Infrastructural development assistance for a school in Babócsa – investigation summary

Based on an incoming citizen report, the Authority has concluded the investigation launched into project no. EFOP-4.1.2-17-2017-00032 entitled “Infrastructural development in Gábor Andor Elementary School” of the Kaposvár School District Centre. In view of the outcome of the investigation, the Integrity Authority recommends that the approximately HUF 800 million that has not yet been disbursed in the project not be paid.

Targeted review: Control of funds provided for project no. EFOP-4.1.2-17-2017-00032 entitled “Infrastructural development in Gábor Andor Elementary School”

Beneficiary organisation: Kaposvár School District Centre

Site: Babócsa, Somogy County

Project amount: HUF 1,822 billion

Expected savings: HUF 800 million

Overview

Based on a report received by the Integrity Authority on 3 March 2023, the Authority has concluded the investigation launched into project no. EFOP-4.1.2-17-2017-00032 entitled “Infrastructural development in Gábor Andor Elementary School” of the Kaposvár School District Centre. In view of the outcome of the investigation, the Integrity Authority recommends that the approximately HUF 800 million that has not yet been disbursed in the project not be paid.

Between 2019 and 2022, the Kaposvár School District Centre was awarded, in several instalments, a total of HUF 1,822 billion in financial support from European Union and national funds for the infrastructural development project of an elementary school in Babócsa. The development was not completed by the time of the conclusion of the Integrity Authority’s investigation. Nearly HUF 1 billion of the HUF 1,822 billion of grant awarded was paid over the course of the project. Approximately HUF 700 million of this amount was not accounted for by the Beneficiary by the end of the Authority’s investigation. Approximately HUF 423 million of the HUF 700 million is an advance transferred without security that was received by contractors that, since then, have gone into liquidation.  

Based on the information acquired over the course of its investigation procedure, the Authority found, in respect of the project, suspicion of violation of the regulations contained in the document entitled “General terms and conditions for grant contracts with beneficiaries receiving grants under operative programmes”. Failure to complete the project provided with financial support has a negative impact on the sound financial management of European Union budget.

Measure

In accordance with section 24 (3) of Act XXVII of 2022, the Authority initiates a proceeding. The Authority calls on the Prime Minister’s Office, as the Managing Authority concerned, to conduct an irregularity proceeding with regard to the revealed suspicion of irregularity, in particular, to:

• investigate and comment on whether the project was adequate and necessary in light of the local needs during the evaluation procedure preceding the grant decision,
• comment on whether the eventual situations of conflict of interest were adequately controlled when awarding the grant,
• conduct an investigation into the conformity of the public procurement procedures, while especially taking into account, over the course of the investigation, that both procedures resulted in the selection of companies as winners with which, following the payment of an advance, the contracts had to be terminated due to non-performance,
• evaluate and review the practice of paying advances to contractors without security and integrate and present its effect into its own risk assessment mechanism,
• conduct the professional review of the activity of the technical supervisor and project management, including the analysis of the entries of the construction log as well,
• investigate whether the conduct of the beneficiary was lawful in all aspects,
• investigate in what way was the justification of eligible costs examined and assessed in respect of the amount in the funding application and the additional resources awarded,
• investigate whether the opinion provided by expert witness was adequate and independent,
• investigate the possibility of assigning a technical supervisor to the project, without whose approval no payment can be made,
• and to investigate the possibility of withdrawing from the grant contract, during which it should consider all the relevant circumstances.

In accordance with section 25 (4) of Act XXVII of 2022, the Authority calls on the Managing Authority to constantly, or at least every 30 days, provide information during the irregularity proceeding and support such information with documents where relevant/necessary.

The Authority requests information on the findings of the investigation conducted by the Managing Authority and the unique or systemic procedure changes considered necessary after the analysis of the issues.

Recommendation

The Authority recommends that the Managing Authority, in the case of a construction project reaching a certain amount, require the involvement of an independent technical and/or financial expert to ensure the eligibility of any cost incurred and to minimise financial, technical and construction risks in the case of construction investments.

The Authority also recommends that, in addition to project management costs, the cost of professional managers should also be eligible only in proportion to the technical and professional progress of the projects.

Photos of the current status of the investment can be viewed here.