National
Development Agency

It was concluded in 19 cases that the given activity is not eligible for support from the EU Cohesion Fund. For that reason, a financial adjustment of 65 million HUF will have to be made in the project that is receiving EU funding of 181 billion HUF. Most of these contracts were concluded in the earlier period of the subway project, before the start of construction, and in the first year of construction. With the review of the 38 contracts Hungary has fulfilled the conditions set by the European Commission, and hopes that as a result of the measures taken, the European Commission will lift the suspension of the interim payments under the Transport Operational Program (TOP).

As has been reported, on 13 September 2010, the European Commission suspended the interim payments for the entire TOP. In an effort to lift the suspension, a uniform and detailed methodological guide had to be developed concerning the audit  of public procurement procedures, furthermore, in the case of 38 contracts concerning the first stage of the No. 4 Metro, a compliance audit had to be conducted and the necessary correction measures taken.

In the audits the Directorate General for Audit of European Funds (EUTAF) audited the contracts in its capacity as the auditing authority, and the Compliance Committee conducted the second compliance procedure concerning procurement under the subway project. (In the first compliance procedure conducted in September 2009, 15 contracts were audited, of which 11 contracts were found non-compliant. In September 2009, the European Commission reduced the EU grants for the Metro project by the amount of these contracts, i.e. 57 billion HUF).

In the present audit, system-level non-compliance was not found, but it was concluded in 19 cases that the activity related to the given contract was not eligible for support from the Cohesion Fund. The disputed contracts were concluded for project consulting, legal and public procurement expert work, translation and interpretation services. The most characteristic problem was that the agreements were not compliant with the applicable laws of the member State (Hungary) in force at that time, or with the laws on procurement in general. Some of the disputed contracts bypassed public procurement procedures, even though public procurement would have been mandatory. Activities that were, in fact, subject to the Law on Public Procurement were “disguised” as simple procurement transactions.

Some of them were not compliant with the principle of “efficient and effective financial management” defined in the relevant EU statutes, and therefore jeopardized the financial interests of the EU and those of Hungary.

Owing to the contracts not eligible for support, financial adjustment of 65 million HUF will have to be made in the No. 4 Metro project. The contracts removed from the scope of the grant mean specific financial losses, since in these cases their value can only be financed from the domestic budget, as the European Union would not provide co-financing.

The management of the National Development Agency is striving to ensure that in the future the contracts of the project are fully compliant with the standards of the EU.

The European Commission requested EUTAF to certify that the compliance procedure and the non-compliance decisions are warranted, and to confirm that, on the one hand, the procedures developed are based on a risk analysis methodology that ensures the audit of the public procurement documentation to the required depth, and that the professionals in charge of auditing the public procurement procedures have the appropriate qualifications.

In its audit opinion EUTAF confirmed that it was satisfied with the supplementary audit performed by the Managing Authority and the changes implemented. EUTAF also confirmed that it was satisfied with the risk assessment methodology concerning the procurement procedures, which includes the very thorough, content-based assessment of the relevant public procurement documentation. At the same time, the auditing authority also confirmed that fundamentally it approved of the measures taken by us to further enhance the pool of appropriately trained officers and experts in charge of the assessment.

NDA sent the EUTAF opinion certifying the results of the audit performed by it and the conclusions of the audit record to the European Commission as well.

With this audit Hungary has complied with the conditions of the European Commission, and hopes that as a result of the measures taken the suspension on the interim payments of the TOP program – withheld with reference to the lack of such audit – will be lifted.

The management of the National Development Agency had taken the required actions earlier, in order to ensure that sufficient funds will be available in the Transport Operational Programme until the closing of the audits as well, for the fulfilment of other contracts concluded under the program.