The case concerned the European Commission’s decision to recover the staff costs (total recovery amounting to € 57 098.40) already paid to an NGO that had successfully carried out three EU projects for Research and Technological Development. The European Commission considered the complainant’s time-recording system for staff to be unreliable. The NGO disagreed and complained to the Ombudsman.

The Ombudsman inquired into the issue and found that the complainant had made repeated efforts to explain its time-recording system to the Commission. The Ombudsman thus considered that the Commission should have proactively asked the complainant to provide further clarifications regarding its staff costs. The Ombudsman therefore proposed to the Commission that it should consider the timesheets, provided by the complainant in the course of the Ombudsman’s inquiry, and that it should review, on that basis, its decision not to grant EU funding for the staff costs already paid.

The Commission then analysed the complainant’s timesheets and found that they had several shortcomings. The Commission stated that it could not, therefore, reverse its audit conclusion.

The Ombudsman was satisfied that the Commission had reviewed the timesheets provided by the complainant in the course of the Ombudsman’s inquiry. The Ombudsman verified that the shortcomings identified by the Commission existed and she therefore found reasonable the Commission’s conclusion that it could not reverse its audit findings. The Ombudsman maintained, however, that the Commission should have been more proactive in seeking clarifications about the time-recording system at a much earlier stage.

The background

1. The complainant is an NGO that was involved in three EU funded projects under the EU's Seventh Framework Programme for Research and Technological Development 2007-2013 ('FP7'). In 2011, the Commission asked an external audit company to audit the complainant’s implementation of the three FP7 projects and to check the eligibility of the costs claimed for EU funding.

2. The external audit company found systemic errors in the complainant‘s financial statements. In particular, the complainant’s time recording system was found not to be reliable. The draft audit report therefore recommended that 100% of the complainant’s personnel costs, should be declared ineligible for EU funding. The complainant objected strongly to the finding that its time-recording system was unreliable and sought to explain that the audit findings did not take into account the complainant’s main type of timesheet: the detailed “1a timesheet”. However, the Commission’s final audit report maintained that all the complainant’s personnel costs were ineligible for EU funding. In 2014, the Commission started to recover a total amount of € 57 098.40[1] from the complainant.^[2]

3. The complainant then turned to the Ombudsman. The complainant was concerned that the Commission had failed to take proper account of the information provided by the complainant on the set-up of its time-recording system. The complainant wanted the Commission to take proper account of the information on the time-recording system and to reconsider its decision to recover the personnel costs declared ineligible in the audit report.

4. Having received the Commission’s reply on the complaint and the complainant’s comments on the position expressed by the Commission, the Ombudsman inspected the Commission’s audit file. The inspection confirmed that the 1a timesheets were not among the documents provided to the Commission by the complainant. However, in the course of the present inquiry, the complainant provided the Ombudsman with the 1a timesheets for the FP7 projects in question. On that basis, the Ombudsman made a solution proposal[3] to the Commission (see below). The present decision takes into account the Commission’s reply to the Ombudsman’s solution proposal, as well as the complainant’s comments on the Commission’s reply.

How the Commission dealt with the information provided by the complainant

The Ombudsman's solution proposal

5. The main question in this case is whether the complainant’s time-recording system was reliable. There is a clear discrepancy between the time-recording system described in the Commission’s audit report and the time-recording system that the complainant, in the context of the present inquiry, argues that it uses for EU-funded projects. While the Commission’s audit report is based on two types of timesheets only - 1b and 1c timesheets - the complainant argues that its time-recording system is based mainly on a third type of timesheet, the detailed 1a timesheet.

6. It remains unclear why the external auditors based the draft audit conclusions on the 1b and 1c timesheets only, without considering the complainant’s detailed 1a timesheets. The complainant argues that it made all necessary information available to the auditors during the audit fieldwork. However, the Ombudsman has not found any evidence of the complainant having provided, at any point in time, the full set of 1a timesheets to the external audit company or to the Commission.

