Following allegations of fraud, the Donors of EEA and Norway Grants (i.e. Ministries of Foreign Affairs of Iceland, Liechtenstein and Norway) requested the Financial Mechanism Office (FMO) to launch ex-post audits on the project. The FMO sub-contracted an audit company to perform the said audits.
The scope of the first ex-post audit was threefold, i.e. financial audit, procurement audit and audit of the systems controls related to financial controls. The main findings detected were:
- Discrepancies between results reported and actual results of the project. The Project Promoter did not achieve the project indicators and reported inaccurate information to the Focal Point. Moreover, the modification regarding the tennis courts was not incorporated in the Project Implementation Plan and can be considered as an unauthorized modification of the project
- Missing documents in the public procurement files and documents not disclosed to the auditors. The proposals did not contain all formal document required by the Terms of Reference. In addition, the cost breakdown for materials attached to the contract of Bidder 1 was exactly the same as the cost estimate prepared by Bidder 2 for the purposes of the public procurement proceeding, i.e. exactly the same prices were quoted for the particular items. Purchase of some equipment also showed price inflation.
- Following the check of major and/or unusual transactions on the Project Promoter’s bank accounts, the audit reported that many transactions of the Project Promoter are in cash – e.g. withdrawal of cash, cash payment, deposit of cash. It is not possible to identify the purpose of such cash withdrawals without having access to the corresponding invoices.
The said first audit was integrated by a second follow-up audit where the FMO requested to focus more on findings concerning procurement of construction works, technical inspection of the sports facilities and cash payments. Additional findings detected concerned:
- Construction of tennis courts and football playground were quantitively (i.e. size of the courts and playground) and qualitatively (i.e. type of materials used and equipment bought) not compliant with the project contract.
- Public procurement documentation was not elaborated in compliance with the project documentation, the contract for construction was not concluded in compliance with the project documentation, the contract for construction works and the reality of works is not in compliance with the construction permit and the contract warranty period was shorter than what required by national laws.
- A bank account statement confirming the transfer in the amount of more than EUR 60,000 from the project bank account to the bank account of the contracted constructor, has been falsified. The amount mentioned on the bank statement had been withdrawn from the project's account in cash. In this regard, a parallel investigation by the Anti-Corruption Office within Ministry of Interior was initiated.
Following the fraudulent actions and the gravity of irregularities detected by the said two ex-post audits, the Donors accordingly decided to terminate the project and recovery the whole amount of project grant (EUR 668,184). Based on the case, follow up actions were put in place:
- Strengthening verification controls over projects with more emphasis on verification of reality of costs incurred
- Incorporating an enhanced audit clause into all grant contracts with beneficiaries. This means that all beneficiaries have the obligation to contractually ensure that any auditing body has access to all suppliers´ documentation, including accounting records
- A procurement-wide audit was carried out in Slovakia for projects co-financed within the financial mechanisms 2004-2009
- Management and Control Systems for subsequent Financial Mechanisms 2009-2014 were improved, with a focus on financial verifications and procurement