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Decision of the European Ombudsman on complaint 1674/2000/GG against the European Commission


Strasbourg, 17 September 2001

Dear Mr S.,

On 20 December 2000, Mr Tobias Flessenkemper lodged, on behalf of the European Youth Forum, a complaint in relation to the European Commission's treatment of applications for financial assistance made by the European Youth Forum.

On 17 January 2001, I forwarded the complaint to the Commission. The Commission sent its opinion on 21 May 2001, and I forwarded it to the complainant on 23 May 2001 with an invitation to make observations, if it so wished.

On 27 June 2001, Mr Flessenkemper sent me the complainant’s observations. He also informed me that he would leave the complainant’s services on 30 June 2001 and that you would replace him as Secretary-General of the complainant.

I am now writing to you to let you know the results of the inquiries that have been made.


THE COMPLAINT

Background

Chapter A-30 (Community subsidies) of the budget allocated to the European Commission in the budget of the European Union for the year 2000(1) sets out subsidies to be granted to various bodies. Article A-302 thereof is dedicated to "Community participation in the financing of organisations advancing the idea of the European civil society". The complainant, the European Union Youth Forum is one of the beneficiaries (Article item A-3023) to whom a sum of € 2 000 000 was appropriated.

The relevant article in the budget is accompanied by the following remarks:

"The appropriations for the items in this article are intended for organisations and projects receiving co-financing of at least 20 % of their budget from sources other than the budget of the European Union (both Parts A and B).

The Commission will assess the degree of co-financing of each organisation and period, before making a decision on any European Union financing.

The beneficiary bodies must make their applications before 31 March. The Commission will notify its approval and grant the first instalment of the subsidy within three months from the date of the application. The balance will be paid no later than six months after notification of agreement. The part of the subsidy which is not entirely taken up by the beneficiary body may under no circumstances be clawed back by way of deduction from subsequent subsidies.

These principles are incorporated into the vade-mecum on subsidies. The Commission will submit a report before the end of 2000 financial year defining the means of extending them to cover all budget subsidies (part A and B).

An annual report and the accounts supplied by the beneficiaries will be made available to the budgetary authority and to the Court of Auditors, which will examine them in accordance with their powers under the Treaty. It must also contain the precise dates and amounts of the payments made by the Commission and the state of implementation of the body's budget estimates."

The complaint

According to the complainant, the relevant facts underlying the complaint were as follows:

On 3 March 2000, the complainant sent its application to the Commission, including a plan on co-financing. In a letter of 21 March 2000, the Commission informed the complainant that on 8 March 2001 it had made an engagement for the first instalment of € 1 million. However, and despite several reminders, the Commission only finalised the contract (no. 2000-0080/001-001 FJU-FJUE) on 28 June 2000. The complainant received this contract on 7 July 2000, signed it and returned it to the Commission on 17 July 2000.

On 22 September 2000, the Commission informed the complainant of the result of its assessment of the issue of co-financing. A first instalment of € 600 000 was finally credited to the complainant's bank account on 3 October 2000 (i.e., seven months after the application and 74 days after signature of the contract).

The complainant considers that the Commission failed to comply with the deadlines for payment set out in the budget of the EU and in the contract and failed to pay an outstanding amount of € 1.4 million. In the complainant's view, this damaged its financial solidity and reputation and put its existence at risk. The Commission's failure to execute the grant during the financial year provoked repercussions for the financial year 2001. As a result, the budgetary authority might reduce the allocations for budget line A-3023 in future years.

The complainant further alleged that the Commission had failed to clarify the issue of co-financing. The Commission had failed to reply to numerous questions regarding the co-financing requirement as set out for example in the complainant's letter of 17 July 2000.

The complainant further claimed that since late 1997, the Commission had been unable to produce any guidelines on co-financing. As a result, the granting procedure for the year 2000 had completely collapsed.

