Strasbourg, 28 August 2008

Dear Mr O.,

On 13 October 2005, acting on behalf of UETP (University Enterprise Partnership), you submitted a complaint to the European Ombudsman against the European Commission concerning an audit that had been carried out concerning the use of a grant awarded to UETP for a project under a Leonardo da Vinci programme.

On 11 November 2005, I forwarded the complaint to the President of the Commission. The Commission sent the English version of its opinion on 3 February 2006, and its Swedish translation on 21 February 2006. I forwarded the latter to you with an invitation to make observations, which you sent on 28 April 2006.

On 11 November 2006, I sent a letter of further inquiries to the Commission and informed you accordingly. The Commission sent the English version of its additional opinion on 12 April 2007 and its Swedish translation on 26 April 2007. I forwarded the latter to you with an invitation to make further observations, which you sent on 6 June 2007.

I am writing now to let you know the results of the inquiries that have been made. Please accept my apologies for the delay in dealing with your complaint.

THE COMPLAINT

According to the complainant, the relevant facts are, in summary, as follows:

UETP (University Enterprise Partnership) finalised a project under a Leonardo da Vinci programme in 2000. The Commission approved the outcome of the project, but problems arose concerning the eligibility of staff costs. The audit, which was carried out between 27-29 June 2005, concerned the eligibility of UETP's staff costs under the project. Acting on behalf of the Commission, Mr C. from Deloitte & Touche in Belgium ("Deloitte") carried out the audit on UETP's premises. When Mr C. realised that the reports and lists that he normally works with were not available and that UETP could only provide him with balance sheets, income statements, general ledgers and verifications, he asked that UETP produce reports and lists according to his requirements. The complainant explained to Mr C. that it had been agreed with the Commission that UETP would only have to provide information and answer questions during the audit, and that it was for Deloitte to produce any lists or whatever else it needed. The complainant further explained that, due to different terminology and Mr C.'s poor English, he, that is, the complainant, did not understand what kind of lists Mr C. was referring to. Mr C. then threatened UETP in the name of the Commission by saying that, in the event that UETP did not provide him with the lists in question, he would make UETP go bankrupt because the Commission would follow his instructions and recommendations. Mr C. continued by making humiliating comments to UETP personnel when they did not understand his questions about data from 1997 or when they could not immediately reply to his questions. In addition and contrary to Swedish law, Mr C. transferred data from UETP's computer system to his own in Brussels. Although the complainant informed him about this matter, Mr C. indicated that he did not care about it.

Just before leaving, Mr C. came up to the complainant with a document and asked when it was created. The complainant said that he did not know, whereby Mr C. replied, in a rude tone, that "as always you do not know anything". The complainant said to Mr C. that if he explained where he had found the documents, then he would be able to reply to his question. Mr C. said that he had found the document in the final report. The complainant replied that, in that case, the document had to have been created in the spring of 2000. Mr C. then asked why he found the document in the books for June 1998. The complainant responded that, in that case, the document had to have been created as part of the interim report. "I just wanted to check if you are a liar" Mr C. said and left.

In his complaint to the Ombudsman, the complainant alleged that the way in which Deloitte carried out the audit, on behalf of the Commission, constitutes maladministration. The complainant argued that Deloitte, acting on behalf of the Commission, threatened, blackmailed, humiliated and derided UETP personnel and accused them of being liars.

The complainant claimed that the Commission should:

1. declare the audit void;
2. overhaul its audit procedures, only allowing persons with specialist knowledge of local circumstances and the type of organisation concerned to carry out audits, and disallowing intimidating methods;
3. reconduct the audit with a partner other than Deloitte, in case evidence of staff costs submitted to the Commission during August 2005 would not be taken into account.

On 11 November 2005, the Ombudsman opened an inquiry into the above allegation and claims(1).

THE INQUIRY

The Commission's opinion

In its opinion, the Commission made, in summary, the following comments:

The Commission first recalled the background of the case by explaining that the contract signed between the Commission and the UEPT took effect on 2 December 1996 and was to last for a period of 36 months, that is, until 1 December 1999. The contract provided for a payment in three instalments: 40% of the contractual allocation, that is, EUR 78 000, was to serve as an initial advance; 30% of the contractual amount, that is, EUR 58 200, would be made available after the submission and acceptance of the interim report; and 30% of the contractual allocation, that is, EUR 58 500, after submission and acceptance of the final report. A first payment of EUR 78 000 was issued on 7 March 1997 after the contract was signed. The second payment was not paid since not all requested information was provided following the submission of the interim report.

