Recommendation of the European Ombudsman in case 1688/2015/JAP concerning the European Commission’s rejection of personnel costs of a beneficiary in the SENIOR project after irregularities were uncovered by an audit
Affaire 1688/2015/JAP - Ouvert le Jeudi | 14 janvier 2016 - Recommandation le Vendredi | 02 juin 2017 - Décision le Vendredi | 06 octobre 2017 - Institution concernée Commission européenne (Recommandation approuvée par l’institution )
Made in accordance with Article 3(6) of the Statute of the European Ombudsman
The complainant, a Belgian-based non-profit organisation, took part in an EU-funded project that aimed to address the issues faced by older people in using ICT solutions.
During a financial audit, the auditors adjudged that the time recording system used by the complainant was entirely unreliable. As a consequence, the Commission sought to recover more than 85 000 Euro from the complainant.
The Ombudsman inquired into the issue and found that the auditors had recognised that the work done by the complainant on two specific ‘deliverables’ was legitimate , as was the working time involved. She thus considers that the Commission was not justified in rejecting the personnel costs linked to this work. In this respect, she recommends the Commission should reconsider its position and reduce the amount it is seeking to recover accordingly.
The background to the complaint
1. The complainant, a Belgian-based non-profit organisation, took part in an EU-funded project, SENIOR, which aimed to address the issues faced by older people in using ICT solutions. The project was funded through the Seventh Framework Programme (FP7) for Research and Technological Development. The complainant provided expert reports on ethical issues to the project.
2. During a subsequent financial audit, the auditors adjudged that the time recording system used by the complainant was “entirely unreliable” as a basis for claiming personnel costs for its work. However, the auditors accepted as legitimate a work “deliverable” in the first year of the project (‘deliverable A’): a document of 76 pages. The auditors found that the additional clarifications and different versions of the document provided by the complainant proved that the time it claimed to have spent on this deliverable was justified.
3. In addition, the auditors accepted as legitimate work linked to a separate deliverable on “dissemination activities” (‘deliverable B’) and the working time claimed for this. However, the auditors did not accept the hours claimed by the complainant for work on the remaining deliverables under the project.
4. However, the Commission rejected all of the complainant’s personnel costs, including the costs for deliverables A and B. Subsequently, it sought to recover more than 85 000 Euro from the complainant.
5. The complainant was not satisfied with the Commission’s conduct and turned to the Ombudsman.
6. The Ombudsman opened an inquiry into the complaint and initially asked the Commission to address the following issues:
i) The European Commission wrongly rejected all of the complainant’s personnel costs and declared them ineligible even though the time spent on deliverables A and B was deemed to be justified by the auditors.
ii) The Commission wrongly did not take into consideration alternative evidence provided by the complainant of the intellectual work performed, and, as a consequence, unjustly sought to recover funds from the complainant.
7. In the course of the inquiry, the Ombudsman received the Commission’s reply on the complaint and, subsequently, the complainant’s comments in response to the Commission’s reply.
8. In its reply of 18 April 2016 to the complainant, the Commission proposed to meet the complainant to find an amicable solution. The complainant agreed and, in September 2016, the Ombudsman’s inquiry team attended the meeting as observers. Subsequently, the Commission and the complainant entered into confidential negotiations without the Ombudsman’s participation.
9. On 28 March 2017, the complainant requested further assistance from the Ombudsman because the negotiations had not resulted in a satisfactory outcome.
10. The Ombudsman has decided to split this case into two parts. The first case is about the complainant’s work on and costs related to deliverables A and B. The second case deals with the remaining deliverables. This recommendation concerns the first case only. The Ombudsman's recommendation takes into account the arguments and views put forward by the parties.
Rejection of the complainant’s personnel costs related to ‘deliverables’ A and B
Arguments presented to the Ombudsman
11. The complainant stated that, although the auditors accepted that the hours claimed for deliverables A and B are justified, the Commission rejected the corresponding personnel costs. The complainant found this unfair.
