Transparency of EU funds implemented by NGOs: more effort needed

Executive summary

The Commission implements an estimated 1.7 % of the EU budget and 6.8 % of the European Development Funds (EDFs) through NGOs. In many policy areas, such as humanitarian and development aid, the environment, and research and innovation, NGOs assist the Commission to design, implement and monitor EU programmes. During 2014-2017, the Commission committed an estimated EUR 11.3 billion for implementation by NGOs. The European Parliament has frequently expressed interest in NGOs and their funding.

The objective of our audit was to assess the transparency of EU funds contracted with NGOs. We assessed the Commission’s identification of entities as NGOs, where the EU funds implemented by NGOs go and whether the Commission disclosed this information in a transparent manner. We covered the main policy areas in which NGOs implement EU funds, focusing in particular on the largest area, external action.

We concluded that the Commission was not sufficiently transparent regarding the implementation of EU funds by NGOs.

The assignment of the NGO status in the Commission’s accounting system, which is based on self-declaration, and the limited checks the Commission applied, made the classification of an entity as an NGO unreliable.

In external action, we found the Commission’s selection of NGO-led projects to be generally transparent. However, the different Commission departments did not apply the sub-granting procedures in the same way and the audited UN bodies’ selection procedures of NGOs were not always transparent.

The information collected on the EU funds implemented by NGOs is not uniform. In particular, in external action, the Commission did not have comprehensive information. This occurred particularly with networks of international NGOs and projects under indirect management. Furthermore, in indirect management, the lack of information available hindered the Commission’s checks on the costs declared.

Information on EU funds implemented by NGOs is published in several systems but the information disclosed is limited. In the area of external action, the Commission generally reported data on humanitarian and development aid in accordance with international transparency standards.

UN bodies either did not publish, or only partially published, the contracts awarded to NGOs in five of the six projects audited, and the Commission did not check whether the UN bodies had fulfilled this requirement.

On the basis of the observations in this report, we have formulated a number of recommendations for improving the transparency of EU funds implemented by NGOs. We recommend that the Commission:

1. improve the reliability of the information on NGOs in its accounting system;
2. check the application of rules and procedures regarding sub-granting to NGOs;
3. improve the information collected on funds implemented by NGOs; and
4. adopt a uniform approach to publishing details on funds provided to NGOs and verify the publication by UN bodies of complete and accurate data on contracts awarded to NGOs using EU funding.

Introduction

The concept of NGO

There is a growing interest in the transparency of NGOs and their funding. For example, the European Parliament has already issued several studies on the topic¹ and a ‘draft report on the budgetary control of financing NGOs from the EU budget’²

Non-governmental organisations (NGOs) are important actors in the implementation of the EU budget. The Commission works with NGOs, among other partners, to design, implement and monitor programmes in many EU policy areas. This is especially the case in the areas of development and humanitarian aid, but also in other areas such as the environment, research, education and culture. However, there is currently no common EU definition for NGOs (see Box 1).

EU funding and NGOs

NGOs receive most EU funds in their capacity as implementing actors when they carry out programmes and projects on behalf of the Commission⁵. NGOs might also be the final beneficiaries of EU action, for example in programmes strengthening civil society.

According to the Commission’s accounting system (ABAC), funds committed for implementation by NGOs amounted to EUR 11.3 billion for the period 2014-2017 (see Figure 1). However, this is only an estimate as will become clear in the observations section of this report.

According to ABAC, most EU funds allocated to NGOs are for external action. In this area, NGOs receive funds under heading 4 – Global Europe of the multiannual financial framework (MFF) and from the European Development Fund (see Figure 1). The Commission services concerned are the Directorate-General for International Cooperation and Development (DG DEVCO), Directorate-General for Neighbourhood and Enlargement Negotiations (DG NEAR), Directorate-General for European Civil Protection and Humanitarian Aid Operations (DG ECHO) and the Service for Foreign Policy Instruments (FPI) (see Figure 2).

The concept of transparency

Transparency is one of the budgetary principles laid down in the Financial Regulation applicable to the EU budget. It requires the Commission to make available, in an appropriate and timely manner, information on recipients of EU funds, including when these funds support actions implemented by NGOs⁶. Taking a broader perspective, transparency should cover the entire process and all implementation layers, from the selection of NGO-led actions, through the collection of information on these actions and its disclosure.

Furthermore, in external action, transparency is one of the key and longstanding principles underpinning the effectiveness of development aid. Improving transparency among all relevant stakeholders also enhances donor coordination and accountability of all beneficiaries, including NGOs (see Box 2)

Audit scope and approach

EU funds allocated by the Commission for implementation by NGOs often pass through multiple layers. In this context, and particularly when selecting applicants for funding, there is a risk of lack of transparency. There is also a risk that information available to the Commission on the amounts and purpose of funding to NGOs is not complete or reliable, as well as the risk of not treating all types of NGOs equally.