In January 2001, the financial evaluator requested additional information to justify the declared costs relating to both the first and the second periods. From January 2001 until June 2001, UETP provided additional information on several occasions. On 30 January 2002, the Commission informed UETP that its final report had been evaluated and that a reduced payment had been prepared.

In June 2002, the Commission received a letter from UETP, in which the latter did not accept the reduction and requested full payment, including interest, because it considered that it had provided all the requested documents.

On 27 June 2002, the Commission sent a letter to UETP explaining that the reduced payment of EUR 45 199 (instead of EUR 58 500) was mainly due to high staff costs, which exceeded the contractual limits and to serious doubts raised by the supporting documents submitted.

On 22 August 2002, the complainant sent a complaint letter to the Commission's Directorate-General for Education and Culture.

Since the arguments given with respect to the high staff costs were not satisfactory, the Commission's responsible service proposed an external audit in October 2002.

During the period from October to December 2003, Deloitte tried to arrange a date for the external audit, but this was not possible due to the absence of the responsible UETP staff. Deloitte tried to find someone else to whom it could refer concerning the audit. UETP suggested Mr P. and Mr B. However, Mr P. explained that he did not have the material needed to answer Deloitte's questions. On 19 January 200, the Commission therefore sent UETP a letter setting out a final date for the audit. UETP was informed that, if not complied with, a total recovery of the advance payments would be executed, in accordance with the applicable rules.

On 12 March 2004, the Commission received a fax message from the complainant explaining that he and Mr W. were on long-term sick leave until at least 30 April 2004, and that in the absence of Mr W., Mr P. was acting as the responsible person.

On 20 July 2004, the Commission sent two registered letters requesting a complete recovery of the sums already paid. The letters were returned as "non réclamé" since nobody had collected them.

On 14 September 2004, the same request was sent to the complainant by e-mail.

On 22 September 2004, the complainant replied by e-mail stating that he had been on holiday during July and August and that, since the letters were addressed to him personally, they could not be received by anyone else. He further stated that he had proposed a person from UETP's external audit company, but that Deloitte's auditors had required his and Mr W.'s presence. The complainant also argued that the Commission staff had applied different methods to calculate staff costs.

On 23 September 2004, the Commission sent an e-mail to the complainant stating that the letter giving a final audit date had been sent on 19 January 2004. Since UETP had not replied to this letter, the Commission had decided to terminate the contract and to request total reimbursement of the allocation already paid.

On the same day, the complainant replied to the Commission explaining that he had never received the letter of 19 January 2004, pointing out that he no longer worked for UETP, and stating that he nevertheless wanted to help in order to solve the situation.

On 8 October 2004, the Commission sent a registered letter to UETP asking who was responsible for the management of contract S/96/2/1672/PI/II.1.1.c/FPC as the complainant no longer worked for UETP.

On 11 October 2004, the Commission received a letter from the complainant stating that it was Deloitte's auditors who did not want to work with UETP's auditor, and who requested that the complainant and Mr W. to be present during the audit, even though these persons were ill. Therefore, it was not UETP's fault that the audit could not be carried out.

By registered letter of 25 November 2004, the Commission informed the complainant that it was prepared to give UETP a new deadline for the audit to be carried out and that Deloitte would contact the complainant to fix a date for the audit. However, the Commission's letter was returned without explanation.

On 17 March 2005, UETP sent the Commission a letter suggesting that the audit take place in the last week of June 2005.

On 18 April 2005, the Commission asked Deloitte to carry out the audit during the requested week. By e-mail of 12 May 2005, Deloitte confirmed that date.

On 23 May 2005, UETP contacted the Commission stating that Deloitte's auditors had contacted him and that they requested pre-audit documents, which he could not provide since he was on sick leave, and, according to Swedish law, was not allowed to be in his office during that leave. As a result, he could not collect all the requested documents.

On the same day, the Commission asked Deloitte whether it was possible to propose a compromise, taking into account the fact that the contractor was unable to do all the preparatory work. Deloitte replied that UETP could provide the auditors with the information needed during the audit. The audit started on 27 June 2005 in the morning and ended on 30 June 2005, in the afternoon.

The complaint

With regard to the complainant's dissatisfaction about the way in which Deloitte carried out the audit at UETP's premises, the Commission recalled that Deloitte had experienced great difficulties in organising the audit. Deloitte contacted UETP for the first time on 24 October 2003, and, despite numerous reminders and attempts to set up the audit as soon as possible, this could only take place at the end of June 2005, that is, one and a half years after its first contact with UETP.

