618 Million Dram Violations: Discovery by the State Revenue Committee

The Republic of Armenia's State Control Service has conducted ongoing monitoring at the "Economic Development of Rural Areas in Armenia" foundation concerning the funding provided by the foundation to certain organizations within the framework of the "Infrastructure and Rural Finance Support" program. During the monitoring process, approximately 618 million drams of violations were recorded.

In particular, in violation of a provision established by the foundation's board of trustees regarding the investment guidelines, a pre-investment funding of 35 million drams was provided to the organization without having collateral in real estate and/or fixed assets. In addition, contrary to the requirements of the contract signed between the parties, the stated amount was repaid from the subsequently allocated 240 million drams in equity investment funding, of which at least 124 million drams were not spent in accordance with the terms set out in the contract.

Based on the actual contractual and programmatic deviations allowed by the organization, the foundation had the right to terminate the equity investment agreement, reclaiming the invested funds; however, no action has been taken by the foundation in this regard. The same organization was also provided with a loan of 120 million drams within another component of the program, of which at least 69.1 million drams were not used in accordance with the contractual terms.

Moreover, there is a risk of not achieving the expected outcome related to the utilization of the funds provided, due to non-fulfillment of contractual obligations. Instead of reclaiming approximately 191 million drams previously allocated to another organization under the pre-investment funding program, the foundation signed an equity investment agreement, thus violating the requirements established by the foundation's board of trustees in the investment guidelines. The organization was granted around 89 million drams in pre-investment funding, violating one of the guidelines established by the board, and exceeding the limits set for the organization’s net assets as well as the assets of the company after the foundation's investment.

In cases where the liquidation value of the pledged real estate is less than 125% of the amount of pre-investment funding provided, 105 million drams was granted to the organization as pre-investment funding, violating another provision of the guidelines. Regarding managerial services, during 2018-2019, the foundation signed a monitoring service contract worth 4.4 million drams with an individual entrepreneur who was already a board member appointed by the foundation, thus creating a conflict of interest.

Additionally, according to the law on purchases, state-established foundations are considered purchasers and, in accordance with the law, are required to acquire services through a procurement process. However, the foundation obtained these services without following the established procurement processes and did not monitor the intended use of the funds allocated to the financed organizations in terms of actual expenditure flows.

A report compiled from the ongoing monitoring has been sent to the Prosecutor General's Office of the Republic of Armenia for verifying the existence of a crime.