Subsidised HoReCa investments in Poland under the magnifying glass: A step-by-step guide to inspections of projects under the Covid-19 recovery plan | In Principle

Support from Poland’s National Recovery Plan under the A1.2.1 investment scheme was aimed as assisting micro, small and medium-sized businesses in the hotel, restaurant and catering industry in rebuilding after the difficult period of the pandemic. But when a map of the aid awarded under the scheme was published to showcase the scale of the programme’s success, it raised questions about whether the funding went to the places where it was most needed. This led to the launch of a sweeping review of the scheme—not random checks, but inspections of all beneficiaries. It’s no wonder that many businesses are considering now how to work through this process and protect their own interests.

About the A1.2.1 scheme

The aim of the funding awarded to HoReCa businesses under the A1.2.1 scheme, “Investments in diversification of activities in the HoReCa sector,” was to support investment measures carried out by micro enterprises and SMEs operating in the hotel, food service, tourism and culture sectors which had suffered due to the Covid-19 pandemic.

The funds were available to businesses which:

• Were expanding or modifying their existing activity in one of these market segments
• Had suffered a decline in turnover in 2020 or 2021 of 20% or more year-on-year, and
• Were operating in the HoReCa sector as of the date of filing the application, as well as on 31 December 2019 or starting at the latest on 20 March 2020.

Under the scheme, Poland was divided into five regions, and in each region an operator was appointed through a competition to be responsible for selection of businesses to receive support.

The institution responsible for implementation of the A1.2.1 scheme under the National Recovery Plan is the Minister of Funds and Regional Policy (MFiPR), and the supporting institution is the Polish Agency for Enterprise Development (PARP).

In light of the ministry’s announcement of inspections of all beneficiaries under this scheme, it is worth examining what, in practice, the beneficiaries carrying out projects under the A1.2.1 scheme will have to deal with.

What is the beneficiary responsible for?

Before turning to the pointers on how to prepare for inspection of a HoReCa project, we should begin with what the beneficiary is not responsible for. Not all risks arising from the accounting for projects financed out of public funds arise out of the beneficiary’s operations.

The implementing act (Act on Rules for Implementation of Tasks Financed out of European Funds in the 2021–2027 Financial Perspective) provides that if an individual irregularity (i.e. an infringement of law resulting from an act or omission which has or could have a negative impact on the EU budget) is due to an act or omission by the managing authority, the intermediate body or the implementing institution, the costs of the irregularity should not be charged to the beneficiary. In such case, it is the managing authority (for the HoReCa scheme, MFiPR) which is obliged to ensure funds equivalent to the amount of the cofinancing. Even if the European Commission assesses an adjustment and the cofinancing is formally cancelled, the institution that committed the irregularity (or the institution obliged to pay out the funds) must still pay out the amount due to the beneficiary.

To determine whether irregularities have actually occurred on the part of the managing authority, the intermediate body or the implementing institution, MFiPR will launch a separate inspection.

An awareness of this distinction is crucial. The business should focus on what is within its orbit, while being clear on when the financial risk arises from errors on the part of the public administration rather than the business itself.

From the perspective of the managing authority or intermediate body

In the case of the A1.2.1 scheme, oversight of project implementation is expressly provided for in the support agreement and in the EU and Polish regulations.

Who can conduct an inspection?

Oversight in this area is vested in:

• The operator selected in the competition
• The Minister of Funds and Regional Policy, as the managing authority
• The Polish Agency for Enterprise Development, as the supporting institution
• Other authorised entities, such as the Supreme Audit Office (NIK), the National Revenue Administration (KAS), and the European Anti-Fraud Office (OLAF).

When can an inspection of a HoReCa project be inspected?

An inspection may be conducted during the period from launch of an SME venture until one year after the final payment is made.

What does the inspection cover?

The inspection may extend to such matters as:

• Verification of the project’s compliance with the regulations, the guidelines, and the support agreement
• Checking the eligibility of expenses, achievement of targets, and maintaining the aims of the project
• Access to full project documentation and sites where the project is carried out
• The possibility of requesting oral or written clarifications, preparing copies of documents, taking photos or making recordings during the site visit.

In practice, this means that the inspection is rarely limited to a random sampling of invoices, but typically covers the whole lifecycle of the project, from filing of the application, the purchasing and accounting process, to maintaining the effects of the investment over the durability period.