The complainant requested the Commission to implement point 16 of the European Parliament's resolution on the draft budget of the EU for the year 2000(2).

In substance, the complainant made the following allegations:

(1) The Commission failed to pay an outstanding grant of € 1.4 million due in 2000

(2) There were unnecessary delays and a lack of information and guidelines regarding the execution of budget line A-3023 of the EU budget, particularly in 2000

(3) There was a lack of transparency and coherence in the application of co-financing rules for subventions granted for the general functioning of organisations

THE INQUIRY

The complaint was sent to the Commission for its comments.

The Commission's opinion

In its opinion, the Commission made the following comments:

Non-payment of sums due to the complainant

Payment of the subsidy granted by the Commission to the complainant for the year 2000 (amounting to a maximum of € 2 million, representing 80 % of the total cost of the complainant's action plan for 2000, estimated at € 2.5 million) was governed by the arrangements laid down in Article 4.1 of the contract between the two parties dated 28 June 2000, namely:

- payment of an initial advance of € 1 million following signature of the agreement and presentation of evidence of non-Community co-financing amounting to 20 % of the total cost of the action plan, i.e. € 500 000;

- two intermediate payments based on interim reports – to be submitted by 30 June and 30 September 2000 respectively – amounting to a maximum of € 500 000 each, to cover expenditure already incurred or anticipated for the subsequent period;

- payment of any outstanding balance after receipt and approval of the final report.

An initial payment of € 600 000 was paid by the Commission on 26 September 2000. This was only 60 % of the envisaged advance, since the non-Community co-financing accepted by the Commission came only to 60 % of the amount required under the agreement. This had been explained to the complainant in a letter dated 15 September 2000.

An interim report (combining the two interim reports due on 30 June and 30 September 2000) was submitted by the complainant on 11 October 2000, followed by an addendum on 3 November 2000. The Commission analysed this report and assessed the eligible expenditure at € 1.75 million, which meant that the total payment due was € 1.4 million, corresponding to 80 % of that expenditure. Taking account of the initial payment of € 600 000, a further payment of € 800 000 was ordered and effected in December 2000, in other words within the period of 60 days stipulated in Article 4.1 of the contract.

Any balance outstanding from the grant would be paid following receipt and approval of the final report. This had been due to be submitted by no later than 28 February 2001, in accordance with Article 5 of the contract, but was actually received by the Commission on 17 April 2001. At any rate, it would not have been possible to pay out the balance in 2000, as such payment was subject to presentation of the final report on the activities scheduled until 31 December 2000.

Delay and lack of information and guidelines

In 1998, the European Parliament amended the remarks on Article A-302 of the budget so as to require 10 % non-Community co-financing. In the face of the difficulties encountered by certain operators in providing evidence of such co-financing, it became necessary to give more detailed thought to the technical aspects of enforcing this obligation. The Commission kept the complainant informed about developments on this matter through joint meetings held in September, October and November 2000. The matter was still under consideration, particularly after the change made by Parliament to the remarks in the budget for 2001 concerning contributions in kind, and should be concluded in the course of the first half of 2001, giving a precise co-financing framework for the complainant.

It should however be noted that any delays that might have occurred were not solely due to this change in the co-financing conditions. As mentioned above, the final report relating to the subsidy for 2000 was not submitted until 2001.

Lack of transparency and coherence

The Vade-Mecum on Grant Management, adopted by the Commission in July 1998 and amended in July 1999 and August 2000, ensured that the rules on subsidies were transparent and coherent. An abridged version was available on the Commission's website.

In the 1998 budget, Parliament introduced a minimum requirement of 10 % of external co-financing for grants in the relevant part of the budget. Parliament then raised this to 15 % in the 1999 budget and 20 % in the 2000 budget. The Vade-Mecum was amended accordingly.

