessment concerning travel and subsistence costs

47. The EACEA reimbursed those travel and subsistence costs that were supported by evidence such as hotel and flight bills. The question is thus whether the EACEA was right not to accept subsistence costs based on a daily allowance because of concerns about the complainant’s “travel policy”.

48. According to the project handbook, reimbursement of subsistence costs “must be based on the existing internal rules of the partner organisations, which may be on the basis of actual costs (reimbursement of receipts) or daily allowances”^[18] (emphasis added).

49. The complainant submitted to the EACEA its internal “travel policy”, which was part of its by‐laws. According to this “policy”, 75% of the limit allowed under EU rules on project expenses is to be paid as subsistence costs for projects funded “internationally and by the EU”. No subsistence payments are provided for in the case of other travel. This supports the EACEA’s argument that the policy was specifically designed for EU projects and does not apply to all business travel. The complainant has confirmed that it does not pay subsistence allowance for “ordinary” business travel.

50. Furthermore, the contract for services concluded between the complainant and its Secretary General does not contain a travel policy or a reference to the complainant’s by-laws. The fact that the contractor would have been subject to the complainant’s travel policy, when acting in her role as Secretary General, does not appear relevant in this regard: the travel and subsistence costs were incurred while managing and executing the EU project, tasks falling under the contract for services, and not while acting as Secretary General.

51. In view of the above, the Ombudsman considers that the EACEA was correct in deciding that certain travel and subsistence costs claimed by the complainant did not constitute reimbursable costs.

52. The EACEA’s decision cannot be considered unfair, as it reimbursed travel and subsistence costs supported by evidence.

53. Furthermore, cost items that included “conference costs”^[19] were deemed ineligible by the EACEA as they did not constitute “subsistence costs”, which, according to the project handbook, “cover accommodation, meals and all local travel costs”^[20]. Other costs were only partly accepted due to missing evidence^[21], because they appear to have covered multiple people^[22], or due to minor miscalculations by the complainant^[23].

54. The Ombudsman finds no reason to question the EACEA’s explanations for considering these costs ineligible.

Alleged substantive and procedural errors in the assessment of the appeal

55. Under this heading, the complainant made three separate points.

Arguments presented to the Ombudsman concerning a new line of argument by the EACEA

56. The complainant argued that by considering, in the reply to the complainant’s appeal, that the “staff costs” constitute “subcontracting costs”, the EACEA used a new line of argument, without allowing the complainant the opportunity to respond to that argument.

57. The EACEA stated that, in its reply to the appeal, it had explained that the additional documents and clarifications provided by the complainant in support of the appeal confirmed the EACEA’s position that the staff costs were ineligible and led it to conclude that the costs claimed constituted subcontracting costs.

The Ombudsman’s assessment concerning a new line of argument by the EACEA

58. The Ombudsman notes that, in its appeal, the complainant repeatedly stated that its Secretary General acted as a “self-employed natural person”. This information in the appeal then led the EACEA to add additional elements to its explanation as to why it considered the complainant’s staff costs to be ineligible, namely that the complainant’s practice constituted subcontracting.

59. The Ombudsman considers that it was normal for the EACEA to have drawn new conclusions based on the additional information provided by the complainant.

60. In any event, the complainant has been able to put forward its counter-arguments in the context of the Ombudsman’s inquiry.

61. Thus, there is no maladministration by EACEA concerning this aspect of the complaint.

Arguments presented to the Ombudsman concerning a failure to comply with a deadline

62. The complainant argued that the EACEA committed, in February 2014, to provide a final decision in respect to the appeal “within two months of the reception date”[24]. However, the EACEA subsequently argued that the limit of two months applied to the submission of reports only and that the applicable rules did not set any time limits for handling appeals. Due to the complexity of certain cases, it could sometimes take longer than two months for the EACEA to reply to appeals.

63. In its reply to the Ombudsman, the EACEA stated that the information given in February 2014 had been a clerical mistake. In April 2014, the EACEA had explained that there was a slight delay in assessing the documents related to the appeal. The reply to the appeal was provided at the end of May 2014.

64. The complainant maintained that the two-month deadline set out in the grant agreement[25] applied to its appeal. According to the grant agreement, “[f]ailing a written reply from the Agency within the time limit for scrutiny indicated above, the reports shall be deemed to have been approved”[26]. The complainant argued that this provision should also apply to appeals.

The Ombudsman’s assessment concerning a failure to comply with a deadline

65. The grant agreement provides for both an internal and an external “appeal” against a decision by the EACEA on the final amount of the grant. Its Article II.16.5 states:

“The co-ordinator shall have two months from the date of notification by the Agency of the final amount of the grant [...] to request information in writing on the determination of the final grant, giving reasons for any disagreement. [...] The Agency undertakes to reply in writing within two months following the date on which the request for information is received, giving reasons for its reply.

This procedure is without prejudice to the beneficiaries’ right to appeal against the Agency’s decision pursuant to Article I.9. [...]”^[27] (emphasis added).

66. Article I.9 of the Grant Agreement states: “The grant is governed by the terms of the agreement and the Union rules applicable. The beneficiaries may bring legal proceedings regarding decisions by the Agency concerning the application of the provisions of the agreement and the arrangements for implementing it, before the General Court of the European Union. [...]”.

67. In the present case, the appeal to the EACEA falls under the first paragraph of Article II.16.5, as it was clearly not an appeal to the General Court of the European Union.

68. The Ombudsman considers that the EACEA was incorrect in claiming that the grant agreement did not contain a time limit for it to reply.

