Strasbourg, 18 December 2006

Dear Mr O.,

On 13 December 2004, you submitted the present complaint to the European Ombudsman on behalf of Viewrope UETP and, on 6 January 2005, you provided further information. Your complaint was against the European Commission and concerned the payment of a grant for a project carried out under the Leonardo da Vinci programme.

On 17 January 2005, I forwarded complaint 3645/2004/TN to the President of the Commission. The Commission sent the Swedish translation of its opinion on 15 June 2005. I forwarded it to you with an invitation to make observations. Following your request for an extension of the deadline, you sent your observations on 10 October 2005.

On 13 October 2005, you submitted another complaint to the Ombudsman on behalf of Viewrope UETP, which had by then changed its name to UETP - University Enterprise Partnership (complaint 3394/2005/TN). Your complaint was against the Commission and concerned the carrying out of an audit regarding the use of the grant concerned by the present complaint.

Since complaint 3394/2005/TN was related to the present complaint, I found it necessary to await the outcome of my inquiries into that complaint before taking a decision on the allegations and claim put forward in the present complaint. You were informed accordingly by letter of 19 April 2006. My inquiries into complaint 3394/2005/TN have now reached a stage allowing me to make a decision in the present case.

I am therefore writing to let you know the results of the inquiries that have been made into the present complaint.

THE COMPLAINT

According to the complainant, the relevant facts are, in summary, the following:

Viewrope UETP (hereafter "UETP") finalised a project under the Leonardo da Vinci programme in 2000. The Commission approved the outcome of the project, but problems arose concerning the eligibility of staff costs. Different Commission evaluators interpreted the Administrative and Financial Handbook differently, leading to inconsistencies in the approved staff costs. For instance, the claimed daily cost of EUR 450 per staff member was accepted for some staff, but not for the project co-ordinator, the IT technician and the project leader. Furthermore, as regards the project co-ordinator, the Commission accepted a daily cost of EUR 394 during the first period of the project (1996-1998). However, for the second period of the project (1998-2000), the Commission only accepted a daily cost of EUR 331, despite higher costs for increased salaries.

On the basis of the dispute concerning the interpretation of the Administrative and Financial Handbook and the eligibility of staff costs, the Commission initiated an external audit of UETP in 2003. However, both the project co-ordinator and the project leader were on long-term sick leave at the time and, in accordance with Swedish law, they were therefore not allowed to spend time in UETP's office. UETP suggested that its own auditor could replace the project co-ordinator and the project leader during the Commission's audit, but the Commission's auditors did not accept this proposal. The audit could therefore not be carried out. The Commission concluded that UETP had refused to co-operate and therefore terminated the contract in July 2004, asking for reimbursement of the entire allocation.

The complainant alleged that the Commission had:

1. Made inconsistent and incorrect interpretations of the rules regarding staff costs; and
2. Wrongly terminated the contract on the basis of UETP's alleged unwillingness to co-operate with the Commission's audit.

The complainant claimed that the Commission should stand by its compromise as outlined in its letter of 23 September 2002, in which it offered to pay UETP another EUR 24 370 in addition to the EUR 123 199 already paid.

THE INQUIRY

The Commission's opinion

In its opinion, the Commission made, in summary, the following comments:

Background

UETP submitted a proposal for a project under the Leonardo da Vinci I programme in 1996. The project was selected, a contract was signed, and a first payment of EUR 78 000 was made in March 1997. The contractual period took effect on 2 December 1996 and expired on 1 December 1999. The contract foresaw three instalments: 40% of the contractual Leonardo da Vinci allocation in advance; 30% after the submission and approval of the interim report; and 30% after the submission and approval of the final report.

Having submitted its interim report, UETP was asked to provide additional information in November 1999 and February 2000. On 28 January 2000, UETP submitted some, but not all, of the requested information. Since the interim report was not finalised, the Commission informed UETP on 7 December 2000 that no second payment would be made.