The complainant had set up its own particular co-financing mechanism, based on subcontracting activities outlined in its action plan to certain of its member organisations, these organisations in turn seeking regional or local financial support to carry out these activities. Although these operations did not involve transfers of funds between the member organisations and the complainant, they appeared in the complainant's annual accounts as external co-financing. It was after the audits relating to the 1998 subsidy that the Commission focused its attention on this mechanism in 1999.

Because of the unusual nature of the mechanism, it was necessary to audit the accounts of both the organisations concerned and of the complainant relevant to these arrangements. The complainant had been informed of this requirement and accepted it. On this basis, an audit schedule for the financial years 1999 and 2000 was drawn up by common agreement between the complainant and the Commission. The reports on these audits were currently being prepared. The validity of the Commission's misgivings was illustrated by the possible irregularities mentioned by the complainant in its letter of 19 March 2001 regarding the accounts for 2000.

The Commission felt it had done what was necessary to apply the appropriate rules with regard to co-financing, while maintaining a balanced approach and keeping the complainant informed of developments.

The complainant’s observations

In its observations, the complainant maintained its complaint and made the following submissions:

The complainant had provided sufficient evidence with regard to the co-financing that was required. The Commission was confusing the "budget" and the "final accounts" of an organisation when referring to "proof of co-funding". The only proof that could be delivered at the beginning of the financial year was the budget. The Commission had accepted the budget as proof for co-funding in 1998 and 1999. Documentary evidence of co-financing could be included in the accounts, once financial transactions had taken place. This was the reason why the remark on chapter A-302 of the budget required co-financing of at least 20 % of the budget. The Commission could have referred to the experiences of previous years to assess the reliability of the complainant.

The complainant's co-funding had been accepted in 1998 and 1999. However, a re-assessment of the co-funding had taken place inside the Commission between 8 March 2000 (announcement of engagement of the first advance payment) and the production of the contract dated 28 June 2000. The complainant was only informed about this re-assessment by letter dated 22 September 2000, nearly 90 days after the contract had been signed and over six months after the Commission had received the application. It was correct that the announced payment of € 600 000 was then executed rather quickly and credited to the complainant's account on 3 October 2000, 74 days after the contract had been signed.

The Commission had failed to comply with Article 4.1 of the contract. An advance payment of € 1 million ought to have been made since the complainant had submitted "proof" of co-financing. The Commission had unilaterally redefined the conditions in the contract. Even if only € 300 000 were to be considered as co-financing, the total receivable subsidy for 2000 would have been over € 1 million. The first advance payment should therefore have been € 1 million in any case. The Commission failed to pay this advance payment within 60 days after signature of the contract.

The second and third advance payments each amounted to up to € 500 000. This meant that the whole grant of € 2 million was to be paid as an advance. According to Article 3.4 of the contract, the result and the final subsidy were only calculated on completion of the operation, and the Commission could recover any amounts that had been paid in excess of the final subsidy.

Payment of the final balance was linked to the final report. The complaint did not cover this aspect which should therefore not be considered by the Ombudsman.

There had indeed been meetings between the Commission and the complainant, and all the Commission officials involved had been extremely helpful. However, the subject of the complaint was the absence of written information on the relevant issue. The Commission had failed to reply to various letters within the usual period of 15 working days. Over three years after the introduction of the co-financing requirement, the Commission should also be in a position to operationalise the remark made by the budgetary authority.

The Commission was right to point to the provisions of the Vade-Mecum. However, the Commission had failed to take account of the budgetary remark according to which the balance of the subsidy should have been paid at the latest six months after the notification of its agreement. The complaint concerned the application of the co-financing requirement by the Commission in general.

The complainant deplored that in its opinion the Commission had referred to developments that had occurred after the period covered by the complaint and suggested that the relevant comments should be considered as being inadmissible.

THE OMBUDSMAN'S EFFORTS TO ACHIEVE A FRIENDLY SOLUTION

The Ombudsman’s analysis of the issues in dispute

After careful consideration of the opinion and observations, the Ombudsman was not satisfied that the Commission had responded adequately to the complainant's claims.

