Dear Mr F.,
On 24 April 1998, you made a complaint to the Ombudsman against the European Commission concerning the project of Ecotourism Ltd on "Heritage trails: rural regeneration through sustainable tourism in regions of Bulgaria and Slovenia", funded by the Tourism Unit, DG XXIII of the Commission.
By letter dated 4 May 1998, I informed you that the Ombudsman could not deal with your complaint because you had not specified your claims against the Commission. I enclosed a complaint form which could be used for this purpose.
On 12 May 1998 you sent a renewed complaint, including a completed complaint form. On 15 June 1998, I forwarded the complaint to the President of the Commission. On 9 July 1998, you sent me further information on your latest correspondence with the Commission. On 29 September 1998, the Commission sent its opinion and I forwarded it to you on 1 October 1998 with an invitation to make observations, if you so wished. On 17 November 1998, you sent your observations on the Commission's opinion.
I am writing now to let you know the results of the inquiries that have been made.

THE COMPLAINT

The complaint concerned Ecotourism Ltd's project "Heritage trails: rural regeneration through sustainable tourism in regions of Bulgaria and Slovenia", funded by the Tourism Unit of the Commission, DG XXIII. The complainant claimed that Ecotourism had a very good relationship with the project manager throughout the project, which was a great success. However, the Commission mishandled the financial aspects of the project causing Ecotourism serious financial loss.
The complainant alleged in particular the following:

(i) Unnecessary delay by the Commission as regards both the interim and final payments (four and ten months delay respectively) and lack of clarity by the Commission as to which accounting system it used and which documents Ecotourism had to supply;

(ii) Lack of continuity in the project management. According to the complainant, Ecotourism had a very good relationship with the project manager throughout the project and it was clear that the project had been a great success. However, when the financial controller took over the situation changed and they continuously raised issues which had been discussed and agreed earlier with the project manager;

(iii) The Commission made a large reduction in the final payment by replacing, without mentioning it to Ecotourism, the budget with the financial report which Ecotourism presented in the interim report. Furthermore, the Commission recommended a series of changes to the final financial report, some increases and some decreases. Ecotourism made all the changes. The Commission then added up all the reductions in the budget and ignored all the increases, thus arriving at a reduced budget.

(iv) By making the interim payment in July 1996 the Commission accepted without comment the interim report, including the financial report. The financial report contained movements between individual budget headings and Ecotourism then continued the project on this basis. If there was nothing wrong with the interim report, then there is nothing wrong with the final report which is in line with the interim report.

(v) The Commission refused to pay for work performed by Ecotourism, i.e. a manual produced by Ecotourism in agreement with the Commission and translation of a document into German at the Commission's request.

THE INQUIRY

The Commission's opinion
In its opinion, the Commission accepted that the disputes between the complainant and the Commission concerned the financial aspects of the project and not the technical aspects. Nevertheless, the fact that the technical aspects had been carried out in line with the agreement did not exempt the complainant from complying with the financial conditions.
In responding to the different allegations the Commission put forward, in summary, the following points:

(i) As regards the interim payment, the interim report was received on 5 August 1996 and payment was issued on 4 December 1996. The delay arose partly from the fact that Ecotourism changed its name and bank account number. However, the Commission regretted the delay which occurred.

As concerns the final payment, the Commission stated that the delay which occurred could not have been avoided. Ecotourism submitted its final report and statement of accounts on 16 June 1997 and additional information was forwarded in August 1997. Following an examination of this material in Autumn 1997, the Commission decided to perform a control visit to Ecotourism in order to clarify the situation. The control visit took place in November 1997 and was followed by the Commission requesting additional information from Ecotourism, which was sent to the Commission in December 1997. Thereafter, a series of correspondence followed in relation to the finalisation of the payment. The financial controller approved the final payment on 20 March 1998 and the final payment was made on 1 April 1998.

(ii) The reduction in the final payment was due to the requirement that all costs had to be accepted as eligible. The amount specified in the Declaration of the financial contribution is a maximum. The actual payment depends on proof of real costs incurred and individual items must not exceed the corresponding budget headings established in the agreed budget. The Commission stressed that this means that if a real cost incurred is lower than that indicated in the budget, the subvention must be reduced proportionately.

The Commission's approach to Ecotourism's project, which is standard for all Tourism actions for which subventions are provided, was:

- To insist on supporting documentation in the case of expenditure claimed;

- To reduce the amounts of eligible expenditure claimed where there are indications that they exceed the real costs or where proofs are not adequate;

- To disallow expenditure in excess of the budget headings which constitute the approved budget.

The final payment was based on the financial report submitted by Ecotourism in the interim report. The Commission found that the financial report, broken down into individual headings, represented a carefully prepared reassessment of the project needs. Since the total amount could not be increased, when some headings increased, others had to be reduced.

