The background to the complaint

1. The complainant is a registered German association which was the beneficiary of a 'grant contract for external aid' (the 'Grant Agreement') for a project entitled "Sustainable popular housing with ecological materials in the province Villa Clara/Cuba". The EuropeAid Co-operation Office made the award of the grant. The project lasted from 1 October 2000 to 30 September 2005.

2. The present complaint concerns the Commission's handling of the complainant's request for disbursement of the final project payment following completion of the project.

3. On 22 January 2010, the complainant turned to the Ombudsman.

The subject matter of the inquiry

4. In its complaint to the Ombudsman, the complainant submitted the following allegation and claim.

Allegation

The Commission failed properly to handle the complainant's request for disbursement of the final project payment which dated from 17 July 2006. In particular, the Commission (i) did not disburse the final payment and gave no reasons for so acting, even though all relevant documents were submitted to it, and (ii) did not reply in a timely manner to relevant requests.

Claim

The Commission should deal with the complainant’s request and disburse the final payment.

The inquiry

5. The complaint was forwarded to the President of the Commission for an opinion. The Commission's opinion was forwarded to the complainant with an invitation to make observations, which it sent on 2 July 2010. In light of these observations and the Commission's opinion, the Ombudsman concluded that further inquiries were necessary. Thus, in a letter of 24 November 2010, the Ombudsman requested the Commission to provide him with further information concerning the complainant's allegation and claim.

6. The Commission's reply was forwarded to the complainant with an invitation to make observations. On 12 April 2011, the complainant sent its observations. On 13 May 2011, the complainant sent further documents in relation to its case.

7. Having examined the Commission's reply against the background of the complainant's observations, the Ombudsman considered that there was still a need for further clarification. By letter of 19 September 2011, he therefore requested the Commission to provide him with further information concerning the complaint.

8. The Commission sent its reply on 19 December 2011. That reply was forwarded to the complainant with an invitation to make observations. Subsequently, on 19 March and 8 May 2012, the complainant provided the Ombudsman with further information on its case and, on this occasion, submitted to him its further correspondence with the Commission.

9. Again on 31 May 2012, the complainant provided the Ombudsman with information on further developments in its case. It also pointed out that the Commission had not replied to a letter it had sent it on 7 May 2012.

The Ombudsman's analysis and conclusions

Preliminary remarks

10. Given their factual connection, it is convenient to consider the complainant's allegation and claim together.

A. As regards the complainant's allegation and claim

Arguments presented to the Ombudsman

11. The complainant alleged that the Commission failed properly to handle its request for disbursement of the final project payment which dated from 17 July 2006. In particular, the Commission (i) did not disburse the final payment and gave no reasons for so acting, even though all relevant documents were submitted to it, and (ii) did not reply in a timely manner to relevant requests. The complainant claimed that the Commission should deal with its request and disburse the final payment.

12. In its opinion and when commenting on the first aspect of the complainant's allegation, the Commission stated that, under the Grant Agreement, it was required to make an advance payment, four intermediate annual payments and a final payment to the complainant. Already upon receiving the request for the fourth intermediate payment, the Commission, in 2005, reminded the complainant of the need to submit to it all information relating to both the technical and the financial components of the final report to be included in the final payment request. The technical component related, among others, to information on project impact; the financial component concerned, in particular, the justification of budget headings overruns and a full list of expenses. As regards overrun expenses, the Commission specified that, while the Grant Agreement allows for a certain degree of flexibility, the relevant amounts still needed to be justified and examined before payment could be made.

13. The Commission pointed out that, on 11 April 2006, the complainant sent a first request for final payment in the amount of EUR 14 767, together with an audit report and a financial report. On 2 May 2006, the Commission informed the complainant that it had suspended the final payment until it would receive certain missing documents already asked for in February 2005. The Commission stated that the missing documents would be necessary for its verification of expenses. These documents included, for instance, information on the exchange rate used by the complainant, the human resources involved and copies of the titles of certain transfers to the local project partners.

