What does the ferryman pay? – Quantification of a public foundation's losses

Our study examined the financial effects of Budapest Enterprise Development Public Foundation's (Budapesti Vállalkozásfejlesztési Közalapítvány, hereinafter referred to as BVK) participation in Baseline consulting programme 2.2.1. under the Economic Competitiveness Operational Programme (ECOP). Adjusting our calculations on a gradual basis, we reached a conclusion that, in total, the public foundation had accumulated a minimum of HUF 16.8–19.2 million in negative cash flow effect by the time of the financial closure of the programme at the beginning of 2008. It is an important fact that BVK, in spite of all these, was able to implement 100 per cent of its programme – at the cost of great efforts. Approximately HUF 6.2–6.4 million can be attributed to paying for items that were not funded within the programme, as even BVK was forced to accept subsequently, in order to be able to proceed with the programme (rejections accepted). Another deficit of HUF 7.2–9.9 million resulted from the fact that the central coordinator exceeded the originally 60-day payment deadline on a regular basis, which made programme funding facilities uncertain, and required involvement of unplanned supplementary resources on BVK's part. (The fact that this value falls short of the first rough estimate specified in chapter 1.1., is mostly due to the existence of advance payments.) The fact that the transfer of nearly HUF 123 million earmarked to improve the liquidity situation was also delayed added another HUF 0.36–0.50 million to the deficit. At this point, it must be noted that not even the mere fact of providing an advance payment was free from arguments, and the amount was specified by the Manaement Authority of the ECOP as the minimum of grant amounts, which is contradictory when considering the program objective and contents. It is to be seen that participation in the programme also yielded a number of hardly quantifiable expenses that could not be planned for in advance, as well as unfavourable effects, in addition to relatively easily quantifiable expense items. Due to liquidity problems, a six-month suspension of the programme and continuous arguments about settlements, the relationship deteriorated with the consultants who were forced to wait for their remuneration for up to a year, also with the coordination body and with the ministry. Consequently, programme efficiency fell short of the expectations, primarily due to a reduced motivation of the network of consultants. As a result, the effect of synergy expected among product systems within the integrated system of services was not sufficiently felt. In addition, the programme withdrew capital and resources from other non-profit programmes run by BVK, whereby they also fell short of their planned oper-ating efficiency. On top of all that, BVK was forced to develop rules of procedure and software that ensured operation of the programme on a national scale, from client relationships to treasury payments. On the whole, we may state that the overwhelming majority of the deficit stemmed from weak central programme coordination and the consequential problems of liquidity management that deviated from the plans. A lesson that must be learnt from this case is that, for similar programmes in the future, particular attention must be paid to risks arising from options of settlement frequencies, unrealistic funds transfer deadlines and costs allowed to be settled. So, risks would need to be “priced”. This would facilitate specification of an amount of capital that needs to be permanently tied up for successful implementation still prior to launching the programme, as well as the replacement cost, in addition to a liquidity plan that also uses specific regulatory anomalies determined in an empirical system. At the same time, subsequently inexplicable free variations to the sets of rules accepted as constants on planning and contracting face experts in charge of implementing services with hardly resolvable difficulties.