Basing the final calculation on the revised budget did not involve a breach of rules and did not disadvantage Ecotourism. In fact, it led to less reduction in the project expenditure than if the original budget would have been used for the calculation. Therefore, the complainant's allegation that the Commission replaced the budget with a financial report by Ecotourism in order to justify large reductions in the final payment were unfounded.

(iii) The allegation that the Commission refused to pay for work performed was unfounded. It had only disallowed costs which it had found ineligible. In case of performed work, the Commission requested time sheets as proof of performed work. As regards the manual produced by Ecotourism, Ecotourism was paid the sum ECU 27 500, for which it presented an invoice. The balance of ECU 2 500 claimed by Ecotourism could not be accepted in the absence of proof that the costs had actually been incurred.

(iv) The fact that the interim report was accepted without comment did not mean that the final report was automatically accepted. The interim report only shows how the project is progressing. Approving the interim report did not imply approval of the expenditure incurred as the final payment must always be subject to producing the necessary proofs of all expenditure claimed.

(v) There was no lack of clarity as regards the accounting system. The fact that a large part of the complainant's project was accounted for by "in-kind" costs required particular vigilance in the matter of seeking proofs. Time sheets and pay slips are normal and reasonable requirements for personnel costs. The complainant had been kept fully informed of the situation and the need for contractors providing "in-kind" contributions to keep time sheets was communicated to Ecotourism at a meeting in Brussels in February 1996.

(vi) There was no lack of continuity in the project management. It is normal practice that the project manager responsible for the technical aspects of the project does not deal with the financial questions. The project manager was available for further technical queries up to the end of 1997.

The complainants' observations
In the observations the complainant maintained the complaint, stating that the main issues were the delays in the payments and the lack of justification as to why the Commission withheld funds. In particular the complainant stressed that:

(i) The delay for the interim payment was not explained. Ecotourism had to pay for the delay and stated that the Commission's "regret" is not enough. As regards the final payment the complainant pointed out that five months passed between the visit to Ecotourism and the payment, and the Commission provided no explanation for this delay. In both cases the delays had caused severe financial damage to Ecotourism which will take several years to overcome.

(ii) The Commission acted unreasonably by replacing the original budget with the financial report in the interim report thereby investing it with the authority of a contractual agreement without informing Ecotourism.

(iii) The Commission did not comment on its refusal to pay the cost of a translation which it required from Ecotourism. Nor did it justify its refusal to pay for a manual produced by Ecotourism. The refusal was based on the fact that Ecotourism did not provide time sheets, which the Commission did not specify at any time. However, proof of the time spent on the manual could easily be provided, but the Commission never asked for this. Moreover, proof of all expenditure was submitted to the Commission. Ecotourism provided all the extra information that the Commission requested.

(iv) After the submission of the interim report the Commission did not comment on the report, except for a phone call from the project manager who commended the report. This indicated that movements between budget lines were acceptable to the Commission. Movements between budget lines comparable to the ones in the interim report took place throughout the project.

(v) The Commission had every chance to inform Ecotourism if any changes to their procedures were needed. Further, the question of time sheets was not discussed at the meeting in February 1996. No documentation can prove this. The only thing discussed was the issue of time records for sub-contractors and for partners making in-kind contributions. Ecotourism kept time sheets for all in-kind contributions and the sub-contractors provided invoices with details on the time spent, backed up by reports of the performed work.

(vi) As regards the alleged lack of continuity, the complainant put forward that it had been involved in other projects with the Commission without having to face this problem. For example DG1 of the Commission provides guidelines at the beginning of the project and it has adopted procedures including a financial control before approving any change in the project. Since DG1 found it necessary to adopt such a procedure, the complainant wondered why the Tourism Unit did not.