The main objective of our audit was to assess the transparency of EU funds contracted with NGOs. To achieve this objective, we first assessed the Commission’s identification of entities as NGOs; then we assessed where the EU funds implemented by NGOs went and whether the Commission disclosed this information in a transparent manner.

We aimed to answer the following question: Is EU funding implemented by NGOs transparent? To respond, we split the main audit question into the following three sub-questions:

1. Is the Commission’s identification of entities as NGOs reliable?
2. In the area of external action, is the selection of NGOs to implement EU-funded actions transparent?
3. Does the Commission collect and disclose information on EU funding to NGOs appropriately?

We looked at how the Commission identified NGOs in their systems (sub-question 1). We assessed the transparency of the selection of NGOs, both when the Commission contracted directly with NGOs and when EU funds were sub-granted (sub-question 2). We also assessed whether the Commission collected information on actions implemented by NGOs, checked it and disclosed it appropriately (sub-question 3).

We covered the main policy areas in terms of their volume of funds committed to NGOs (see Figure 2), namely the main DGs involved in external action (DG ECHO, DG DEVCO and DG NEAR) and two additional DGs allocating significant funds to NGOs: the Directorate-General for Research and Innovation (DG RTD) and the Directorate-General for Education, Youth, Sport and Culture (DG EAC). The audit also covered the Directorate-General for Environment (DG ENV), since this DG has a specific programme providing support for NGOs in the field of the environment and climate action. Finally, the Directorate-General for Budget (DG BUDG) was also included in the audit scope since it is the service responsible for the Commission’s accounting system used to report on NGO funding..

We gathered evidence through desk reviews and interviews with several Commission DGs (DG BUDG, DG DEVCO, DG NEAR, DG ECHO, DG RTD, DG EAC and DG ENV), as well as with the Research Executive Agency (REA), the Education Audio-visual and Culture Executive Agency (EACEA) and the Executive Agency for Small and Medium-sized Enterprises (EASME).

We focused in particular on the external action area, since this is where most EU funds were committed to NGOs according to the Commission’s accounting system (see Figure 1) We reviewed the procedures used for selecting actions implemented by NGOs, the tools used to collect information on NGO funding and the subsequent disclosure of that information.

Within the external action area, we concentrated mainly on funds committed since 2014 in order to examine actions in the current programming period. We examined 14 projects led by NGOs under the direct management mode⁹ (see Annex I) and 6 projects implemented by UN bodies under the indirect management mode¹⁰, for which 10 sub-grantee NGOs had been selected(see Annex II).

These projects were selected in two stages. First, we selected two countries to visit (Ethiopia and Lebanon) based on criteria such as the DG responsible, the volume of funds committed to NGOs reported and the feasibility of conducting an audit visit. Secondly, we drew the sample of projects to be audited based on the size of budgets, the rate of implementation achieved, the spread of funding instruments, the management modes used and the variety of implementation levels at which the NGOs operated.

We conducted audit visits to Ethiopia and Lebanon in February 2018, where we visited DG ECHO field offices, the EU Delegations, the country offices of several UN agencies, and representatives from international and local NGOs participating in the implementation of EU-funded projects.

Observations

The Commission’s identification of entities as NGOs in its systems is not reliable

We examined the different procedures followed by Commission departments for registering NGOs in their systems that may be selected to implement EU funds. We looked at whether NGO-specific systems and programmes existed, if they differed between the departments we visited, how they were used, and how entities were identified and registered as NGOs in the Commission systems.

In most cases, the eligibility of EU funding does not depend on the NGO status

In general, NGOs apply to the Commission for funding in the same way as other organisations which implement Commission funds. This is because the Financial Regulation applicable to the EU budget does not distinguish beneficiaries with an NGO status from other beneficiaries. Furthermore, the Commission has no strategy specifically targeting NGOs and its departments do not have common criteria of what constitutes an NGO.

Only two of the audited DGs have programmes aimed exclusively at NGOs:

• DG ENV has an action programme for operating grants to support European environmental and climate NGOs. In this context, it considers¹¹ an NGO to be a non-profit-making legal person, which is independent, both financially and politically, in particular from government and public authorities, and from political or commercial interests, and is legally registered.
• DG ECHO implements humanitarian aid through a number of NGOs with which it has entered into framework partnership agreements. It adheres to the definition in Council Regulation 1257/96 on humanitarian aid which states that NGOs eligible for financing must be non-profit-making autonomous organisations in a Member State under the laws in force in that country¹².

