A response to a request for explanations is often prepared quickly, under time pressure and without reviewing the complete project documentation. The funding recipient wants to clarify the situation or reassure the institution, but may use simplifications or wording that later begins to function as a statement of fact concerning how the project was implemented.
Businesses often assume that, if the project was actually implemented, an ordinary email or a brief working explanation will not have any significant consequences. This is particularly so where correspondence takes place through the project management system and resembles day-to-day communication rather than a formal submission.
Until a project control or audit takes place. See also: Can my project be audited by KAS or the CBA?
It may then turn out that the funding institution or control authorities return to messages sent several months earlier. Extracts from emails may begin to be quoted in subsequent correspondence, a post-control report or a report from an audit conducted by Poland’s National Revenue Administration (KAS). Funding recipients may then recall responses sent under time pressure or wording that was intended merely to facilitate communication and resolve the immediate issue.
The problem often begins with a request for explanations concerning a specific expenditure, the reasons for changes to the project, or the manner in which a particular activity was carried out. The funding recipient responds based on its understanding of the situation. It describes the project in its own words, sometimes simplifying certain matters and sometimes trying to explain “what actually happened.”
Businesses want to demonstrate good faith and, above all, avoid a conflict with the funding institution. Some simply want to resolve the issue quickly and return to their day-to-day work. Such explanations are often prepared without first reviewing the project documentation, earlier correspondence or the grant agreement itself.
Funding recipients often write to the funding institution as if they were communicating with a project partner, rather than with an entity that may, several months later, assess whether the entire funded project was implemented correctly. The most serious problems usually arise where the funding recipient:
- describes project modifications that had not previously been formally notified,
- acknowledges that certain activities were carried out differently from what had originally been planned,
- explains departures from the project informally, using simplified or colloquial wording,
- provides a broader response than the institution’s question actually requires,
- presents its own assessment of the situation before reviewing the complete project documentation.
In practice, problems often arise from seemingly minor statements. A funding recipient may write, for example, that “the project was ultimately implemented partly in a different way”, that “the change was necessary from a business perspective”, or that “the funding institution had previously been informed by telephone”. Such wording is usually intended merely to explain the situation. Later, however, it may begin to form part of the factual findings concerning the project.
“…provide all explanations concerning the implementation of the project”
There are situations in which the funding recipient cannot simply choose not to respond to the funding institution. Grant agreements require businesses to provide explanations, make documents available and cooperate during project controls. Failure to respond to repeated emails, letters and formal requests may lead the institution to terminate the grant agreement with immediate effect, creating a risk that the entire amount of funding received will have to be repaid.
When can failure to respond harm the funding recipient’s position?
Failing to answer a question from the funding institution rarely makes the underlying issue disappear. If an authority or institution has identified an inconsistency in the documentation, challenged particular expenditure or is trying to establish how the project was implemented, leaving the question unanswered means, above all, that the case file contains evidence that the funding recipient failed to cooperate with the authority.
This is particularly important where the circumstances in question can be explained by documents that are not yet in the institution’s possession. Without such an explanation, the assessment may be based on incomplete evidence. If the same circumstances later become the subject of a project control, a post-control report or repayment proceedings, the starting point may be findings that were previously left unanswered.
This does not mean that every letter should be answered by writing something for the sake of responding. What matters is the content of the question, the stage of the case and the project documentation. Sometimes responding to a request for explanations first requires reconstructing the course of events, reviewing earlier correspondence and determining what information had previously been provided to the funding institution. Remaining silent may be risky, but similar risks may arise from giving an unprepared response.
Why can a seemingly harmless explanation resurface during a project control?
In practice, correspondence exchanged during project implementation is later treated as part of the documentation used to reconstruct how the project was carried out and whether the terms of the grant agreement were complied with. This also applies to ordinary emails and responses given to routine questions from the project officer.
The problem arises when, several months or years later, the funding institution returns to a particular statement and attributes significance to it that the funding recipient did not anticipate when it was written. A subsequent post-control report may state, for example, that “the funding recipient itself indicated” that the scope of the work had been changed, that a particular activity had been carried out differently from what was originally planned, or that a business decision had been taken for a specific reason.
Such a statement may be only partly accurate. It may be shorthand, a response referring to a different stage of the project, or a simplified description of a more complex situation. It can be much more difficult to explain this later, particularly where the project documentation supports more than one possible interpretation.
Before submitting explanations, their wording should therefore also be considered from the perspective of someone who, two years later, may read only that email and the documents contained in the case file. If particular wording could be interpreted as an admission of a fact relevant to the eligibility of expenditure, the project’s compliance with the funding application or compliance with a required procedure, it should be used with particular care.
Request for explanations – what should be checked before responding?
The first step should be to determine exactly what the institution is asking about. In practice, the institution may ask about one specific item of expenditure or a particular project modification, while the funding recipient responds by describing the implementation of the entire project more broadly. In doing so, the recipient may itself raise additional issues that the institution had not previously questioned.
The next step is to return to the funding application and the grant agreement. If the question concerns the way in which an activity was carried out, the scope of work, the schedule, personnel or the result achieved, the response should be consistent with what the funding recipient previously declared. Where changes occurred, it should be established whether they were notified, approved or otherwise documented.
Before submitting new explanations, it is also worth checking whether the same issue has already been addressed in earlier correspondence and whether the new response is consistent with what was previously stated. Sometimes a difference results only from the use of different wording. To someone reviewing the project, however, it may appear to be a change in the account of events.
Particular care should be taken with statements that create a new description of the facts. If the project documentation contains no reference to a “change in scope”, “discontinuation of certain activities” or a “different method of implementation”, using such wording in an email may later become an independent point of reference during a project control. Before using it, it should be verified whether it accurately reflects what actually happened and whether it is the correct legal characterisation of the situation.
Finally, the response should be compared once again with the institution’s actual question. A good response should address what the institution has asked and identify the documents supporting the position presented. Expanding it with assumptions, additional assessments or issues outside the scope of the question will usually not help and may sometimes create a new issue that did not previously exist in the case.
So, should you respond or not?
A request for explanations requires a response from the funding recipient, particularly where it concerns issues related to project implementation or control findings. It can safely be said that failing to respond to letters from the institution does not help the funding recipient. A lack of explanations will usually result in the institution beginning to assess the project solely on the basis of the documents available to it, its own control findings or fragments of earlier correspondence. On the other hand, responses sent under time pressure, “quickly” or without first reviewing the project documentation may also become a source of serious problems.
Many businesses only realise during a project control, audit or dispute concerning repayment of funding that a few sentences written many months earlier have begun to function as confirmation of particular facts concerning the project. The problem is therefore often not the letter from the institution itself, but a carelessly drafted response prepared in haste, which may later adversely affect the funding recipient’s position in administrative proceedings.
Have you received a request for explanations concerning project implementation?
See how the Law Firm supports funding recipients in analysing correspondence from funding institutions, preparing explanations and matters involving project controls.
