Background to the complaint

1. The complainant, a Swedish company, was the coordinator of a project under the Marco Polo programme^[1]. Together with two other companies, the complainant carried out the project, which aimed to promote the shift from road transport to other more sustainable means of transport.

2. The project ran from 1 June 2006 to 31 May 2010, with separate reporting periods^[2]. In December 2010, the Executive Agency for Competitiveness and Innovation (EACI) endorsed the final payment for the project, which subsequently ended in 2011. The Innovation and Networks Executive Agency (INEA) took charge of the Marco Polo Programme in January 2014, after the EACI was wound down.

3. In 2013, the European Anti-Fraud Office (OLAF) opened an investigation into allegations of fraud with the project, and found irregularities regarding (i) the costs declared for train drivers^[3] and (ii) certain other costs^[4]. OLAF thus recommended that INEA recover more than EUR 87 000 from the complainant.

4. In April 2015, INEA informed the complainant of OLAF’s conclusions and of its decision to recover the funds. It stated that the rates that the complainant had declared for the train drivers had been based on “estimations and not actual incurred costs”, and that four credit notes had not been deducted from the total costs claimed. INEA also forwarded a summary of OLAF’s report to the complainant for its comments.

5. In May 2016, the complainant contested INEA’s recovery decision. Regarding the costs of the train drivers, it stated that the rail operator’s charges depended on the number of the trains driven, and that the operators had provided a summary invoice each week, which included the number of train drivers required for the service carried out. It also provided INEA with an overview of how it calculated the costs for the train drivers, monthly cost statements for the calculated amounts and a statement from the rail operator confirming the amounts charged. The complainant also acknowledged that it had overstated the costs for train drivers during the first reporting period of the project and had consequently taken corrective measures when making the final calculations for the second period.

6. Regarding the four contested credit notes, the complainant accepted INEA's conclusions in relation to two of them, but argued that the other two did not concern the grant agreement.

7. In July 2016, INEA confirmed its decision to recover the funds. It stated that the complainant had provided it with no documentation to justify the costs incurred during the first period of the project, which was relevant for the calculation and verification of the total cost of the project. It added that the complainant did not provide any explanation or supporting evidence for how and why it reduced the costs for the train drivers for the second period of the project. Regarding the two credit notes contested by the complainant, INEA stated that there was no clear evidence showing that they did not concern the grant agreement.

8. In February 2017, after having repaid the funds, the complainant requested that INEA review the recovery decision. In April 2017, INEA informed the complainant that there were no reasons to change its decision.

9. Dissatisfied with INEA’s reply, the complainant turned to the Ombudsman in April 2018.

The inquiry

10. The Ombudsman opened an inquiry into INEA’s decision to recover funds linked to (i) the costs for train drivers and (ii) the two contested credit notes.

11. In the course of the inquiry, the Ombudsman’s inquiry team inspected INEA’s file on the case. It also received additional clarifications from INEA, and additional documents and comments from the complainant.

Arguments presented to the Ombudsman

12. INEA stated that it based its decision to recover the funds on OLAF’s report. However, before insisting that the complainant reimburse the funds, it gave the complainant the opportunity to submit any supporting documents that could demonstrate that the disputed costs were legitimate.

(i) Costs for the train drivers

13. The complainant considered that INEA did not provide sufficient reasons for refusing to accept the costs for the train drivers, and did not correctly assess the relevant facts. It argued that OLAF’s findings concerned the costs in the second period only, and not the entire duration of the project. The complainant further argued that it had provided “train driver cost specifications for the whole project period”, as well as a “declaration from the subcontractor”, which constitutes a sufficient explanation and evidence. It could have provided similar supporting evidence “for the period OLAF did not investigate”, but was not asked to do so. The complainant argued that the fact that the rail operator did not issue separate invoices for the costs of the train drivers does not mean that these costs “were not incurred”. It agreed, however, that it would have been preferable had the rail operators issued separate invoices.

14. INEA stated that the irregularities found by OLAF did not concern a single implementation period, but the whole project. This was because the reporting periods were linked. INEA sought to verify OLAF’s findings and asked the complainant for further clarification before confirming its recovery decision. However, the complainant did not provide any information to call into question OLAF’s findings. On the contrary, the documents provided by the complainant supported OLAF’s findings.^[5]

15. INEA also noted that the complainant had declared reduced train driver costs for the second period by deducting certain “overstated” costs that were claimed “in excess” during the first reporting period. However, the complainant provided no reliable supporting documents or explanation concerning these “overstated” costs and the subsequent reduction.

16. INEA also pointed out that the complainant’s final technical report indicated that two railway operators were subcontractors throughout the project. It stated that the complainant had clarified the methodology used to calculate the costs of the train drivers and provided costs statements for the second reporting period, but it did not do so for the costs incurred in the first reporting period.

