Almost PLN 3.5 billion was spent in 2021-2024 from the Government Housing Development Fund outside the Budget Act. This way of distributing public funds did not support consistent or transparent planning of the state expenditures for housing. It also reduced parliamentary and social control of the Fund managing its finance. The financial resources were distributed without the participation of subsequent ministers managing the Fund, despite it being their exclusive statutory competence. The funds distribution was assigned to the President of the National Property Stock (KZN) who acted sluggishly in that matter and in violation of law. On the other hand, the municipalities submitted applications for the Fund’s subsidies without prior analysis of their residents’ actual demand for housing. The NIK audit results reveal little progress in implementing investments supported by the Fund: in 2021-2024 (by the end of July) 2143 flats were built, i.e. 4.4% of approx. 48.5 thousand planned for execution until 2031. The Fund was mainly used to establish organisational structures of companies – Social Housing Initiatives (SIM companies) where posts were filled in a non-transparent way. NIK also points to defective legal framework of the Fund’s functioning and the lack of consistency or coordination of activities for the benefit of social housing in Poland.
Audit no. P/24/091/LWR
By assumption, the Government Housing Development Fund (or: the Fund) was set up in January 2021 as the state’s support of efforts aimed at satisfying the citizens’ housing needs. It was designed as part of a package of solutions to prevent adverse social and economic effects of COVID-19. The Fund was to stimulate housing investments carried out by companies – the newly established Social Housing Initiatives (SIM) and the already existing Social Housing Associations (TBS). The Fund was fuelled by the financial resources from the COVID-19 Prevention Fund and funds from the sale of Treasury securities. Municipalities received non-returnable financing of their expenditures to acquire shares in SIM/ TBS companies.
The Social Housing Initiatives were designed to build social apartments for rent/ lease for municipality residents with moderate, regulated rent. That was to be an attractive offer for individuals and families who have money to pay the rent regularly but whose income is too low to take up a mortgage for an apartment. The level of support granted to a municipality to acquire shares in a newly established SIM or in an existing SIM/TBS could reach, correspondingly, PLN 3 million and up to 10% of the value of costs of an investment and construction project or another project aimed at acquiring apartments for rent/ lease. The construction of apartments in line with the SIM formula did not require the municipalities to engage more of their own funds. As a rule, both municipalities and SIM companies could apply for additional funds for their implementation from the Subsidy Fund (non-repayable financial support granted to municipalities as part of the social and communal housing programme) and from preferential loans from Bank Gospodarstwa Krajowego (BGK).
The Minister’s statutory competence and abuse on part of KZN
The ministers managing the Fund did not execute their exclusive statutory competence to grant support to municipalities from the Fund. The entire process was carried out by KZN under the application review agreement signed with the minister managing the Fund. As a result, the Fund’s support of PLN 2.9 billion was granted to municipalities in violation of law.
Since the minister managing the Fund did not participate in the municipality’s grant process, he could not control it on an ongoing basis or exercise real impact on the management of the Fund’s resources. At the same time, the KZN President reviewed applications for the Fund’s grant in violation of binding laws (in case of every 10th application) and using practices pointing to arbitrariness of proceedings (in case of over 40% of applications). Besides, the Minister of Funds and Regional Policy did not pursue claims from the municipalities due to their failure to complete tasks or meet obligations related to support received from the Fund. The NIK audit findings show that such claims could total up to PLN 203.4 million.
High expenditures and little progress
In 2021–2024 (until 31 March), over PLN 58 million in total was spent on investment and construction projects in 14 SIM companies audited by NIK. That was only 6.5% of the total amount of funds provided to those companies for investment purposes (over PLN 891 million).
In the same period, salaries of the company employees represented over 51% of operating costs of the audited SIM companies (over PLN 26 million in total). Half of that amount was absorbed by the costs of salaries of SIM management board and supervisory board members. Despite little progress in the companies’ investment processes, in 10 of 14 SIM companies the fixed part of the CEO’s salary was raised. According to NIK that did not comply with the principles of public property management. It needs to be noted that justifications for those pay rises were published only by 2 of 10 municipalities obliged to do so.