The Commission performs limited checks on the entities’ self-declarations as NGOs when registering them in the accounting system

There is not yet a common registration system for applicants

EU funding applicants, including NGOs, need to register to apply for funding in the different policy areas. However, the DGs we audited do not have a common registration system for applicants yet (see Box 3)

Since these systems are not interconnected, NGOs have to make a separate registration with each DG with which it interacts.

The Commission is currently developing a project, the Single Electronic Data Interchange Area (SEDIA), which should provide applicants, candidates and tenderers with a single entry point to communicate with Commission departments. It will be used for both procurement and grant procedures.

The Commission makes only limited checks that entities are correctly registered as NGOs

When a registered funding applicant enters into a contract with the Commission for the first time, the information it declares is based on self-declaration. The Commission checks the information the applicant provided in the different registration systems and creates a legal entity fiche in ABAC.

In ABAC legal entities can be ‘labelled’ as NGOs. To be categorised as such, an organisation has to declare itself that it is an NGO when registering in one of the systems. A prerequisite for being labelled an NGO is that the legal entity should be categorised as a private and not-for-profit organisation. The Commission’s validation services check this categorisation. Aside from this, they carry out no additional verification on the organisation’s qualification as an NGO unless DGs make it a criterion for participating in a call for proposals¹³.

The fact that the NGO status is not verified renders the Commission’s information on the funding provided to NGOs unreliable. For instance, in the case of MFF 1.1 – Competitiveness for growth and jobs, the largest beneficiaries labelled as NGOs in ABAC are mainly research institutes and universities, including one cooperative society. These types of entities cannot always be considered as NGOs. While the terms NGOs and CSOs (civil society organisations) are often used interchangeably, NGOs are a subset of CSOs, with the latter covering a wider group of organisations such as research institutes or cooperatives¹⁴.

Furthermore, as the NGO field is not mandatory in ABAC, the Commission does not identify consistently all NGOs as such across its information systems. For instance, in two of our audited projects¹⁵ two participating NGOs, although registered as NGOs in the applicants’ registration system (PADOR), were not labelled as such in ABAC.

In external action, the selection of NGO-led projects was overall transparent, but with shortcomings when done by third parties

Commission's selection of NGO-led projects was generally transparent

We audited a sample of NGO-led projects from the external action policy area, that were directly managed by the Commission (see Annex I). We assessed the transparency of selection processes by checking whether the activities undertaken and objectives set were in line with strategies, and whether selection procedures were reliable, well documented, and based on clear selection criteria, with an appropriate use of previous experience of NGOs. The summary of the assessment can be found in (see Annex III).

The selection processes reviewed in the area of development aid were mostly calls for proposals¹⁶. They complied with the requirements of the Financial Regulation and the Commission strategies, and they overall used clear selection criteria and communicated them to all interested parties and ensured the equal treatment of applicants.

We found some transparency shortcomings in DG ECHO’s examined selection processes carried out in 2014, 2015 and 2016. The issues, relating to the documentation of the selection process, had already been identified in a previous ECA audit¹⁷. As a result, DG ECHO took corrective measures, which resulted in an action plan and a new summary assessment template for 2017, which was further revised for 2018, to better show a specific assessment for each selection criterion.

Applicant operational capacity is one of the criteria which DG DEVCO and DG NEAR apply in their selection procedures. The evaluation committees assess this capacity on the basis of the prior experience declared by applicants, but rarely requested evidence to this effect. DG ECHO also considers previous experience to be a relevant assessment criterion.

The Commission does not always verify the correctness of declarations of previous experience because its management information systems do not hold all the relevant information on funding received and activities carried out by NGOs. Therefore, the extent to which this information can be used for selection is rather limited.

We found that the Commission had accepted inconsistences and wrongful declarations of prior experience when selecting two of the projects audited¹⁸.

Sub-granting of funds to third-party NGOs sometimes lacked transparency

We examined how transparently NGOs were selected when the selection was not made directly by the Commission. We considered whether the different Commission departments consistently applied the procedures to ensure the transparency of the selection of sub-grantee NGOs. In addition, we assessed whether their selection of NGOs ensured equal treatment of applicants, whether they had used previous experience to improve selection and assessed the NGOs as having sufficient capacity to perform the funded action.

The different Commission departments do not apply the sub-granting procedures in the same way

Under direct management, when the Commission sets up grant agreements and decisions with contractors, including NGOs, there is a legal relationship between the two parties. In some cases, however, EU funds are sub-granted to third parties. Such sub-granting is subject to specific and transparent conditions¹⁹, for example that there is an upper limit of EUR 60 000 that can be paid to a third party except where the financial support is the primary aim of the action²⁰.

While most of the Commission departments audited²¹ apply the general rules from the Financial Regulation and the guidelines on grants issued by DG BUDG consistently, DG ECHO uses a different interpretation. Citing the need to reflect the specific needs and features of humanitarian aid, DG ECHO considers that all actions granted to implementing partners pursue the primary aim of granting financial support to third parties. This means that in practice they do not apply the upper limit of EUR 60 000 because all sub-grants are considered to fall under the above-cited exception.