The beneficiary’s perspective—how to prepare for project inspection

Inspections are a regular feature in implementation of projects cofinanced out of public funds. In the case of the A1.2.1 scheme, an added challenge is to conduct inspections of all beneficiaries.

The basis for the assessment is not just the contractual provisions, but the entire “project implementation system,” including the legal regulations, guidelines, the detailed description of the programme priorities, the description of the management and control system, and the executive instructions for the institutions. The beneficiary must ensure that the project complies with all these elements, and be in a position to demonstrate this quickly and clearly during the inspection.

This broad scope of compliance which must be achieved by the beneficiary can be boiled down to the following points:

1. Remember your duties

The beneficiary’s obligations include:

• Providing access to documents directly related to implementation of the project—in particular, enabling confirmation of eligibility of expenditures—while complying with regulations on protection of confidential information
• Providing access to land and premises where the project is implemented, as well as IT systems related to the project (including databases, source codes, and electronic documents)
• Making upon request, or facilitating, copies, transcripts or compilations of project documents
• Providing clarifications on implementation of the project
• Also providing access to documents not directly connected to implementation of the project, if requested
• Retaining documentation for the required period—in the case of HoReCa projects, for 10 years after conclusion of the support agreement.

A list of duties is set forth in §9 of the support agreement (although it does not cover all duties).

2. Documentation—the heart of the inspection

From the start of the project, it is necessary to maintain separate accounting books and collect all required documents, in particular:

• Invoices or equivalent documents, plus proof of payment
• Protocols of delivery and receipt of works or supplies
• Documents confirming that fixed assets have been approved for use
• Documents from procurement procedures (if applicable)
• Reports from consulting and training services, training programmes, participant lists
• Confirmation of achievement of target indicators.

The documents should be described in a manner enabling them to be tied to specific items in the substantive and financial timetable.

3. Maintaining the project goals and indicators

• The goals of the investment component must be maintained for a period of one year following the final payment.
• Failure to achieve the target indicators, or a change in the scope of the project, may result in termination of the contract and reimbursement of all of the support.

4. Organisational preparedness

The beneficiary should:

• Designate a person responsible for contacts with the inspectors and for providing administrative support for the inspection
• Ensure ready access to documents in paper and electronic form
• Prepare a list of project implementation sites, fixed assets and intangibles which may be the subject of a site visit.

5. Conduct of inspection

• The inspection may be scheduled in advance, or ad hoc.
• The inspectors can make copies of documents, take photographs or make recordings.
• The beneficiary must provide complete and consistent clarifications, and the absence of a competent person in this respect during the inspection may be treated as hindering the inspection.

Post-inspection steps and the beneficiary’s rights

After completing the inspection, the institution will prepare a post-inspection report and deliver it to the beneficiary. This document contains the findings from the inspection, an evaluation of project implementation, and, if relevant, proposed recommendations.

The beneficiary has 14 days from delivery of the post-inspection report to submit written, reasoned objections (in paper or electronic form). This period can be extended if requested before the deadline.

The inspecting institution has up to 14 days to consider the objections. During that time, it may conduct additional inspection measures or request additional documents. After analysing the remarks, the institution will draw up a final post-inspection report, which may include revised findings or a written position along with a justification for the refusal to make the requested changes.

If needed, the preliminary or final post-inspection report may also include post-inspection recommendations along with a deadline for notifying the institution on how the recommendations will be carried out. After that deadline, the beneficiary will notify the institution on whether the recommendations were implemented and what measures were taken.

Summary

Under the current realities, inspections in A1.2.1 projects are no longer a mere formality, as the process is being conducted with respect to all beneficiaries, in an atmosphere of media attention and institutional pressure. The beneficiary has no influence over how the rules for the competition were drafted, or how the authorities interpret them. What the beneficiary does have some control over is how it prepares for the inspection—whether it has a complete set of documentation, how it will respond to the inspectors’ questions, and whether it can show that any irregularities that may be found are not attributable to the beneficiary.

When the aim of the inspection is to discover irregularities, rather than theoretically exclude them, an awareness of this distinction is key. This allows the business to focus on what is within its reach, while being clear on the circumstances in which it should not bear the financial risk.

Dr Anna Kulińska, State Aid & EU Internal Market Regulation practice, Wardyński & Partners