14. On 17 July 2006, the complainant submitted a second request for final payment in the amount of EUR 18 276. Along with this request, it enclosed the same financial report as with its first request and provided information on transfers to project partners, calculations of the exchange rate, overviews of human resources, tenders for equipment and for auditing, and the project planning. The amount claimed was not confirmed by the audit report submitted by the complainant.

15. On 12 December 2006, the Commission confirmed its decision to suspend payment until all supporting documents concerning the revised request for payment, which amounted to EUR 18 276, had been provided, In addition, it also requested missing documents already identified in its previous letters.

16. On 17 November 2007, the complainant submitted additional documents. Following the complainant's request to this effect, the Commission confirmed receipt on 24 April 2008. At the same time, it informed the complainant that documents mentioned in its previous letters were still missing, thereby rendering certification of the final payment impossible.

17. On 30 June 2008, the complainant submitted five Excel tables listing expenses by activity. This gave rise to an e-mail exchange between the complainant and the Commission's Delegations to Cuba and the Dominican Republic, in the course of which the Delegation to the Dominican Republic informed the complainant that an external audit would have to be carried out.

18. Against this background, the Commission submitted that it had repeatedly asked for missing documents and described them in detail. It went on to point out that it had, nevertheless, still not been provided with conclusive reports covering the totality of the expenditure under the Grant Agreement. As a result, it was obliged to suspend the final payment. In view of these circumstances, the Commission, in April 2008, informed the complainant of its decision to launch an external audit.

19. As regards the second aspect of the complainant's allegation, the Commission submitted that it had replied to all but one of the complainant's letters within a reasonable time. It also pointed out that the complainant was in breach of a contractual rule which requires production of information within 30 days. At the same time, the Commission acknowledged that it failed to reply in a timely manner to the complainant's letter dated 17 July 2006 and noted that its reply was from 12 December 2006. However, it also confirmed that there had been no change in the status of the payment, given that the complainant had still not complied with the Commission's request for submitting further documentation.

20. In relation to the complainant's claim, the Commission submitted that it would go against the EU's financial rules to disburse a payment without proper justification. It emphasised that it had legitimate doubts concerning certain expenses. Had the complainant provided proper justification for these expenses, the Commission would have disbursed the payment corresponding to those costs. However, in the Commission's view, the present case was more about issuing a recovery order than about disbursing the final payment. This was due to the fact that (i) the suspension of the final payment was exclusively the consequence of the complainant's conduct, given that the latter had failed to submit relevant supporting documents. According to the Commission, the complainant was in no position to claim disbursement of the final payment, given that it was well aware that it had not submitted relevant supporting documents. Moreover, (ii) the complainant's conduct had resulted in additional delays and expenses. The Commission had already announced its intention to launch an external audit which would aim at obtaining the missing documents and at checking the discrepancies between the reports submitted by the complainant. The Commission therefore would have to pay, at least partly, for an expensive external audit. Finally, (iii) the Commission's maximum contribution was fixed at 75% of the actual expenditure. On the basis of a provisional analysis of the limited information available, the Commission considered that it should issue a recovery order for excess pre-financing payments made to the complainant.

21. Together with its observations, the complainant submitted three CD ROMs containing, among other things, various descriptions of the project, pictures of houses built and information on various awards received for the project. The complainant stated that the Commission's account of events was incorrect on a number of aspects and incomplete on others.

22. According to the complainant, the Commission gave the impression that the complainant had submitted to it only one audit report, namely, for the period from 1 October 2004 to 30 September 2005. In fact, however, it had submitted to the Commission, from the start of the project together with each interim report, audit reports produced by local auditors as well as an external auditor based in Germany. The latter had audited the entire project. The interim reports had been checked and accepted by the Commission which had subsequently disbursed relevant intermediate payments. The German auditor had also audited other Commission-funded projects run by the complainant, which had never given rise to any objections from the Commission.

23. As regards the revised amount of the final payment claimed, the complainant submitted that the original amount (EUR 14 767) had to be adjusted to EUR 18 276 so as to reflect costs incurred after the audit, such as audit costs after the end of the project, shipping and personnel costs.

