Issues identified through inspections and audits at the ORLEN Group

Source: www.gulfoilandgas.com 10/8/2024, Location: Europe

Supported by external auditors and law firms, ORLEN has undertaken an extensive review of the Group’s activities covering the period between January 2016 and February 2024. So far this year, over 50 inspections and audits have already been completed, with about as many still underway. Investigations into various aspects of the Group’s activities have also been launched by law enforcement authorities and prosecutors. Out of the 28 key probes that are now at different stages, 12 focus on ORLEN, while the remaining 16 concern other Group companies.

The Company has already filed eight formal reports to the prosecutor’s office, with more under preparation. In two cases, ORLEN may have sustained losses in excess of PLN 5 billion due to actions or negligence of its former management board. A review of the planning and construction of the Olefins 3 project has revealed multiple errors and potential misconduct, suggesting that further financial losses may come to light. The findings of 53 inspections and audits are now being assessed, with an additional 55 checks covering the Group’s business processes still afoot.

Misappropriation of funds and unjustified expenditure
One of ORLEN’s key filings to the prosecutor’s office resulted from an inspection that had uncovered 221 instances of financial misappropriation by the previous management. Former board members, including the Company’s president, spent a total of PLN 43 million without a sound business reason. These expenses included personal expenditures such as prosthetic and aesthetic medical services, which clearly seem to fall outside the fixed benefits plan and should not have been covered by Company funds.

Additionally, unauthorised use of detective services was identified, which not only lacked any business rationale, but served to gather information on members of the then parliamentary opposition. Abuse of power allegations have been raised against the former head of ORLEN’s Control and Security Office in relation to this engagement.

An investigation is also underway involving ORLEN’s former president, who is alleged to have solicited an undue financial gain. The case goes back to 2018, when he acquired a private property at a reduced price from a developer in connection with a joint football sponsorship deal.

Following a report by the Polish Supreme Audit Office (NIK) on remuneration practices at state-controlled companies, possible breaches of the salary cap law by the former management are also under review. Preliminary findings suggest that excess payments to nine individuals between 2018 and 2022 may have exceeded PLN 9 million.

Abuse of power
Audits of the ORLEN Group’s investment activities have revealed potential violations and dereliction of duty, particularly in relation to its Swiss subsidiary ORLEN Trading Switzerland, where mismanagement led to an impairment loss of PLN 1.6 billion, as reflected in the Group’s financial report released in April this year.

The prosecutor’s office is also investigating irregularities in the procurement process for the construction of the Olefins 3 plant in Plock. The ongoing probe concerns allegations of a rigged tender. Moreover, in-house inspections have identified issues related to labour law compliance among subcontractors employed by the project’s main contractor.

A major criminal investigation concerns suspected underselling of fuel on both the wholesale and retail markets, as well as unlawful release of strategic fuel reserves. The Company’s findings indicate that the resulting losses for the ORLEN Group may have topped PLN 3.5 billion.

Supplier selection review
Internal audits have revealed that in 2019 ORLEN engaged a law firm that lacked the necessary expertise and human resources to deal with legal areas relevant to the Company. Preparations are being made to notify the law enforcement authorities of these findings.

Additional inspections and audits have been conducted across various Group companies, uncovering a number of issues, including abuse of power and dereliction of duty by company officers. Several individuals are already facing formal charges.

The auditors have raised concerns about projects involving entities linked to former board members, and potential cases of fictitious employment, where no evidence of work output could be found.

Auditors are also closely examining activities of the media group Polska Press, including its refusal to publish certain electoral advertisements during last year’s parliamentary campaign. Further scrutiny is being applied to the appointment in 2023 of management board attorneys-in-fact at Polska Press, particularly in relation to electoral advertising, one of whom was simultaneously employed by the Polish Television, a public service broadcaster.

In addition, the audits are reviewing the Group’s sponsorship and marketing deals, with a focus on the relationships between service providers and company employees. Lastly, activities and funding streams of ORLEN’s corporate foundation have also come under scrutiny, prompted by suspicions of unjustified donations.


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