Closing of investigation No. III_3_3_2022 – Project titled “Employment Association – Bridge to the World of Labour”

2024. September 5.

The failure of the Project titled “Employment Association – Bridge to the World of Labour” was caused by mismanagement on the part of the National Roma Self-Government (ORÖ) and the negligence of the Ministry of Human Capacities (EMMI), the managing authority of the European Union funding programme at the time, finds an investigation by the Integrity Authority. Mismanagement and a negligent “proprietorial” attitude inflicted a minimum of HUF 1.3 billion worth of damage to Hungarian taxpayers. The omissions, errors, and shortcomings are summarised in 13 points in the Authority’s report, which highlights the superficiality in the project’s financial and professional planning, along with the disregard of the State Audit Office’s findings. The Authority also provides recommendations to avoid similar cases in the future.

Following up on a notification, the Integrity Authority has conducted an ex officio investigation into Project No. TÁMOP-2.4.3.D-3-13/1-2013-0001, titled “Employment Association – Bridge to the World of Labour”, involving a planned grant amount of HUF 4,995,000,000. The beneficiary of the grant scheme was the National Roma Self-Government. The long-term objective of the project would have been to expand employment opportunities in Hungary through the establishment of an employment association that would have primarily supported disadvantaged groups.

Background: an investigation launched in 2015 for budget fraud resulting in particularly substantial financial loss and other criminal offences was terminated in 2022 without any results. The European Anti-Fraud Office (OLAF) has conducted an investigation into the matter, uncovering significant discrepancies in the project and providing judicial recommendations. Following the closure of the project, the Ministry of Human Capacities (EMMI) terminated the grant agreement in 2016, requiring the ORÖ to repay HUF 1.6 billion. In the end, the ORÖ received HUF 1.3 billion in special (non-repayable) grants from the Hungarian state based on a unique government decision. Therefore, the ORÖ had to repay a total of HUF 300 million.

The scope of the Authority’s investigation procedure did not cover the audit, investigative, and control activities carried out by OLAF, NTCA, or SAO.

According to the Authority, the project failed to achieve its original objective because the infrastructural foundation (e.g. office network) required for the establishment of the employment association was not provided, the project management reported doubts about the quality and quantity of the professional work essential for the association’s operations, and the vocational training required for employment were not implemented either. The Authority was led to question whether the ORÖ had the genuine intention to use the grant for the project and see it through to completion, considering the severity and nature of the identified problems and shortcomings.

Negligence by the managing authority (EMMI in this case) is also suspected to have contributed to the project’s failure, in addition to the faults of the ORÖ. The EMMI should have had to realise that the organisation lacked the necessary capabilities and capacities to undertake a project of this magnitude at the time of awarding the grant or at the latest, during partial disbursement.

The managing authority has failed to deal with the risks encountered during the project’s preparation and execution, along with the identified irregularity circumstances, in a timely, professional, and appropriate fashion.

Investigative findings:

1.) The ORÖ’s professional organisation, its level of preparation and financial situation were not suitable for the execution of such a high-value and complex project.

2.) The internal relationships, duties, and responsibilities within the ORÖ were not defined.

3.) The managing authority evaluating the project did not implement a cost reduction during the investigation of content elements, despite the identified problems, even though it would have had the opportunity to do so, given the revealed circumstances and known risks. Point deductions were imposed in the project evaluation, as opposed to cost reductions.

4.) According to the Authority, the project’s financial and professional planning lacked sufficient foundation because:

the ORÖ did not have the necessary financial resources of its own to carry out the project
- an increased, maximum grant advance has been disbursed;
- the ORÖ did not intend to accelerate the project’s implementation, using its own resources;
- the project’s maintenance was not provided financially;
- and the fact that the ORÖ was not required to provide security was identified as a serious risk;
- the ORÖ’s recruitment procedure was not effective and did not guarantee the availability of the intended target audience;
- the transfer of data necessary for training members of the target audience suffered significant delays until the completion of the final list of participants;
- the overlapping of certain project activities caused increasingly significant delays. Consequently, vocational training courses were not carried at all, while the professional activity setting up the operations of the employment association was only partially implemented.

5.) The scheduling of the project had already been facing serious delays by the start of 2015, indicating that it was destined for failure.

6.) Conducted in relation to the period of project implementation, a SAO audit (which looked into the management by and law-abiding behaviour of the ORÖ) confirmed several errors and shortcomings that determined the irregularities found later on in the project. The managing authority did not take into consideration the findings of the SAO, even though they might have been capable of preventing the irregularities.

7.) The managing authority failed to conduct periodic on-the-spot inspections, which could have been used to exercise timely control and potentially prevent circumstances leading to more significant irregularities later on. Furthermore, the managing authority did not initiate an irregularity procedure in time at the start of the NTCA investigation, which would have been an obligation required by law.

8.) The managing authority provided various opportunities to the ORÖ to save the project, aiming to close it with at least a reduced technical content. This, however, did not happen.

9.) Despite the clear requirements in the tender guide and grant agreement, the project’s maintenance was uncertain because, as described in the Feasibility Study, the plan was to sustain the project, using different application funds, and the asset generated was not transferred to the established employment association upon project closure.

10.) The failure to involve the employment association in the project was in fact the reason for the withdrawal from the grant agreement. The managing authority tried to make it possible to close the project with reduced technical content and partial results.

11.) In the process of retrieving the grant amount, the managing authority did not comply with its internal procedure for managing claims or its legal obligation, especially regarding the circumstances and conditions for the conclusion and scheduling of the instalment payment agreement. Therefore, the Authority believes that the procedure used by the managing authority to recover the project’s grant amount may have violated the principle of equal treatment.

12.) The withdrawal from the grant agreement and the retrieval of the grant amount were not proportionate or reasonable, considering the sanctions applied in the scheme of European Union grants. This is because the Government of Hungary provided a special grant for nearly 80% of the recovered amount, while the sale of property assets acquired in the project provided coverage for most of the remaining debt.

13.) The documents and information available show that several decisions were made during project implementation and management by the managing authority that disregarded organisational, regulatory, and legislative frameworks.

The Authority has made recommendations to the managing authority:

In instances where excessive cost elements are identified during project evaluation, the managing authority should not only enforce point deduction but also implement the consequence of cost reduction for items lacking proper justification.

The managing authority should launch irregularity procedures in all cases and suspend all payments in projects under investigation by the investigative authority.

The managing authority should carry out improved on-the-spot and monitoring inspections during the implementation period for submitted tenders where there are initial risks associated with the liquidation or maintenance of the project, but the tenders reach the eligibility threshold.

In case of risks relating to project milestones or those posing a potential threat to project implementation, the managing authority should ensure that an effective action plan designed to address this matter is issued with a suitable deadline. Should the beneficiary fail to fully comply with the provisions of the action plan, the managing authority should launch an irregularity procedure and impose proportionate sanctions as part of it.

Positive evaluation should only be given to tenders that can comply with the obligation to maintain the project, based on the information available at the time of awarding and, if available, the feasibility study. The managing authority should handle the maintenance-related risk with caution.