12. In its reply, the Commission confirmed the auditors’ conclusion that the complainant’s timesheets relating to eight deliverables were overstated but that those for deliverables A and B were justified. The Commission added that the complainant submitted alternative evidence proving that its work on deliverables A and B was performed within the hours claimed in the corresponding timesheets. However, since “the time-recording system was unreliable” for the entire project, the auditors were not in a position to identify and quantify the personnel costs actually incurred for the complainant’s work . The auditors thus rejected all the complainant’s personnel costs. In support of its position, the Commission referred to Article II.14.1 of the General Conditions, which sets out a number of eligibility conditions for costs claimed under FP7 Grant Agreements.
The Ombudsman's assessment leading to a recommendation
13. The Ombudsman appreciates that the Commission provided the complainant with several opportunities to submit additional evidence for the time spent on deliverables A and B. She also welcomes that the Commission was open to negotiations with the complainant in order to find an amicable solution in this case.
14. However, the Ombudsman regrets the Commission’s rigid interpretation of Article II.14 of the General Conditions. This provision does not appear to prohibit considering separately the documentation concerning different parts of the project. Neither does it prohibit considering costs as eligible for work on specific deliverables for which the correct documentation was provided. The Ombudsman notes that, while the auditors and the Commission followed the correct procedure in collecting the relevant alternative evidence for deliverables A and B, these steps would have been superfluous if the Commission could not separately recognise eligible costs for each deliverable.
15. The Ombudsman points out that, despite the auditors’ conclusion that the complainant’s time-recording system was generally flawed, the work related to deliverables A and B was recognised and accepted by the auditors. The Commission confirmed the auditors’ conclusion that the hours recorded in the timesheets relating to deliverables A and B were justified. Moreover, the Ombudsman notes that the performance of the entire project was recognised as “good to excellent” in the technical review report.
16. In these circumstances, the Ombudsman finds it unfair and disproportionate that the Commission would seek to recover funds related to personnel costs for deliverables A and B, which were recognised as legitimate by the auditors, because of the general flaws with the complainant’s time recording system.
17. The Ombudsman notes that the applicable rules require that the Commission’s recovery actions comply with the principle of proportionality. This implies that the sanction for non-compliance must be reasonable and proportionate to the gravity of the non-compliance. It also states that the Commission should take into account other circumstances, such as the good faith and diligence of the beneficiary. Moreover, Article 91(1)(c) of the Rules of Application of the Financial Regulation calls for a waiver of the recovery procedure if it would be “inconsistent with the principle of proportionality”. The Ombudsman considers that the full recovery of funds proposed in this particular case would not be in accordance with the principle of proportionality.
18. The Ombudsman finds that the Commission’s conduct in this regard was unfair and disproportionate, and amounts to maladministration. She therefore makes a corresponding recommendation below, in accordance with Article 3(6) of the Statute of the European Ombudsman.
On the basis of the inquiry into this complaint, the Ombudsman makes the following recommendation to the Commission:
The Commission should revise its decision and not seek to recover funds for those working costs related to deliverables A and B.
The Commission and the complainant will be informed of this recommendation. In accordance with Article 3(6) of the Statute of the European Ombudsman, the Commission shall send a detailed opinion by 2 September 2017.
 Decision of the European Parliament of 9 March 1994 on the regulations and general conditions governing the performance of the Ombudsman's duties (94/262/ECSC, EC, Euratom), OJ 1994 L 113, p. 15.
