Wednesday, 4 May 2016

EC audit may force company to close

As a result of an EC audit of FP6 and FP7 projects, GABO:mi mbH & Co. KG, which specialises in management of EU research projects, looks set to close. Despite objections by the company, in August 2015 the EC confirmed its findings: that over half the costs claimed were ineligible: GABO was asked to repay €1.8m. The EC then stopped all payments to GABO, including those for H2020 projects, and used the money instead to offset against the alleged debt.

GABO has initiated actions against the EC in the EU Court of Justice. The main action aims to overturn the EC’s audit findings, while an urgent “interim measure” requests the Court to order the EC to suspend its actions in recovering the alleged debt. GABO explained that almost all its activities related to management of EU funded projects. Unless the EC ceased its recovery actions under the interim measure, GABO would run out of money in a few months.

From the Court’s decision concerning the interim measure, it is clear that a major criticism in the EC’s audit concerned direct costs claimed by GABO for the time recorded by managers and their administrative assistants, which the auditors said were indirect costs “by nature”. GABO disputes this, citing definitions of direct costs contained in the grant agreements and other EC documents.

However they did not dispute the EC’s claim that, over the five financial years covered by the audits, both managing directors had recorded all their productive time to EU projects exclusively. They failed to record any time on activities of general administration and management necessary to run a company, such as staff recruitment, personnel management, promotion of the company, or on activities related to other projects, such as preparation of new proposals.

In April, the Court rejected GABO’s request for the interim measure. As a result the company will continue to run out of money. It is not clear when the Court will issue its ruling on the main action, which will challenge the EC’s audit findings.

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