Ministry of Finance and subsidy control: Statutory representatives' responsibility for returning subsidies

Subsidies can be a significant source of financial support, but drawing on them also carries serious risks. If the conditions of use are violated, you as a member of the statutory body may be held directly liable. This article provides an overview of the Ministry of Finance's control mechanisms, situations where subsidies may have to be returned, and information on the personal liability of executives and board members.

How does the subsidy control system work in the Czech Republic?

Subsidy control in Czechia is structured into several levels, which ensures thorough verification of whether recipients comply with the set conditions. The Ministry of Finance plays a key role in this system as a coordinator and methodological body.

The first level is control directly at the subsidy provider, which is obliged to verify the accuracy of the reported expenditure. The provider must ensure that the funds are used in accordance with the law and the conditions of the subsidy. If discrepancies are found, the expenditure must not be reimbursed or must be corrected in another appropriate manner. The managing authority of the operational programs therefore continuously analyzes the risks and carries out checks based on this analysis.

The second stage is an independent audit carried out by the Audit Authority within the Ministry of Finance. This body verifies projects ex post, i.e., after the payment request has been submitted to the European Commission. Auditors examine not only the recipients of subsidies themselves, but also the functioning of the entire management and verification system on the part of the providers. Most audit activities are carried out remotely "from the desk"; a physical visit to the recipient takes place only in cases where certain facts cannot be verified remotely.

The tax authorities also operate within the control system, assessing cases of breaches of budgetary discipline. As the certifying authority, the Ministry of Finance is responsible under European Union rules for the accuracy of payment requests submitted to the European Commission. It also coordinates public administration control plans through a specialized information system.

The selection of projects for audit is based on payment requests submitted to the European Commission. The sampling methodology is set by the European Commission and is carried out twice a year in Czechia. Audits may therefore concern any subsidy recipient up to ten years after the last part of the subsidy has been paid out.

If you need advice on setting up internal controls for the use of subsidies or preparing for a possible audit, please contact us at office@arws.cz. We will help you minimize risks and set up processes that will stand up to even the most thorough audit.

Risks and sanctions	How ARROWS (office@arws.cz) can help
Insufficient preparation for an inspection by the managing authority or the Audit Authority of the Ministry of Finance.	Comprehensive legal preparation for the inspection, review of documentation, and setting up processes prior to the inspection.
Lack of knowledge of inspection procedures and the powers of the inspection authorities.	Legal representation during the inspection and consultation on the course of the inspection process.
Missing or incorrectly maintained project documentation.	Preparation and revision of documentation for the subsidy project, setting up a record-keeping system.

When can the Ministry of Finance initiate proceedings to withdraw a subsidy?

The subsidy provider may withdraw support already provided in situations clearly defined by budgetary rules. The law specifies eight specific reasons for withdrawing a subsidy, each of which has different legal consequences.

The first reason is the freezing of state budget funds. If the government decides to freeze funds, the subsidy provider must respond and initiate proceedings to withdraw the subsidy. In such a case, however, it is not possible to demand the return of the part of the subsidy that has already been sent to the recipient's account – this is a situation caused by circumstances beyond the recipient's control.

More fundamental are the reasons listed in Section 15(b) to (h) of the Budgetary Rules Act.

If a conflict with the law or European Union law is found, the provider may proceed to withdraw the subsidy. A significant fact is the failure to fulfill the purpose of the subsidy – if the provider finds that the purpose for which the subsidy was provided cannot be fulfilled properly or on time, it has the right to initiate proceedings for its withdrawal.

Reasons for withdrawal also include situations where the subsidy was provided as illegal public support incompatible with the internal market. If the European Commission issues a negative decision, the recipient is obliged to return the support to the provider. Similarly, the subsidy may be withdrawn if the recipient has violated the conditions of the decision to grant the subsidy or the terms of the contract.

The project's sustainability period is also a critical factor. If the recipient of the subsidy violates the conditions of the subsidy during the specified sustainability period—for example, by changing the purpose of use of the property, selling it, or terminating the activity for which the funds were obtained—the provider has the right to withdraw the subsidy and demand its return.

