Development of new business ideas co-financed from the Operational Programme Eastern Poland
The Programme has met expectations: it facilitated implementation of most projects related to new business ideas, giving rise to pioneering initiatives. In most cases beneficiaries executed projects in line with co-financing agreements. Though, the Polish Agency for Enterprise Development ineffectively supervised the Programme implementation. Having identified irregularities in the settlement of co-financing tranches, the Agency did not hurry to recover the funds paid out.
Development of a complex support system for micro-, small- and medium enterprises and innovation may largely determine competitiveness of a given region. For this sake measure 1.1. Start-up platforms for new ideas was provided as part of priority axis I Entrepreneurial Eastern Poland within the Operational Programme Eastern Poland (or: OPEP). The idea was to boost innovation and competitiveness of the economy in five regions: lubelskie, podlaskie, podkarpackie, świętokrzyskie and warmińsko-mazurskie.
These platforms are supposed to provide financial support focused on the development of small and medium companies, increase in their competitiveness and expansion of the product and service offer. Two sub-measures were isolated as part of that measure: Start-up platforms for new ideas and Development of start-ups in Eastern Poland.
The sub-measures were supposed to develop a support system for new innovators from new start-up companies, based on the so-called start-up platforms. They aim at transforming innovative ideas into products and services and preparing them in market terms in line with the adopted methodology, including development of profitable business models.
Each of those forms is at high risk of failure. The volume of sale, competition and marketing capacities are often overestimated. The related increasing costs and problems in paying company liabilities make it necessary to continue with the start-up co-financing. And this hinders further development, forces the company to reduce its operations and cut costs, and thus prevents the business from achieving its project durability.
In this audit NIK wanted to verify the adequacy and effectiveness of using OPEP funds for projects related to start-up platforms for new business ideas. The audit covered 20 Programme beneficiaries, the Polish Agency for Enterprise Development (from Polish: PARP) as the Intermediate Body and the Ministry of Funds and Regional Policy as the Managing Authority.
The allocation of PLN 692.2 million was planned for measure 1.1. By the end of the first quarter 2022, PARP signed 446 agreements to implement start-up platform projects and develop start-ups in Eastern Poland worth PLN 665.2 million in total, including PLN 534.6 million of co-financing (over 77% of the allocation amount). And so:
- 9 agreements worth nearly PLN 150 million concerned start-up platforms,
- 437 agreements worth PLN 515.3 million concerned start-up development projects.
By the end of the first quarter 2022, from the co-financing granted (PLN 534.6 million) PLN 325 million was paid (nearly 61% of the co-financing value).
As of 31 July 2022, beneficiaries undertook 503 projects as part of the Programme in this measure totalling nearly PLN 721 million, of which the co-financing made up PLN 557.5 thousand.
The Ministry properly prepared measure 1.1. of the Programme
PARP selected projects for co-financing in line with statutory requirements. In 2014–2022 (first quarter), the Agency conducted five recruitment procedures for co-financing applications. The competitions were carried out in accordance with the law. New pioneering initiatives were developed and thus planned results were achieved.
Six of 20 audited beneficiaries completed projects, and the funds granted as part of the co-financing were spent properly.
As many as 19 beneficiaries implemented projects in line with the co-financing agreements and 12 of them already achieved the planned tangible outcomes, including the planned output and outcome indicators. However, the auditors identified irregularities with 7 beneficiaries, mainly related to the use of allocated funds and the settlement of co-financing received. In case of 3 beneficiaries the irregularities were of formal nature and did not impact the adequacy of execution of co-financing agreements or the achievement of planned results.
Significant irregularities with the execution of two agreements:
- one start-up company terminated a project worth over PLN 1.7 million (including nearly PLN 1 million of co-financing) and thus lost the co-financing (until then the beneficiary was paid an advance of nearly PLN 400 thousand);
- one start-up platform failed to settle tranches of advances received – which stands for a breach of the public finance discipline and non-compliance with the public procurement law.
14 audited beneficiaries not subject to the Public Procurement Law Act awarded contracts in line with the expenditure eligibility guidelines. Contractual goods were described in a precise, clear-cut and exhaustive manner and selected contractors complied with the conditions of tender participation.
In case of two beneficiaries NIK identified irregularities in terms of financial execution of projects. E.g. they failed to send payment requests to the Agency on a timely basis and also failed to enclose relevant settlement documentation with the request.
The audited beneficiaries, in line with the obligation defined in the co-financing agreements, took information and promotion measures related to their projects. They carried out marketing campaigns, participated in fairs and congresses, prepared promotion materials, radio and press campaigns. The project descriptions were published on the beneficiaries’ websites.
The Ministry properly supervised the process of extending support to start-up platform projects. However, supervision exercised by PARP was ineffective – in its audits the Agency identified significant irregularities in case of 5 beneficiaries, while itself sluggishly conducting related debt collection of PLN 7.2 million. Also, the flow of information between PARP organisational units with regard to those irregularities was inappropriate. According to NIK this may make it difficult or even impossible to recover the funds paid. By the end of the audit (29 June 2022), four beneficiaries were not given administrative decisions obliging them to return funds of over PLN 6.6 million, including interest due.
Recommendations
In view of the findings of the audit in the Polish Agency for Enterprise Development, NIK recommends as follows:
the Minister of Funds and Regional Policy
- making sure the system audit plans take account of the adequacy and timeliness of measures taken by the Intermediate Body in the process of recovering funds from beneficiaries of measure 1.1. as a result of identified irregularities;
- strengthening supervision over measures taken by PARP with regard to terminating agreements to co-finance measure 1.1. OPEP through beneficiaries’ fault, including the aspect of recovering funds paid to them.
the President of the Polish Agency for Enterprise Development
- adopting organisational solutions to ensure efficient and effective management control in terms of recovering returnable funds from beneficiaries of measure 1.1 OPEP and preventing irregularities identified in this area.