UETP submitted the final report on 6 September 2000. In January and March 2001, the financial evaluator requested additional information from UETP to justify the declared costs for the first period (declared in the interim report) and the second period (declared in the final report) of the project. The financial evaluator requested correct and coherent financial tables, pay slips for declared staff costs, a breakdown of costs declared as 'administrative costs', and invoices for declared costs in the budget headings 'subcontracting costs', 'computer costs' and 'other costs'. During the period from February to June 2001, UETP provided salary specifications to confirm staff costs from 1999 on. UETP explained that it used "two levels of daily rates depending on the competence level of the personal [sic] categories. The daily rates are based on an average cost for salaries of the personal and other personal related costs. Those costs are direct personal costs and are not included in the company overheads. Company overheads are separately stated in the submitted reports".

In January 2002, the Commission informed UETP that the final report had been evaluated and that a reduced payment was about to be made. In June 2002, the Commission received a letter from UETP, in which the latter did not accept the reduction but requested full payment, including interest, because it considered that it had provided all the requested documents. By letter of 27 June 2002, the Commission replied, explaining that if UETP was not satisfied with the final balance, it had to specify its claim and give substantive arguments in support of its disagreement as well as supporting documents to prove the claim. The Commission's letter contained a detailed clarification of the ineligible costs.

By letter of 14 August 2002, UETP explained its disagreement with the way in which the Commission had calculated the eligible staff costs. According to UETP, the Commission had not taken into account the "payments directly related to personal costs, neither education costs for the project neither performance nor pension contribution for staff". UETP explained that its calculation of staff costs included "project support and guiding from [the complainant], personal technical education from Mr [RW] and personal administrative education from Mrs [S]". UETP enclosed a statement from its external auditors on the salary costs for the complainant.

On 23 September 2002, the Commission sent a revised final balance to UETP, reinstating as eligible the costs identified in the budget headings 'sub-contracting', 'computer' and 'other costs'. The pension contribution was included in the calculation of the daily salary. The Commission further requested detailed information about the 'administrative costs' declared in the budget heading 'overheads'. A revised final balance with an additional payment of EUR 24 370 was proposed.

On 15 and 16 October 2002, UETP complained that the Commission's calculation of the staff costs had not taken into consideration the "supporting time of [the complainant]", claiming that the complainant's and Mr W's salaries should be calculated on the basis of the amount EUR 450 per day. UETP also explained the nature of the declared 'administrative costs'.

On 23 October 2002, the Commission replied that it could not evaluate the staff costs based on UETP's interpretation of the Administrative and Financial Handbook, but that it had to calculate the daily staff costs using the same method as for all other Leonardo da Vinci projects. The Commission found that UETP had not provided the requested information pertaining to the declared 'administrative costs' and concluded that the project would be closed with an additional payment as referred to in its letter of 23 September 2002. The Commission informed UETP that it had requested an external audit of the project and that UETP had to notify the Commission, within ten days of having received the Commission's letter, whether it agreed to the final balance indicated in the Commission's letter of 23 September 2002. If UETP agreed, the complementary payment of EUR 24 370 would be made. If UETP did not agree, the payment would be suspended until the external audit report was delivered.

UETP did not agree with the Commission's revised evaluation of the project, but claimed that all declared staff costs should be accepted. On 27 November 2002, the Commission therefore sent a letter to UETP, stating that the project had been selected for an external audit, which would take place some time during the coming months in order to clarify the actual staff costs. UETP was informed of the obligation to guarantee the Commission total access to all supporting documents of the project, as stipulated in Article 7.5 of the contract.

During the period from October to December 2003, the auditing firm Deloitte & Touche tried to arrange a date for the external audit, but this was not possible due to the absence of the responsible persons within UETP: The complainant and Mr W were on long-term sick leave. Deloitte & Touche tried to find someone else to whom it could refer concerning the audit and UETP suggested Mr P and Mr B. However, Mr P explained that he did not have the material to answer the auditor's questions. The Commission therefore sent UETP a letter on 19 January 2004, setting out a final date for the audit. UETP was informed that, if not complied with, a total recovery of the advance payments would be executed, in accordance with the applicable rules.