Since the complainant could not provide the documents required by Deloitte before the audit, Deloitte accepted that they would not be transmitted before the audit, provided that they would be accessible during the audit. Moreover, Deloitte proposed that the audit be extended by one day so that work could be performed under the best conditions.

On 28 June 2005, on the second day of the audit, the auditors informed the Commission that not all the necessary documents had been given to them, that the documents provided by UETP did not correspond to the documents provided to the Commission and that they did not fulfil the accounting requirements. Moreover, the complainant and his assistant were not in a position to answer the questions put to them by the auditors.

By e-mail of 30 June 2005, Deloitte confirmed to the Commission that it could no longer progress in the audit because of a lack of co-operation on the part of the complainant.

The final report, submitted by Deloitte to the Commission on 28 October 2005, as well as a statement from Deloitte, confirmed UETP's failures, which led the Commission to conclude that a recovery of the total allocation should be executed.

The Commission concluded its opinion by stating that UETP showed a lack of willingness to co-operate and endeavoured to avoid the audit. It went on to say that all the above elements gave the impression that the complainant did not act in conformity with the rules prescribed in the contract it had signed with the Commission. Further, the Commission suggested that UETP, anticipating the negative conclusions of the audit, sought to blame matters on the attitude of the auditors in order to escape the Commission's decision to recover the total amount of money already allocated to the complainant. Finally, the Commission confirmed the validity of the audit report produced by Deloitte and requested that the Ombudsman declare the complaint unfounded.

The complainant's observations

In his observations, the complainant maintained his complaint and pointed out that, during the audit, the auditors had refused to look at the material provided to them and that UETP staff was expected to remember details, agreements, and so on, that happened between 1997 and 1999. He went on to argue that whenever they were wrong about these details, they were corrected in an impolite manner. The complainant further pointed out that UETP staff had been asked to act as experts on accounting and accounting software, and to be in a position to know how experts from Deloitte should trace different costs at a level of detail which was only available to UETP's external auditor who had been handling these matters on an annual basis. Although the external auditor promised to answer all questions by e-mail, since he was fully booked at that time of the year, Deloitte's auditors refused to consider putting their questions and comments on paper.

Further inquiries

After careful consideration of the Commission's opinion and the complainant's observations, it appeared that further inquiries were necessary, since the Commission did not appear to have addressed certain essential arguments made by the complainant. On 15 November 2006, the Ombudsman therefore asked the Commission to submit a supplementary opinion, addressing adequately the relevant issues.

In its reply of 26 March 2007, the Commission made, in summary, the following comments.

The Commission's opinion of 3 February 2006 was based on the audit report and on the Commission's contacts with Deloitte concerning the examination of the complainant's allegations.

On 13 December 2006, the Commission asked Deloitte to comment on the complainant's allegations (and sent a reminder letter to Deloitte on 7 February 2007). On 5 February 2007, Deloitte replied to the Commission stating that the auditors responsible for carrying out the audit at UETP's premises had shown proof of their openness, flexibility and understanding towards the representatives of UETP. However, the auditors could not count on UETP's co-operativeness. Deloitte stated that the auditor accused of maladministration, namely, Mr C., had not made any of the alleged statements. Deloitte also pointed out that they have never had any problems of this kind with the auditor in question(2).

The Commission pointed out that, since it is not responsible for, and does not have the possibility to examine or to control the behaviour of auditors executing, external audits on behalf of the Commission, it could only rely on the replies given by Deloitte in response to the Ombudsman's request for a supplementary opinion.

Nevertheless, in the event that the complainant could provide more concrete evidence to support his allegations, the Commission, following consultation with Deloitte, would have a more solid means of clarifying the situation and of more precisely answering the Ombudsman's request.

In his additional observations, the complainant maintained his allegation and claims. He pointed out that, during the audit, UETP provided all the documents related to the project in question but that Deloitte's representative did not accept the way in which they were presented and refused to conduct the audit. UETP had photographic evidence that more than 20 binders were provided to the auditors on the agreed date, and there were witnesses to the bad behaviour and the poorly conducted audit by Deloitte. The complainant also pointed out that the audit report wrongly concluded that UETP had no costs and should therefore not receive funding from the Commission, since it indeed had project-related costs justifying its request to receive funding.

