Global Policy Forum

Compromise Payment Marks End

Europe Information Service
May 9, 2001

A compromise was signed on May 4 between the European Commission and the umbrella group of development non-governmental organisations (NGOs) known as CLONG to end their four-month dispute over the outcome of an audit process. The Commission hired accounting firm Ernst and Young to carry out an audit procedure of CLONG in October 2000. When the auditors released their report, the Commission announced that it was entitled to claim back almost Euro 1 million in insufficiently documented or ineligible expenditure, although no fraud was uncovered. The NGOs have since been able to produce evidence that this sum was too high, and have agreed to pay back a compromise lump sum refund to the Commission of Euro 325,000 in final settlement of the audit findings.

The auditors identified a number of areas of inadequately documented expenditure and accounting mistakes and pointed to misunderstandings arising from lack of clarity in the contracts and regulations governing the nearly Euro 10 million worth of Commission funds handled by the Non-Governmental Development Organisation - EU Liaison Committee (CLONG) over a five-year period. The CLONG and the Commission have also agreed to work together over the next period to clarify requirements and improve financial procedures. CLONG agrees to make an initial contribution of Euro 100,000, to reach a total of Euro 325,000 over a three year period. Suspended Commission payments mount to Euro 740,000, and the Commission will release Euro 400,000 immediately. The Commission now also promises a 2001 budget contract so that CLONG activities can continue. However it intends to reduce the high level of Commission support for CLONG to 70% of total funding by 2004.

CLONG decided to suspend legal proceedings begun against the Commission on May 7, in response to the latter's payment of a first instalment of funds blocked since December. The NGOs were pressing for the Commission to stand by its existing contracts in a Belgian court. During the audit dispute, all CLONG employees have received redundancy letters, and a 25-strong team has been reduced to four. CLONG plans to sell its office premises in Brussels to raise the money due to the Commission.

A CLONG statement by Chairman Joachim Lindau and Secretary-General James Mackie, considers the future of the organisation. "Work will take some time to build up again as, during this period of prolonged financial uncertainty, the organisation has been obliged to take precautionary measures and wind activities down to minimum levels", it says. "At the same time, the CLONG's member NGOs and related NGO networks are embarking on a major consultation exercise with a view to restructuring and strengthening the Liaison Committee, the first results of which should be available in the Autumn."

The broad outlines of the settlement were approved at the Liaison Committee's General Assembly a month ago, which voted to continue activities if agreement could be reached with the Commission. The proposal was subsequently discussed and approved at the weekly Commission meeting on April 25, but not made public until May 4 due to the extreme sensitivity of the matter. The Commission initially decided to take a hard-line approach to the matter, because of its political commitment to 'zero financial tolerance'. It started a series of accounting audits of its expenditure, after the previous Commission resigned amid accusations of financial irregularities.

Development Commissioner Poul Nielson was keen to stress that the audit would not undermine Commission-NGO relations: "Despite the polemics, the only issue at stake this whole time has been the question of sound financial management and the respect of financial regulations. Improving financial management applies equally to our partner countries and to NGOs in Europe. I am glad to see that this has been recognised by CLONG and its owners, the NGOs. The Commission remains committed to NGOs playing an important role in development co-operation. I now look forward to discussing how this role can be developed further."

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