24. The complainant also stated that, in its correspondence with the complainant, the Commission did not inform it when the external audit would take place. Given that the Commission did not reply to the complainant's e-mails of 27 October and 11 December 2009, the complainant had to assume that it would not receive any relevant information anymore. In its last e-mail to the complainant dated 20 August 2009, the Commission announced that it would inform the complainant by September 2009, but no further information was subsequently given.

25. The complainant stated that it had submitted all required documents to the Commission's Delegations in both Cuba and the Dominican Republic. The complainant regretted that not all original receipts could be sent to the Commission, given that its local project partner was not allowed to send them abroad. Still, most of the receipts could be submitted. The complainant pointed out that prohibitions on sending receipts to other countries existed in most states and had been accepted by EU Delegations. Moreover, the complainant had invited the Commission's Delegation to Cuba to visit the project and, if necessary, to perform controls on the spot. However, the Delegation did not do so. The complainant also submitted that slight delays in submitting documents resulted from the fact that, after the end of the project, it no longer had any contractual relationship with the local project partner who had set other priorities in its work. Anyway, the complainant had done everything in its power promptly to submit the required documents to the Delegations and had fully cooperated with them.

26. The complainant moreover pointed out that the Grant Agreement allowed for an overrun of budget headings within certain limits and stated that it had duly reported on overruns in each interim report. The complainant explained the reasons for the overruns and expressed disappointment at the Commission's rejection of an additional request to use certain funds for making good the damages caused by a hurricane.

27. The complainant also submitted that the Commission grant originally requested amounted to EUR 358 344 (74.9970% of the project volume). It went on to say that this sum had not been fully spent, in spite of the fact that the project aims had been realised. The Commission's grant at the end of the project amounted to EUR 339 927 (EUR 321 651 plus the outstanding final payment of EUR 18 276 equalling 72.9016% of the project volume). It followed that the complainant had borne a greater share of costs than foreseen in the initial calculation, while the Commission in fact saved an amount of EUR 18 417. The complainant therefore asked the Ombudsman to endorse its claim.

28. The complainant finally underlined the success of the project which had been distinguished by a number of awards.

29. In his first request for additional information, the Ombudsman asked the Commission (i) to comment on the complainant's argument that, in view of a prohibition on sending receipts abroad, it was not in a position to submit all the required documents to the Commission. He asked the Commission to explain whether it took this aspect into account in its evaluation of the documents submitted by the complainant. The Ombudsman also stated that (ii) it appeared that the Commission did not reply to the complainant’s e-mails of 27 October and 11 December 2009, in which the latter inquired about how the matter was progressing and invited the Commission to comment on this aspect. Finally, the Ombudsman (iii) asked the Commission to inform him of the timescale foreseen for launching the external audit referred to in its correspondence with the complainant.

30. In its reply, the Commission underlined its willingness to pay the complainant's eligible costs, but also stated that it was entirely up to the complainant to prove these costs.

31. In reply to the Ombudsman's first question, the Commission essentially submitted that the beneficiary of a grant is obliged to provide full information on the implementation of the project and to keep accurate and regular accounts. As regards the level of documentation required to this end, the Commission pointed to a certain margin of discretion it enjoyed, which meant that, in many cases, it did not ask beneficiaries to submit original receipts. In the complainant's case, save for one instance, the Commission did not ask for original documents, and the complainant would have satisfied its contractual obligations by submitting copies of receipts. Concerning the possibility of performing on-the-spot checks, the Commission pointed out that it was incumbent on the beneficiary to comply with its contractual obligations, while checks, contrary to the principle of sound financial management, would have implied that the Commission would incur additional costs. Moreover, tight political relations with Cuba did not allow for on-the-spot checks, as the Commission services were no longer granted access to co-financed projects which were considered "illegal" by the Cuban administration.

32. As regards the Ombudsman's second question, the Commission submitted that the Delegation to the Dominican Republic's last direct contact with the complainant was on 20 September 2009. At a later date, it informed the complainant of the state of play by means of the opinion it submitted to the Ombudsman on 3 June 2010. The Commission acknowledged that it should have replied to the complainant's e-mails, and presented its apologies.

