Hungarian government falsely accuses Okotars of embezzlement

July 4, 2014


Deputy State Secretary Nandor Csepreghy has falsely accused EEA and Norway civil funds operator Okotars of embezzlement.

Just when you thought the cash-strapped Hungarian government’s war on Hungary’s civil sector couldn’t get any more absurd . . . .

Last week Deputy State Secretary of the Prime Minister’s Office Nandor Csepreghy announced plans to report Okotars, the NGO responsible for administering funds on behalf of the Norwegian Civil Fund, for embezzlement of public funds.

The big fuss

Hungary receives fiscal transfers from Norway, Iceland and Liechtenstein in the form of development grants overseen by the Hungarian government, and civil grants administered by a funding mechanism in Brussels.

For the current funding period the three countries have allocated Hungary roughly €154 million, of which around €140 million is to support development projects such as sustainable energy and environmental protection, while the remaining €13 million goes towards civil initiatives, such as the protection of human rights, anti-corruption initiatives and the overall strengthening of an independent civil society.

The treaty between the donor countries and Hungary say that, unlike the development grants, the NGO fund is to be administered by an independent, non-government affiliated entity.

Last year the prime minister’s office (PMO) quietly dismantled the National Development Agency, the central government authority named in the treaty as responsible for administering development grants, without consulting any of the donor countries.  Most of the NFU’s functions (as well as many of its employees) were transferred to the PMO.

On learning this, the donor countries behind the EEA and Norway Grants notified Hungary that the change constituted a breach of contract.  When subsequent negotiations failed to allay their concerns, the donor countries suspended funding for the projects formerly administered by the National Development Agency, but not the civil funds which were administered by the so-called financing mechanism in Brussels.

Evidently unhappy over the fact that the donor countries continued to fund Hungarian NGOs often critical of the government even as they withheld development funds,  Hungary asked Norway to suspend the disbursement of civil grants until such a time that the parties could agree on the development grants.  When Norway refused, the proverbial gloves came off, and the PMO instructed government officials to conduct a full audit of the NGOs administering the funds, as well as those receiving them.

Meanwhile, the European Commission woke up to the fact that the mechanism for administering EU developments grants had disappeared and informed Hungary in mid-April that it was informally suspending the payment of development grants until such time the Hungarian government satisfactorily addressed its concerns.

(I humbly ask the reader’s kind indulgence as my editorial powers fail me with regard to the next paragraph. -Ed.).

That’s when the government poured itself a shot of Hungaricum, dropped it in a glass of authoritarian hogwash, swallowed the unholy concoction in one big gulp, and started making accusations like a roaring drunk in order to distract people from the government’s own incompetence.

The plot thickens

In mid-April, Janos Lazar, the Fidesz MP and PMO state secretary, sent a letter to Norway’s government accusing it of interfering in Hungary’s internal affairs by funding organizations with close ties to the green liberal party Politics Can Be Different (LMP).

Calling Lazar’s accusations “invalid”, Norway’s Minister for EU Affairs, Vidar Helgesen, responded that the NGO Fund’s donors have no political agenda, and the civil grants are being distributed in accordance with the treaty.

The Prime Ministers Office responded to this brush-off by resorting to name calling.  Referring to the fund administrators as a “worthless group of tricksters”, Lazar’s deputy, Nandor Csepreghy, insisted the Hungarian government should have a greater say in the administration of the civil grants.  The fund operator responded by calling such accusations “unacceptable, especially coming from a representative of the government”.

Hungary drops the bomb

On May 21 Csepreghy announced that the Office of the Prime Minister had asked the Government Control Office to audit all funds distributed through the EEA and Norway Grants NGO fund. Csepreghy stated the audit was needed to “clarify whether there are grounds for suspicions arising over the past few weeks on the part of the Hungarian government that Norway Funds supported political organizations or civil organizations tied closely to them”.

The fund administrator responded that government auditors had no jurisdiction in this matter as the agreement provides for all audits to be conducted by the financial mechanism and because no public funds from Hungary were involved.

The government responded by threatening to close them down by canceling their tax numbers if the NGOs in question fail to cooperate with government auditors.

Claiming government auditors had the right to audit all public funds, including those provided by foreign countries to Hungarian NGOs, the Government Oversight Authority raided the NGO fund operators, demanding copies of internal communications in addition to financial documents.  The raid was condemned by the donor countries and watchdog organizations, with the US calling on Hungary to rethink its attack on civil society in a report delivered to the standing committee of the OECS.

