Romania struggles to clear the funding fence

An inability to attract European funds could be putting Romania at a disadvantage compared to other member states. Procedures need to be simplified and some stipulations should be left out to enable better access, say experts. BR takes a look at the problems Romania may face if it fails to attract enough European funds and what hurdles companies are running up against on the path to EU financing – as well as some of the most common frauds being used to siphon off cash.

Otilia Haraga

The rate of absorption of structural funds for 2007-2010 is 13.48 percent, according to data released by the Ministry of Public Finance in September.

“The fundamental problem of the absorption process is to understand its structural stages,” Laurentiu Dinu, general manager of Accreo Romania, tells Business Review.

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He explains that first there is the external absorption process in which funds from the community budget are transferred to the member state. Then there is the internal absorption process in which funds for projects are transferred to companies for implementation.

“Unfortunately, at this point, in Romania’s case it is this last segment – which is responsible for bringing funds to the real economy – that is slow,” says Dinu. “An example is the difference between the value of the signed projects, which represents 72 percent of the 2007-2010 fund allocation, and the value of payments made to the beneficiaries, which represent just 13 percent of that sum.”

So far, the operational programs that have been the most successful in attracting funds are the Regional Development Programme, the Human Resources Development Programme, the Increase of Economic Competitiveness Programme and Environment Programme.

However, judging by the needs or the degree of development, all the sectors that are defined in the POS (Sectoral Operational Programme) are in dire need of investments, says the GM.

What will happen if Romania fails to attract enough European funds? Dinu says that a member’s state inability to adjust to European policies brings two types of costs: opportunity costs, meaning chances that have not materialized, and explicit ones. “During the pre-accession period, Romania bore significant costs to observe the standards imposed by the European Union – adopting the community acquis, re-structuring the economy, opening the markets. These are ongoing because the community acquis evolves permanently. Apart from these costs, Romania also contributes annually to the community’s budget. Romania gave EUR 1.1- 1.4 billion a year from 2007-2010.

“If it fails to attract European funds, Romania will be in the situation of being a net contributor in its relationship with the EU. In real economic terms, our companies will have to be competitive on the internal EU market without benefiting from the help of instruments that other European companies benefit from,” says Dinu.

He adds, “In the case of the public sector, if Romania fails to attract EU funds, the obvious result is condemnation to under-development, since there can only be so many national resources.”

Among the aspects that can hinder a company’s access to European funds is the requirement that the respective firm posted operational profit during the previous financial year, which according to Dinu, represents a significant barrier to access to financing.

“There is a need on the market for a mechanism so that criteria of the banks are similar to those used by the management authorities of the POS in order to reduce the risk that an eligible project which obtains public financing does not enjoy the support of financial institutions,” he says.

Often, applicants can become entangled in procedures that are too complicated, which should be simplified. States like Poland, which joined the European Union before Romania, have already simplified their procedures in order to offer easier access to financing. “The simplification of procedures is just the tip of the iceberg. They reflect the way in which the administration system in a state works. And they condition each other. So the sustainable solution, even though it requires a longer implementation period, requires a screening of the procedures and national legislation and making the system more efficient,” says Dinu.

Less intricate procedures and greater overall efficiency will bring immediate gains for the beneficiaries, who will be spending less on preparing their file, their analysis time will be shorter and the attraction of funds will be more efficient.

Frauds involving European funds

• Since the beginning of the year, the Fight Against Fraud Department (DLAF) has solved 34 files out of 130 that are open, according to data that the DLAF provided to Business Review.

• In 2009, the DLAF had 107 cases under way and 75 were finished. Of the cases in which the DLAF found suggestions of fraud, nine showed up irregularities and in 41 cases the suspicions turned out to be unfounded.

Frequently-used fraud modus operandi

• forging accounts to hide obligations to pay outstanding taxes or social contributions
• counterfeiting fiscal documents to hide that the company is insolvent
• filling in false data in non-reimbursable financing applications regarding the firm’s experience in a certain domain
• forging the company’s history regarding professional experience in the respective field and even introducing some non-existent key experts in projects
• forging the application for non-reimbursable financing by introducing inflated expenses based on non-existent financial bids in order to obtain financing that is higher than the real implementation value

Modus operandi in cases that divert the funds

• false evaluation of bids by the evaluation commission
• faking offer requests and offers from non-existent companies
• introducing into the acquisition procedure companies that have not consented or did not take part in the auction

• hiding conflicts of interest between bidding firms and members of the evaluation commission
• faking signatures of people who never took part in activities in the project
• billing for non-existent services
• faking professional CVs
• ordering financial auditing to cover fraud aspects regarding the use of the allotted funds