Background to the complaint

1. The complainant is a political foundation - the Konrad Adenauer Stiftung - that entered into a grant contract with an EU Delegation. The complainant (together with three local partners) was to carry out, between January 2013 and September 2015, a project aimed at promoting non-violent conflict resolution, tolerance and mutual understanding in parts of the Middle East. The project was partly financed by the European Neighbourhood and Partnership Instrument (ENPI).

2. Following an audit of the project, the Delegation decided to recover EUR 109 828.13.[1] It considered that these expenses were ineligible under the grant contract.

3. The complainant expressed its disagreement with the Delegation’s decision on several occasions.

4. Since it was dissatisfied with the Delegation’s final decision, the complainant turned to the Ombudsman. It claimed that the Delegation had failed to engage adequately with its objections to a number of audit findings.

The inquiry

5. The Ombudsman opened an inquiry into whether the Delegation had given due consideration to the complainant’s objections to the findings that certain costs were ineligible under the grant contract. In particular, the Ombudsman asked the Commission to state its views on the complainant’s objections and to consider whether, in line with the principles of fairness[2] and proportionality[3], it would consider revising its position.

6. In the course of the inquiry, the Ombudsman received the reply of the Commission on the complaint and, subsequently, the comments of the complainant in response to the Commission's reply. In its comments, the complainant pursued its objections to audit findings 1 and 6 only. These essentially related to salary expenses for a local project coordinator and a local project assistant that had been declared ineligible due to an ‘inadequately supported monthly payroll’.[4]

7. The Ombudsman has, in the meantime, learned that the issue of the lack of supporting documents for the employment of the local project assistant is being examined in the context of legal proceedings in the complainant’s home country. In accordance with the rules governing her work,^[5] the Ombudsman cannot examine this aspect of the complaint further. Her inquiry thus focuses on the issue of salary expenses for a local project coordinator.

Arguments presented to the Ombudsman

8. The complainant argued that, since the local project coordinator in question (Mr X) was the director and founder of one of the complainant’s project partner organisations, there was no need for him to conclude an employment contract “with himself” (that is, with his organisation). His commitment to the project was legally ensured through the partnership agreement concluded between the complainant and the project partner organisation (which was signed by Mr X as the director and founder of the partner organisation). In addition, according to the complainant, the timesheets provided constituted sufficient evidence of his involvement in the project.

9. The Commission argued that the partnership agreement does not replace an employment contract. The partnership agreement stipulates that all paid staff need to have a local employment contract. Therefore, the complainant should have either provided such a contract or amended the partnership agreement.[6] Moreover, in accordance with the applicable rules,[7] both contracts and timesheets are required. Timesheets cannot be accepted as the equivalent of a legal commitment established by a contract. Rather, the legal commitment provides the basis for the timesheets to then be used as proof of the hours spent on meeting the commitment.

10. The Commission also contended that the complainant did not substantiate its position that it was legally impossible for Mr X to conclude an employment contract with himself and that the statements submitted by the complainant over time were contradictory.

11. In its comments, the complainant claimed that it was not compulsory for it to submit an employment contract, since the eligibility of expenditure is determined by evidence proving that EU funds were used to implement the project. In addition, the complainant argued that, outside Europe, prominent and well-connected personalities might not be willing to work as employees. Contractual employment can therefore be inappropriate. Finally, the complainant mentioned communication problems with the auditors during the on-site audit and the communication phase that followed.

The Ombudsman's assessment

12. The Commission considers that there was insufficient evidence of a legal commitment for the involvement of the local project coordinator in the project. On the other hand, the complainant contends that the partnership agreement with the local partner organisation should be considered as the legal commitment for the employment of Mr X.

13. The Ombudsman notes that, in accordance with Article 16.3 of the General Conditions of the Grant Contract, “[i]n addition to the reports mentioned in Article 2, the documents referred to in Article 16.2 include:

...

- Proof of commitments such as contracts and order forms [third indent of Article 16.3]...”