The following week government auditors began raiding NGOs that had received EEA civil funds.  Some cooperated. Others did not.

Norway’s Minister of EEA and EU Affairs, Vidar Helgesen, reacted by stating in a press release: “I am deeply concerned about the actions of the Hungarian authorities in relation to civil society and their attempts to limit freedom of expression. The EEA and Norway Grants are designed to strengthen fundamental European values. The Hungarian authorities’ violation of the agreement on the EEA and Norway Grants is in breach of these values.”

Soon thereafter, the Government Control Office’s website started posting news on its website appraising the public of its progress.  One such posting entitled “The Nordic Model is coming undone” states: “The ties lead to left-liberals who are supported by the Viking conquerors. Our crosshairs are now on [opposition party] LMP and the homosexual lobby.”

Government hatchet job

Last week, pro-government weekly Heti Valasz published an article in which it claimed an Ernst and Young audit of the fund operator, Okotars Foundation, for the years 2008-2010 “validates Lazar’s complaints . . . because the organization is practically the same today as it was then and the proof is in the fact that Ernst and Young’s findings are still valid today”.

In response to the article, Csepreghy called a press conference to announce that if there is any validity to the claims made in the article, the Hungarian government will have no other option than to file a formal criminal complaint against the Okotars Foundation for embezzlement.

“Now that we have this information we might not have to wait for the Government Control Office’s investigation to conclude, it’s conceivable that we might have to file a criminal complaint immediately.”

Csepreghy contacted Ernst and Young and asked for a copy of the report that so that he could use its results in his criminal complaint to Hungarian prosecutors regarding what he claims was proof of the embezzlement of public funds. Ernst and Young told the Prime Ministers Office they would not release any kind of information.

According to Okotars CEO Veronika Mora, a draft version of the 2010 Ernst and Young audit was given over to government auditors by the foundation itself.  According to Mora the report is the property of the Financial Mechanism Office which was given over to Okotars in the interest of enabling it to improve its operations.

The obvious conclusion is that the Government Control Office leaked a document obtained over the course of an audit to the pro-government newspaper, although Heti Valasz denies this.

The whole story is absurd. Over the last two and half months of this story, they are trying to attack the NGO Fund from all kinds of different angles.

The Ernst and Young draft report

The draft report contains nothing to suggest the fund operator might have embezzled funds.  It merely points out some deficiencies in the financial audit procedure which, according to Mora, were subsequently rectified.

It appears Heti Valasz deliberately misreported the report’s findings in order to lend credence to the government’s accusations and undermine the fund operator`s reputation and institutional integrity.

Trial and execution by pro-government media

It appears that once again the government has abused the media law to compel media outlets to report a story planted by the government itself in pro-government media outlets owned by prominent Fidesz supporters.  In doing so, it has pronounced judgement on the NGO fund without actually involving the Hungarian prosecutors office, Hungarian courts or any relevant legal authority with jurisdiction to investigate the fund operator.

Here’s what did Ernst & Young’s draft report actually said:

The following text comes directly from the draft report (which has since been leaked to and made public).  The reader should bear in mind that the report is commenting on financial accounting procedures and

The NGO has established a dedicated team to manage the NGO Fund implementation within the organization, supported by finance/accounting and administrative functions responsible for managing the project.

The NGO established internal procedures supporting processes carried out on the basis of the Fund set-up documents as well as supporting both beneficiaries and other stakeholders in access to relevant information on the project.

The project is managed in an organized way and it is transparent for the applicants. The project implementation is supported by the IT system designed by the NGO which facilitated applying for the grants and assessments made by evaluators.

The sub-project selection process is transparent and supported by IT tools. At the same time there are some issues related to this process.

Monitoring of the implementation of sub-projects and reporting of sub-projects is transparent and consistent among the Operator and its Partners.

The present design of the process for verification of eligibility of costs reported by sub-projects does not ensure appropriate audit trail for checks done.

The management costs reported to FMO consisted of different categories, including direct project management costs and indirect costs, allocated to the project. The allocation of costs to the project, e.g. personnel costs is ca 50% and overhead costs are allocated at 43-47% of the total costs. Reporting of the management costs to the FMO proved be inconsistent between the Operator and the Partners.

Referenced in this article:
Fordulat norvégügyben: neves világcég igazolja Lázár Jánost,; 26 June 2014.