Identifying Irregularities in Cohesion Policy: Legal Regulations and Consequences

1. The experience of the organization in relation toidentified irregularities in Cohesion Policy Warsaw, 5 stycznia 2020

2. IRREGULARITIES - RELEVANT LEGAL REGULATIONS Regulation of the European Parliament and of the Council (EU) No. 1303/2013: • Art. 2 (36) – ”irregularity” – any breach of EU lawor national rules on the application of EU law resulting from an act or omission by an economic operator involved in the implementation of funds, which has or may have an impact on the Union budget through burdening the EU budget with unjustified expenditure • Art. 2 (37) – ” business entity ” – any natural or legal person or other entity taking part in the implementation of assistance from the Funds, with the exception of a Member State acting in its public powers • Art. 2 (38) – ”systemic irregularity/pt9>” – any irregularity that may be repetitive with a high probability of occurrence in similar types of operations, which is a consequence of the existence of serious defects in the effective functioning of the management and control system, including involving not implementing the appropriate procedures in accordance with this Regulation and the Fund-specific rules 2

3. IRREGULARITIES - RELEVANT LEGAL REGULATIONS Implementation Act: • Art. 2 (14) – definition of an individual irregularity - in line with the definition of irregularity under Regulation 1303/2013 (art. 2, (36)) 2 (36) • Art. 2 (15) – definition of an individual irregularity - in line with the definition of irregularity under Regulation 1303/2013 (art. 2, (36)) 2 (38) • Art. 2 pkt 12 – "accounting adjustment" - the amount by which the EU co-financing for the project or operational programme is reduced due to an individual or systemic irregularity • Art. 11 ( 2) – in the case referred to in art. 24 ( 11) (1), cancellation of part or all of the grant as a result of the imposition of a accounting adjustment does not relieve the institutions who committed the misconduct and the institution responsible for the payment of subsidies from the obligation to pay the equivalent of funding due to the beneficiary 3

4. IRREGULARITIES - RELEVANT LEGAL REGULATIONS Implementation Act: • Art. 9 ( 2) (8) and (9) - imposing adjustments and recovery of recoverable amounts lies the competence of managing authorities • Art. 10 - managing authority may entrust carrying out these tasks to intermediate bodies and consent to their further entrusting to implementing institutions • Art. 24 - procedure in case of irregularities, including item 9, according to which in case of irregularities: • before approving a payment request- one should reduce the value of eligible expenses included in the payment request, • in the case of a previously approved payment request – one should apply accounting adjustment and initiate the process of recovery. 4

5. IRREGULARITIES Irregularity means the total fulfillment of all the conditions set out in the definition in art. 2 (36) of Regulation 1303/2013: • Act or omission by an economic operator involved in the implementation of EFSA • Leading to a breach of EU law or national law on the application of EU law, • Which has or may have a detrimental impact on the Union budget through burdening the budget with unjustified expenditure. 5

6. BUSINESS ENTITY Art. 2 (36) – ”irregularity” – any breach of EU lawor national rules on the application of EU law resulting from an act or omission by an economic operator involved in the implementation of funds, which has or may have an impact on the Union budget through burdening the EU budget with unjustified expenditure The business entity involved in the implementation of funds - not only the beneficiary but also the contractor or subcontractor. 6

7. FINANCIAL DAMAGE - ACTUAL VS. POTENTIAL Art. 2 (36) – ”irregularity” – any breach of EU lawor national rules on the application of EU law resulting from an act or omission by an economic operator involved in the implementation of funds, which has or may have an impact on the Union budget through burdening the EU budget with unjustified expenditure Has an impact on the EU budget - incorrect expenditure has been reimbursed from the EU budget May have an impact on the EU budget - an irregularity has been detectedbefore declaring the expenditure to the European Commission (refund from the EU budget did not take place) Irregularities of difficult values or impossible to estimate – these are irregularities affecting the EU budget 7