The effect of this interpretation is to allow for sub-granting with no limitation on the contractual amount or on the number of additional implementation layers. The absence of such limitations at DG ECHO affects the transparency of sub-granting.

The selection procedures of NGOs by UN bodies were not always transparent

Under indirect management, a UN body which applies for EU funds has to demonstrate a capacity for financial management and protecting EU financial interests equivalent to that of the Commission. If it does, it may select its implementing partners (sub-granting) according to its own rules and procedures²².

We found that in half of the projects under indirect management, which we selected for audit (see Annex II), the UN bodies’ procedures for selecting NGOs lacked transparency. This was despite of the fact that the Commission had given them a positive assessment. In these three cases²³, the UN bodies directly awarded sub-grants to NGOs without adhering to their own internal procedures (see Box 4).

The Commission does not always collect and check the information on EU funds implemented by NGOs appropriately

We assessed whether the Commission knew how EU funds implemented by NGOs were used and whether this information was collected and checked appropriately. In order to ascertain this, we examined whether the Commission had comprehensive information on all the NGOs funded, including activities carried out and funds received, and whether appropriate systems were in place to collect it. We also looked at whether this information allowed the Commission to check the costs declared.

Commission systems do not always record information on funds received by all the beneficiaries of a contract

We found that Commission departments we audited managed grants using different systems which made varying amounts of information available on the funding provided to beneficiaries (see Box 5)

Therefore, the information collected in the different Commission systems is not uniform and does not always allow the recording of funds received by all contract beneficiaries.

In external action, the Commission does not have comprehensive information on all NGOs supported

Both in the direct and indirect mode of management, we found several projects within our sample where the Commission had incorrect information on the different actors implementing the funded action. This was the case mainly with networks of international NGOs, where the Commission systems held information on the structure of the implementing entities that did not reflect the actual set up.

For four projects of the 14 projects we examined in the direct management mode²⁵, we found that the NGOs signing the grant agreements had sub-granted project implementation to other entities from the same network without this information being recorded in the Commission systems (see Figure 3).

Source: ECA.

We also found three cases out of these 14 projects²⁶ where the identification of the partners in the Commission systems was confusing or referred to different legal entities within the same network of international NGOs. Therefore, the information available on which entities implemented the action and which ones received funding was not clear.

Furthermore, in five of the six projects we examined in the indirect management mode²⁷, the information that the Commission received from the UN bodies did not allow us to establish what funding was received or which activities were performed by each of the sub-grantee NGOs (see Annex III).

In two of these five projects, the Commission had requested additional information and clarification from the UN bodies, yet the answers it received were either unsatisfactory or only sent, following repeated requests, once the project’s activities were already complete²⁸.

In indirect management, the lack of information available hindered the Commission’s checks on the costs declared

In the case of projects that the Commission manages indirectly, the contracts generally include in their global budget a percentage to cover overheads, set at a maximum of 7 %. We found five cases²⁹ out of six examined where overheads were declared for the different implementation layers; first for the entrusted entity and second for the sub-grantee NGOs³⁰.

Because of the lack of adequate information on costs declared by sub-grantee NGOs, the Commission was not always in position to check the costs declared by all NGOs funded. This hindered the Commission in detecting potential cases of overcharging.

Information on EU funds implemented by NGOs is published in several systems but the information disclosed is limited

We assessed whether the Commission had disclosed comprehensive and timely information on funds contracted with NGOs for the policy areas we audited. In the area of external action, we examined whether the Commission complied with international aid transparency standards when publishing information on EU funds implemented by NGOs. We looked at whether it had checked the adequacy of third-party disclosure of sub-granted NGOs using EU funds. In addition, for the projects we audited we checked the consistency of the data published in different transparency-portals.

Information on contracts with NGOs is published in the Financial Transparency System but is incomplete

Every year the Commission publishes data about the beneficiaries of EU funding under direct management in all policy areas in its Financial Transparency System (FTS)³¹ (see Box 7) In publishing ex post information on recipients of EU funds in the FTS, the Commission complies with the requirements of the Financial Regulation³².

However, the FTS does not provide comprehensive information on NGO funding because:

• no information is disclosed on actual payments;
• the beneficiary category ‘NGO’ was only introduced in 2016 and is not used consistently due to the absence of criteria to identify NGOs; and
• entities receiving funding through sub-granting are not disclosed.

