For the eighth time, the Supreme Audit Office audited the financial report of the Odra-Vistula Flood Management Project (OVFM Project). The estimated value of this Project exceeds EUR 1.2 billion, and its implementation is to ensure and increase flood protection for the area and the population living in the basins of the Middle and Lower Odra and the Upper Vistula.
Since 2017, NIK has been the auditor of the OVFM Project. The audit of the Project financial report is carried out in line with international standards.
As part of the audit “Examination of the financial report of the Odra-Vistula Flood Management Project”, an analysis was made covering expenditures incurred by all units implementing the OVFM Project. They totalled over 1 billion PLN, i.e. nearly 83% of the expenditure incurred in 2023.
The NIK auditors looked into how the financial report on the OVFM Project implementation was prepared and how the funds for its implementation were spent in terms of reliability, compliance with the law and the principles of sound financial management. The audit results were followed by a report submitted, among others, to the World Bank.
Key audit findings
NIK found that the expenditures incurred as part of the OVFM Projects are consistent with the objectives set out in the Loan Agreement signed by the Republic of Poland and the World Bank. The expenditures audited by NIK were incurred in line with the objectives and principles of the Project implementation, and their value was correctly recognised in the financial report for 2023.
The irregularities found as a result of the audit concerned:
- as part of the audit of the State Water Holding Polish Waters National Water Management Authority – Coordination Office of the Odra-Vistula Flood Management Project in Wrocław – NIK revealed that the actual use of the World Bank funds was overstated in the financial report "Additional Note - Disbursements from WB Loan in Original Currency. For the Quarter ending December 31st, 2023" by nearly EUR 725 thousand. Besides, the NIK auditors established that the same amount (also shown in this report) which was paid from the Special Account and not spent was understated by the same value. This irregularity was corrected during the NIK audit;
- as part of the audit of the Institute of Meteorology and Water Management – National Research Institute – four invoices for nearly PLN 9.2 million were paid before being formally approved for payment by authorised persons.
Moreover, the NIK audit showed further postponement of tasks completion deadlines against initial assumptions. As of 5 March 2024, out of 22 tasks covered by the procurement plan, as many as 21 had an extended completion date, including 15 tasks with the deadline extended from 24 to even 52 months. It should be highlighted that since the end of last year's NIK audit of the financial report of the Odra-Vistula Flood Management Project the deadlines have been extended further: for 18 tasks the deadlines have been postponed from four to 24 months. At the same time, the completion deadline for five tasks is scheduled for the second quarter of 2025. Considering 30 June 2025 as the current OVFM Project completion deadline, there is a risk that the tasks completion dates will be postponed even further or excluded from the OVFM Project.
In 2023, the total of over PLN 336 million own funds of the units implementing the OVFM Project were used for this purpose despite the fact that the Project funds have been secured and available from the beginning of the year. The reason for this was that relevant grant agreements were signed only on 18 March 2023 and 5 April 2023. That was, among other things, due to lengthy arrangements between the parties. Finally, the units’ own funds were reimbursed with the funds of the grant agreements after one to 95 days.
The problem of paying liabilities after the deadline also worsened in 2023. As many as 54 cases occurred where liabilities of over PLN 89 million were paid with delay. That was the case despite actions taken by the units implementing the Project to ensure timely financing of expenditures related to the Project execution. In 2023, the units were not charged with interest notes for delayed payments of liabilities. However, NIK points out that contractors, in line with the Civil Code, are entitled to file a claim in this respect within three years. In addition, the failure to pay liabilities on time may affect financial liquidity of building contractors.
Th audit also showed that in the event of a possible repeal of the challenged environmental decision (in part or in whole), one of the variants of possible future risks is to challenge the final administrative decisions based on which it was implemented. The indicated risk may materialise in a situation where reopening proceedings are initiated based on the Code of Administrative Proceedings. As a consequence, this may result in the need to incur additional costs of preparing relevant documentation to issue new decisions, and to adjust the completed investment to make it compliant with these decisions.
Recommendations
NIK has made the following recommendations:
- all entities involved in implementing the OVFM Project should monitor postponements of the tasks completion dates to eliminate the risk of implementing the Project after the deadline specified in the Loan Agreement, i.e. 30 June 2025;
- the Steering Committee and other entities involved in the financing of the OVFM Project tasks should make sure the process of disbursing funds and transferring them to the accounts of units implementing the Project is shortened to prevent temporary financing of the Project with the funds of the State Water Holding Polish Waters and the Institute of Meteorology and Water Management, as well as settlement of liabilities by the units implementing the Project after the payment deadlines.
Financial results of the audit totalling PLN 15.8 million were identified as part of the audit findings.
