Closing of investigation no. IH_III_111_2023 – fruit-processing plant in Szente

Following up on a notification, the Integrity Authority has conducted an ex officio investigation into project no. VP-1787249974, which was supported under the call for applications titled “VP-4.2.1-15 – Increasing the value of agricultural products and promoting resource efficiency in processing”. The objective of this project was to construct a small distillery plant in the village of Szente to develop fruit processing capacities.  The project’s total worth amounted to HUF 67.9 million, with HUF 33.9 million sourced from European Union funds, of which HUF 25.7 million had already been disbursed to the beneficiary.

The Authority initiated an investigation because a preliminary assessment indicated a high risk of the beneficiary sole proprietor not fulfilling their commitments made in the grant document concerning the project implementation. Moreover, delays in the financial closure of the project jeopardises the effective use of European Union funds.

The Authority, in collaboration with the Hungarian State Treasury as the Paying Agency, conducted a joint site inspection that revealed that the fruit-processing facility had been constructed, all necessary tools had been purchased, but the facility was without a final completion certificate and operating license. The final payment is suspended, but the sole proprietor has already received most of the grant.

Most of the tools required for the project were procured by the beneficiary through a single company that was not a distributor of these tools. As a result, in many cases, the company sold them on at inflated prices. The Authority also found that the submitted quotes were not suitable for justifying the market price. As a result, the project did not meet the requirements of the necessary principle of sound financial management. Furthermore, according to the Authority, it was also significantly overpriced.

The Authority requested that the Managing Authority in question conduct an irregularity procedure to verify the market price and address the delay in completing the grant-supported activity.

The Authority made several recommendations:

the physical completion of a project includes securing the completion certificate in cases of installation and construction activities that are subject to licensing, and in cases of infrastructural investments, it involves obtaining the necessary final license from the competent authority.

the Paying Agency should in all cases conduct a detailed investigation of the documentation submitted to verify market prices prior to the disbursement of grant amounts.