Commission departments apply different approaches when disclosing funding in the FTS. When entering into contracts with multiple beneficiaries, DG RTD, DG ENV and DG EAC (via EACEA) publish the names of all beneficiaries and include a breakdown of funds. DG ECHO publishes the financial amount and the name of the NGO with which the Commission has signed the grant agreement; it does not disclose information on any other implementing partners carrying out part or all of the action (see Figure 3). DG NEAR and DG DEVCO state the names of the NGOs with which the Commission has signed a grant agreement and the co-applicants. However, the amount of the grant is entirely linked to the leading partner with no breakdown per beneficiary.

We found that for all of the 14 projects reviewed under direct management, the amounts published in the FTS were consistent with those committed in the grant agreements. However, in five cases³³, some data published concerning the action type or the geographical location or the service responsible was missing or incorrect.

Additional information, including on results, is disclosed on different transparency portals

In addition to the FTS, the Commission publishes information on actions funded on various platforms for the different policy areas. For instance, in the area of research the Commission discloses information on its funding via CORDIS, a public repository and portal on EU-funded research projects and their results³⁴.

In the external action area, the Commission discloses information on NGO funding via several aid transparency web portals: EU Aid Explorer³⁵, the European Emergency Disaster Response Information System (EDRIS)³⁶ and the Financial Tracking Service³⁷. Overall, the information published on the projects audited was consistent with the funding actually provided.

Information on humanitarian and development aid is generally disclosed in accordance with international transparency standards

The Commission reports data on humanitarian and development aid in order to fulfil international aid transparency commitments. It reports to the OECD Creditor Reporting System³⁸, the OECD Forward Spending Survey³⁹ and the International Aid Transparency Initiative (IATI) Registry⁴⁰ in accordance with international common standards.

The Commission published data on humanitarian and development aid according to the IATI common standard, but some of the data showed weaknesses

The Commission discloses data on humanitarian and development aid following a common standard reporting framework developed under IATI⁴¹, which is a global initiative seeking to increase the transparency and effectiveness of development cooperation.

Overall, the Commission publishes data according to the IATI standard. However, we found that the IATI data reporting does not include data on EU trust funds and information on the results of the projects funded⁴².

For the projects sampled, we compared the information published on the IATI user-friendly web portal with the actual data. Information was published for all audited projects, but we found several errors in the contracted amounts⁴³, the disbursements⁴⁴ and the project end dates⁴⁵ (see Box 8).

The UN bodies published inadequate information on the contracts awarded to NGOs

The Commission entrusts the implementation of projects under indirect management to a third party. In these cases, it is the responsibility of the entrusted entity to disclose the grants awarded with EU funding⁴⁶.

We verified the data that the entrusted UN bodies had published on the six indirect management projects of the sample (see Annex II). We found that in five cases, the UN bodies either did not publish⁴⁷, or only partially published⁴⁸, information on the grants awarded to NGOs with EU funds (see Box 9). Furthermore, the Commission did not check that the UN bodies had fulfilled this requirement.

Conclusions and recommendations

Our audit examined whether EU funding implemented by NGOs was transparent. This included whether the Commission’s identification of entities as NGOs was reliable and whether the selection of NGOs implementing EU-funded actions was transparent. We also examined the process of collecting, checking and disclosing information on NGOs appropriately. We covered the main policy areas in which NGOs implement EU funds, focusing in particular on the largest funding area, external action.

We concluded that the Commission was not sufficiently transparent regarding the implementation of EU funds by NGOs.

In most cases, the eligibility of EU funding does not depend on the NGO status. The assignment of the NGO status in the Commission’s accounting system, which is based on self-declaration, and the limited checks the Commission applied , made the classification of an entity as an NGO unreliable (see paragraphs 18 to 27).

There was no Commission-wide system for registering applicants for funding. In addition, the different systems used to register applicants for funding, including NGOs, were not interconnected (see paragraph 22).

Recommendation 1 – Improve the reliability of information on NGOs

The Commission should strengthen its performance and the transparency of its reporting on NGOs implementing EU actions. To this end, the Commission should receive appropriate information and improve the reliability of the information in its accounting system on NGOs implementing EU funds by:

1. including in its internal guidelines on the validation of legal entities, clear criteria to identify NGOs in ABAC;
2. including, within a single registration system, the requirement (or the option, in the case of NGOs declaring safety concerns) for EU fund applicants to declare themselves as an NGO, disclosing the criteria which would be used to consider the organisation as such.

Timeframe: end of 2020.

In the area of external action, we found the Commission’s selection of NGO-led projects to be generally transparent. However, there were shortcomings in certain cases. (see paragraphs 28 to 33).

We found that the different Commission departments did not apply the sub-granting procedures in the same way. DG ECHO´s interpretation of the rules for financial support to third parties was broader than other DGs and allows for several implementation layers with no limitation on the sub-granted amounts (see paragraphs 35 and 37).

The audited UN bodies’ selection procedures of NGOs were not always transparent (see paragraphs 38 and 39).

