The background to the complaint

1. The complaint was submitted on behalf of a Bulgarian NGO (hereinafter "the complainant") by its Project Manager.

2. In 2008, the complainant signed with the Commission a grant agreement for a project. The main aim of the project was to promote Corporate Social Responsibility in the tourism industry in Bulgaria.

3. The project lasted for 15 months. The financial contribution of the Commission was EUR 83 265.72.

4. In 2011, after the project had ended, the Commission decided, in the framework of ex-post controls, to carry out an audit and check the expenditure covered under the grant agreement mentioned above. The Commission entrusted an external auditor with that task.

5. The audit took place in August 2011 on the complainant's premises. Following the audit, the Commission decided to recover the amount of EUR 2 679.30 from the sum it had disbursed for the project.

6. In June 2012, the Commission issued a debit note for the above amount.

7. The complainant contested the debit note. It noted that the external auditor wrongly reclassified a member of its staff (namely, its accountant) as subcontractor and thus considered some staff costs ineligible (namely, the amount of EUR 1 983.48). In the complainant's view, the external auditor was not aware of the "realities of the labour market in Bulgaria". In fact, most members of staff working for NGOs in Bulgaria are employed under "service contracts", instead of standard employment contracts. The complainant pointed out that the Commission should clearly define in its Financial Guidelines for Applicants what it means by 'staff'. In any event, the external auditor's conclusion that members of staff that are not on the payroll should automatically be classified as subcontractors is erroneous. The complainant agreed to reimburse to the Commission the amount disbursed for costs other than the staff costs that the auditor considered to be (and the complainant accepted as) ineligible.

8. The Commission informed the complainant that it maintained its recovery order.

9. In July, August and September 2012, the complainant and the Commission exchanged correspondence on the matter.

10. In October 2012, the complainant reimbursed the total amount requested by the Commission and, on 10 January 2013, it turned to the Ombudsman.

The subject matter of the inquiry

11. In its complaint to the Ombudsman, the complainant submitted the following allegation and claims:

Allegation:

The Commission wrongly decided to recover the amount of EUR 1 983.48 which it had disbursed for a project, together with interest.

Claims:

The Commission should reimburse the amount of EUR 1 983.48 and interest, that is to say, interest paid on the sum and additional interest accruing since the sum was recovered.

For the benefit of future project participants, the Commission should define precisely what is to be included in the definition of the term 'staff' and what is to be excluded from it.

The inquiry

12. On 20 January 2013, the Ombudsman opened an inquiry into the complaint by asking the Commission to submit an opinion by 31 May 2013.

13. The Commission sent its opinion on 31 July 2013, which was forwarded to the complainant with an invitation to submit observations. The complainant did so on 15 August 2013.

The Ombudsman's analysis and conclusions

A. Alleged wrong recovery of ineligible costs and related claims

Arguments presented to the Ombudsman

14. In support of its allegation, the complainant argued that the Commission failed to provide a definition of 'staff' in its Financial Guidelines for Applicants. This could have misled the Commission's contractors and actually led to an arbitrary interpretation by the external auditor. In addition, the Commission failed to perform its own quality checks on the audit carried out by the external auditor. If the Commission "… had done a simple check it would have revealed that [... the complainant's] accountant … was not a subcontractor to the project but an employee". Finally, the Commission did not take into account labour market practices in Bulgaria.

15. In its opinion, the Commission first noted that it has defined 'staff' in a number of documents that guide the implementation of projects it co-finances, such as the Grant Agreement[1] and the Financial Guidelines for Applicants[2]. The above definition of 'staff' takes account of the different and complex situations in different Member States.

16. According to the Commission, the notion of 'staff' requires the existence of employment contracts between the beneficiary and the persons assigned to the action giving rise to salaries. The mere fact that the beneficiary "… paid social security sums for the accountant…" does not result in the existence of a contract governed by labour law between the complainant and the accountant and is not sufficient to treat the payments made to the accountant as salary. Therefore, it does not render those payments eligible under the staff cost heading.

17. Nevertheless, the Commission acknowledged "that there was insufficient clarity in this very specific case, between the refusal of certain personnel costs as eligible direct costs of the project and the subsequent recovery". Therefore, the Commission agreed to reimburse the complainant the disputed amount, that is to say, EUR 1 983.48 plus interest.

18. As regards the complainant's argument concerning the quality checks on the audit carried out by the external auditor, the Commission provided ample explanations as regards the audit done by its external auditors and the quality checks carried out subsequently by the Commission on these audits. In this respect, it explained that, on 4 January 2012, the external auditor submitted to the Commission the audit report as a draft version for comments or approval by the Commission. Upon receipt of the draft audit report, the Commission's services undertook an additional quality check, providing comments to the external auditor and also carrying out internal consultations between the operational and audit units.

19. Subsequently, the Commission instructed the external auditor to initiate the adversarial procedure in February 2012, during which the complainant was invited to provide observations on the draft audit findings. The adversarial procedure was also carried out in full respect of the audit procedures.

20. In this respect, the external auditor sent to the complainant the draft audit report for comments in February 2012. The complainant provided its comments in February 2012 and March 2012. These comments were taken into account in the revised draft audit.

21. The external auditor provided an amended draft audit report to the Commission in March 2012. After a careful assessment of the amended draft audit report, the Commission gave instructions for the final audit report to be issued.

22. The Commission concluded that, contrary to the complainant's claim, a quality check relating to the audit in question was in fact carried out by its services. Moreover, a number of changes to the draft audit report were made on the basis of the observations submitted by the complainant during the contradictory procedure, which led to the adoption of the final audit report.

23. In its observations, the complainant welcomed the Commission's decision to reimburse it the disputed amount. In the complainant's view, the wording used by the Commission to define 'staff' in its Grant Agreement and/or Financial Guidelines for Applicants remains unclear and could lead to similar problems for another NGO that has unpaid 'staff' and/or self-employed 'staff'.

The Ombudsman's assessment

24. The Ombudsman welcomes the Commission's decision to reimburse the complainant the staff costs it had recovered for the project and commends the Commission for doing so. He therefore considers that the Commission took the necessary steps to settle the complainant's claim concerning the reimbursement of the recovered amount.

25. The Ombudsman also notes the complainant's concerns relating to the definition of 'staff' in the Commission's guidelines of projects it co-finances. He is of the view that a definition must be general enough to cover a wide range of specific situations, while at the same time, providing precise and clear criteria of its application. The Commission's definition of 'staff' complies with the above standards.

26. On the other hand, the Ombudsman finds reasonable the complainant's argument that labour market rules and practices differ from one Member State to another, and the Commission and its external auditors should take this into account when applying the definition of 'staff' in its guidelines and deciding on the eligible staff costs for a project. Since the Ombudsman trusts that the Commission's will make good use of the experience acquired in the present case in order to avoid similar negative situations in the future for the beneficiaries of the projects, he does not consider it useful to make a further remark on the matter.

B. Conclusion

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

The Commission took the necessary steps and settled the matter.

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

 

P. Nikiforos Diamandouros

Done in Strasbourg on 17 September 2013

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[1] Section II.14.2 of the Grant Agreement provides that "… are eligible … the cost of staff assigned to the action, comprising actual salaries plus social security charges and other statutory costs included in the remuneration…".

[2] Article 3(2)(2) of the Financial Guidelines for Applicants provides that staff is "… permanent or temporary staff employed by the beneficiary … or the partners assigned to the implementation of the action, comprising actual salaries plus social security charges and other statutory costs included in the remuneration… ".