Integrity Authority sets niceties aside in its first annual report
June 30. 2023. – 03:28 PM
updated
While establishing the Integrity Authority (IA) was one of the prerequisites for Hungary's access to EU funds, its first annual report suggests that the body's establishment was not merely about creating an alibi. Its president Ferenc Biró gave his first interview to Telex last December.
The organisation's interim report on the public procurement system was published in March and concluded that its practical implementation was dysfunctional and cost-increasing, although the legislation was essentially in line with EU requirements.
The annual report largely maintains this point. Commenting on the report at a press conference, Ferenc Biró said the authority was set up to protect EU taxpayers' money, ensuring it is spent properly and for its intended purpose, but that they had a more ambitious objective:
they would like to bring about a shift in the economic culture, so stakeholders will be able and willing to say no to challenges of corruption
- the state news agency, MTI reported.
This economic culture shift also came up in an interview Biró gave to Bloomberg in January. Although his statement at the time seemed to curry favour with the government: "It's not the system that's corrupt, it's the individuals," he said, objecting to the equation between corruption and the current Hungarian administration. He also denied that corruption was a bigger problem in Hungary than anywhere else.
Essentially good, but not really
The report begins with a thought in line with the above: 'The comprehensiveness, harmonisation and structure of the existing systems, processes, internal standards and legal norms for regulating and controlling the use of EU funds is broadly in line with international expectations and standards.'
However, the report then goes on to detail the shortcomings which often lead to a lack of compliance with the specifications: “In many cases, the system of controls hasn't been properly regulated.”
Even though it doesn't call the system corrupt, the report does highlight the insufficient means for tackling corruption, devoting separate chapters to the system for controlling EU funds, the legislation of public procurement, as well as conflicts of interest and the legislation on asset declarations.
"The audit authority's (which, as the second tier of oversight is responsible, among other things, for carrying out sample checks on projects) recommendations for action have not been fully followed up and carried out by the entities concerned," the IA wrote in legalese. "We recommend that the conclusions of the audit authority be processed and incorporated into the system as soon as possible, preferably within the current year, giving priority to the early identification and the immediate elimination of circumstances that provide opportunities for abuse."
Based on the 50 proposals set out in the report,
improvement is not what is needed for substantive control to be effective. Instead, the whole thing must be built up from the ground.
"We believe that a change of mindset regarding the systems of control and especially the audit programmes used is crucial, and a greater emphasis must be given to the content-based, risk-based examination of documents, the use and assessment of red flags, instead of the administrative, checklist-based approach currently applied in the case of transactions and various dealings..." the summary of the report on the systemic examination of the control systems for the use of the EU funds concludes.
According to the report, if more unbiased value judgements are to be reached, more external experts and unannounced audits are needed.
When it comes to auditing public procurement contracts, the IA suggests that the Public Procurement Supervision Directorate (Közbeszerzési Felügyeleti Főosztály) should "develop methodologies to detect fraud and corruption and incorporate these into the audit structure" – which to an outsider would seem a trivial requirement in the 20th year of Hungary's EU membership.
The IA also made a conclusion regarding centralised public procurement, which points to serious shortcomings in the way evaluations have been carried out so far: “The Authority suggests that methods and benchmarks should be developed to allow the comparison of prices obtained in centralised public procurements with market prices.”
In the chapter evaluating the effectiveness of public procurement regulations, the Authority also criticised the high fees: the fees for centralised public procurements are generally between 2 and 4 percent of the value of the contract for pecuniary interest, excluding VAT, with no specific ceiling. As the contracts are for large sums, the IA considers that the current percentage-based fees should be reviewed and a nominal ceiling introduced instead.
Single-bidding tenders
The report acknowledges that "The high proportion of single-bid tenders in Hungary is a well-known problem", and that the chance for corruption and the inefficient use of funds is at its highest in tenders which lack meaningful competition.
The IA concluded that the Hungarian government has delivered on its commitments so far, as the share of single-bid procurements for EU tenders in 2022 was 32.9 percent, compared to 39.5 percent in 2021. And when it comes to those conducted under the national procedure, the share of single-bid tenders fell from 22.1 percent to 20.1 percent in 2022. In both cases, the government intends to reduce the proportion of single-bidders to 15 percent.
However, merely looking at the number of participants in a tender is not enough.
According to the IA, "it is recommended to examine how many bids are received in the procurement procedures in question and whether they are truly competitive bids (for example, it should be ensured that there is no trend towards two bids being submitted instead of one while only one can be considered meaningfully competitive)," the report said. Indeed, there have been suspicious double bids, where a low bid is accompanied by an unrealistically high one, which only appears to meet the conditions of the competition.
The report also noted that it is also a problem that in practice,
it is easy to get away with serious breaches of contract.
"In order to avoid the possibility of being exempted from the prospective legal consequence of a serious breach of contract declared by the contracting authority by means of a formulaic declaration, it is proposed that the legislation should impose a certain condition for challenging a serious breach of contract, for example by requiring that it be done in a specific declaratory suit in civil proceedings before a court and that the successful bidder be required to prove that this has been accomplished.”
Asset declarations should have consequences
There is also work to be done in the area of asset declarations, both in terms of checks and in terms of building up a system of meaningful sanctions: "it is of the utmost importance to strengthen the system of checking asset declarations and to introduce a system of sanctions with adequate deterrent effect, applied in a consistent and rigorous manner", the report states. According to the text, “the disclosure of asset declarations by public officials can be an important tool for preventing corruption and detecting illicit wealth accumulation, and can indirectly contribute significantly to increasing public confidence.”
The IA also finds the legislation obliging Members of Parliament to declare their assets insufficient.
This was also stated in the Authority's March report: "we consider it important to further strengthen the legal sanctions against breaches of the obligation to declare assets, in order to ensure that the sanctions applied are genuinely deterrent, effective and proportionate."
However, proposals on this will not be included in the annual report, but in the report on asset declarations, which will be finalised at the end of the year.
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