Recommendation 2 – Check the application of rules for sub-granting

Where the implementation of an action under direct management requires sub-granting, the Commission should:

1. apply a consistent interpretation of the applicable rules of the Financial Regulation among the different services, taking into account sectorial specificities; in particular, where the implementation of an action requires financial support to a third party, the conditions for such support should be defined in the grant agreement in line with the provisions of the Financial Regulation of 2018.

When UN bodies select beneficiaries under indirect management, the Commission should:

2. verify that the UN bodies correctly apply their rules and procedures for the selection of implementing partners.

Timeframe: from mid-2019 onwards.

The Commission did not always collect and check the information on NGOs appropriately. In particular, these systems did not always allow the recording of funds received by all contract beneficiaries (see paragraphs 41 to 42).

In external action, the Commission did not have comprehensive information on the funding received and activities carried out by all the implementing actors. This occurred particularly with networks of international NGOs and projects under indirect management. Furthermore, in indirect management, the lack of information available hindered the Commission’s checks on the costs declared (see paragraphs 43 to 49).

Recommendation 3 – Improve information on funds implemented by NGOs

The Commission should improve the information collected on NGOs funded by:

1. enabling the various grants management systems to record the funding received by all beneficiaries contracted by the EU, not only the lead beneficiary, making this information usable for analysis and treatment;

In external action, the Commission should improve the traceability of funds:

2. in the case of actions implemented by networks of international NGOs, by identifying in its systems the entities actually implementing the actions funded;
3. in the case of projects under indirect management via UN bodies, by verifying that sufficient information on the indirect costs declared for the NGOs funded is provided, enabling an assessment of the costs declared by all implementing actors.

Timeframe: mid 2021.

Information on EU funds implemented by NGOs is published in several systems but the information disclosed is limited, except in the area of external action (see paragraphs 51 to 56).

The Commission generally disclosed data on humanitarian and development aid in accordance with international transparency standards, but some of the data showed weaknesses (see paragraphs 58 to 60).

In five cases, the entrusted UN bodies either did not publish, or only partially published, the contracts awarded to NGOs, and the Commission did not check whether the UN bodies had fulfilled this requirement (see paragraphs 62).

Recommendation 4 – Standardise and improve accuracy of information published

The Commission should:

1. adopt a uniform approach among all the services to publishing in the Financial Transparency System, making sure that all beneficiaries contracted by the EU are disclosed, together with the amount of funding awarded.

Timeframe: mid 2021.

In external action, the Commission should:

2. further increase its compliance with international standards on aid transparency by reporting on the results of the projects funded and EU trust funds data;
3. verify UN bodies’ fulfilment of their obligation to adequately disclose the contracts awarded with EU funding.

Timeframe: mid 2021.

This Report was adopted by Chamber V, headed by Mr Lazaros S. LAZAROU, Member of the Court of Auditors, in Luxembourg at its meeting of 5 December 2018.

For the Court of Auditors

Klaus-Heiner LEHNE
President

Acronyms and abbreviations

ABAC Accrual-based accounting system of the Commission

CORDIS Community Research and Development Information Service

CRIS Common External Relations Information System

CSO Civil society organisation

DG BUDG Directorate-General for Budget

DG DEVCO Directorate General for International Cooperation and Development

DG EAC Directorate-General for Education, Youth, Sport and Culture

DG ECHO Directorate-General for European Civil Protection and Humanitarian Aid Operations

DG ENV Directorate-General for Environment

DG NEAR Directorate-General for Neighbourhood and Enlargement Negotiations

DG RTD Directorate-General for Research and Innovation

EACEA Education, Audiovisual and Culture Executive Agency

EASME Executive Agency for Small and Medium Enterprises

EDF European Development Fund

EDRIS European Disaster Response Information System

ERCEA European Research Council Executive Agency

FTS Financial Transparency System

IATI International Aid Transparency Initiative

MFF Multiannual financial framework

NGO Non-governmental organisation

OECD Organisation for Economic Co-operation and Development

PADOR Potential Applicant Data Online Registration System

REA Research Executive Agency

UNICEF United Nations Children's Fund

Endnotes

¹ European Parliament Directorate General for Internal Policies, EU financing for NGOs in the area of home affairs, security and migration; European Parliament Research Service, Financial accountability of civil society organisations, May 2015; European Parliament Policy Department Budgetary Affairs, Democratic Accountability and Budgetary Control of non-Governmental Organisations Funded by the EU Budget, January 2017.

² The ‘Draft Report on budgetary control of financing NGOs from the EU budget’ (2015/2345(INI) called on the European Court of Auditors to draw up a special report on the transparency of EU funding to NGOs.

³ International organisations use different definitions. For instance, the United Nations (UN) describes an NGO as any ‘not-for-profit, voluntary citizens’ group that is organized at a local, national or international level’ (https://outreach.un.org/ngorelations/content/about-us-0).

