Annual report 2002 - EOI

154 ANNUAL REPORT | 2002
In its reply of 3 June 2002, the Commission firstly referred to Council Decision
97/872/EC 61 ,which is the legal basis for the NGO funding programme. As concerns the
fact that the budget does not foresee membership fees as an income, the Commission
stated that the budget is in any case an indicative estimate drawn up prior to introducing
the application. There is no indication that membership fees would not be part of income
from ‘other sources’. Therefore, any income, foreseen or not, must be taken into account.
Article 3(4) of the Grant Agreement states “(...) the grant (...) must be restricted to the
amount required to balance revenue and expenditure (...)”.
As regards the fact that Article 10(4) of the General Terms and Conditions provides that
possible future losses or debts are not considered as eligible costs, the Commission
referred to Article 11(3) of the General Terms and Conditions, which reads: “The
maximum amount of the grant to be paid by the Commission shall be reduced proportionately
if examination of the final statement in relation to the total budget as estimated in the
agreement reveals that: (...) -total revenue exceeds total expenditure; (...)”. As the reserve
fund was not foreseen in the budget, not even as a non-eligible provision, it cannot be
considered as part of the total expenditure and under no circumstances as eligible expenditure.
As concerns the proportional reduction, the Commission referred to Article 3(4) as
quoted above and to Article 7(2) of the Grant Agreement. According to the latter, should
the provisions of the annexes and those of the Agreement differ, the provisions of the
Agreement apply. The consequence is that the grant must be restricted to the amount
required to balance revenue and expenditure. The proportionality applies only to eligible
expenditure. Accordingly, the grant is limited by three ceilings: it cannot be more than
€ 580 000 equivalent to 53.73% of the eligible real costs (Article 3(2)) and it is restricted
to the amount required to balance revenue and expenditure (Article 3(4)). In addition, the
contracts for the years 1997-1998 differ from the contract for 1999. The contractual conditions
were therefore not the same. Furthermore, the Commission has now recognised the
potential build-up of debts out of non-eligible costs over a longer period of time. For that
reason conditions more favourable to the complainant were introduced in the contract for
2000. The Commission concluded that it thought it had provided the Ombudsman with a
coherent and reasonable account of the legal basis for its actions and why it believed that
its view of the contractual position was justified. The Commission did therefore not see
any reason to accept the proposal for a friendly solution.
In its observations of 26 July 2002 on the Commission’s reply, the complainant maintained
its complaint. It stated that the Commission’s interpretation of the contract makes it impossible
to foresee provisions for future losses or debts and to practice sound management.
The complainant underlined that it had always accepted that such provisions should
neither be paid from the EU’s contribution, nor from the matching funds for that contribution.
EEB therefore found other means, being the membership income. The complainant
had not indicated in the budget that the membership fees, which the Commission knew
EEB were receiving, were an income in the budget. It was rather clear from the budget that
the membership income was not aimed to be used for the programme. The Commission’s
refusal to accept provisions for possible future losses or debts as non-eligible costs and to
consider it instead to be a profit or surplus is contradictory to Article 10(4) of the General
Terms and Conditions, which is referring to “costs”. It is also logical that this so-called
non-eligible cost is not mentioned in the budget, as the Commission only wanted to
receive information on the eligible expenditures/costs. This is further confirmed by Article
3(1) of the Grant Agreement, which states: “The detailed budget of the operation is set out
in Annex III, which is an integral part of this agreement, and comprises only costs eligible
for Community funding, as defined in Annex II.”.
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Council Decision 97/872/EC of 16 December 1997 on a Community action programme promoting non-governmental
organisations primarily active in the field of environmental protection, OJ 1997 L 354/25.