The background to the complaint

1. Between 2004 and 2008, the complainant, a German company which advises small and medium-size enterprises on innovation and technology-related projects, was the co-ordinator of a project which was part of the Innovation Relay Centres (IRC) network. The IRC network was a Specific Support Action under the Sixth EU Framework Programme for Research and Technological Development (FP6) and aimed to improve the transfer of innovative technology from research centres to industry. The starting date of the contract between the European Commission and the consortium co-ordinated by the complainant was 4 April 2004. The maximum EU contribution was EUR 932 925. By letter dated 22 July 2008, the Commission's Directorate-General for Enterprise and Industry (DG ENTR) informed the complainant that the total eligible costs amounted to EUR 2 129 559.04 and that the EU contribution of EUR 932 925 had been paid.

2. In late 2009, a private audit firm carried out an audit on behalf of the Commission in relation to a member of the consortium, B. It found that some costs had to be re-allocated and that some costs were ineligible. In particular, the ineligible costs related to the cost of buying a new laptop at the end of the project (EUR 840.25) and costs claimed as consumables which it judged not to have been incurred in relation to the project (EUR 720.66 for 'advanced training', EUR 1 168.57 for a company journal, EUR 808.91 for chamber of commerce and industry and other memberships, EUR 736.97 for stationery and office equipment and EUR 822.40 for a job advertisement). This also meant that the indirect costs, which amounted to 20% of the direct costs, would have to be reduced by EUR 1 016.75.

3. In its observations on the audit report, B generally agreed with these findings. However, it defended the purchase of the laptop, as well as the costs of advertising a vacant post for the project and the training, company journal and office equipment costs as necessary for the project. It concluded that, in any event, it did not expect a recovery order since, in relation to the relevant project period, it had claimed EUR 12 404 more in costs than the Commission had funded. This was roughly three times the amount of costs not recognised by the auditors (EUR 4 175) and thus even if this sum were deducted from the total costs, the EU contribution should remain the same.

4. On 15 December 2009, the Commission informed B about its decision, based on the audit report, to recover EUR 4 216.48. By letter of 29 January 2010, it launched the recovery procedure.

5. On 4 March 2010, the complainant, as the co-ordinator of the project, replied to the Commission. Firstly, it stressed that, in relation to the consortium, the total eligible costs had amounted to EUR 2 129 559.04 and EUR 932 925 had been reimbursed. Taking into account the reimbursement rate of 45% fixed in the contract (and disregarding the 100% rate which only applied to a small part of the costs), this reimbursement would have been made even if the total eligible costs had only amounted to EUR 2 073 166.67. Thus, even if around EUR 56 000 of the costs initially accepted as eligible eventually turned out to be ineligible, the contribution actually paid by the EU would still have been justified. The same analysis applied when taking into account solely B's contribution to the costs. The complainant also recalled that it was on this understanding that B had not objected to most of the findings made in the audit report. In conclusion, it was wrong for the Commission to reclaim the money.

6. Secondly, the auditors had wrongly proposed to reassign the costs for the financial audit in relation to B from 'consortium management' (in relation to which the agreement fixed the reimbursement rate at 100%) to 'other specific activities' (with a reimbursement rate of 45%). The contract preparation forms and explanatory notes for Specific Support Actions provided that obtaining audit certificates was one of the activities included in the management of the consortium. The complainant remarked that the auditors did not seem to have knowledge of these documents.

7. Thirdly, the audit of the costs submitted by the complainant revealed that the complainant had incurred further eligible costs in the amount of EUR 4 630.98 over and above those that had been accepted by the Commission and that the auditors proposed a corresponding adjustment. However, because the ceiling foreseen in the agreement had been reached, the complainant had at that point waived a request for additional funding.

8. The Commission replied on 14 April 2010. In relation to the complainant's first point, it stated that the total eligible costs accepted amounted to EUR 2 128 558.79 and that the total EU contribution would thus have been EUR 932 925.81 but for the contractual limit of EUR 932 925. Thus, the recovery order against B was 81 cents too high. Secondly, the Commission accepted that audit costs belonged to the subcontracting section of the costs for 'managing the consortium'. Taking this into account, the amount to be recovered from B now properly amounted to EUR 1 878.88 minus EUR 0.81. As regards the third point, the fact that one contractor underspent was not relevant when determining the costs which could be considered eligible for another contractor.

9. On 10 June 2010, the Commission sent B a recovery order for EUR 1 878.07.

10. In its complaint, the complainant maintained its first point. It also noted that the Commission had failed to refer to the relevant rules or attach explanatory documents to its recovery order.

The subject matter of the inquiry

11. The complainant submitted the following allegations and claims.

Allegations

1. The Commission wrongly decided to recover the amount of EUR 1 878.07 from a contractor in the consortium managed by the complainant.

In support of this allegation, the complainant argued that the costs considered ineligible on the basis of the audit should be deducted from the total eligible costs and not from the EU contribution.