14. It is clear that, since the term “such as” is used in the third indent of Article 16.3, the commitment may be proven by other means. Therefore, there may be circumstances in which a partnership agreement could constitute sufficient evidence of a person’s commitment to a project. However, the provisions of a partnership agreement must be adhered to. The partnership agreement at issue in this case required local staff, including Mr X, to sign an employment contract. As correctly stated by the Commission, the complainant should have either amended the partnership agreement or provided an employment contract. However, as the complainant acknowledged, it failed to amend the relevant clause in the partnership agreement. It also failed to provide an employment contract.

15. Moreover, the Ombudsman points out that the eleventh indent of Article 16.3 of the General Conditions of the Grant Contract requires contractors to provide “[s]taff and payroll records such as contracts, salary statements, time sheets[8]”. The Ombudsman agrees with the Commission’s position outlined as follows in a letter of 9 February 2018 to a German Member of the European Parliament on this issue: “for salary expenses to be substantiated, an employment contract and salary statements or other proof of payment should be made available. The only presence of timesheets might justify the time dedicated to the project activities but does [not] constitute evidence to support the salary costs declared in the Financial Report...” (emphasis added). The Ombudsman therefore concludes that it was reasonable for the Commission to require further proof of salary expenses.[9]

16. Regarding the complainant’s concerns about the on-site audit, the Ombudsman notes that the Commission’s decision to issue the recovery order was not based on any possible miscommunication during the audit procedure. It was based on the fact that the complainant had not made the necessary amendments to the partnership agreement and on the absence of an employment contract.

17. The Ombudsman notes that the Commission has provided the complainant with an exhaustive reply in which it considered all of the complainant’s objections. She therefore closes the case with a finding of no maladministration.

Conclusion

Based on the inquiry, the Ombudsman closes this case with the following conclusion:

There was no maladministration by the European Commission.

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

 

Emily O'Reilly
European Ombudsman

 

Strasbourg, 12/07/2019

 

 

[1] The Commission subsequently informed the complainant that it had decided to waive one of the audit findings and that the recovery order had been reduced accordingly to EUR 104 849.18.

[2] Article 11 of the European Code of Good Administrative Behaviour (hereinafter ‘ECGAB’).

[3] Article 6 of the ECGAB and Article 91 of 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.

[4] Audit finding 6 (entitled ‘The impact of financial findings on the administrative costs’) related to the allowable indirect expenses. Their amount depends on the final amount of the direct eligible costs, since they are calculated as a percentage of the direct eligible costs. The complainant sought a revision of audit finding 6 on the basis of its objections to audit finding 1 (concerning ‘inadequately supported monthly payroll’).

[5] Article 228(1), second subparagraph TFEU sets out that the Ombudsman cannot examine complaints where the issues raised are or have been the subject of legal proceedings.

[6] The Commission contended that the complainant had stated in its comments on the audit report of 31 May 2017 that, “[w]e should have amended the partnership agreement accordingly after the project team was settled, which we have overlooked to do so during the implementation period”. According to the Commission, this means that, “the Beneficiary concurs with the fact that there is no commitment basis for the involvement of [Mr X].”

[7] Article 16.3 of the General Conditions of the Grant Contract states that “[i]n addition to the reports mentioned in Article 2, the documents referred to in Article 16.2 include: ... proof of commitments such as contracts ... [and] proof of delivery of services such as approved reports, time sheets, ... [and s]taff and payroll records such as contracts, salary statements, time sheets ...”. The Commission contended that Article 16.3 lists “contracts” and “time sheets” separately, clearly classifying them in separate categories of “commitments” and “delivery of services”.

[8] The eleventh indent of Article 16.3 of the General Conditions of the Grant Contract goes on to state that “[f]or local staff recruited on fixed-term contracts, details of remuneration paid, duly substantiated by the person in charge locally, broken down into gross salary, social security charges, insurance and net salary” should be provided.

[9] Since the Ombudsman does not consider that audit finding 1 needs to be revised and a revision of audit finding 6 would be necessary only if audit finding 1 were to be revised, there is no need for the Ombudsman to comment on audit finding 6.