69. However, the Ombudsman notes that the EACEA kept the project partners informed, and explained that the assessment can sometimes take longer than the two months envisaged due to the complexity of the file. The present case clearly was complex: the appeal was brought by four members of the consortium, including the complainant, was accompanied by additional justifying documents, and resulted in a significant increase in overall reimbursement. The EACEA’s delay was thus reasonable.

70. Contrary to the complainant’s argument, the lack of reply to the appeal cannot be seen as an implicit approval of the appeal. If such a consequence was intended, it would have been explicitly stated in the relevant provision but this is not the case^[28].

71. Against this background, there was no maladministration by the EACEA concerning this aspect of the complaint.

Arguments presented to the Ombudsman as to whether travel and subsistence costs were part of the appeal filed

72. The complainant argued that the EACEA had wrongly concluded that the complainant’s appeal did not cover the rejected travel and subsistence costs.

The Ombudsman’s assessment as to whether travel and subsistence costs were part of the appeal filed

73. The Ombudsman agrees with the complainant that the EACEA overlooked the appeal against the decision to consider certain travel and subsistence costs as ineligible. At the inspection of the EACEA’s file by the Ombudsman’s inquiry team, the EACEA conceded that it had wrongly considered that no appeal had been made regarding these costs. The EACEA noted, however, that the reasons for rejecting these costs had been explained in its reply to the Ombudsman.

74. The Ombudsman considers that the EACEA’s omission is remedied by the fact that it has addressed the complainant’s concerns regarding the ineligibility of certain travel and subsistence costs in its reply to the Ombudsman (see paragraphs 47-54).

75. Thus, there is no reason to inquire further into this aspect of the complaint.

The proposal for a solution

Against this background, the Ombudsman makes the following proposal for solution:

The Education, Audiovisual and Culture Executive Agency should reimburse those “staff costs” of the complainant that are duly supported and justified by time-sheets and by bank statements clearly linked to the project in question.

 

Emily O'Reilly

European Ombudsman

Strasbourg, 11/04/2017

 

[1] Decision of the European Parliament of 9 March 1994 on the regulations and general conditions governing the performance of the Ombudsman's duties (94/262/ECSC, EC, Euratom), OJ 1994 L 113, p. 15.

[2] http://ec.europa.eu/education/lifelong-learning-programme_en

[3] Article II.9 of the grant agreement.

[4] Section 2.3.4 of the project handbook.

[5] According to the EACEA, “the purpose of the Infodays is to inform the potential applicants about the programmes/actions managed by the Agency and to allow them to meet other potential partners ("networking"). Under no circumstances is the aim of the said event to discuss about the eligibility of justifying documents. This would in any event be impossible since no application is submitted or selected at the time of the Infodays.”

[6] Section 2.3.4 of the project handbook.

[7] Section 2.3.4 of the project handbook.

[8] Section 2.3.4 of the project handbook.

[9] Article II.9.d of the grant agreement.

[10] See, for example, Article 91 of the Financial Regulation’s Rules of Application: „The authorising officer responsible may waive recovery of all or part of an established amount receivable only in the following cases: [...] where recovery is inconsistent with the principle of proportionality.” (Commission Delegated Regulation (EU) No 1268/2012 of 29 October 2012 on the rules of application of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council on the financial rules applicable to the general budget of the Union, OJ 2012 L 362, p. 1, available at: http://eur-lex.europa.eu/eli/reg_del/2012/1268/oj)

[11] “Entscheidend ist und bleibt, dass der Vereinszweck als solcher nicht in der Gewinnerzielung besteht, und dass der Verein nicht bloß den Deckmantel für eine Erwerbstätigkeit seiner Mitglieder oder dritter Personen bildet (vgl. VfSlg. 4411/63, 8844/80).“, available at: http://www.bmi.gv.at/cms/BMI_Vereinswesen/gesetzestexte/files/VG_2002.pdf

[12] “Es ist aber davon abzuraten, daß diese Angestellten dem Vorstand angehören, da dadurch allenfalls der Verdacht aufkommen könnte, der Verein stelle nur den Deckmantel für die Erwerbsmäßigkeit dieser Personen dar; bei Zutreffen würde dies einen Grund für seine behördliche Auflösung abgeben (VSlg 1498/32, 3731/60, 4411/63, aaO Seite 45/46).“, available at: https://www.ris.bka.gv.at/Dokument.wxe?Abfrage=Uvs&Dokumentnummer=JUT_WI_19940324_000000421926_93_00

[13] https://www.bmf.gv.at/services/publikationen/BMF-BR-ST_Vereine_und_Steuern_201608_12.pdf?5s3pzu

[14] http://eacea.ec.europa.eu/llp/grundtvig/grundtvig_en.php

[15] Article II.14.1 of the grant agreement.

[16] A project under the Grundtvig Accompanying Measures: http://eacea.ec.europa.eu/llp/funding/2012/index_en.php

[17] Section 2.3.2 of the project handbook.

[18] Section 2.3.2.b of the project handbook.

[19] Cost items 2, 4 and 44.

[20] Section 2.3.2.b of the project handbook.

[21] Cost items 4 and 44.

[22] Cost item 65.

[23] Cost item 1.

[24] Referring to Article II.16.5 of the grant agreement.

[25] Referring to Article II.16.5 of the grant agreement.

[26] Article II.15.4 of the grant agreement.

[27] Article II.16.5 of the grant agreement.

[28] Article II.15.4 of the grant agreement.