8. INFORMATION SOURCESON IRREGULARITIES • Activities of institutions of management and control system • Information provided by institutions outside the system, operating in the area of implementation of funds • "External" institutions, including law enforcement bodies • Other sources 8

9. EFFECTS OF DISCOVERING IRREGULARITIESFOR BENEFICIARIES The beneficiary committing irregularity must reckonwith the consequences: • Related to the disbursement of funds fromEU budget • Penal consequences • Related to discipline of public finances 9

10. TYPES OF FAILURES - INFORMATION GIVEN TO THE EUROPEAN COMMISSION The total number of reported irregularities – 3682. The number of selected types of irregularities does not add up to the total number, as: • a single request may be classified into several types of irregularities; • Only the most numerous types of irregularities were selected. 10

11. ABNORMALITIESAND BREACH OF THE PROCUREMENT PROCEDURE The most common reported irregularities and violations in public procurement can be divided into 3 main groups: • Irregularities with respect to the requirements for contractors, • Irregularities with respect to the selection of contractors, • Irregularities relating to the selection procedure for the award of contracts . 11

12. FRAUD Fraud – special type of irregularity Under art. 1 of the Convention on the protection of the financial interests of the EC it is any intentional act or omission affecting the financial interests of the European Communities in respect of expenditure, consisting of: • use or presentation of false, inaccurate or incomplete statements or documents for the misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by the European Communities or on their behalf, • non-disclosure of information despite the existing obligation in this respect,with an intention of misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by the European Communities or on their behalf, • misuse of such funds for purposes other than those for which they were originally granted. 12

13. FRAUD - INFORMATION GIVEN TO THE EUROPEAN COMMISSION The chart above provides information on both confirmed cases,as well as suspicions of fraud. 13

14. NADUŻYCIA FINANSOWE – KATEGORIE The chart above provides information on both confirmed cases,as well as suspicions of fraud. 14

15. NADUŻYCIA FINANSOWE – PRZYKŁADY False or falsified documents (attached) The agreement was terminated due to the submission by the Beneficiary for settlement of a payment request containing false written statements on the implementation and completion of the tasks specified in the Schedule of works and expenditures of the Project. The beneficiary has been convicted of an offense of 297 § 1 of the Criminal Code committed in connection with the project. Art. 297. § 1.  Who, in order to obtain for themselves or someone else , from a bank or organizational unit conducting a similar business under the Act or the authority or institution administering public funds - loan, cash, guarantees, guarantees, letters of credit,subsidy, subvention, confirmation by the bank obligations resulting from the guarantee or warranty or a similar financial benefit for a specific business purpose, payment instrument or public procurement, submits a counterfeit, forged, certifying false or unreliable or untrustworthy document, written statement of the circumstances of significant importance for obtaining the said financial support, payment instrument or order, shall be subject to imprisonment from 3 months to 5 years. 15

16. NADUŻYCIA FINANSOWE – PRZYKŁADY The beneficiary purchased assets. The fiscal authority was informed by the Central Anti-Corruption Bureau to initiate and conduct investigations under the supervision of the Prosecutor's Office on an act under art. 297 § 1 of the Criminal Code against the Beneficiary. The investigation was initiated as a result of submission of anonymous information. Information provided by the Central Anti-Corruption Bureau shows that the beneficiary significantly overstated the value of the purchased product in the project. Accordingly, the documents submitted by the beneficiary (photocopies certified as true copies of VAT invoices, contracts of sale, offer for the purchase of equipment and notes from market research) raise a reasonable doubt and the documents are unreliable in the meaning of art. 297 § 1 of the Criminal Code, because the content of these documents included the price of machines different from their market value. Offers acquired by the Beneficiary and a note made concerning market research were prepared to validate the inflated market value of the machine. 16