The Ombudsman’s provisional conclusion was that the Commission’s failure to pay the first instalment in time and its failure to provide sufficiently precise information regarding the co-financing requirement could be instances of maladministration.

The possibility of a friendly solution

The Ombudsman therefore considered making a proposal for a friendly solution to the Commission according to which the Commission should consider providing sufficiently precise information on how it interprets and applies the co-financing requirement laid down in Article A-302 of the budget of the EU. This draft proposal was submitted to the complainant for its comments. However, on 6 September 2001 the complainant informed the Ombudsman that in its view the proposal did not go far enough and that it could therefore not agree to it. In these circumstances, the Ombudsman considered that it was not appropriate to pursue a friendly settlement in the present case.

THE DECISION

1 Failure to pay an outstanding grant of € 1.4 million

1.1 The complainant, the European Union Youth Forum, is the beneficiary of a grant provided for by the budget of the EU. For the year 2000, an amount of € 2 million was appropriated for this purpose in the budget. A contract dated 28 June 2000 was concluded between the Commission and the complainant in order to implement the budget. In October 2000, the complainant received a first instalment of € 600 000. The complainant claims that the Commission failed to pay the outstanding amount of € 1.4 million.

1.2 The Commission points out that payment of the subsidy granted by the Commission to the complainant for the year 2000 (amounting to a maximum of € 2 million, representing 80 % of the total cost of the complainant's action plan for 2000, estimated at € 2.5 million) was governed by the arrangements laid down in Article 4.1 of the contract between the two parties dated 28 June 2000, namely (1) payment of an initial advance of € 1 million following signature of the agreement and presentation of evidence of non-Community co-financing amounting to 20 % of the total cost of the action plan, i.e. € 500 000, (2) two intermediate payments based on interim reports – to be submitted by 30 June and 30 September 2000 respectively – amounting to a maximum of € 500 000 each and (3) payment of any outstanding balance after receipt and approval of the final report. The Commission explains that the initial payment of € 600 000 was only 60 % of the envisaged advance, since the non-Community co-financing accepted by the Commission came only to 60 % of the amount required under the contract. The Commission further states that when the complainant submitted its interim report, the Commission assessed the eligible expenditure at € 1.75 million, which meant that the total payment due was € 1.4 million, corresponding to 80 % of that expenditure. Taking account of the initial payment of € 600 000, a further payment of € 800 000 was ordered and effected in December 2000. Any balance outstanding from the grant would be paid following receipt and approval of the final report.

1.3 The Ombudsman notes that the complainant claims that the Commission failed to comply with the deadlines set out (a) in the budget and (b) in the contract.

1.4 According to the remarks on chapter A-302 of the budget of the EU for 2000 applications are to be lodged before 31 March and the Commission has to notify its approval within three months of the application. The Commission has to pay out a first instalment on that occasion and the balance is to be paid no later than six months after notification of the Commission's approval(3). This text thus appears to presuppose that payment of the full subsidy is effected in the year for which the latter is granted, as the complainant claims. The Commission appears to take the view that this is impossible on the basis of the consideration that the balance could only be paid when the final report on the activities scheduled for 2000 had been submitted (which by necessity could not be done before the end of that period). This aspect of the complaint thus raises the question as to whether the Commission has properly executed the budget of the EU. The Ombudsman considers that this question has to be dealt with by the institutions entrusted with this task by the EC Treaty, i.e. the European Parliament (cf. Article 276 of the Treaty) and/or the Court of Auditors (see Article 248 of the Treaty). The present inquiry will therefore only deal with the issue relating to the respect of the deadlines set out in the contract concluded between the Commission and the complainant.