The procedure for withdrawing a subsidy is an administrative procedure governed by the Administrative Code. The provider must duly justify its decision and the recipient has the right to appeal. According to the methodological guidelines of the Ministry of Finance, it is crucial that, in the event of withdrawal for reasons b) to h), the provider may impose the return of the subsidy or part thereof that has already been sent to the recipient from the state budget account.

At ARROWS, we have extensive experience in defending subsidy recipients in revocation proceedings. We will help you challenge unclear subsidy conditions, apply the principle of proportionality of sanctions, and defend your rights throughout the administrative proceedings. Contact us at office@arws.cz.

FAQ – Legal tips for subsidy revocation proceedings

1. How long after the subsidy has been paid can the provider initiate revocation proceedings?

The subsidy provider is not entitled to initiate revocation proceedings indefinitely. In general, there is a subjective three-year and objective ten-year period from the breach of obligation. In practice, however, it depends on the specific reason for the withdrawal and the type of subsidy. For European funds, the deadlines are often derived from the rules for keeping records and audits, which can last up to ten years after the end of the programming period.

2. Do I have to return the subsidy even if I have only formally breached the conditions?

Not always. The consistent case law of the Supreme Administrative Court confirms that sanctions must be proportionate to the seriousness of the misconduct. A formal administrative error that did not affect the fulfillment of the project's purpose cannot be automatically punished by the return of the entire subsidy.

3. How can I defend myself against a decision to withdraw a subsidy?

It is possible to appeal against a decision to withdraw a subsidy to a higher administrative authority. After exhausting all ordinary remedies, an action may be brought before a regional court in administrative proceedings. It is important to act quickly – the deadlines for filing an appeal are short, usually 15 days from the delivery of the decision.

What does a breach of budgetary discipline mean?

A breach of budgetary discipline is a serious misconduct in the management of public funds. According to budgetary rules, it is the unauthorized use or withholding of funds provided as a subsidy or repayable financial assistance from the provider's budget.

Unauthorized use means a situation where the recipient of the subsidy uses the funds, but for a purpose other than that specified. Typically, these are cases where a company draws a subsidy, for example, to purchase technology, but uses the money to cover operating costs that were not part of the approved project. Withholding of funds occurs when the recipient receives the funds but does not use them at all or does not use them within the period specified in the decision to grant the subsidy.

There are two types of consequences for violating budgetary discipline. The first is a levy, which represents the return of the part of the subsidy that was used unlawfully. The levy is not a penalty in the sense of criminal or administrative liability – it is a refund, i.e., the return of funds that were not used in accordance with the conditions. The amount of the levy corresponds exactly to the amount that was used contrary to the purpose of the subsidy.

The second consequence is a penalty, which is calculated for each day of delay from the date on which the recipient was supposed to fulfill their obligation. The penalty can reach up to the amount of the repayment itself, which represents a very significant amount in the case of a longer delay. According to the law, the penalty is calculated similarly to interest on late payment, with the specific calculation depending on the amount of the repayment and the length of the delay.

Proceedings for breach of budgetary discipline are conducted by the tax office, which issues a decision on the payment and penalty. This process is separate from any proceedings for the withdrawal of the subsidy, which are conducted by the provider. The subsidy provider is obliged to report any irregularities found to the tax office, which then assesses whether there has been a breach of budgetary discipline.

The recipient's attempt to voluntarily return the subsidy upon discovery of the error is not an automatic reason for not imposing a penalty or reducing it. The tax office has certain options for waiving or reducing penalties, but these are exceptional cases based on the recipient's request in the waiver proceedings.

Professional assistance from a lawyer in proceedings for breach of budgetary discipline can significantly reduce the financial impact. ARROWS specialists can effectively argue for a reduction or waiver of penalties and represent you throughout the proceedings. Write to us at office@arws.cz.

Risks and penalties	How ARROWS helps (office@arws.cz)
Payment for breach of budgetary discipline in the full amount of the funds used.	Legal defense in proceedings for breach of budgetary discipline, arguing the proportionality of the penalty.
Penalty up to the amount of the levy, increasing with each day of delay.	Submission of a request for waiver or reduction of the penalty with expert justification.
Priority enforcement of the state's claim in the event of the company's insolvency.	Comprehensive advice on the company's financial difficulties, including insolvency solutions.