17. NADUŻYCIA FINANSOWE – PRZYKŁADY The beneficiary enclosed with the final payment a photocopy of the invoice confirmed by him documenting the purchase, within the frameworks of the project, of the machine. Asked to present the original document, he submitted a VAT invoice with the same number, but issued on another day. Thus, the recipient presented two separate documents (with a different date of issue) documenting the same economic event (purchase of the same machine). On both these documents appear details of the person issuing the accounting documents with their signatures. At the same time, the beneficiary declared that he does not have the original invoice for the purchase of the machine. Onethe submitted documents states untrue and differs from the original document - was forged, and the Beneficiary submitted it in order to obtain project financing from European funds. In addition, together with the final payment request, the beneficiary submitted a certified as true copy of the purchase contract of that machine, but in the course of the operation of control, he showed the control team an original purchase contract with a different date. Also in this case, it is reasonable to suspect that the beneficiary used a document stating untruth. 17

18. NADUŻYCIA FINANSOWE – PRZYKŁADY Director of the Department X of the Marshal's Office in Y filed notice to the Prosecutor's Office on suspicion of committing an offense of using documents certifying untruth (payment transfers). Since the expenditure described in the invoice was incurred under violation of the law (art. 297 § 1 of the Criminal Code, art. 270 § 1 of the Criminal Code in relation to art. 11 § 2 the Criminal Code), It was considered ineligible in its entirety by the managing authority. Art. 270. § 1. Who, in order to use as authentic counterfeits or alters a document or uses such document as authentic shall be subject to a fine, penalty of liberty limitation or imprisonment of 3 months to 5 years. Art. 11 § 2. If the act has features specified in two or more provisions of penal law, the court sentences for one offense on the basis of all concurrent provisions. 18

19. NADUŻYCIA FINANSOWE – PRZYKŁADY During the on-site inspection, doubts have arisen as to the value and authenticity of the machines. The inspection teamand experts were not allowed to see the machines. Therefore, the valuation was based on the material collected during the inspections carried out earlier. Valuation drawn up by an expert revealedthat presented machines / devices were crude imitation, and basically just a frame structurally significantly different from machines that were supposed to be acquired. Although they had plates, these were not original. Valuation prepared by an expert shows that the estimated value of the two machines is 17 300,00 zlotys net while the invoice for settlement shows the gross value of 2 112 268.92 zlotys. Considering the circumstances of the case cited, as well as the existence of the District Prosecutor's Office proceedings against the president of the company suspected of committing an act under art. 13 § 1 of the Criminal Code in relation to art. 286 § 1 of the Criminal Code in relation to art. 294 § 1 of the Criminal Code in relation to art. 297 § 1 of the Criminal Code in relation to art. 11 § 2 of the Criminal Code in relation to art. 12 of the Criminal Code, the institution terminated the contract with the beneficiary. 19

20. NADUŻYCIA FINANSOWE – PRZYKŁADY Managing institution received a final judgment issued by the District Court, according to which the beneficiary has led and attempted to lead to undue payment to his benefit - according to the project - funding by submitting necessary for the payment of tranches of funding unreliable documents designed to simulate incurred under the agreement the categories of eligible expenditure. In addition, the audit found that the beneficiary did not carry out the material scope specified in the contract for financing the project, including not sufficiently documented the scope and course of the construction work, did not have purchased all products under the project, not informed the managing institution about a purchase of equipment used and made an untrue statement. In addition, the beneficiary has purchased a product with different characteristics than those specifiedin the contract for a much inflated amount (no market research) and did not have a product whose purchase he declared. 20

21. NADUŻYCIA FINANSOWE – PRZYKŁADY The beneficiary presented for settlement in the payment request invoices issued by non-existent entities. At the same time, during control, the inspection Team was shown forged documents, i.e. a contract confirmingthe owner of the property is a person other than in the reality. The beneficiary presented a bogus protocol of reception of infrastructure investment (municipal road) (he signed it in a place where supervising inspector should sign on behalf of the investor). 21

22. NADUŻYCIA FINANSOWE – PRZYKŁADY The recipient presented incomplete and different from the actual state of affairs documents in order to obtain reimbursement of expenses presented in requests for payment: he gave incomplete information on significant changes in the draft amending the deadline for completion of works; concealed the fact of signing a supplementary agreement extending the term of the contract; He testified untruthfully denying that the contract with the Contractor has been extended; He testified untruthfully in the documentation confirming the reception of works; He made partial acceptances after notification by the contractor for completion of the works. 22

