Made in accordance with Article 2(10) of the Statute of the European Ombudsman[1]

Background to the complaint

1. The complainant is a non-governmental organisation representing over 850 universities in nearly 50 European countries. It participated as one of five partners in the implementation of the EU SHARE[2] programme for ASEAN higher education institutions and students. The Delegation of the EU to Indonesia and Brunei Darussalam was responsible for overseeing the programme on behalf of the European Commission. The programme ran from January 2015 to June 2020.

2. The Commission signed a grant contract with the ‘grant coordinator’ to finance the programme. This contract stated that the grant coordinator is responsible for submitting all relevant supporting documents and for checking and submitting the payment request. The contract also stated that the grant coordinator is the intermediary between the Commission and the complainant.

3. Before the grant was awarded, the grant coordinator informed the complainant that the Commission had asked for clarification concerning the difference between the proposed budget and the figures on the pay slips the complainant had submitted. The grant coordinator suggested that the complainant provide this information in the form of a letter setting out the specific figures and explaining how it had calculated the staff costs. The complainant did so. In its letter to the Commission, the complainant set out its calculation method and stated that its staff costs included gross salary, social security charges, insurance and other related costs[3]. The Commission had no further questions and the grant agreement was signed in December 2014.

4. In January 2015, the implementation started and the complainant was reimbursed for the costs incurred for that year.

5. In 2017, through the grant coordinator, the Commission requested additional information from the complainant concerning the costs claimed for one staff member for the year 2016 including a breakdown of the total costs, proof of payment for several months and a clarification of the difference between the unit rate and the gross salary in the staff member’s employment contract. The complainant promptly provided the requested clarifications and information. The Commission then issued an explanatory note in which it stated that it was suspending the payment of the staff costs until the complainant provided the “latest version” of the employment contract of the staff member in question.

6. In 2018, the grant coordinator provided further explanations and supporting documents for the costs that the Commission deemed ineligible in its explanatory note. Concerning the staff costs at issue, the grant coordinator provided the employment contract and the history of gross salary increases for the staff member in question. The Commission requested the timesheets and payslips for the entire reporting period and a breakdown of the staff costs, amounting to EUR 9 668, which the complainant provided through the grant coordinator.

7. In 2019, the programme was subject to an external audit. In the draft audit report, the auditors noted that the complainant had disregarded the applicable allocation rates for its staff members and they therefore deemed ineligible staff costs amounting to over EUR 14 000. The complainant contested this finding.

8. In 2020, the auditors issued an updated draft report that included the complainant’s comments. The auditors asked for further supporting documents to verify the costs but the final audit report maintained the finding that over EUR 14 000 in staff costs were ineligible. Following this, the complainant organised a call with the auditors and the grant coordinator, during which it explained its calculation method. After the call, the complainant again provided all supporting documents for its costs. After reviewing the documents, the auditors concluded that “[...] the staff costs claimed in relation to [name] and [name] over the period subject to verification is substantiated and reasonable. We therefore now consider the amount of € 14,399.98 as eligible.”

9. In 2021, the grant coordinator accepted the Commission’s final financial position including all ineligible costs. The Commission issued another explanatory note, which stated that the EU SHARE programme contributed to the development of higher education. The complainant did not agree with the calculation of the final payment and asked for clarifications. The grant coordinator replied that the Commission did not accept the costs due to incomplete contractual documentation. When the complainant stated that external auditors declared the costs eligible, the grant coordinator replied that it was the Commission’s prerogative to accept or reject costs independently of auditors’ findings. The grant coordinator transferred the final payment, with EUR 9 668 deducted. The complainant stated again that it did not agree with the deduction.

10. The complainant then sent an email directly to the Commission and the grant coordinator, asking why the costs were rejected. The Commission replied to this email but addressed it to the grant coordinator instead. It asked the grant coordinator to reply to the complainant’s question and to inform it that the grant contract at issue had been finalised without any outstanding issues or amounts. Following several exchanges with the Commission, the complainant turned to the Ombudsman in February 2022.

The inquiry

11. The Ombudsman opened an inquiry into the Commission’s refusal to reimburse the staff costs in question.

12. In the course of the inquiry, the Ombudsman received the reply of the Commission on the complaint and, subsequently, the comments of the complainant in response to the Commission's reply. The Ombudsman inquiry team also met with Commission representatives to clarify why the Commission considered the costs of only one staff member for only one out of four years ineligible. Following the meeting, the Ombudsman shared the meeting report with the complainant, who also commented on it.