⁴ COM(1997) 241 final of 6.6.1997 ‘Promoting the role of voluntary organisations and foundations in Europe’, paragraph 2.3 points a-e.

⁵ Action grants represented 95 % of the funds contracted with NGOs in the EU General budget (EUR 6.3 billion out of a total of EUR 6.6 billion) in the period 2014-2016.

⁶ Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union (OJ L 298, 26.10.2012, p. 1), Chapter 8, Article 35: ‘Publication of information on recipients and other information’.

⁷ Council Conclusions on the EU Common Position for the Fourth High Level Forum on Aid Effectiveness adopted on 14 November 2011.

⁸ The European Consensus for Development is a joint statement from the European Union and its Member States providing a comprehensive common framework for European development cooperation.

⁹ In direct management, the Commission is in charge of all EU budget implementation tasks, which are performed directly by its services, either at headquarters, in the EU delegations or through EU executive agencies.

¹⁰ In the indirect management mode, the Commission entrusts budget implementation tasks to international organisations, the development agencies of EU Member States, partner countries or other bodies.

¹¹ See calls for proposals for operating grants to NGOs primarily active in the field of environment and/or climate action (e.g. Call identifiers LIFE-NGO-EASME-2014, LIFE-NGO-FPA-EASME-2017).

¹² The second requirement for NGOs to be eligible for financing under this Regulation is that they have their main headquarters in a Member State or in a third country in receipt of aid. Exceptionally, the headquarters may be in a third donor country.

¹³ For instance, DG DEVCO’s Guidelines for Applicants of Calls for Proposals require an NGO to provide its statutes or articles of association and supporting documents. The evaluation committees verify that the legal documents correspond to the type of entity.

¹⁴ COM(2012) 492 final of 12.9.2012, ‘The roots of democracy and sustainable development: Europe’s engagement with Civil Society in external relations’ classifies as CSOs, among others, NGOs, community-based organisations, faith-based organisations, foundations, research institutions, cooperatives, professional and business associations.

¹⁵ Projects 7 and 16.

¹⁶ Project 4 was selected by direct award procedure.

¹⁷ Special Report No 15/2016 ‘Did the Commission effectively manage the Humanitarian aid provided to populations affected by conflicts in the African Great Lakes Region?’, paragraphs 27 to 29 (https:eca.europa.eu).

¹⁸ Projects 16 and 17.

¹⁹ Established in Articles 137 of the Financial Regulation and 210 of the Rules of Application.

²⁰ It should be noted that the Financial Regulation of 2018 changes the wording of these rules and states in Article 204: ‘the maximum amount of financial support that can be paid to a third party shall not exceed EUR 60 000 […]. This threshold may be exceeded where achieving the objectives of the actions would otherwise be impossible or overly difficult.’

²¹ DGs RTD, ENV, EAC, NEAR and DEVCO.

²² Article 60(2)(d) of the Financial Regulation states that the entrusted entities shall ‘apply appropriate rules and procedures for providing financing from Union funds through grants, procurements and financial instruments’. This is verified in an ex ante assessment (‘pillar assessment’), carried out by an independent auditor in accordance with the terms of reference prepared by each DG.

²³ Projects 9, 18 and 20.

²⁴ Operating grants to environmental and climate NGOs are always single-beneficiary.

²⁵ Projects 4, 11, 12 and 13.

²⁶ Projects 11, 12 and 15.

²⁷ Projects 8, 9, 10, 18 and 19.

²⁸ Project 8. The UN body provided satisfactory replies to the third request from DG ECHO after the auditors’ on-the-spot visit.

²⁹ Projects 8, 9, 18, 19 and 20.

³⁰ The Court has already flagged the risk of indirect costs being double-charged in indirect management projects implemented through third-party NGOs in ECA Special Report No 4/2018 ‘EU Assistance to Myanmar/Burma’. See also paragraph 48 of ECA Special Report No 11/2017 ‘The Bêkou EU trust fund for the Central African Republic: a hopeful beginning despite some shortcomings’.

³¹ Financial Transparency System: http://ec.europa.eu/budget/fts/index_en.htm.

³² Article 35 of the Financial Regulation applicable to the general budget of the Union and Article 21 on its rules of application: ‘Publication of information on recipients and other information’.

³³ Projects 1, 2, 5, 14 and 15.

³⁴ Source: https://cordis.europa.eu/

³⁵ https://euaidexplorer.ec.europa.eu/

³⁶ https://webgate.ec.europa.eu/hac/

³⁷ https://fts.unocha.org/ - managed by United Nations Office for the Coordination of Humanitarian Aid (UNOCHA).