17. INEA further stated that the cost statements presented for the second reporting period did not provide sufficient evidence of the incurred costs, as they were based on estimations. The complainant had not submitted any clarification or supporting documents for the first reporting period.

(ii) Contested credit notes

18. The complainant contended that the contested credit notes related to a different project and a different rail route. It added that it is common practice that a supplier and a vendor have multiple billing and commercial relations and settle these in one transaction.

19. INEA argued that the complainant did not provide convincing evidence or a clear explanation to show that the services linked to the disputed credit notes were not related to the project in question.^[6]

20. Since it was not possible for INEA to conduct an external audit, given that five years had already passed since the payment of the balance^[7], INEA confirmed OLAF’s recommendation and sought to recover the proposed amount.

The Ombudsman's assessment

21. It appears that the costs for the train drivers were initially misclassified as personnel costs, when they were in fact an integral part of the subcontracting costs of the rail operator. This made it difficult, if not impossible, for the complainant to provide supporting documents for these costs, particularly in the absence of separate invoices. As a result, both OLAF and INEA regarded the cost statements submitted by the complainant for these costs as being insufficient.

22. It also appears that possible confusion regarding the scope of the irregularities identified by OLAF contributed to the dispute between the complainant and INEA. While the complainant took the view that OLAF’s findings concerned only the second reporting period, the Ombudsman’s inspection identified no obvious elements to support this view unequivocally.

23. Before taking the decision to follow up on OLAF’s recommendation and recover the suggested amount, INEA gave the complainant the possibility of submitting evidence to counter OLAF’s findings. This was by no means restricted to a single reporting period. In its exchanges with the complainant, INEA clearly referred to the lack of evidence concerning the first reporting period as well.^[8]

24. The Ombudsman notes that under applicable rules, the eligible costs “must be identifiable and verifiable”.^[9]

25. INEA accepted the clarifications on the methodology and cost statements provided by the complainant regarding the train drivers’ costs for the second reporting period. For the first reporting period, the complainant provided a simple table with information about the number of trains and hours worked by the train drivers. However, it did not submit any other supporting documents for that period. The complainant also did not provide supporting documents showing why the train drivers’ costs for the first reporting period should be considered to be overstated. Thus, the Ombudsman finds that INEA was right to consider that, in the absence of any supporting documents concerning the first reporting period, it could not verify the costs for the train drivers for the entire project.

26. Given the succinct nature of the contested credit notes, and the lack of any additional evidence provided by the complainant, the Ombudsman finds no convincing reason to call into question INEA’s conclusion about their link to the project in question.

27. The Ombudsman also agrees with INEA that, given the passage of time, it could not carry out an independent audit into this project. In any event, it is not clear that such an audit would have any positive material outcome for the complainant.

28. Finally, the complainant contested INEA’s use of the terminology that “costs were not incurred”. This, however, stems from the rules applicable to the grant agreement. Regardless of the wording used by INEA, it does not change the fact that these costs were deemed ineligible.

29. In light of the above findings and considerations, the Ombudsman finds INEA’s decision reasonable.

Conclusion

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

There was no maladministration by INEA in this case.

The complainant and INEA will be informed of this decision.

 

Emily O'Reilly

European Ombudsman

Strasbourg, 09/10/2019

 

[1] More information about the programme is available at: https://ec.europa.eu/inea/en/marco-polo.

[2] Article I.5 of the grant agreement states the following:

“(...) The technical implementation reports, financial statements and other documents referred to in Article I.4 must be submitted in 4 copies in English on the following dates:

- interim technical implementation report: before 1/03/2007, covering the period 01/06/2006 – 31/01/2007;

- mid-term review report: before 01/03/2008, covering the period 01/06/2006 – 31/01/2008; and financial statement;

- final technical implementation report and financial statement: within 2 months following the closing date of the action specified in Article I.2.2. (...)".

[3] OLAF found that there was insufficient evidence to support the costs claimed for the train drivers, and that the declared rates for the train drivers were based on estimations and not actually incurred costs.

[4] OLAF found that four invoices for subcontracting and equipment costs were covered by credit notes but were later declared in the final payment claim.

[5] INEA referred to examples of invoices submitted by the complainant that contained handwritten comments and annotations, as well as deductions that did not have sufficient supporting evidence.

[6] INEA stated that services covered by the credit notes were provided by companies that also received funds under the Marco Polo programme, and concerned rail services that did not appear to exist prior to the project in question. It noted that so-called cross invoicing is not permitted under the Marco Polo programme. Furthermore, the OLAF report stated that the credit notes “were allocated to the project in the accounting system and paid”, and “were presented in the final claim for EU co-financing”.

[7] Article II.19.3 of the General Conditions to the grant agreement states that an independent audit can be carried out up to five years after the payment of the balance.

[8] For instance in its letters of 20 July 2016 and 10 April 2017.

[9] Article II.14.1 of the General Conditions to the grant agreement.