When does the risk of repayment of funding arise?

The risk of repayment of funding may arise long before a demand for repayment or an administrative decision is issued. In practice, it often arises when the funding recipient changes the manner in which the project is implemented, incurs expenditure differently from what was originally envisaged, encounters difficulties in achieving an indicator, or receives the first questions from the funding institution. The key is to determine what obligation arose from the project documentation, what actually occurred during project implementation and what consequences may be associated with that event.

At that stage, the key issues are to determine what obligation was binding on the funding recipient, what actually occurred during project implementation and what consequences the funding institution may associate with the particular event.

The occurrence of a problem in a project does not yet determine the amount that may have to be repaid. A challenge to a single item of expenditure is assessed differently from a modification of the material scope of the project, and differently again from a situation in which the funding institution considers that implementation of the entire project has been put at risk.

The risk of repayment of funding may arise as early as during project implementation

A project may proceed for many months without any objections from the funding institution even though an event relevant to its subsequent settlement occurred much earlier. This may happen, for example, where the funding recipient changes the manner in which a task is performed, uses a different technological solution, reallocates expenditure, changes a contractor or makes a decision affecting the scope of the project. The funding institution may only become aware of the details of such a change when reviewing a subsequent payment application or report, during a project control, or when the project is being settled.

For this reason, two dates are important when assessing the risk:

• the first concerns the event that occurred during the project,
• the second is the point at which the funding institution began to examine it.

This distinction is important in practice. By the time a letter is received, documentation relating to the earlier decision may already have existed for many months. Any explanations provided later will be assessed against that existing record.

How do the applicable rules structure the consequences of an irregularity in a project?

In projects financed from European funds, the point at which an irregularity is identified is important. The implementation act for the 2021–2027 financial perspective distinguishes between a situation in which the irregularity is identified before a payment application is approved and one in which the application has already been approved. In the first case, the funding institution reduces the amount of eligible expenditure included in the payment application. Once the application has been approved, a financial correction is imposed. This distinction follows from Article 26(8) of the Act of 28 April 2022 on the principles for implementation of tasks financed from European funds under the 2021–2027 financial perspective.

For funds that have already been disbursed, Article 207 of the Public Finance Act is also of fundamental importance. It provides for repayment of funds used contrary to their intended purpose, used in breach of the applicable procedures, or received unduly or in an excessive amount. The Act also provides for a demand for repayment and, if the demand is not complied with, for the issuance of a decision specifying the amount to be repaid.

The procedure for identifying and correcting irregularities is further developed in the Guidelines on the correction of irregularities for 2021–2027. The Guidelines set out the rules for dealing with irregularities and the method for calculating financial corrections.

A project modification may create a risk of repayment

Changes during project implementation are natural. Prices rise, contractors withdraw, delivery dates change, equipment availability changes and technological assumptions evolve. In R&D projects, the course of the work itself may make it necessary to modify the solution originally planned.

The legal significance of a modification depends, however, on its scope and on the rules applicable to the particular project. Particular attention should be paid, among other things, to modifications concerning:

• the material scope of the project,
• the manner in which a task is carried out,
• the technology or solution being developed in the project,
• the contractor or the procedure for selecting the contractor,
• the project schedule,
• the budget structure,
• the location of project implementation,
• the scope of work entrusted to external entities,
• the manner in which project results and indicators are to be achieved.

The first step is then to determine what procedure for introducing modifications was provided for in the funding agreement and the programme documentation. Depending on the project, notification of the modification may be sufficient, while in other cases the funding institution’s approval or an amendment to the funding agreement may be required.

Documents created when decisions were made are also important. If a question arises two years later as to why a particular solution was adopted, it is much easier to reconstruct the situation on the basis of existing correspondence, technical documents and information previously provided to the funding institution.

I discuss project modifications and the significance of the procedure provided for in the funding agreement in more detail in the article Project modification after signing the funding agreement – is the funding institution’s approval required?. In the case law of the administrative courts, the content of the approved application and the terms of the funding agreement are treated as an important point of reference when assessing subsequent project modifications.

Challenging expenditure may lead to different consequences

Another common source of risk is the eligibility of costs. When verifying a payment application, the funding institution examines, among other things, whether the expenditure is consistent with the project and whether the eligibility conditions have been met. The Guidelines on the eligibility of expenditure for 2021–2027 applicable to the project are also relevant when assessing expenditure. Their current version has applied since 25 May 2026 and sets out detailed conditions and procedures for the eligibility of expenditure. A project control may also cover financial documentation, contracts with contractors and documents relating to the manner in which they were selected. In practice, several situations should be distinguished:

• if expenditure is challenged before the funding is disbursed, the institution may reduce the amount of eligible expenditure included in the payment application accordingly,
• if the funds relating to the expenditure have already been disbursed, challenging the expenditure may result in a demand for repayment.