On 12 March 2004, the Commission received a fax message from the complainant explaining that he and Mr W were on sick leave until at least 30 April 2004. The complainant further explained that Mr W was UETP's only employee and that in his absence, Mr P was acting as the responsible person. The complainant concluded that UETP would accept the complementary payment proposed in the Commission's letter of 23 September 2002 in order to settle the matter.

On 20 July 2004, the Commission sent two registered letters requesting a complete recovery of the sums already paid. The letters were returned as 'non réclamé' since nobody had collected them. On 14 September 2004, the same request was sent by e-mail to the complainant. The complainant replied by e-mail of 22 September 2004, stating that he had been on holiday during July and August and, since the letters were addressed to him personally, they could not be received by courier. He further stated that he had proposed a person from UETP's external audit company, but that the Commission's auditors had required his and Mr W's presence. The complainant also argued that the Commission staff had applied different methods to calculate staff costs.

On 23 September 2004, the Commission sent en e-mail to the complainant stating that the letter giving a final audit date had been sent on 19 January 2004. Since UETP had not replied to this letter, the Commission had decided to terminate the contract and request total reimbursement. The complainant replied the same day explaining that he had never received the letter of 19 January 2004 and that he no longer worked for UETP but wanted to help in order to resolve the situation.

On 28 September 2004, the Commission asked the complainant to indicate who, in UETP, was responsible for the management of the contract. The following day, the Commission addressed the same question in an e-mail to the International Programme Office in Stockholm. On 8 October 2004, the Commission sent the complainant a letter, in which it enclosed copies of its letters of 19 January and 20 July 2004, and asked him to clarify who was responsible for the contract and what was the valid postal address for UETP.

On 11 October 2004, the Commission received a letter form the complainant stating that it was the Commission's auditors who did not want to work with UETP's auditor, and that it therefore was not UETP's fault if the audit was not carried out.

By registered letter of 25 November 2004, the Commission accepted to give UETP a new deadline for the audit to be carried out. However, the letter was returned without explanation.

On 17 March 2005, UETP sent the Commission a letter suggesting that the audit take place in the last week of June 2005. On 18 April 2005, the Commission asked Deloitte & Touche to carry out the audit during the requested week. Deloitte & Touche confirmed that the audit would be carried out during that week.

The complaint

As regards the complainant's dissatisfaction with the way in which the Commission calculated staff costs, the Commission pointed out that the calculation of the complainant's, Mr W's, and Mr RW's salaries was based on the pay slips provided by UETP. The Commission based its calculations on gross salary, adding social security and pension contributions. The gross salary of each person was considered to include all work carried out by that person during his or her time on the Leonardo da Vinci project.

Certain staff costs were calculated on the basis of the maximum amount authorised in a Leonardo da Vinci project, which, according to point II.3.2 in the Administrative and Financial Handbook, was EUR 450 per day per staff member. This way of calculating staff costs was used for staff for whom no pay slips had been provided and was used in order to avoid extremely high ineligible staff costs due to the lack of pay slips. In cases where pay slips had been provided, they were used to calculate the actual daily salary in accordance with annex II.2.1 of the contract. Where the daily salary declared in the final report did not correspond to the daily salary calculated on the basis of pay slips, the excess amount in the final report was declared ineligible and was therefore deducted.

The Commission calculated staff costs according to the principle used in all Leonardo da Vinci projects when calculating actual daily staff costs. When the Commission and UETP did not agree on the calculation method, the Commission proposed an external audit in order to verify the actual daily staff costs for those members of staff involved in the project. This was considered necessary due to the different explanations as to how UETP had calculated the staff costs.

Neither the Commission nor its appointed auditors were responsible for the audit not having been carried out. Since UETP explained to Deloitte & Touche that the responsible persons, the complainant and Mr W, were on sick leave, the Commission asked, by e-mail of 5 November 2003, if there would be anyone else to whom it could refer regarding the cost statements. By e-mail of 27 November 2003, UETP suggested that Deloitte & Touch contact UETP's auditors. In this regard, UETP explained that Mr P and Mr B knew the principles, while Mr W mastered the details. Mr P informed Deloitte & Touch that it had to contact the complainant or Mr W since he (Mr P) had no material to answer their questions. The Commission therefore sent UETP a registered letter on 25 November 2004, giving a new deadline for the audit to be carried out. However, the letter was returned without explanation. The postal address consistently used by the Commission to correspond with UETP was the same as the complainant's postal address.