In the present case, the EU paid the maximum EU contribution agreed in the contract (EUR 932 925). The amount of eligible costs exceeded the amount necessary to benefit from this maximum EU contribution. This would still be the case if the costs questioned by the auditors were deducted from the eligible costs.

2. The Commission failed to reason its decision not to accept the complainant's objections to the recovery order and failed to refer to the applicable rules.

3. The Commission wrongly used auditors which were not fully aware of the rules and agreements governing the project.

Claims

1. The Commission should retract its recovery order.

2. When issuing recovery orders, the Commission should refer to the documents and guidelines on which the recovery orders are based.

3. In the future, the Commission should ensure that its Project Officers who are familiar with the specificities of the contract remain available for assessing the audits.

The inquiry

12. The complaint was submitted on 6 July 2010. On 23 August 2010, the Ombudsman opened an inquiry and asked the Commission for an opinion.

13. The Commission sent its opinion on 16 February 2011. This opinion was forwarded to the complainant, which submitted its observations on 23 March 2011.

14. On 15 July 2011, the Commission copied a letter to the Ombudsman which it had addressed to B and in which it stated that it had come to the conclusion that no recovery was necessary.

15. On 1 August 2011, the complainant wrote to the Ombudsman to inform him that it had received the Commission's letter. It thus considered that the first and second aspects of the complaint had been settled. Further, there was no need for the Ombudsman to pronounce himself on the third aspect as one could assume that, when dealing with the present complaint, DG Enterprise had taken measures to improve the audit procedure for the future. The complainant thanked the Ombudsman for his support.

The Ombudsman's analysis and conclusions

A. The complainant's allegations and claims

Arguments presented to the Ombudsman

16. As stated above, the complainant mainly argued that the Commission should have deducted the sums which it considered ineligible from the total eligible costs rather than from its contribution. It noted that the Commission had not dealt with this main argument and had failed to refer to the relevant contractual documents. Further, it pointed out that the auditors had applied the wrong reimbursement rate to some of B's expenses.

17. In its opinion, the Commission accepted that costs which are considered ineligible after an audit indeed have to be deducted from the total costs declared by the relevant contractor. While it considered that it had, in general, dealt with the complainant's correspondence in a diligent manner, it accepted that it had not sufficiently addressed this argument. The recovery order had been issued erroneously and would therefore be cancelled. However, the Commission also expressed some doubts as to whether the relationship between B's receipts and the EU contribution violated the no-profit rule foreseen in the grant agreement. The Commission noted that it had therefore, on 11 November 2010, asked the auditors in charge to verify the amount of receipts B had declared. It indicated that it would take its final decision on the amount of the EU contribution actually due to B once it received the auditors' response.

18. As regards the complainant's criticism directed against the auditors, the Commission noted that, under the general conditions of the grant agreements it had concluded, it had the power to have audits carried out by external auditors. These audits were performed in accordance with relevant international auditing standards. However, it was true that there were errors in the audit report and the complainant was therefore correct to contest the erroneous findings of the report. While such mistakes could not always be avoided, they did not justify calling into question the competence of the auditors in general. The Commission also noted that B had not raised any objections in this regard during the procedure leading to the recovery order.

19. In its observations, the complainant pointed out that, based on its analysis that the no-profit rule had been violated, the Commission had sent B a new recovery order for EUR 4 174.36 instead of EUR 1 878.07. This letter had been sent on 23 September 2010, that is, before the Commission, by letter of 11 November 2010, asked the auditors to check this issue. Subsequently, the auditors contacted B which sent them all the relevant documents in relation to its receipts as well as documents explaining the mechanism by which the co-financing from the Ministry for the Economy of the Land had been determined.

20. The complainant added that, if the Commission had been more diligent in assessing the audit report, it could have avoided making erroneous recovery orders and saved all parties involved considerable unnecessary effort. In relation to the Commission's comment that B never objected to the mistake in the audit report, the complainant noted that the mistake which the auditors had made was of a sort which could have easily slipped B's attention. The complainant as the project co-ordinator had a more in-depth knowledge of the relevant rules and was able to identify the mistake. Such detailed knowledge could not be expected of a simple partner in a project. However, it could be expected of a private firm carrying out an audit on behalf of the Commission.

21. In a letter dated 1 August 2011, the complainant informed the Ombudsman that the Commission had now informed it that it would not ask for a recovery payment. The complainant stated that the financial issue could therefore be considered settled. As regards the further issue it had raised, the complainant stated that it was no longer necessary for the Ombudsman to deal with it, given that it could be presumed that the Commission had drawn some lessons from dealing with the present complaint.

The Ombudsman's assessment

22. In light of the above, the Ombudsman concludes that the Commission has settled the complaint to the complainant's satisfaction.

B. Conclusions

On the basis of his inquiry into this complaint, the Ombudsman closes it with the following conclusions:

The Commission has settled the complaint to the complainant's satisfaction.

The complainant and the Commission will be informed of this decision.

 

P. Nikiforos Diamandouros

Done in Strasbourg on 27 September 2011