1.5 According to Article 195 of the EC Treaty, the European Ombudsman is empowered to receive complaints "concerning instances of maladministration in the activities of the Community institutions or bodies". The Ombudsman considers that maladministration occurs when a public body fails to act in accordance with a rule or principle binding upon it(4). Maladministration may thus also be found when the fulfilment of obligations arising from contracts concluded by the institutions or bodies of the Communities is concerned.

1.6 However, the Ombudsman considers that the scope of the review that he can carry out in such cases is necessarily limited. In particular, the Ombudsman is of the view that he should not seek to determine whether there has been a breach of contract by either party, if the matter is in dispute. This question could be dealt with effectively only by a court of competent jurisdiction, which would have the possibility to hear the arguments of the parties concerning the relevant national law and to evaluate conflicting evidence on any disputed issues of fact.

1.7 The Ombudsman therefore takes the view that in cases concerning contractual disputes it is justified to limit his inquiry to examining whether the Community institution or body has provided him with a coherent and reasonable account of the legal basis for its actions and why it believes that its view of the contractual position is justified. If that is the case, the Ombudsman will conclude that his inquiry has not revealed an instance of maladministration. This conclusion will not affect the right of the parties to have their contractual dispute examined and authoritatively settled by a court of competent jurisdiction.

1.8 In the present case, the Commission claims that its initial payment had only comprised 60 % of the € 1 million that had been envisaged by the contract since in its view the non-Community co-financing that could be accepted amounted to only 60 % of the amount required under the contract. The complainant appears to argue that the Commission should only have considered the budget that it had submitted and that the question as to whether there had indeed been the requisite amount of co-funding should be subsequently resolved on the basis of the final accounts. It has to be noted, however, that the remark on Article A-302 in the budget of the EU for 2000 appears to recognise that the Commission is entitled and obliged to examine this issue before making any payments(5). The Ombudsman thus considers that the Commission's approach regarding the first instalment does not appear to be unreasonable.

1.9 The Commission notes that it made a further payment in December 2000, bringing the total sum paid to € 1.4 million, corresponding to 80 % of the eligible expenditure that it had assessed at € 1.75 million. The complainant has not made any specific comment on this payment, and in the light of the above-mentioned findings the Ombudsman sees no reason to query the Commission's approach in this regard. Finally, the Commission points out that the balance due would be paid after submission of the final report. In its observations on the Commission's opinion, the complainant stresses that this aspect is not covered by the complaint.

1.10 The Ombudsman's conclusion, therefore, is that there appears to be no maladministration in so far as the complainant's first allegation is concerned.

2 Unnecessary delays and lack of information and guidelines

2.1 The complainant claims that there were unnecessary delays and a lack of information and guidelines regarding the execution of budget line A-3023 of the EU budget, particularly in 2000. Since the lack of information and guidelines is closely linked to the third allegation raised by the complainant, only the issue of delays will be considered here.

2.2 The Commission explains that it made a first payment of € 600 000 on 26 September 2000 and that a further payment of € 800 000 that was made in December was effected within the period of 60 days stipulated in Article 4.1 of the contract.

2.3 The Ombudsman notes that both the complainant and the Commission agree that under the terms of the contract, payments had to be made within a period of 60 days.

2.4 According to the information available to the Ombudsman, the interim report was submitted to the Commission on 11 (or 13) October 2000 with an addendum on 3 November 2000. The Commission's claim that the subsequent payment of € 800 000 effected in December 2000 was made within the period of 60 days thus appears to be correct.

2.5 According to both the complainant and the Commission, the contract was dated 28 June 2000. It was signed and sent back to the Commission on 17 July 2000. According to the Commission, the first instalment of € 600 000 was paid on 26 September 2000. The complainant claims to have received this payment on 3 October 2000.

2.6 The Ombudsman's conclusion is that on the basis of the evidence submitted to him, and regardless of which date is the relevant one to trigger the period of 60 days, the Commission has failed to comply with the period of 60 days for payment laid down in the contract in so far as the first instalment is concerned, and that this constitutes an instance of maladministration. The Ombudsman therefore considers it necessary to make a critical remark in this regard.