THE DECISION

1 Allegation that the way in which Deloitte carried out the audit constituted maladministration

1.1 In his complaint, the complainant alleged that the way in which Deloitte, acting on behalf of the Commission, carried out the audit at the premises of UETP ( University Enterprise Partnership) between 27-29 June 2005 constituted maladministration. The audit concerned the eligibility of UETP's staff costs relating to the project finalised by UETP in 2005 under a Leonardo da Vinci programme. The complainant argued that one of the auditors from Deloitte, namely, Mr C., threatened, blackmailed, humiliated and derided the representatives of UETP and accused them of libel.

1.2 In its opinion, the Commission rejected the allegation and pointed out that Deloitte (i) had contacted UETP on several occasions in order to set up an audit date; (ii) accepted that documents would not have to be transmitted before the audit in the event that they were accessible during the audit; and (iii) proposed that the audit be extended by one day so the work could be achieved under the best conditions. The Commission also pointed out that, on the second day of the audit, the auditors informed its services that (i) not all the necessary documents had been given to them; (ii) the documents provided by UETP did not correspond to the documents provided to the Commission and did not fulfil accounting requirements; and (iii) UETP's representatives were not in a position to answer their questions. Both the final report submitted by Deloitte on 28 October 2005, as well as a statement from Deloitte, confirmed UETP's failures and led the Commission to conclude that a recovery of the total allocation should be executed. Finally, UETP showed a lack of willingness to co-operate and appeared to endeavour to avoid the audit.

1.3 In his observations, the complainant pointed out that, during the audit, the auditors had refused to look at the material provided and that the representatives of UETP were expected to remember details and agreements that had taken place between 1997 and 1999, and whenever they were wrong, they were corrected in an impolite manner.

1.4 In its additional opinion, the Commission explained that, in order to be able to reply to the Ombudsman's letter of further inquiry, it had requested Deloitte to comment upon the complainant's allegation. In response to this request, Deloitte stated that during the audit the auditors had shown proof of openness, flexibility and understanding towards the representatives of UETP. However, they had not been able to rely on UETP's co-operation. Deloitte further stated that the auditor, Mr C., had not made any of the statements alleged by the complainant, and that it never had any problems of this kind with the auditor in question. The Commission argued that, since it is not responsible for, and has no possibility to examine or to control, the behaviour of auditors executing, external audits on its behalf, it could only base its opinions on the explanations provided by Deloitte. The Commission added that, in the event that the complainant could provide more concrete facts to support his allegation, the Commission, following consultation with Deloitte, would be in a better position to clarify the situation and to answer more concretely the Ombudsman's request made in his letter of further inquiry.

1.5 The Ombudsman notes that the complainant's allegation concerns the alleged behaviour of one of the auditors of Deloitte, namely, Mr C., during the audit carried out on the premises of UETP between 27-29 June 2005. In this regard, the complainant argued that that auditor refused to accept certain types of document, threatened the representatives of UETP that it would make UETP go bankrupt, made humiliating statements, and, contrary to Swedish law, transferred data from UETP's computer system to its his own. He therefore alleged that the way in which the audit was carried out, on behalf of the Commission, constituted maladministration.

1.6 In this regard, the Ombudsman first notes that the contract concluded between UETP and the Commission(3) foresaw the possibility of a financial audit throughout the duration of the contract(4). Furthermore, point IV of the Administrative and Financial Handbook, which forms part of contracts concluded under the Leonardo da Vinci programmes, similarly foresees the possibility of a financial audit. In its letter of 23 October 2002, the Commission referred, inter alia, to its decision to request that an external audit be carried out. This decision does not appear to have been contested by the complainant.

1.7 The Ombudsman, further notes that the external auditing firm used in this case, namely, Deloitte, provided a service to the Commission. The complainant has, in essence, questioned the way in which the audit was carried out by one of the auditors working for Deloitte, namely, Mr C., and has referred to several instances of alleged misbehaviour on his part. In this regard, it must be noted that, as the Commission has rightly indicated, it cannot be held responsible for the behaviour of the natural persons conducting the external audit. At the same time, it must also be noted, however, that a person (legal or natural), such as Deloitte in the case at hand, chosen by the Commission to carry out an external audit, must offer sufficient guarantees of professional integrity and reliability and must perform the relevant service in accordance with the applicable rules and professional (including ethical) standards in the field. This implies, inter alia, that the Commission must take appropriate steps to ensure compliance with the above requirements. This means, in particular, that the Commission must deal with due diligence with grievances expressed by the person under audit in relation to the way in which the external audit was carried out and to take pertinent action depending on the outcome of its examination of the matter.