7. This notwithstanding, the Ombudsman is of the view that the complainant’s objections to the audit findings, as well as the complainant’s detailed explanations to the Commission on the set-up of its time-recording system, should have prompted the Commission to seek clarifications on the matter from the complainant. Before finalising the audit report, the Commission should have clarified with the complainant any potential discrepancy in relation to its time-recording system. It should also have asked the complainant to clarify what type of timesheet it referred to in its observations and to request that it submit these timesheets for the Commission’s consideration.

8. What is more, when the complainant met with the Commission, it made serious efforts to explain the actual set-up of its time-recording system, with emphasis on the 1a timesheets, in order to dispel any doubts as to the reliability of its time-recording system. The complainant expressed its firm conviction that it had provided the full set of 1a timesheets to the Commission at the meeting, together with other documents. While the Ombudsman’s inspection confirmed that the 1a timesheets were not among the documents provided to the Commission by the complainant, the Commission should have pointed out to the complainant that the detailed timesheets were missing, given the crucial role that these timesheets played in determining the eligibility of the complainant’s personnel costs.

9. Given that the Commission thus failed to take effective note of the complainant’s persistent efforts to explain its time-recording system - efforts first made at the stage of the draft audit report - the Ombudsman considered that it would only be fair for the Commission to review its audit findings on the basis of the complainant’s 1a timesheets, which the complainant had provided to the Ombudsman in the course of the inquiry. The Ombudsman forwarded copies of the 1a timesheets to the Commission, making the following solution proposal in this case:

The Ombudsman proposes that the Commission should review its position on the basis of the 1a timesheets now provided and, if it is satisfied that these timesheets meet the relevant requirements, that it reverse its audit conclusion to disallow 100% of the complainant’s personnel costs in the implementation of the three FP7 projects.

10. In reply to the Ombudsman’s solution proposal, the Commission informed the Ombudsman that it had duly analysed the 1a timesheets with a view to verifying whether those timesheets – had they been known to the Commission at the time of the audit procedure – could have constituted reliable audit evidence. The Commission stated that its analysis revealed several shortcomings in the 1a timesheets, such as differences in the numbers of working hours claimed for individual staff members compared to the hours set out in the audit report[4] and in the “consolidated individual periodic timesheet per project”; absence of 1a timesheets for one staff member; absence of signature on, and approval of, several timesheets; some timesheets having been signed on non-existent dates; some timesheets having been signed during weekends.

11. The Commission concluded that the 1a timesheets, had they been provided earlier, would not have provided it with a sufficient level of assurance as to the reliability of the complainant’s time-recording system and would not have constituted “reliable proof for personnel cost[s] actually incurred by the beneficiary”. The Commission also said that, because of these shortcomings, it “would not have been in a position to conclude that the type 1a timesheets provided by the complainant through the Ombudsman were genuine”.

12. The Commission stated that the complainant did not challenge the Commission’s decision to recover money from it in the implementation of the audit findings. The recovery decision has therefore become legally binding and is being enforced by the Commission.

13. The Commission concluded that it had duly checked the 1a timesheets forwarded by the Ombudsman and evaluated their impact on the audit conclusions and the audit implementation. However, for the reasons set out above, the Commission found that it was not in a position to reverse its audit conclusions.

14. In response to the Commission’s position, the complainant maintained that it had repeatedly provided the auditors and the Commission with complete, precise and accurate information about the set-up of its time-recording system and that it had, in particular, provided the Commission with a full set of 1a timesheets at the meeting that took place in 2013. The Commission’s decision to disallow and to recover all the personnel costs under the projects is thus incorrect, unfair and disproportionate.

15. The complainant stated that the alleged shortcomings in the 1a timesheets raised by the Commission had already been raised by the auditors during the audit fieldwork. The complainant had provided adequate information and explanations to clarify the issues back then.

16.  The complainant rejected as untrue the Commission’s statement that there are differences in the numbers of working hours claimed in the 1a timesheets of individual staff members compared to the hours set out in the audit report. However, the complainant did not contest the other shortcomings in the 1a timesheets identified by the Commission, but put forward explanations. By concluding that the 1a timesheets are not reliable proof of the complainant’s personnel costs, the complainant considered that the Commission continues to fail to take proper account of the actual set-up of the complainant’s time-recording system.

