What does subsidy or grant abuse mean?

The unjustified application and use of subsidies and grants can be deemed abuse. In such a case, the activities do not correspond to the intent of granting the subsidy or grant. Grants may be applied for with incorrect information or the activities of the applicant may be in violation of the conditions for the grant. Grants may also be applied and incorrectly used with fraudulent register data or entries.

Subsidies and grants are granted to companies, for agriculture, and as social security benefits.  Among other things, receiving a too high amount in social security benefits or applying for benefits with incorrect grounds are considered abuse. The submitted information may include forged documents or manipulated information. In the case of intentional abuse, the benefits will be recovered and criminal charges for fraud may be brought.

Social impacts of grant abuse

Subsidy and grant abuse have direct and indirect social impacts. Direct impacts include the incorrectly received grant sum not being accessible to those who truly need it. At the same time, the planned effect of the grant is not realised which makes the grant less useful. Abuse may also decrease the credibility of the grant system or the authority granting it. Those who have received a grant may become subject to public critique.

Grant abuse also has regional impact. Supervision of EU grants seems to be less strict than that of national grants, and there may be more incentives to improve national supervision and legislation.

Finnish legislation on grant abuse

In Finland, the supervision and recovery of grants are provided for in chapters 4 and 5 of the Act on Discretionary Government Transfers (688/2001). Provisions on recovery are also included in special provisions on government grants.

According to the Act on Discretionary Government Transfers, the grant authority must ensure that there is appropriate and sufficient supervision.  The grant authority may issue a decision on suspending the payment of the grant and recovering the paid amount. The following are the recovery criteria:

- The recipient of the grant has neglected its duty to provide information.
- The recipient has refused to submit required information or otherwise assist the grant authority in an audit.
- The activity for which the grant was granted has ceased or been materially downsized.
- The recipient is subject to an enforcement procedure, enterprise restructuring or debt adjustment, or declared bankrupt.

The grant authority has the right to disclose information to the police or other authority carrying out the pre-trial investigation to prevent a crime taking place or to investigate one, or to a prosecutor for a consideration of charges.

Subsidy fraud and subsidy misuse are provided for in chapter 29 of the Criminal Code of Finland (39/1889). Chapter 36 of the Criminal Code provides for fraud; these headings are usually referred to in cases of abuse involving Kela benefits.

According to chapter 29, section 5 of the Criminal Code, a person who provides an authority deciding on subsidy false information that is conducive to essentially affecting the granting of a subsidy or the amount or conditions thereof, or conceals essentially relevant information or neglects to provide information on a change in circumstances that is conducive to essentially affecting the granting of a subsidy or the amount or conditions thereof, and a duty for the provision of such information has been expressly provided in connection with the decision to grant the subsidy or otherwise, and in this way obtains or attempts to obtain personal financial benefit or financial benefit for another is committing subsidy fraud.

Effect of grant abuse to different authorities 

Grant abuse makes the work of those granting subsidies or grants more difficult. The procedures for processing, supervision and recovery must be designed and managed in a way that ensures that committing abuse is as difficult as possible on one hand and that supervision and detection of abuse is as easy as possible on the other. This requires knowledge and competence in risk management and data analysis. It is difficult to establish supervision that has no weak points due to restrictions arising from legislation and practical issues in acquiring information, for example.

Financers must consider their resources and risk management as well as the operative framework created by legislation. This raises important questions, such as will there be any return on the invested assets, will the grant end up with the right parties, and will information on successes or risks flow back to the financers.

The applicant or receiver of a subsidy or grant is placed at a disadvantage if the weaknesses of the system create opportunities for abuse. Lack of time, deficient legislation and lack of sufficient resources can all contribute to creating a situation where unjust enrichment is lost after being paid to a party that applied for it unjustly.

Organised crime focuses on falsifying financial information and identity theft and constantly strives to create new ways to continue the criminal activities.

The pressure on auditors to verity activities and the use of grants is constantly rising. The role of internal audits must also be increased to detect abuse.

Abuse cases take away operative capacity in criminal proceedings. A lack of resources will increase the workload at every stage of the procedure, from the pre-trial investigation to the issuing of the judgement. The administrative burden at all stages will also increase. 

Parties related to the use subsidies and grants

• Parties granting subsidies and grants
  - processors – provisions on disqualification
  - recovery
  - also carry out supervision
• Financers
  - ministries
  - authorities
  - cities and municipalities
  - non-governmental organisations
  - EU
  - also carry out supervision
• Applicant or receiver of a grant or subsidy
  - natural person (social benefits, self-employment)
  - for-profit organisation
  - non-profit organisation
  - buffer company
• Organised crime
  - usually managed from outside Finland
  - domestic or foreign operator
• Auditors
  - internal
  - external
• Criminal procedure authorities
  - police
  - prosecutors
  - courts

Motives of different parties

• Parties granting subsidies and grants
  - preventing abuse
  - distributing assets to the correct parties on justified grounds
  - avoiding image risks
• Financers
  - preventing abuse
  - promoting equality and fairness
• Applicant or receiver of a grant or subsidy
  - gaining financial benefits
  - improving their competitive edge
• Organised crime
  - financing criminal activities
• Auditors
  - interests related to the company’s operations
• Criminal procedure authorities
  - enforcing criminal liability