Arguments presented to the Ombudsman

By the Commission

13. In its written reply, the Commission claimed that it acted fully in line with the applicable contractual framework and the EU rules and procedures.

14. It contended that despite the lack of a contractual relationship with the complainant, it meaningfully engaged with the complainant, and repeatedly and thoroughly explained the reasons why it had deemed the costs ineligible.

15. The Commission contended that the auditors’ findings concerned the complainant’s disregard of the budgeted staff costs only. The auditors dismissed this finding in the final audit report because they considered the costs reasonable and in line with the timesheets provided. However, the Commission maintained that the final finding is not related to the disputed costs but concerns the allocation rate only.

16. The Commission argued that the complainant failed to provide supporting documents that would allow the Commission to substantiate the costs claimed. In particular, the Commission considered that the employment contract of the staff member in question was not comparable to employment contracts accepted from other partners. As the relevant supporting documents were either missing, inconclusive or contradictory, the Commission took the view that, in line with the principle of sound financial management, these costs were ineligible.

17. In the meeting with the Ombudsman inquiry team, the Commission stated that it does not check all cost lines but relies on random sampling. In this case, it conducted a sample check for the staff member in question for the year 2016, following a significant variation between the staff costs relative to the budget.

18. The Commission said that the suspension of the payment did not concern the calculation method but the lack of supporting documents. The Commission claimed that it did not receive an employment contract for the staff member in question. It considered that the one-page employment contract that the complainant submitted does not meet the minimum requirements for such contracts. The Commission took the view that, in the absence of a longer form contract, it was unable to verify the accuracy of the presented calculation.

19. The Commission conceded that it did not provide any guidance, at the outset of the programme, on the minimum requirements for an employment contract. It stated that there is no official guidance and that it decides on a case-by-case basis. The Commission claimed that it communicated its observations both verbally and by email to the grant coordinator, whose duty it then was to inform the complainant about the Commission’s requirements. However, the Commission could not produce any evidence of written exchanges with the coordinator.

20. Regarding the auditors’ findings, the Commission stated that the auditors verified the accuracy of the complainant’s calculations. However, the Commission considers the costs ineligible because the employment contract does not comply with the minimal requirements to be considered as a valid employment contract.

21. Finally, the Commission stated that for an objection to be considered it should be brought by the grant coordinator. However, in this case, the grant coordinator did not disagree with the Commission’s findings.

By the complainant

22. The complainant contended that external auditors deemed eligible all costs, including those at issue in this inquiry, after verifying the supporting documents, including copies of contracts, payslips and timesheets.

23. The complainant argued that the Commission never stated that the contract was not valid and that this was the reason that it considered the costs ineligible. The complainant pointed out that it had provided the necessary explanations together with employment contracts for all staff members to the Commission before the grant was awarded. It contended that it provided, on several occasions, extensive explanations and all necessary supporting documentation. The Commission never informed it what other documentation or explanation would be necessary.

24. Furthermore, the complainant considered that the Commission’s argument that the employment contract does not meet the minimum requirements is irrelevant. It pointed out that employment contracts differ from organisation to organisation and from country to country. The complainant also contested the Commission’s claim that its contracts do not meet the Commission’s standards. It stated that it participates in between four to eight Commission programmes every year and that its employment contracts have never been challenged by the Commission. Moreover, the complainant pointed out that the Commission itself confirmed, in the meeting with the Ombudsman inquiry team, that no minimum requirements have ever been communicated and that it decided on a case-by-case basis. The complainant considers that this is a gross violation of the rules and principles of good transparent public administration.

25. The complainant noted that the Commission, in an email to the Ombudsman, stated that it had requested, through the grant coordinator, a breakdown of the total costs, timesheets and payslips for the whole reporting period to verify the costs in question. The complainant pointed out that the Commission did not state that it needed an employment contract to verify the costs. In this context, the complainant also considered that an employment contract could be used as evidence that the staff member at issue is employed, but not to verify the accuracy of the calculations.

26. The complainant concluded that it consistently and promptly replied to any inquiries and requests of the Commission. However, the Commission never clearly explained why the contract or the documentation it provided was insufficient and what else would have been required.

The Ombudsman’s assessment

27. This inquiry found that the Commission does not object to how the complainant calculated the costs in question but, rather, that it rejected the costs because it considered that the necessary supporting documents were missing. In particular, the Commission considers that the one-page employment contract that the complainant provided does not meet the minimum requirements for employment contracts, as - unlike longer form contracts - it does not allow the Commission to verify the costs at issue.