Personal liability of members of the statutory body when drawing subsidies

The statutory body of a company – whether it is the managing director of a limited liability company or the members of the board of directors of a joint-stock company – bears extensive responsibility in the performance of its duties. Under certain circumstances, this responsibility may also entail personal financial obligations to the company or its creditors.

The law stipulates a basic obligation to act with due diligence. This obligation has three key components. The first is loyalty to the company – the statutory body must prioritize the interests of the company over its own or third-party interests.

The second component is the obligation to act with the necessary knowledge, i.e., in an informed manner. Before making any important decision, a statutory representative must obtain sufficient relevant information and carefully consider the possible options. The third component is diligence—a statutory representative must devote sufficient time to their duties and actively monitor the company's financial management, including possible risks.

In the context of drawing subsidies, due diligence takes a specific form. The statutory representative must ensure that the company complies with all the conditions set out in the decision to grant the subsidy or in the subsidy agreement. This includes both the correct use of funds for the specified purpose and compliance with all formal obligations, including record keeping, disclosure of information about the project, and compliance with the rules for selecting suppliers.

If the statutory representative breaches this obligation and the company suffers damage as a result, they are obliged to compensate for this damage. In the case of subsidies, damage means not only the actual payment for breach of budgetary discipline, but also penalties, costs of legal representation in proceedings, or even the loss of further business opportunities as a result of damage to the company's reputation. The statutory representative is liable for damage caused in connection with a breach of his or her duties in the performance of his or her functions.

According to the Civil Code, a specific rule applies to the liability of the statutory body. If a statutory body has caused damage to the company by breaching its duty of care and does not compensate the company for this damage, it is liable to the company's creditors for its debts to the extent that it has not compensated for the damage. This means that if the company does not have sufficient funds to pay its liabilities, the creditor may seek satisfaction directly from the statutory body that breached its obligations.

In practice, this works in such a way that the creditor – which may be the state in the position of a subsidy provider or the tax office enforcing a levy for a breach of budgetary discipline – first attempts to enforce its claim against the company. However, if it cannot enforce the claim against the company because the company does not have sufficient assets, it may turn directly to the statutory representative. The statutory representative is then liable with all their personal assets, including movable and immovable property.

Importantly, the burden of proof lies with the statutory representative. This means that if the creditor files a lawsuit for damages or performance under the guarantee, it is the statutory representative who must prove that they acted with due diligence. They must prove that they obtained sufficient information before making decisions related to the subsidy, carefully considered the possible risks, and acted in the best interests of the company. If they fail to prove this, it can be assumed that they have breached their duty of care.

Case law is very strict in assessing the liability of statutory bodies. The courts have repeatedly confirmed that statutory bodies are responsible for the proper performance of their duties, not for the results of their activities. This means that if a subsidy project does not turn out well economically, but the statutory body acted with due diligence, they do not bear personal liability.

Conversely, if they failed to ensure compliance with the subsidy conditions—for example, by not checking the correctness of the tender for suppliers, not supervising the keeping of records, or not ensuring the publicity of the project—they may be liable for all damages incurred by the company as a result.

Liability does not arise only for the managing director or members of the board of directors. It affects all members of the statutory body jointly and severally. If the company has more than one managing director and one of them makes a mistake, they are all liable unless the other managing directors can prove that they made an effort to prevent the mistake from happening. In practice, this means that even a formal managing director who is not actively involved in the management of the company may be held liable.

Have you discovered misconduct in the use of subsidies? Contact the ARROWS law firm at office@arws.cz. We will help you assess the extent of any liability and suggest steps to minimize personal risks.

What situations lead to personal liability of statutory representatives?

There are a number of specific situations in which a statutory body may incur personal liability in connection with the use of subsidies. Understanding these risk factors is key to preventive protection.

The first typical situation is insufficient control over compliance with subsidy conditions. Statutory bodies are required to actively supervise that the company uses subsidy funds in accordance with the purpose specified in the subsidy decision.

For example, if a company receives a subsidy for the purchase of production technologies and subsequently uses these technologies in part for other purposes that were not part of the project, this may constitute a breach of the conditions. A statutory body that failed to supervise or detect this situation may be liable for damages caused by the subsidy and penalties.

The second risk area is the incorrect selection of suppliers. Subsidy programs often require strict rules for selecting suppliers to be followed—for example, a transparent tender process in accordance with public procurement rules or at least proof of selection from multiple bids.

