An audit found fraud in Terem Holding. The Prosecutor’s Office ignores them

An audit report following reports of abuses in the state corporation Terem Holding EAD has found numerous irregularities and indicators of fraud. The audit was sent to the prosecutor’s office, which, however, crushed the file. It is not clear why the new leadership of the Ministry of Defense has not appealed the prosecutor’s decree.

“Professionalism, ethics and integrity”

This is the motto of Terem Holding EAD, a state-owned company with the Ministry of Defense as its principal. It is the umbrella of several enterprises specializing in repair, modernization and logistical support of aviation equipment /Terem – Letets/, ships and vessels /Terem – Shipyard Fleet Arsenal – Varna/, armored vehicles /Terem – Khan Krum/, small arms, artillery, missile weapons and ammunition /Terem – Tsar Samuil/, radar equipment and communication equipment /Terem – Ivaylo/. All these companies, except for Terem – Shipyard, are at a loss and have been decapitalized. This does not prevent their leadership from receiving solid salaries, as it became clear from the answer of former Minister Dimitar Stoyanov to a parliamentary question. The former director of the holding received BGN 131,190. salary for 2022, and the directors of the indebted companies from BGN 60 to BGN 96,000. The text of the report contains specific data that cast doubt on ethics and integrity, including indicators of fraud in public procurement, serious and illegal accounting violations, unrealized deliveries in helicopter and tank repairs, understated prices for helicopter repairs commissioned by private companies, irregularities in the rental of real estate and other violations. led to a difficult financial situation and decapitalization of the companies under the umbrella of the holding. There is also a recommendation of the auditors to send the report to the prosecutor’s office. The full text of the 54-page report can be viewed here. The audit was prepared in August 2022 during the time of the previous Minister of Defense Dimitar Stoyanov, after several signals were received by the Ministry of Defense at the end of 2021 and in the spring of 2022. Despite the serious findings in the audit report, Stoyanov limited himself to reprimanding the then executive director Krastyo Krastev. He was replaced only under the current minister Todor Tagarev.

The Prosecutor’s Office sees no problem

The auditors’ report was sent to the Sofia City Prosecutor’s Office, where file No. 17302/2022 was opened. But from the Ministry’s answer to our questions, it is clear that this has not been done. The PFIA has taken the audit more seriously. The State Financial Inspectorate has drawn up and handed over to the former executive director of Terem Holding EAD 5 acts for establishing administrative violations. The abuses listed in the audit report are numerous and serious, but BIRD sources claim that this is only “the visible part of the iceberg”. The theft from the state-owned military-industrial complex was apparently large-scale and umbrellad for years. What is puzzling is the lack of interest on the part of the current leadership to unravel these violations and crimes in order to lead to punishments, not just dismissals, and not all those involved in the schemes. Below we publish one-to-one the response of the Ministry of Defense to the questions sent by the editors about the measures taken by the Ministry of Defense to deal with the problems identified in the report and what happened to the file opened by the Prosecutor’s Office:

By Order of the Minister of Defence, the Internal Audit Directorate has carried out an unscheduled audit engagement for consulting in TEREM-HOLDING EAD Sofia on the occasion of the signals you have cited.

In the conclusion of the report, the audit team has proposed to the Minister of Defense to give instructions to TEREM-HOLDING EAD For the revision of the prepared financial statements in order to prevent methodological errors and omissions, to order the Legal and Regulatory Activities in Defense Directorate to give an opinion on the legality of the transactions resulting from the disposal actions of the Executive Director of TEREM-HOLDING EAD Sofia, as well as, in view of the findings of the report, to send it to the Sofia City Prosecutor’s Office and the State Financial Inspection Agency.

A principled opinion was expressed by the Director of the Legal and Regulatory Activities in Defense Directorate regarding the legality of the transactions resulting from the disposal actions of the Executive Director of TEREM – HOLDING EAD with fixed tangible assets, including the leasing of assets and the sale of fixed tangible assets owned by the company.

According to the proposal, the audit report has been sent to the Sofia City Prosecutor’s Office and to the PFIA for the exercise of its powers under Art. 32, para. 1, item 1 in vr. with Art. 35, para. 1 of the FIA.

In view of the proposals made in the audit report, the Minister of Defense Dimitar Stoyanov has notified the former Executive Director of TEREM-HOLDING EAD by letter. Sofia, that it should take the necessary actions for the urgent implementation of the recommendations of the audit team, written in the report.

On the occasion of the findings in the report, the PFIA has carried out a financial inspection of TEREM-HOLDING EAD in the city of Sofia. Sofia, during which an inspection was carried out for compliance with the provisions of the Financial Management and Control in the Public Sector Act regarding the implementation of control activities, as well as a check for legality related to compliance with the requirements of the Accountancy Act in the preparation of the annual financial statements for 2021 of TEREM-HOLDING EAD in the city of Sofia. Sofia, paid insurance premiums on completed contracts, revaluation of investment properties, etc.

In its report, the Financial Inspectorate has reflected the administrative violations of Art. 13, para. 3, item 1, in connection with Art. 2, para. 2, item 8 of the Financial Management and Control in the Public Sector Act, as on behalf of the PFIA they have been drawn up and handed over to the former Executive Director of TEREM-HOLDING EAD, Sofia. A total of 5 acts for establishing administrative violations.

The Minister of Defense Dimitar Stoyanov has demanded from the former executive director of “TEREM-HOLDING” EAD in the city of Sofia. Sofia, Krastyu Krastev strict compliance with the Regulations for the implementation of the Public Enterprises Act, as well as his duties and responsibilities as a head of a public sector organization within the meaning of Art. 2, para. 2, item 8 of the Law on the Protection of Persons with Disabilities.

In connection with the violations established by the control authorities, by a Decision of the Minister of Defense Todor Tagarev, the Contract for the assignment of management of a single-member joint-stock company with a one-tier management system to TEREM-HOLDING EAD concluded with the Executive Director Krastyu Krastev was terminated ahead of schedule.

In the Sofia City Prosecutor’s Office, an investigation was opened. No. 17302/2022 on the Report on an unscheduled audit engagement for consulting in TEREM-HOLDING EAD Sofia, in connection with signals received by the Ministry of Defense with reg. No. 13-00-2755/23.12.2021, reg. No. 13-00-952/03.05.2022 and reg. No. 23-01-18/16.05.2022 and from 25.05.2022

It is evident from the information published on the portal of the Prosecutor’s Office of the Republic of Bulgaria that the file has been terminated.

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