In its opinion, the Commission explained that it could not accept UETP's proposal to return to the solution proposed in the Commission's letter of 23 September 2003, namely to pay an additional sum of EUR 24 370, the reason being the launch of the external audit of the project, as stipulated in Article 7 of the contract.

The Commission therefore suggested that UETP should arrange a date for the external audit to be carried out. After having received the audit report, the Commission intended to review the project and adjust the balance accordingly.

The complainant's observations

In his observations, the complainant made, in summary, the following remarks:

By letters of 9 April and 31 May 2001, UETP expressed its frustration with the Commission's not approving 'direct related personal costs' as staff costs, despite such costs being eligible according to point 3 in Annex II to the contract as well as the Administrative and Financial Handbook. According to point 3 in Annex II to the contract, staff costs include "(...) other charges directly related to the employment of staff" and the Administrative and Financial Handbook states that, where applicable, this figure should include all usual contributions paid by the employer. UETP explained that it is an organisation working on a project basis and that every person, except for the complainant, is employed for a particular project and that the costs for the employee pertaining to premises, computers, office supplies, copying, data communication, training and so on are directly related to the employment of that person. These costs therefore belong to staff costs.

However, the Commission did not take UETP's explanations into consideration but maintained the view that staff costs only covered gross salary and social security contributions.

UETP continued to support its interpretation of the term 'staff costs'. By letter of 10 October 2002, UETP eventually proposed a compromise. UETP suggested that, if the time spent by the complainant in, for instance, training of staff could not be considered as staff costs, the correct time sheet for the complainant should be taken into account. The fact that UETP had accepted funding covering only 40% of its costs, instead of the normal 60%, was based on the presumption that the Commission accepted its interpretation of the Administrative and Financial Handbook.

By letter of 23 October 2002, the Commission replied that it only took into account salary costs and that all projects thereby were equally evaluated. The Commission also stated that if UETP did not agree with its interpretation, a financial audit would be carried out. UETP understood this as a threat.

By letter of 5 November 2002, UETP argued that the staff costs for the complainant should be adjusted upwards if his time spent on the project could not be charged as direct costs for each employee under the project. UETP also questioned the Commission's argument that all projects were equally evaluated since not even its own project had been consistently evaluated. Some Commission officials considered UETP to be right in its interpretation of the term 'staff costs', others did not. However, the Commission refused to address this fact in its correspondence with UETP.

By letter of 27 November 2002, the Commission informed UETP that it had requested an external audit to be carried out. On 19 December 2003, the Commission took UETP's complaint to the SME Envoy(1) as a justification for a total recovery of the sums paid.

The planning of the audit was carried out in the same ruthless way, not taking into consideration the fact that UETP's employees were on sick leave. Only after UETP complained to the Ombudsman did the Commission agree to a compromise as regards the audit, which, however, was not adhered to during the audit.

The reason why the Commission's letters did not reach UETP was that the Commission continued to address its letters to Viewrope despite the fact that the Commission had been informed that it had changed its name to UETP - University Enterprise Training Partnership. Since Viewrope no longer existed, registered letters addressed to it could not be collected, if they arrived at all.

COMPLAINT 3394/2005/TN

On 13 October 2005, the complainant submitted another complaint to the Ombudsman on behalf of UETP (complaint 3394/2005/TN). The complaint was against the Commission and concerned the carrying out of the audit concerning the use of the grant concerned by the present complaint.

The Ombudsman is pursuing the issues covered by complaint 3394/2005/TN in a separate inquiry, which will lead to a separate decision. However, since the two cases are related, the inquiry into complaint 3394/2005/TN has provided the Ombudsman with certain information relevant to the handling of the present complaint.