Information that the funding institution has “challenged an invoice” is therefore often only the starting point for the assessment. It is necessary to determine precisely what the allegation concerns, which obligation the institution considers to have been breached, the basis from which it derives that obligation and which part of the funding it associates with the identified deficiency. It is these details that determine the difference between a challenge to a specific item of expenditure and a risk affecting a larger part, or even the entirety, of the funding.

Failure to achieve an indicator requires an assessment of its significance for the project

The risk of repayment of funding may also arise where the project has been completed as planned in material terms, but the funding recipient has failed to achieve the indicator value specified in the application for funding. The first step is to determine what type of indicator is involved. Relevant factors may include its nature, target value, deadline for achievement, method of measurement and the provisions of the funding agreement governing the consequences of achieving the indicator at a level below the target.

In practice, it is also important to determine whether the issue concerns a single result or calls into question achievement of the project’s principal objective. A minor deviation from an economic indicator carries different significance from a situation in which the result constituting the principal outcome of the funded project has not been achieved at all. For this reason, the percentage of indicator achievement alone does not answer the question of how much funding may have to be repaid. The specific project documentation and the mechanism applicable to the particular programme must be assessed.

A project control may reveal a problem that arose much earlier

Project controls may take place during implementation, upon project completion and, in certain circumstances, at a later stage. They may cover both financial documentation and the actual scope of the activities carried out. As a result, the risk of repayment of funding often becomes apparent to the funding recipient only once the verification process has begun.

A typical course of events usually looks as follows:

1. project implementation
2. questions from the funding institution
3. request for documents or explanations
4. project control
5. post-control report
6. challenge to expenditure or to a particular manner of project implementation
7. demand for repayment
8. proceedings for recovery of funds.

Each case may, of course, develop differently. What matters is determining the stage at which the funding recipient currently finds itself, because an initial question from a project officer has a different significance from formal findings already set out in a post-control report concluding a project control.

A post-control report is a particularly important stage because it sets out the funding institution’s own findings concerning the project and may identify breaches to which it attaches financial consequences. At that stage, the funding recipient may usually still challenge those findings in accordance with the procedure applicable to the particular control.

How can you tell when the risk of repayment is becoming real?

Particular attention should be paid to situations in which the funding institution begins to focus on a specific event in the project. This may involve a request for documents relating to a particular procurement procedure, a question about the basis for a change in the scope of a task, a request for explanations as to how an indicator was achieved, a request to demonstrate that the project results were delivered, or a reference to provisions of the funding agreement concerning termination of the agreement and repayment of funds.

A change in the way the funding institution formulates its correspondence is also significant. Questions relating to the ongoing settlement of the project are different in nature from a letter in which the institution identifies a specific obligation, describes an alleged breach and signals a possible financial consequence. At that point, it is worth considering the matter as a whole rather than responding only to an individual question taken out of the context of the project’s earlier course.

What should be checked before responding to the funding institution?

When a risk of repayment of funding arises, four elements are usually particularly important.

1. Chronology of events. It is necessary to establish when the modification occurred, when the funding institution was informed of it, what documents it received and what position it took at the successive stages.
2. The applicable version of the documentation. Projects implemented over several years are governed by documents that may change during that period. What matters is the version of the funding agreement, application for funding, programme rules, guidelines and other documents that applied to the particular activity at the relevant time.
3. The content of the specific obligation. A general statement that the “project implementation rules were breached” explains little. It is necessary to identify the obligation that the funding institution expected to be performed and the source from which that obligation arose.
4. Documents showing the actual course of project implementation. Relevant documents may include payment applications, correspondence with the funding institution, procurement documentation, minutes, work reports, amendments, notifications of project modifications and other materials confirming the performance of individual tasks.

This approach makes it possible to distinguish the mere existence of a problem from its legal and financial assessment.

Risk of repayment of funding and a subsequent demand for repayment

A demand for repayment means that the matter has entered a significantly more advanced stage. The funding institution specifies the event to which it attaches a financial obligation and indicates the amount it demands from the funding recipient. At that point, however, it is still necessary to examine the legal basis for the demand itself, the manner in which the amount was determined and the connection between the alleged breach and the funding of the project. The funding recipient may challenge both the factual findings and the legal assessment, as well as the extent of the financial consequences.

For this reason, the stage that often requires the greatest attention arises much earlier. The earlier it is established what gives rise to the risk of repayment of funding, the greater the opportunity to organise the documentation, present the course of the project properly and assess what further action should be taken.

Is the funding institution challenging the manner in which the project was implemented, a particular item of expenditure, a project modification or the achievement of indicators? The Law Firm’s scope of support in matters concerning project controls, financial corrections and repayment of funding is described under Project controls and repayment of funding.