Wasteful and illegal spending at SIM companies
Irregularities in property management were found in half of the audited SIM companies. The Fund’s financial resources of over PLN 8 million were spent in wasteful and illegal manner. The funds were earmarked for preparation of the project documentation in violation of the public procurement laws, payments of excessive salaries to CEOs and supervisory board members, commissioning of consulting and marketing services as well as purchase and use of cars.
NIK questioned e.g. expenditures made for marketing services provided in the form of co-organisation of classes for children in the gym, mountain expeditions, beach volleyball games, support provided to a local sports club and the purchase of 3 thousand tickets to the amusement park. According to NIK these expenditures did not help the companies perform their tasks.
Defective preparation for housing investments
The municipalities applied for the Fund’s support without analysing the actual need of local communities for apartments built by SIM companies which NIK considered unreliable.
The municipalities transferred the funds they received to SIM companies which was related to the need to sign an agreement for services of public economic interest, required by the EU law. In most cases such agreements had formal defects. Those defects represented a statutory prerequisite to pursue claims against municipalities due to failure to meet the obligation to sign a correctly worded entrustment agreement. That situation posed a threat of losing the Fund’s financial support of PLN 203.4 million.
Excessive rights acquired by KZN in companies
The National Property Stock (KZN) participated in founding 47 new SIM companies. According to NIK in 19 cases setting up SIM companies with the participation of KZN was premature and unjustified since there was no contribution of State Treasury property to those companies (data as of July 2024).
In all the 47 newly founded companies KZN secured personal rights to appoint one to three supervisory board members and a CEO candidate.
NIK stands in a position that in case of 19 SIM companies to which KZN made financial contribution ranging from PLN 100 to PLN 1000, those rights were excessive considering the marginal capital commitment. KZN made financial contributions to those companies totalling PLN 9.2 thousand and thus acquired shares making up only from 0.0002% to 0.004% of the company’s equity.
The President of KZN in a non-transparent way indicated 58 candidates for CEOs and appointed 147 KZN representatives in supervisory boards of 36 Social Housing Initiatives and 2 Social Housing Associations. NIK established that KZN did not introduce any principles, procedures or guidelines concerning the appointment of supervisory board members or candidates for CEOs of SIM companies. The process was not an open recruitment and the recruitment information was not published anywhere.
KZN spent the total of PLN 3.7 million on salaries of its 147 representatives in SIM supervisory boards, of which nearly PLN 497 thousand was transferred to SIM companies with marginal capital commitment of KZN. Considering the low capital commitment of KZN in those SIM companies (financial contribution totalling PLN 3.7 thousand) NIK considered that spending unjustified and wasteful.
Besides, 18 persons were hired at KZN as SIM experts, consultants and coordinators for which they received remuneration of PLN 2.7 million in total. The tasks of those persons partly overlapped with tasks of the KZN Department of Ownership Supervision. In six cases those persons were not assigned any tasks in writing. NIK auditors were also not presented with any documents pointing to the tasks actually performed, except for the confirmation of business trips. Significant spending on KZN’s coordination and participation in SIM supervisory boards did not ensure effective or reliable supervision over those companies.
Limited effects and no monitoring of the Fund’s activities
Despite allocating almost PLN 3.5 billion, the effects of activities supporting social housing were not monitored.
In the municipalities supported by the Fund, the total of over 48.5 thousand apartments were scheduled to be built in 2024–2031, including: nearly 32 thousand apartments (approx. 66%) were to be erected as part of SIM investments, whereas 16.6 thousand flats (approx. 34%) were to be an outcome of investments carried out by TBS. Within three and a half years of the Fund’s activity (i.e. by the end of July 2024), only 2143 apartments were built (4.4% of the plan), of which:
- 23 apartments (0.07% of the plan) as part of the investments realised by the newly founded SIM companies, with the support from the Fund of over PLN 2.3 billion;
- 2120 apartments (nearly 13% of the plan) as part of the investments realised by the existing TBS companies, with the Fund’s support of PLN 0.65 billion.