28. The Ombudsman cannot agree with this reasoning.

29. The Commission has acknowledged that the SHARE programme has achieved its objectives and that there was no suspicion of fraud.

30. Furthermore, the external auditors concluded that the complainant provided sufficient evidence in support of the staff costs at issue and that the costs are reasonable, and the auditors considered the costs eligible, even though they initially considered they did not comply with the applicable allocation rate. The Ombudsman acknowledges that the Commission is not bound by auditors’ findings, however, when an EU institution or body departs from the findings of an audit report, it should provide sufficient and convincing explanations for doing so. The Ombudsman finds that the Commission has not done so in this case.

31. The Commission did not provide any guidance, at the outset of the programme, on the minimum requirements for an employment contract. Yet, the inquiry found that the Commission rejected the staff costs in question solely because it considered that the employment contract did not meet what it considered to be the minimum requirements for such a contract, notably its length, and was not comparable with the employment contracts of other partners. By unilaterally requiring the contract of only one staff member to meet unspecified criteria ‘ex-post’, that is after the programme had been running for some time, the Commission undermined the principle of legal certainty[4]. The complainant stated that it had provided all necessary information before the start of the programme, yet, the Commission never raised any issues with the employment contracts. The Commission also reimbursed the costs incurred for this staff member for the other years of the programme and reimbursed the costs incurred for other staff members with similar contracts for the entire programme. Furthermore, the complainant stated that it has used similar employment contracts in the context of various other EU-funded programmes in which it has participate, and that the Commission never raised this issue before. The complainant could therefore reasonably expect that the Commission considered the type of employment contract in question to be sufficient. Furthermore, the employment contract in question falls under Belgian employment law. As such, the Commission may seek to establish whether the contract meets the minimum requirements for employment contracts under national law but it cannot impose additional requirements.

32. The Commission further argued that only longer contracts allow it to verify the costs claimed. However, while employment contracts, irrespective of their length, allow the Commission to verify whether the person, for whom staff costs are claimed, is in fact employed by the entity claiming the costs, they do not, as such, enable the Commission or any other entity to verify whether the claimed costs have in fact been incurred. This can be verified only through time sheets and corresponding pay slips, both of which the complainant provided promptly whenever they were requested.

33. The Commission also argued that it could consider an objection only if it was raised by the grant coordinator. The grant coordinator passed on the documents and explanations provided by the complainant in support of its costs. However, it seems that the Commission became aware of the complainant’s objection only after the grant coordinator accepted the Commission’s calculations and only after the complainant contacted the EU Delegation directly. This is regrettable.  

34. The Commission further stated that the grant coordinator agreed with its findings. The Ombudsman is not entirely convinced that this is the case. It is clear that the grant coordinator formally accepted the Commission’s final financial position on the grant, including the costs it deemed ineligible. However, while the grant coordinator subsequently stated that it was the Commission’s prerogative to accept or reject costs independently from auditors’ recommendations, it did not say that it agreed with its reasoning.

35. The Commission considered that it engaged thoroughly and meaningfully with the complainant and explained why it had rejected the costs as ineligible, even though it was not required to do so. While it is good that the Commission did not insist on communicating solely through the grant coordinator, the Ombudsman is concerned that the Commission’s reason for rejecting the costs became clear only during the meeting with her inquiry team. The Commission asked for the “latest version” of the employment contract, which the complainant submitted several times. The Commission never explained that it considered the contract to be insufficient in length or why this was relevant.

36. The Ombudsman thus concludes that the Commission has not provided sufficient explanations to justify its decision to deem the costs ineligible.

The proposal for a solution

Based on the above findings, the Ombudsman proposes that the Commission should review its decision on the costs it deemed ineligible and pay the complainant the amount it had withheld, namely EUR 9 668.

The Commission is invited to inform the Ombudsman by 4 January 2024 of any action it has taken in relation to the above solution proposal.

 

Emily O'Reilly

European Ombudsman

Strasbourg, 21/11/2023

 

[1] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2021.253.01.0001.01.ENG&toc=OJ%3AL%3A2021%3A253%3ATOC

[2] https://www.eeas.europa.eu/eeas/eu-support-higher-education-asean-region-eu-share_en

[3] Such as holiday pay, year-end premium, travel allowance and meal vouchers.

[4] The principle of legal certainty requires that legal rules be clear and precise