In complaint 3394/2005/TN, it appears undisputed by the parties that an audit of the project concerned by the present complaint (3645/2004/TN) was carried out on UETP's premises during the period 27-29 June 2005, and that, following the outcome of audit, the Commission decided to execute a full recovery of the grant amount that had been paid to UETP under the project.

In his observations in complaint 3394/2005/TN, the complainant opposed the findings made in the audit report.

THE DECISION

1 Preliminary remark

1.1 In analysing the complaint, the Ombudsman has taken into account certain information provided by the parties in the context of the inquiries into complaint 3394/2005/TN, which is related to the present complaint. According to this information, it appears to be undisputed by the parties that an audit of the project concerned by the present complaint was carried out on UETP's premises during the period 27-29 June 2005, and that, following the outcome of audit, the Commission decided to execute a full recovery of the grant amount that had been paid to UETP under the project. In his observations in complaint 3394/2005/TN, the complainant opposed the findings made in the audit report.

1.2 A separate decision will be made as regards the issues covered by complaint 3394/2005/TN.

2 The allegedly incorrect termination of the contract

2.1 The complaint concerns the payment of a grant for a project carried out by the organisation UETP under the Leonardo da Vinci programme, finalised in 2000. According to the complainant, who complained on behalf of UETP, a dispute concerning the interpretation of the Administrative and Financial Handbook and the eligibility of staff costs under the project prompted the Commission to initiate an external audit of the project in 2003. However, both the project co-ordinator and the project leader were on long-term sick leave at the time and, in accordance with Swedish law, they were therefore not allowed to spend time in UETP's office. According to the complainant, UETP suggested that its own auditor could replace the project co-ordinator and the project leader during the Commission's audit, but the Commission's auditors did not accept this proposal. The audit could therefore not be carried out. The Commission concluded that UETP had refused to co-operate and therefore terminated the contract in July 2004, asking for reimbursement of the complete allocation. The complainant alleged that the Commission had wrongly terminated the contract on the basis of UETP's alleged unwillingness to co-operate with the Commission's audit.

2.2 The Commission argued that neither it nor its appointed auditors Deloitte & Touche were responsible for the audit not having been carried out. Since UETP had explained that the responsible persons, the complainant and Mr W, were on sick leave, Deloitte & Touche asked if there would be anyone else to whom it could refer regarding the cost statements. UETP suggested that Deloitte & Touche contact UETP's auditors Mr P or Mr B, who knew the principles, but stated that it was Mr W who mastered the details. Mr P informed Deloitte & Touche that it had to contact the complainant or Mr W since he had no material to answer their questions. The Commission therefore sent UETP a registered letter on 25 November 2004, giving a new deadline for the audit to be carried out. However, the letter was returned without explanation.

2.3 In its opinion, the Commission suggested that UETP should arrange a date for the external audit to be carried out. After having received the audit report, the Commission would revise the project and adjust the balance accordingly.

2.4 In his observations, the complainant argued that only after UETP complained to the Ombudsman did the Commission agree to a compromise as regards the audit.

2.5 The Ombudsman notes that, on the basis of the information provided during the course of his inquiry into complaint 3394/2005/TN, it is clear that an audit of the project has now taken place and that the Commission has reconsidered the recovery decision it had adopted in 2004 in light of its outcome. Although the Commission is still asking for a full recovery of the grant, the recovery decision no longer appears to be based on the Commission's decision to terminate the contract due to UETP's alleged unwillingness to allow an audit to take place. The Ombudsman therefore considers that no further inquiries into this aspect of the present complaint are justified.

3 The allegedly inconsistent and incorrect interpretation of staff costs

3.1 According to the complainant, the Commission approved the outcome of the project, but problems arose concerning the eligibility of staff costs. Different Commission evaluators interpreted the Administrative and Financial Handbook differently, leading to inconsistencies in the approved staff costs. The complainant alleged that the Commission had made inconsistent and incorrect interpretations of the rules regarding staff costs.