17. The complainant disagreed with the Commission’s view that it had followed the Ombudsman’s solution proposal by examining the 1a timesheets. It also strongly rejected any suggestion of it having fabricated timesheets.

The Ombudsman's assessment after the solution proposal

18. The grant agreements between the Commission and the complainant obliged the complainant to make available precise, complete and effective information and data for the Commission to be able to verify that the complainant had managed the grant agreements properly and that it had claimed costs in compliance with the rules. The Commission is under no legal obligation to take into account information or documents provided by the complainant after the expiration of the deadline for submitting comments on the draft audit report.

19. The Ombudsman has not found any evidence of the complainant having provided a full set of 1a timesheets to the external audit company or to the Commission at any point in time and the Ombudsman cannot verify whether or not this was done, or what could possibly have gone wrong in that regard.

20. The Commission has confirmed that the example of a 1a timesheet, which the complainant undisputedly provided to the Commission, complied with the requirements for time recording as set out in the grant agreements, which was a step towards clarifying the matter that the Ombudsman has welcomed. The Ombudsman also appreciates the Commission’s readiness to consider the 1a timesheets that the Ombudsman forwarded to it.

21. The Ombudsman has verified the accuracy of the Commission’s finding that there are differences between the numbers of working hours claimed in the 1a timesheets of individual staff members and the hours set out in the audit report.[5] The Ombudsman furthermore notes that the complainant does not contest the existence of the other shortcomings identified by the Commission. Rather, the complainant argues that those issues do not mean that its timesheets, and thus also its time-recording system, are unreliable. The complainant has not commented on the fact that it did not challenge the Commission’s debit note for the implementation of the audit findings.

22. In light of the shortcomings identified by the Commission, the Ombudsman considers reasonable the Commission’s conclusion that the 1a timesheets, had they been provided during the audit procedure, would not have been sufficient to prove the reliability of the complainant’s time-recording system. The Ombudsman thus also accepts as reasonable the Commission’s position that it cannot reverse its audit conclusions.

23. This notwithstanding, the Ombudsman maintains her view that, in the complainant’s particular case, the right to good administration would have required the Commission to follow up on the objections put forward by the complainant. The Ombudsman therefore reiterates her view that, before finalising the audit report, the Commission should have clarified with the complainant any potential discrepancy between the time-recording system referred to by the auditors and the time-recording system described by the complainant. However, given that the Commission has now reviewed the 1a timesheets and concluded that they have certain shortcomings, the fact that the Commission did not proactively reach out to the complainant to seek clarifications did not, ultimately, affect the audit conclusions negatively.  

24. The Ombudsman understands the complainant’s frustration with the fact that a financial audit can result in a grant beneficiary’s staff costs being rejected as ineligible, despite the fact that work has actually been done and that the project produced good quality results. However, funding under the EU’s FP7 programme was cost-based rather than result-based. In addition, the grant agreements between the complainant and the Commission provided for the possibility to carry out financial audits. Financial audits, by definition, are aimed solely at checking whether a grant beneficiary has declared costs in accordance with the applicable rules.

Conclusion

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

The Ombudsman finds reasonable the Commission’s view that, due to a number of shortcomings, the timesheets provided by the complainant in the course of the inquiry do not allow it to change its audit findings. There was thus no maladministration by the Commission.

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

 

Emily O'Reilly
European Ombudsman

 

Strasbourg, 01/06/2017

 

 

[1] This is a net recovery figure which includes offsets and adjustments in relation to some other cost areas.

[2] For further information on the background to the complaint, the parties' arguments and the Ombudsman's inquiry, please refer to the full text of the Ombudsman's solution proposal available at: https://www.ombudsman.europa.eu/cases/solution.faces/en/77748/html.bookmark  

[3] The Ombudsman’s solution proposal is available at: https://www.ombudsman.europa.eu/cases/solution.faces/en/77748/html.bookmark

[4] Annex II to the audit report.

[5] The difference in hours claimed is 24 in case of the first staff member, 10 in case of the second staff member, and 1 in case of the third staff member (according to the order used by the Commission).