23. NADUŻYCIA FINANSOWE – PRZYKŁADY The beneficiary has submitted an invoice for a refund referring to the construction of a facility for an amount higher than the scope of work actually carried out. Together with a payment request, he submitted an invoice with offer cost estimate, the agreement with the contractor, acceptance protocol of works signed by both parties and a Beneficiary’s statement confirmed by the manager of the construction of partial, according to the construction project, completion of works. Given the above, as well as obstruction by the beneficiary to carry out spot checks of the project, the beneficiary has committed the same breach of duty resulting in the creation of the base to unilaterally terminate the contract with immediate effect. The beneficiary was informed of the need to return the grants received together with interest calculated as for tax arrears. Notification of suspected crime has been sent to the prosecutor's office. A grant agreement was terminated. 23

24. NADUŻYCIA FINANSOWE – PRZYKŁADY During an inspection carried out at the project site, irregularities related to the scope of thermal modernization works (replacement of windows) were discovered. When submitting a grant application, the Beneficiary exchanged a substantial portion of the windows in the modernized building, but in the submitted grant application, he stated that these windows will only be exchanged. Submitting a final payment request, he presented acceptance protocol of works (final), in which the parties attest with their signatures having carried out without reservations and notes the agreement, the subject of which was the "Exchange (...) of wooden windows into plastic windows (...)" and the paid VAT invoice. The above documents concern the scope of thermal modernization works, most of which were made before the submission of the application and submitted for reimbursement as expenditure incurred under the Project. As a result, the indicators of the project presumed in the Application Form will not be able to be achieved. A grant agreement was terminated. Additionally, a notification on suspicion of committing a crime was submitted to law enforcement authorities. 24

25. NADUŻYCIA FINANSOWE – PRZYKŁADY Based on the verification of the dossier submitted for correction with the payment request for interim payment, a suspicion arose with regard to authenticity of provided photographic documentation showing the acquired fixed assets (especially the pizza oven, the refrigerator, cutter). As a result of ad hoc control carried out at the project site, it was found that the above assets were not to be found in the project site. Fiscal authoruty will proceed to terminate the contract and procedures to recover payments made in the framework of indirect funds with interest. 25

26. NADUŻYCIA FINANSOWE – PRZYKŁADY Investigation of Prosecutor's Office with relation to acting to the detriment of the Treasury, i.e. the offense referred to in art. 305 § 1 of the Criminal Code in relation to art. 12 of the Criminal Code Art. 305. § 1. Who, for the purpose of financial gain thwarts or impedes public tender or enters into an agreement with another person to the detriment of the owner of the property or person or institution to whom the tender is made, shall be subject to imprisonment for up to 3 years. The investigation is related to, among others, offenses related to the certification of false documents, giving and accepting bribes and committing credit fraud, disruption of public tenders, misuse of powers by public officials. 26

27. NADUŻYCIA FINANSOWE – PRZYKŁADY As part of the Public Prosecutor's Appellate proceedings and in connection with the conducted by the Central Anti-Corruption Bureau investigators erected activities for persons representing the beneficiary and contractors allegations with the following articles of the Criminal Code: art. 228, (1) (adoption of financial or personal gain in connection with the performance of public functions), art. 229 (grant or promise to provide material or personal benefit to a person holding public function), art. 231 (abuse of power or negligence causing damage to public interest), art. 296 (abuse of powers granted or negligence in order to obtain financial benefits), art. 299 (attempt to thwart or a significantly impede determination of the origin of financial benefits associated with the commission of an offense). The allegations may relate to procedures for the award of a public contract, for which expenditure has been partly financed by the EU within the framework of the project. 27

28. The Ministry of Infrastructure and Developmentul. Wspólna 2/4 00-926 Warsaw www.mir.gov.pl www.funduszeeuropejskie.gov.pl