33. With respect to the Ombudsman's third question, the Commission pointed out that the statement of costs which the complainant submitted did not contain any information about expenses incurred in local currency. Moreover, the complainant ignored the Commission's request that it be provided with information on procurement procedures. The Commission stated that it had not prioritised launching an audit due to a heavy workload, staff shortage and its intention to await the outcome of the Ombudsman's inquiry, in the course of which it hoped to receive additional information. After a review of the current situation, however, the Commission had decided to leave the entire responsibility for the justification of eligible costs to the complainant and, thus, to refrain from launching an audit on its own. Instead, it would issue a pre-information notice on the recovery of amounts it paid in excess and, at the same time, would give the complainant a final chance to submit supporting documents concerning the costs it had declared. The Commission stated that it would await the outcome of the Ombudsman's inquiry before launching this process.

34. In its observations, the complainant reiterated that it had met the conditions for reimbursement by submitting certified interim audit reports, as well as an itemised statement of costs which corresponded to the statement of costs compiled by a certified accountant. This documentation justified disbursing a final payment of EUR 14 797, which had later been increased to EUR 18 267, so as to take into account costs which had arisen after the end of the project. There was no audit certificate for that difference, given that pursuing an audit would be disproportionate to the amount at stake. The complainant reiterated that the grant had not been fully spent, in spite of the fact that the project aims had been realised. As regards the "illegal nature" of the project, the complainant pointed out that at no time did the Commission inform it of any such development. The Commission had accepted all interim reports submitted by the complainant and disbursed corresponding amounts. Doing so constituted evidence of the project's legality.

35. Concerning expenses incurred in local currency, the complainant submitted that only costs incurred in USD had been charged to the project, while expenditure in the local currency was considered to be a contribution in kind by the local beneficiaries of the project. This expenditure was consequently not part of the statement of costs, and the Commission, to date, had not asked for a relevant list. As regards procurement procedures, the complainant pointed out that, on 11 April and on 17 July 2006, it sent comparative offers to the Commission's Delegation. It was therefore incorrect to state that it did not provide relevant information.

36. Together with its observations, the complainant enclosed what it referred to as all receipts sent to it by its local project partner, including audit reports of local auditors, which had further been audited by the complainant's auditor. The complainant also re-submitted a copy of the final audit report prepared by its auditor. The complainant pointed out that it hoped that, on the basis of the documents submitted, the issue of the final payment could definitively be assessed. Subsequently, the complainant submitted further documents, in particular receipts it had received "from Cuba". It explained that its local partner in Ecuador was no longer in existence and, therefore, could not send any further documents.

37. In his second request for additional information, the Ombudsman asked the Commission (i) to analyse the documents submitted by the complainant, with a view to assessing the latter's claim for the disbursement of the final project payment. The Ombudsman also asked the Commission (ii) to address and, if necessary, to take into account, when assessing the complainant's claim for the disbursement of the final project payment, certain clarifications which the complainant had provided as regards expenses incurred in local currency and procurement procedures.

38. In reply to the Ombudsman's first question, the Commission underlined once again its willingness to analyse the final report and the documentation submitted by the complainant, in order to determine eligible costs and, as the case may be, proceed with the disbursement of the final payment. The Commission stated that it had transmitted the documents received in the course of the Ombudsman's inquiry to the Delegation in the Dominican Republic for analysis. Once that analysis had been completed, the Commission would inform the complainant and the Ombudsman of the final outcome.

39. In reply to the Ombudsman's second question, the Commission thanked the complainant for its clarifications concerning expenses incurred in local currency and stated that it would take them into account in the analysis of the complainant's claim for disbursement of the final project payment.

Further developments

40. The complainant subsequently provided the Ombudsman with copies of its further correspondence with the Commission's Delegation. From these documents, it emerges that, on 8 March 2012, the Delegation finalised its analysis of the complainant's disbursement claim "in the light of the evidence you provided to the European Ombudsman". The Delegation pointed out that full supporting documents were missing for procurement procedures concerning many transactions, but also stated it had taken into account the "inherent difficulty/impossibility to comply fully with the procurement requirements in the Cuban context". It therefore considered relevant costs to be eligible. However, certain other costs were considered ineligible due to a lack of supporting documents and the alleged existence of a conflict of interest. The Delegation invited the complainant to provide explanations and/or supporting documents and stated that it would otherwise deduct the ineligible costs from the total amount of the grant and proceed with disbursing the final payment in the amount of EUR 1 362.22.