Here, taking into account the above-mentioned explanations given by the Commission in its opinions on the complaint, the Ombudsman takes the view that the Commission has dealt with due diligence with the complainant's argumentation concerning the manner in which the audit was carried out. He also recalls the provision of Article 7.5 of the contract (see point 1.6, footnote 4). He finally notes that the complainant has not submitted any specific evidence to substantiate his disputed statements concerning the manner the audit was carried out, in particular concerning Mr C's alleged misbehaviour.

1.8 In light of the above, the Ombudsman considers that the complainant's allegation has not been substantiated. The Ombudsman, thus, finds no maladministration corresponding to the complainant's allegation.

2 Claims

2.1 The complainant claimed that the Commission should (i) declare the audit void; (ii) overhaul its audit procedures, only allowing persons with specialist knowledge of local circumstances and the type of organisation concerned to carry out audits, and disallowing intimidating methods; and (iii) redo the audit with a partner other than Deloitte, in case evidence of staff costs submitted to the Commission during August 2005 would not be taken into account.

2.2 In its opinion, the Commission confirmed the validity of the audit report produced by Deloitte and requested that the Ombudsman declare the complaint unfounded.

2.3 In light of his findings in points 1.7 and 1.8 above, the Ombudsman considers that the complainant's claims cannot be upheld.

3 Conclusion

On the basis of the Ombudsman's inquiries into this complaint, there appears to have been no maladministration by the Commission. The Ombudsman therefore closes the case.

The President of the Commission will also be informed of this decision.

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS

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(1) On 13 December 2004, acting on behalf of UETP, the complainant submitted another complaint to the Ombudsman (complaint 3645/2004/TN), which concerned the manner in which the above-mentioned project had been carried out. The complainant alleged that the Commission (i) made inconsistent and incorrect interpretations of the rules regarding eligibility of staff costs; and (ii) wrongly terminated the contract on the basis of UETP's alleged unwillingness to co-operate in the Commission's audit. The complainant claimed that the Commission should honour its compromise presented by letter of 23 September 2002, in which it offered to pay UETP EUR 24 370, in addition to the EUR 123 199 already paid.

In his decision of 18 December 2006, the Ombudsman made the following findings.

With regard to the allegedly incorrect termination of the contract, the Ombudsman found, on the basis of the information provided during the course of his inquiry into complaint 3394/2005/TN, that an audit of the project had, in the meantime, taken place and that, in light of its outcome, the Commission had reconsidered the recovery decision it had adopted in 2004. Although the Commission was still asking for full recovery of the allocation, the recovery decision no longer appeared to be based on the Commission's decision to terminate the contract due to UETP's alleged unwillingness to co-operate in an audit, but on the outcome of the audit. The Ombudsman therefore considered that no further inquiries into this aspect of the present complaint were justified.

With regard to the allegedly inconsistent and incorrect interpretation of the applicable rules concerning staff costs, the Ombudsman found that this allegation concerned findings made by the Commission during the normal course of the project. However, on the basis of the information provided during his inquiry into complaint 3394/2005/TN, it became evident that, following the outcome of the subsequent audit of the project, the Commission arrived at new findings, on the basis of which it decided to execute a full recovery of the allocation already paid. The Ombudsman therefore considered that the findings made by the Commission during the normal course of the project were superseded by its findings made following the audit. Since the original findings were no longer valid, the Ombudsman did not consider it justified to pursue further inquiries into an allegation based on these findings.

With regard to the complainant's claim, the Ombudsman noted that the compromise offered by the Commission was not accepted by UETP and that the Commission therefore proceeded to carry out an audit of the project, following which it arrived at new findings. The Ombudsman pointed out that he was not aware of any rule or principle that would oblige the Commission to honour a proposed compromise that was not accepted by the other party, particularly since, in the present case, the Commission's earlier findings, on the basis of which the compromise was based, have been superseded by subsequent developments. The Ombudsman therefore considered that the complainant's claim should fail.

(2) Copies of these three letters were attached to the Commission's additional opinion.

(3) A copy of which was attached to the Commission's opinion.

(4) Article 7.5 of the contract provides: "The Contractor shall take all necessary steps to allow inspection (files, accounts and financial documents) by the Commission and by the Court of Auditors of the European Communities. This inspection may be carried out on the premises and consists of an examination of the accounts and supporting documents for the project covered by this contract. (...)".