The average support of SIM companies from the Fund per apartment exceeded PLN 72 thousand, whereas the existing TBS companies received only PLN 39.5 thousand on average.
That difference resulted from the systemic privilege of SIM companies which could use both the support provided to municipalities from the Fund for joining SIM companies (up to PLN 3 million) and for implementing other investment and construction projects by the company (up to 10% of their value). For comparison, the existing TBS companies could only count on investment subsidies.
Consequences of delays in housing investments
The audit showed that only in six of 14 audited SIM companies investments were started in due time.
In none of the audited SIM companies were the construction works completed by the end of March 2024 and in six SIM companies they did not even start.
Delays in executing investments in five audited SIM companies were a statutory prerequisite to write off shares acquired in SIM companies by municipalities and to return the Fund’s resources of up to PLN 120.7 million obtained for that purpose. None of the municipalities (shareholders of those SIM companies) did not initiate any action in that matter.
Little progress of housing investments in SIM companies and transferring them high amounts of support from the Government Housing Development Fund prior to the actual start-up of operations enabled the companies to draw additional benefits from depositing the Fund’s financial resources in banks, while there was no guarantee that they would be earmarked for housing purposes.
By the end of 2023, the audited SIM companies generated financial revenue from the said operations of PLN 59.7 million, which was more than those companies spent on investments (PLN 58.3 million).
A gap in financing investments supported from the Fund
Neither the Ministry of Funds and Regional Policy, nor the Ministry of Development and Technology, or BGK measured the SIM companies’ investment needs that should be satisfied from other sources than the Fund. Therefore, the SIM companies lacked information how much money from other available sources is needed for timely completion of investments conducted by those companies.
The estimates made for the needs of the audit indicated that the demand may reach nearly PLN 8 billion in the next five years. At the same time, financial resources of the Subsidy Fund and preferential loans of BGK will not allow covering this demand.
Defects of the legal framework establishing the Fund
NIK stands in a position that the legal framework establishing the Fund did not provide adequate conditions for its proper functioning. The laws on the Fund were not implemented using proper legislative standards. Also, they were not comprehensive, precise or clear.
Provisions of the Act on social forms of housing development:
- did not specify the objectives or expected effects of the Fund’s operations and also did not impose any obligations on the Minister managing the Fund, related to their monitoring and assessment;
- did not provide the municipalities with equal access to the Fund’s financial resources, in particular to meet the demand for social apartments, reliably measured in the municipalities.
All that had adverse impact on the Fund’s activity and according to NIK that was the source of irregularities in the auditees’ operations revealed by NIK.
Key conclusions and recommendations of NIK
According to NIK the differences in the number of apartments built by Social Housing Initiatives and by Social Housing Associations identified in the audit highlight low efficiency of operations of SIM companies as compared with TBS companies but also – as a target – low efficiency of spending the Fund’s financial resources by new SIM companies.
The NIK audit showed that the Fund’s financial resources were chiefly used to establish organisational structures of 47 new SIM companies and to fill posts in a non-transparent way, while the scope of KZN’s activity was expanded without adhering to statutory provisions.
In view of the audit findings NIK has made the following recommendations:
To the President of the Council of Ministers to:
- take and coordinate measures aimed at implementing comprehensive statutory solutions on housing policy.
To the Minister managing the Government Housing Development Fund to:
- agree on the principles of KZN acquiring the shareholder’s personal rights in SIM companies, proportionately to the level of capital commitment and ensure transparent selection of KZN representatives and candidates for those companies’ authorities.
- ensure review of all investment and construction projects carried out by SIM companies with the participation of KZN in terms of the feasibility of their implementation in the planned material scope and deadline, and assessing the legitimacy of their continuation with the Fund’s support.