3 Lack of transparency and coherence

3.1 The complainant alleges that there was a lack of transparency and coherence in the application of co-financing rules for subventions granted for the general functioning of organisations. The complainant's claim that there was a lack of information and guidelines regarding the execution of budget line A3023 of the EU budget, particularly in 2000, also ought to be considered here.

3.2 The Commission refers first of all to its Vade-Mecum on Grant Management. It further points out that because of the unusual nature of the co-financing mechanism chosen by the complainant, it was necessary to audit the accounts of both the complainant and its member organisations concerned. According to the Commission, the complainant was informed of this requirement and accepted it. The Commission further notes that the co-financing requirement was introduced in 1998 and that it became necessary to give more detailed thought to the technical aspects of enforcing this obligation. It claims to have kept the complainant informed about developments on this matter through joint meetings held in September, October and November 2000. According to the Commission, however, the matter was still under consideration, and a conclusion should be reached in the course of the first half of 2001, giving a precise co-financing framework for the complainant.

3.3 The complainant confirms that the meetings mentioned by the Commission did take place. However, what the complainant basically claims is that the Commission has failed to provide precise clarification as to how the co-financing requirement is to be interpreted and applied. The Ombudsman considers that applicants who wish to receive a subsidy that is appropriated to them in the budget of the EU ought to receive sufficiently precise information as to which conditions they have to fulfil and how these conditions are to be applied. The co-financing requirement was already introduced in 1998. Although the Ombudsman accepts that this requirement may give rise to difficult questions, he considers that after more than three years the Commission should be in a position to offer guidance on how it interprets this requirement. It appears, however, that the Commission has failed to do so, given that the Commission itself points out that it is still considering the matter and hopes to conclude its assessment in the first half of 2001.

3.4 The Ombudsman's conclusion is that the Commission has failed to provide sufficiently precise information as to how the co-financing requirement is to be interpreted and applied, and that this constitutes a further instance of maladministration. The Ombudsman therefore considers it necessary to make a critical remark in this regard.

4 Conclusion

On the basis of the European Ombudsman’s inquiries into this complaint, it appears necessary to make the following critical remarks:

The contract between the Commission and the complainant stipulated that payments were to be made within a period of 60 days. The Commission failed to comply with this requirement in so far as the first instalment was concerned. This constitutes an instance of maladministration.

Applicants who wish to receive a subsidy that is appropriated to them in the budget of the EU ought to receive sufficiently precise information as to which conditions they have to fulfil and how these conditions are to be applied. The co-financing requirement was already introduced in 1998. More than three years later, the Commission had still not provided sufficiently precise information as to how the co-financing requirement was to be interpreted and applied. This constitutes a further instance of maladministration.

For the reasons set out above, it was not appropriate to pursue a friendly settlement of the matter. The Ombudsman therefore closes the file.

The President of the European Commission will also be informed of this decision.

Yours sincerely,

 

Jacob SÖDERMAN


(1) OJ L 40 of 14 February 2000, page 1.

(2) The relevant proposals made by the European Parliament are now reflected by the text of the remarks on article A-302 in the budget for the year 2001 (OJ L 56 of 26 February 2001, page 1). According to this text, the co-financing of 20 % "includes contributions in kind". The paragraph on deadlines is now worded as follows: "The beneficiary bodies must make their application before 31 March. The Commission must notify its approval and grant the first instalment of the subsidy within three months. Payment of the last instalment, which may not exceed 10 %, may be carried over until the control is completed. (…)".

(3) The English text refers to the notification of "agreement". A comparison with other language versions shows, however, that what appears to be meant by this is the "approval" that the Commission has to notify within three months from the date of the application.

(4) See Annual Report 1997, pages 22 sequ.

(5) See the text quoted above ("The Commission will assess the degree of co-financing of each organisation and period, before making a decision on any European Union financing").