³⁸ https://stats.oecd.org/Index.aspx?DataSetCode=CRS1

³⁹ https://stats.oecd.org/Index.aspx?DataSetCode=FSS

⁴⁰ https://www.iatiregistry.org/

⁴¹ IATI was launched in 2008, following the Third High-Level Forum on Aid Effectiveness in Accra.

⁴² DEVCO reported a first batch of results data from more than 700 projects to IATI in February 2018.

⁴³ Projects 4, 5, 6, 7, 14, 15, 16 and 17.

⁴⁴ Projects 1, 2, 11, 12, 13.

⁴⁵ Projects 7, 14 and 15.

⁴⁶ According to the general conditions governing agreements signed between the Commission and entrusted entities, the latter are obliged to publish, on their website or in their systems, detailed information on the grants financed by the EU. They are required to disclose the title of the contract/project, its nature and purpose, the name and locality of the grant beneficiary and the contracted amount. In case of multi-donor actions, publication follows the rules of the entrusted entity.

⁴⁷ Projects 9, 18 and 20.

⁴⁸ Project 8 and 19.

⁴⁹ COM(2012) 492 final of 12.9.2012, ‘The roots of democracy and sustainable development: Europe’s engagement with Civil Society in external relations’ classifies as CSOs, among others, NGOs, community-based organisations, faith-based organisations, foundations, research institutions, cooperatives, professional and business associations.

⁵⁰ Nota bene: eligible applicants under LIFE do not have to be registered as NGOs. They have to fulfil all eligibility criteria in order to be able to participate to the LIFE action programme for operating grants to support European environmental and climate NGOs.

⁵¹ International organisations use different definitions. For instance, the United Nations (UN) describes an NGO as any ‘not-for-profit, voluntary citizens’ group that is organized at a local, national or international level’ (https://outreach.un.org/ngorelations/content/about-us-0).

⁵² European Parliament, Directorate-General for internal policies, Policy Department D: budgetary affairs, study « Democratic Accountability and Budgetary Control of Non-Governmental Organisations funded by the EU Budget’, 17 November 2016

Audit team

The ECA’s special reports set out the results of its audits of EU policies and programmes, or of management-related topics from specific budgetary areas. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks to performance or compliance, the level of income or spending involved, forthcoming developments and political and public interest.

This performance audit was carried out by Audit Chamber V Financing and administration of the EU, headed by ECA Member Lazaros S. Lazarou. The audit was led by ECA Member Annemie Turtelboom, supported by Dennis Wernerus, Head of Private Office; Sabine Hiernaux-Fritsch, Principal Manager; Roberto Ruiz Ruiz, Head of Task; Eva Maria Coria Paramas, Erika Katalin Söveges, Maria-Luisa Gomez Valcarcel and Francesco Zoia Bolzonello, Auditors. Linguistic support was provided by Hannah Critoph.

From left to right: Hannah Critoph, Roberto Ruiz Ruiz, Annemie Turtelboom, Erika Katalin Söveges, Dennis Wernerus.

Contact

EUROPEAN COURT OF AUDITORS
12, rue Alcide De Gasperi
1615 Luxembourg
LUXEMBOURG

Tel. +352 4398-1
Enquiries: eca.europa.eu/en/Pages/ContactForm.aspx
Website: eca.europa.eu
Twitter: @EUAuditors

More information on the European Union is available on the internet (http://europa.eu).

Luxembourg: Publications Office of the European Union, 2018

© European Union, 2018.

For any use or reproduction of photos or other material that is not under the European Union copyright, permission must be sought directly from the copyright holders.

GETTING IN TOUCH WITH THE EU

In person
All over the European Union there are hundreds of Europe Direct Information Centres. You can find the address of the centre nearest you at: https://europa.eu/european-union/contact_en

On the phone or by e-mail
Europe Direct is a service that answers your questions about the European Union. You can contact this service

• by freephone: 00 800 6 7 8 9 10 11 (certain operators may charge for these calls),
• at the following standard number: +32 22999696 or
• by electronic mail via: https://europa.eu/european-union/contact_en

FINDING INFORMATION ABOUT THE EU

Online
Information about the European Union in all the official languages of the EU is available on the Europa website at: https://europa.eu/european-union/index_en

EU Publications
You can download or order free and priced EU publications from EU Bookshop at: https://publications.europa.eu/en/web/general-publications/publications. Multiple copies of free publications may be obtained by contacting Europe Direct or your local information centre (see https://europa.eu/european-union/contact_en)

EU law and related documents
For access to legal information from the EU, including all EU law since 1951 in all the official language versions, go to EUR-Lex at: http://eur-lex.europa.eu/homepage.html?locale=en

Open data from the EU
The EU Open Data Portal (http://data.europa.eu/euodp/en/data) provides access to datasets from the EU. Data can be downloaded and reused for free, both for commercial and non-commercial purposes.