41. In its letter of 19 March 2012, the complainant challenged the Delegation's position to consider certain costs to be ineligible, gave reasons for its view and submitted additional documents.

42. On 23 April 2012, the Delegation replied to the complainant and explained that, in spite of a lack of full supporting evidence as regards certain procurement procedures, it decided to recognise related costs as eligible (EUR 79 049,60). As regards the costs which it considered ineligible, the Delegation explained that, having reviewed the explanations and documents provided by the complainant, it now considered certain of these costs to be eligible. As a consequence, the Commission would proceed with disbursing the final payment in the amount of EUR 1 980.13.

43. In a letter of 7 May 2012, the complainant expressed satisfaction with the Delegation's decision to recognise further costs as eligible, but disagreed with the ineligibility of the remaining costs and gave reasons in support of its view.

44. On 31 May 2012, the complainant informed the Ombudsman that the Delegation did not reply to its letter of 7 May 2012. The complainant also stated that it was unsure whether the Delegation was still working on its case, given that the complainant had meanwhile received a payment of EUR 1 980,13 in its favour. Still, the complainant insisted that he expected the Delegation to reply to its letter of 7 May 2012 and reiterated its view that the final payment should (fully) be disbursed.

The Ombudsman's assessment

45. The Ombudsman recalls that the complainant's allegation concerns two different aspects, namely, (i) the Commission's decision not to disburse the final project payment and (ii) the manner it dealt with certain of the complainant's correspondence.

46. Concerning the first aspect, the Ombudsman notes that his present inquiry has helped launch a dialogue between the complainant and the Commission as regards the disbursement of the final project payment. More specifically, in the course of the inquiry, the complainant submitted a number of further documents which the Ombudsman invited the Commission to comment on. As pointed out in its replies to the Ombudsman's requests for further information, the Commission assessed and took these documents into account. While the Commission stated in its opinion that the present case was rather about issuing a recovery order than about disbursing the final project payment, the Commission changed its view in the course of the inquiry. In fact, it emerges from the information provided by the complainant that the Commission has now proceeded partly to disburse the final project payment and to give reasons in support of its decision. The Ombudsman therefore considers that his inquiry has fostered a degree of convergence between the complainant's and the Commission's positions.

47. It is true that the precise amount of the final project payment to be made to the complainant remains in dispute between the parties. Thus, in its letter to the Commission of 7 May 2012, the complainant raised certain new arguments in support of its view that the Commission should consider additional costs to be eligible. In its letter to the Ombudsman of 31 May 2012, the complainant stated that the Commission did not reply to its further arguments, at the same time making it clear that, in spite of the fact that it had received a payment made in its favour, it still expected the Commission to take a final stance on its, that is, the complainant's, arguments.

48. The Ombudsman seeks to deal with cases rapidly and tries to reach a preliminary conclusion in an inquiry on a complaint within one year of opening it. In the present case, considering also that the complainant submitted voluminous documents which the Commission had to assess, it did not prove possible to reach a preliminary conclusion within one year. This situation makes it all the more reasonable, useful and justified to separate the new issues which the complainant raised in its letter of 7 May 2012 to the Commission from the present inquiry. Accordingly, the Ombudsman considers the letter of 31 May 2012 which the complainant addressed to him to constitute a new complaint and will, to the extent necessary, open a fresh inquiry into it.

49. Concerning the second aspect of the complainant's allegation, the Ombudsman considers that, in the course of his inquiry, the Commission acknowledged that it failed properly to handle certain correspondence sent by the complainant and apologised for this failure.

50. In view of the above considerations, the Ombudsman concludes that there are no grounds for further inquiries.

B. Conclusions

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

There are no grounds for further inquiries into the complainant's allegation and claim.

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

 

P. Nikiforos Diamandouros

Done in Strasbourg on 17 July 2012