 Social Ethical and Privacy Needs in ICT for older people: a dialogue roadmap - SENIOR, which initiated an ethical debate on ICT for the elderly, available at: http://cordis.europa.eu/news/rcn/29203_en.html
 The final audit report on page 29 describes deliverable A as follows:
“Document 1/ Deliverable D.2.2. The deliverable contains 76 pages. The Beneficiary declared the work on this document required in total 419.26 hours (...). As the Beneficiary submitted different versions of the document the auditors can follow the progress of the work (corrections to previous versions, extension of the document), however, it is not possible to link the work to the indicated time frame and the person working on it. We only received two emails where we can link the work to [the person working on the document] of 2 October 2008 and of 21 October 2008, while the indicated time frame of this work supposed to be from 8 January 2008 to 31 October 2008 according to the clarification provided by the Beneficiary. Despite this and based on the analysis of the deliverable, the auditors find the hours claimed justified”.
 The final audit report on page 30 describes deliverable B as follows: “Document 10/ Dissemination. The Beneficiary prepared dissemination activities, including a course on ethics of e-Inclusion and a conference presentation on ICT for the elderly. The Beneficiary linked to this activity in total 274 hours (...). The alternative evidence submitted by the Beneficiary justifies the hours claimed on this activity”.
 The second case is dealt with under the complaint reference number 646/2017/JAP.
 The auditors deemed as insufficient alternative evidence submitted by the complainant to try to prove that the personnel costs claimed were legitimate. Given that the “time recording system in its entirety [was] unreliable” and “the hours recorded in the time sheets and linked to the different deliverables and activities [were] in most of the cases clearly overstated”, the auditors rejected all of the complainant’s personnel costs.
 Article II.14 Eligible costs of the project
1. “Costs incurred for the implementation of the project shall meet the following conditions in order to be considered eligible:
a) they must be actual;
b) they must be incurred by the beneficiary;
c) they must be incurred during the duration of the project, with the exception of costs incurred in relation to final reports and reports corresponding to the last period as well as certificates on the financial statements when requested at the last period and final reviews if applicable, which may be incurred during the period of up to 60 days after the end of the project or the date of termination whichever is earlier;
d) they must be determined in accordance with the usual accounting and management principles and practices of the beneficiary. The accounting procedures used in the recording of costs and receipts shall respect the accounting rules of the State in which the beneficiary is established. The beneficiary’s internal accounting and auditing procedures must permit direct reconciliation of the costs and receipts declared in respect of the project with the corresponding financial statements and supporting documents;
e) they must be used for the sole purpose of achieving the objectives of the project and its expected results, in a manner consistent with the principles of economy, efficiency and effectiveness;
f) they must be recorded in the accounts of the beneficiary; in the case of any contribution from third parties, they must be recorded in the accounts of the third parties;
g) they must be indicated in the estimated overall budget in Annex I.
Notwithstanding point a), beneficiaries may opt to declare average personnel costs if based on a certified methodology approved by the Commission and consistent with the management principles and usual accounting practices of the beneficiary. Average personnel costs charged to this grant agreement by a beneficiary having provided a certificate on the methodology are deemed not to significantly differ from actual personnel costs.
Such a certificate shall be issued in accordance with the provisions laid down in Article II.4
and the relevant part of Form E in Annex VII, unless it has already been submitted for a
previous grant agreement under the Seventh Framework Programme and the methodology
certified has not changed”.
 This means that the project has fully achieved its objectives and technical goals for the period and has even exceeded expectations.
 Supra note 8,Financial Regulation
Article 80 Rules on recovery
2. “Where the authorising officer by delegation plans to waive or partially waive recovery of an established amount receivable, he or she shall ensure that the waiver is in order and is in accordance with the principles of sound financial management and proportionality (...)”.
The European Code of Good Administrative Behaviour
Article 6 Proportionality
1. “When taking decisions, the official shall ensure that the measures taken are proportional to the aim pursued. The official shall in particular avoid restricting the rights of the citizens or imposing charges on them, when those restrictions or charges are not in a reasonable relation with the purpose of the action pursued”.
2. “When taking decisions, the official shall respect the fair balance between the interests of private persons and the general public interest”.
 Article 91 of Regulation 1268/2012 (Implementing Regulation to the Financial Regulation), OJ L 362, 31.12.2012, as amended.