3.2 In its opinion, the Commission argued that the calculation of salaries was based on the pay slips provided by UETP. The Commission based its calculations on gross salary, adding social security and pension contributions. The gross salary of each person was considered to include all work carried out by that person during his or her time on the Leonardo da Vinci project. Certain staff costs were calculated on the basis of the maximum amount authorised in a Leonardo da Vinci project, which, according to point II.3.2 in the Administrative and Financial Handbook, is EUR 450 per day. This way of calculating staff costs was used for staff for whom no pay slips had been provided and was done in order to avoid extremely high ineligible staff costs due to the lack of pay slips. In cases where pay slips had been provided, they were used to calculate the actual daily salary in accordance with annex II.2.1 of the contract. Where the daily salary declared in the final report did not correspond to the daily salary calculated on the basis of pay slips, the excess amount in the final report was declared ineligible and was therefore deducted. The Commission argued that it had calculated staff costs according to the principles used in all Leonardo da Vinci projects.

3.3 In his observations, the complainant argued that, on several occasions, UETP had expressed its frustration with the Commission's not approving 'direct related personal costs' as staff costs, despite such costs being eligible according to point 3 in Annex II to the contract as well as the Administrative and Financial Handbook. According to point 3 in Annex II to the contract, staff costs include "(...) other charges directly related to the employment of staff" and the Administrative and Financial Handbook states that, where applicable, this figure should include all usual contributions paid by the employer. UETP explained that it is an organisation working on a project basis and that every person, except for the complainant, is employed for a particular project and the costs for the employee pertaining to premises, computers, office supplies, copying, data communication, training and so on are directly related to the employment of that person. These costs therefore belong to staff costs. However, the Commission did not take UETP's explanations into consideration but maintained the view that staff costs only covered gross salary and social security contributions.

3.4 The Ombudsman finds that the allegation covered by the present complaint, which concerns the interpretation of the rules regarding staff costs, was based on the findings made by the Commission during the normal course of the project. The Ombudsman notes that, on the basis of the information provided during his inquiry into complaint 3394/2005/TN, following the outcome of a subsequent audit of the project, the Commission has made new findings, on the basis of which it has decided to execute a full recovery of the grant amount that had been paid to UETP under the project. The Ombudsman therefore considers that the findings made by the Commission during the normal course of the project have been superseded by its findings made following the audit. Since the original findings are no longer valid, the Ombudsman does not consider it justified to pursue further inquiries into an allegation based on these findings.

3.5 The Ombudsman notes in this regard that the complainant has opposed the findings made in the audit report. The complainant has the possibility to submit a new complaint to the Ombudsman concerning the outcome of the audit, in case he considers that there has been an instance of maladministration by the Commission regarding the matter.

4 The complainant's claim

4.1 The complainant claimed that the Commission should stand by its compromise as outlined in its letter of 23 September 2002, in which it offered to pay UETP another EUR 24 370 in addition to the EUR 123 199 already paid.

4.2 The Commission argued that it could not accept UETP's proposal to return to the solution proposed by letter of 23 September 2003, since, in accordance with Article 7 of the contract, an external audit of the project had been launched.

4.3 The Ombudsman notes that the compromise offered by the Commission was not accepted by UETP and that the Commission therefore proceeded to carry out an audit of the project, following which the Commission made new findings. The Ombudsman is not aware of any rule or principle that would oblige the Commission to stand by a proposed compromise that was not accepted by the other party, particularly since, in the present case, the Commission's earlier findings, on the basis of which the compromise was based, have been superseded by subsequent events (see point 3.4 above). The Ombudsman therefore considers that the complainant's claim must fail.

5 Conclusion

For the reasons stated in points 2.5 and 3.4 above, the Ombudsman considers that no further inquiries into the allegations made in the present complaint are justified. For the reason stated in point 4.3 above, the Ombudsman considers that the complainant's claim must fail.

On the basis of the above, the Ombudsman closes the case.

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

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS

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(1) The Ombudsman notes that the SME (small and medium-sized enterprises) Envoy is the Commission's key interlocutor with SMEs. The SME Envoy's main objective is the better integration of the SME dimension in EU policies. (http://ec.europa.eu/enterprise/smes/sme_envoy_en.htm).