THE DECISION

1 Delay in the interim payment
1.1 The complainant claimed that the interim payment was delayed by four months, although the importance of a prompt interim payment had been underlined by Ecotourism at the beginning of the project. The Commission regretted the delay in the interim payment and explained that it arose partly from the fact that Ecotourism changed its name and bank account number.
1.2 Principles of good administrative behaviour require outstanding payments to be made within a reasonable time. According to Article 4a of the Declaration of the financial contribution (hereafter referred to as the Declaration), the interim payment shall be paid after receipt and approval of the interim report. Article 4c of the Declaration states that it takes up to 60 days for the payment to reach the bank account after approval by the Commission.
1.3 The Commission received the interim report on 5 August 1996 and payment was issued on 4 December 1996. This is a period of four months, including part of the 60 days calculated for the arrival of the payment after approval. This means the Commission took approximately two months to approve the report and to undertake the changes of the name and bank account number of the complainant. This period is not obviously excessive, even taking into account the fact that the complainant had requested prompt payment. There appears therefore to be no maladministration in relation to this aspect of the case.
2 Delay in the final payment and lack of clarity
2.1 The complainant claimed that the final payment arrived five months after the control visit took place. The complainant also claimed that there was lack of clarity by the Commission as to which accounting system it used and which documents Ecotourism had to supply. The Commission stated that the delay was due to the complainant not submitting the relevant documentation, that Ecotourism had been kept fully informed of the situation and that normal methods were used in proceeding with the project.
2.2 According to Article 4a of the Declaration, the final payment shall be paid after receipt and approval of the documents mentioned in Article 8c of the Declaration, i.e. the final report and an account statement which must set out all details of income and expenditure. Further, Article 4c of the Declaration states that it takes up to 60 days for the payment to reach the bank account after approval by the Commission.
2.3 The final report was submitted in June 1997. After various exchanges of information between the Commission and the complainant in summer and Autumn 1997 a control visit to Ecotourism took place in order to inspect documents on 10 November 1997. The last documentation in relation to the account statement appears to have been submitted by the complainant in the beginning of December 1997. The payment was approved by the Commission's financial controller on 20 March 1998 and payment was issued on 1 April 1998. Therefore, there was a period of approximately five and a half months between submission of the final report and provision of the last information requested by the Commission. There was then a further period of approximately three and a half months for the approval of the payment by the Commission.
2.4 As regards the five and a half month period, no evidence has been supplied to the Ombudsman of any excessive or avoidable delay by the Commission. It appears that the complainant was surprised both at the amount of financial information which had to be supplied and at the substantive rules governing allowable costs. However, the complainant had received notice of the financial requirements applicable to the project and there is therefore, no evidence of maladministration by the Commission. However, the Ombudsman makes a further remark in relation to this point below.
2.5 As regards the three and half month period, the Commission did not describe in detail its procedures for approval of payment. However, the DG XXIII Tourism Unit stated the following in letters to the complainant:
"I can inform you that the final payment for an amount of 71 647 ECU has been prepared and you will be informed after its approval by the Financial Control of the Commission." (Letter of 16 February 1998)
"(…)I must refer you to my letter of 16 February 1998(…)As indicated in this letter the final payment for an amount of 71 647 ECU is now awaiting approval by the Commission's Financial Control." (Letter of 4 March 1998)
"The arrangements for payment of this amount (71 647 ECU) are now in progress." (Letter of 27 March 1998)
These letters contain no explanation visible to the complainant as to why the Commission needed a further three and a half months to approve payment following a five and half months period in which it had sought further information on various aspects of the complainant's final report. The letters contain only very vague wordings not clearly informing the complainant of when the payment was approved and when the 60 days, mentioned in Article 4c of the Declaration, would begin to run. The Declaration is also ambiguous when referring to the approval by the Commission in Article 4c of the Declaration, since it is not clear whether this refers to DG XXIII, or to the Directorate General for Financial Control, DG XX, or to both.
2.6 Principles of good administration require that payments should be made within a reasonable time and that clear and understandable information should be provided, on request, about the causes of any delay. In response to repeated inquiries from the complainant, the Commission did not adequately explain why it needed a further three and a half months to issue payment, following a period of five and a half months during which it had sought further information on various aspects of the complainant's final report. Nor is it clear whether the approval of the payment referred to in the Declaration of the financial contribution means approval by DG XXIII, or by the Directorate General for Financial Control, DG XX. Moreover, the Commission does not appear to have informed the complainant when the final approval of the financial aspects of the project was given and when the 60 days period allowed for the payment to reach the complainant's bank account began to run.
3 Alleged lack of continuity
3.1 The complainant claimed that there was lack of continuity in the Commission's dealings with the project. According to the complainant, Ecotourism had a good relationship with the project manager and made agreements with him about financial matters. However, the situation changed when the financial controller became involved since he was not aware of what had been agreed between Ecotourism and the project manager.
3.2 The Commission stated that it was normal practice that the project manager responsible for the technical aspects of the project did not deal with the financial questions.
3.3 The Ombudsman has already addressed a critical remark to the Commission in paragraph 2.6 above concerning its failure to provide adequate information to the complainant about responsibility within the Commission for dealing with the financial aspects of the project. The Ombudsman is not aware, however, of any rule or principle which requires that the technical and financial aspects of a project should be dealt with by the same person or unit. As regards the alleged agreements between the project manager and Ecotourism, Article 10 of the Declaration provides that changes to the Declaration have to be agreed in writing. There appears therefore to be no maladministration in relation to this aspect of the case.
4 The alleged replacement of the budget with the financial report
4.1 The complainant alleged that, without informing Ecotourism, the Commission replaced the budget with the Ecotourism's interim financial report, thereby reducing the final payment. According to the Commission, it replaced the budget with the financial report because it found that the financial report, broken down into individual headings, represented a carefully prepared reassessment of the project needs. Moreover, its action did not breach any rule and did not disadvantage Ecotourism, since it led to less reduction in the project expenditure than if the original budget had been used for the calculation.
4.2 The Ombudsman is not aware of any rule or principle which would allow the Commission unilaterally to replace an agreed budget. However, since the Commission explained that the result of its action was to Ecotourism's advantage, the Commission did not act unreasonably towards the complainant. There appears therefore to be no maladministration in relation to this aspect of the complaint.
5 Movements between budget lines
5.1 The complainant claimed that the Commission's approval of the interim report indicated that movements between individual headings in the budget were accepted since the financial report submitted with the interim report contained such movements. The Commission stated that the interim report only shows how the project is progressing and that its approval did not automatically mean that the final report would also be accepted. Rather, the final payment always depends on the supply of necessary proof of expenditure claimed.
5.2 According to Article 3a of the Declaration, Annex 2 which sets out the details of project income and expenditure, is an integral part of the Declaration. According to Article 10 of the Declaration, amendments must be made in writing and approved by the Commission. This means that movements between individual headings cannot take place without an amendment to the Declaration. The Commission's approval of the interim report could not therefore change the requirements set out in the Declaration. There appears therefore to be no maladministration in relation to this aspect of the case.
6 The reduction in the final payment
6.1 The complainant alleged that the Commission made a large reduction in the final payment without justification. Ecotourism supplied all the information the Commission asked for and it had proof of all its expenditure. As regards the question of time sheets, the complainant stated that Ecotourism could supply proof of the time spent, but it claimed that the Commission never asked for this.
6.2 The complainant alleged that the Commission made a large reduction in the final payment without justification. Ecotourism supplied all the information the Commission asked for and it had proof of all its expenditure. As regards the question of time sheets, the complainant stated that Ecotourism could supply proof of the time spent, but it claimed that the Commission never asked for this.
6.3 The Ombudsman notes that this part of the case relates to what kind of proof of expenditure the beneficiary should supply and what kind of proof was in fact provided by Ecotourism. The Declaration does not give a detailed explanation of what documents the beneficiary has to supply, but merely states that "all details of income and expenditure" should be submitted. This very wide expression appears to mean that Ecotourism must supply any document which it may reasonably be expected to provide in the context of the project. The Ombudsman makes a further remark in relation to this point below.
6.4 The Ombudsman notes that the dispute arises mainly from the fact that Ecotourism did not supply the Commission with time sheets. The submission of time sheets appears to be a reasonable requirement for justification of claims for personnel costs. The complainant claimed that Ecotourism could supply alternative proof of the time spent on production of a manual, for which the Commission did not accept part of the costs. The Commission should have been prepared to evaluate these proofs in order to establish whether they are comparable to time sheets. However, there is no evidence that Ecotourism actually submitted its claimed proofs to the Commission. There appears therefore to be no maladministration in relation to this aspect of the case.
Conclusion
On the basis of the European Ombudsman's inquiries into this complaint, it appears necessary to make the following critical remark:

Principles of good administration require that payments should be made within a reasonable time and that clear and understandable information should be provided, on request, about the causes of any delay. In response to repeated inquiries from the complainant, the Commission did not adequately explain why it needed a further three and a half months to issue payment, following a period of five and a half months during which it had sought further information on various aspects of the complainant's final report. Nor is it clear whether the approval of the payment referred to in the Declaration of the financial contribution means approval by DG XXIII, or by the Directorate General for Financial Control, DG XX. Moreover, the Commission does not appear to have informed the complainant when the final approval of the financial aspects of the project was given and when the 60 days period allowed for the payment to reach the complainant's bank account began to run.

Given that this aspect of the case concerns procedures relating to specific events in the past, it is not appropriate to pursue a friendly settlement of the matter. The Ombudsman has therefore decided to close the case.
The President of the European Commission will also be informed of this decision.

FURTHER REMARKS BY THE EUROPEAN OMBUDSMAN

It should be obvious to any beneficiary of a Community subvention that the Commission's responsibility for the correct execution of the Community budget requires it to adhere strictly to the conditions of eligibility of expenditure which are applicable to the subvention. Beneficiaries can therefore reasonably be expected to read these conditions and seek clarification if necessary. The Ombudsman notes, however, that the Declaration of the financial contribution used for this project appears to provide little useful guidance to beneficiaries as to what in practice will be expected of them. The Commission may therefore wish to consider whether the Tourism Unit could provide easily understandable written guidelines for beneficiaries of subventions, in order to help avoid possible problems and misunderstandings in the future.
Yours sincerely
Jacob SÖDERMAN