If a statutory representative approves a contract with a supplier without a proper tender process or in violation of the program rules, this may result in a reduction or complete withdrawal of the subsidy. The statutory representative is personally liable for any damage caused in this way.

A third common problem is insufficient project documentation. Grant recipients are required to keep detailed documentation on the implementation of the project, including accounting documents, photographs of the work in progress, attendance sheets for training courses, confirmation of delivery of goods, and more.

Missing or incorrectly kept documentation may be a reason for not recognizing expenses as eligible, which leads to the return of the subsidy. A statutory representative who has not ensured proper documentation or has not entrusted this agenda to a competent person is in breach of the duty of care of a prudent manager.

The fourth risk is failure to comply with the project sustainability period. Most subsidy programs set a period during which the results of the project must be maintained – typically five years after completion. During this period, no changes may be made that would violate the terms of the subsidy.

For example, if a company has received a grant for the reconstruction of a production hall and sells the hall or changes its purpose of use during the sustainability period, it may be obliged to return the entire grant. A statutory representative who approves such a transaction without considering the impact on the grant is in breach of their duties.

The fifth problem area is the delegation of responsibility. Many statutory representatives believe that if they entrust the administration of the subsidy to an external consultant or company employee, they are relieved of their responsibility. This is not true – the statutory representative remains responsible for supervising the proper fulfillment of subsidy obligations.

They must ensure that the persons entrusted with the task have sufficient competence, are properly instructed, and that their work is continuously monitored. Insufficient supervision of delegated activities is a separate breach of due diligence.

The sixth risk is inaction in a crisis situation. If problems arise during the implementation of the project – for example, the supplier is not performing the contract properly, deadlines are not being met, or doubts arise about the eligibility of certain expenses – the statutory representative must take active measures. Ignoring these warning signs or postponing the resolution of problems can lead to the situation getting out of control and damage occurring for which the statutory representative is liable.

Finally, a significant risk is failure to comply with the duty of care when deciding to accept a grant. Before submitting a grant application, the statutory representative should carefully assess whether the company is able to meet all the conditions of the grant.

This includes assessing the administrative complexity, own financial resources for co-financing, technical and personnel capacities for project implementation, and the ability to maintain the project results for a specified period. If the statutory representative approves the acceptance of a subsidy without properly assessing these factors and problems subsequently arise leading to the return of the subsidy, they may bear personal liability.

At ARROWS Law Firm, we have experience in assessing the risks involved in accepting subsidies. We can help you assess whether your company has sufficient capacity to manage a subsidy project and propose measures to protect statutory representatives from personal liability. Contact us at office@arws.cz.

Risks and sanctions	How ARROWS helps (office@arws.cz)
Personal liability of statutory representatives for damage caused to the company by a breach of due diligence.	Legal analysis of the actions of statutory representatives and preparation of a defense in proceedings for damages.
Guarantee of the statutory representative with all personal assets for the company's debts arising from subsidy sanctions.	Comprehensive legal strategy to minimize personal liability, including possible D&O insurance.
Joint and several liability of all members of the statutory body.	Preparation of documentation proving proper performance of duties and due care.

FAQ – Legal tips on the personal liability of statutory bodies

1. Can a statutory body be relieved of liability for subsidy misconduct by resigning from office?

No. A statutory body is liable for damage caused during the performance of its duties and even after it has resigned from office. The Civil Code expressly stipulates that liability continues even after the end of the term of office. The limitation period for claiming damages is three years from the moment the company becomes aware of the damage and the person responsible for it, but no later than ten years from the breach of duty.

2. I am a formal executive, but another person is actually in charge of management. Can I still be liable for subsidy misconduct?

Yes. Formal executives are liable in the same way as executives who actually manage the company. If you have accepted the position of executive, you are obliged to supervise the company's activities and ensure that it is managed with due care. If you fail to do so, you are liable for any damage caused, even if you did not actually manage the company.

3. How can I protect myself from personal liability when drawing subsidies?

Prevention is key. Obtain expert subsidy advice when preparing your application, set up clear internal processes for subsidy administration, continuously monitor compliance with the conditions, and document all your decisions. Consider taking out directors and officers liability insurance (D&O insurance), which can cover financial losses and legal defense costs.

Criminal liability for subsidy fraud

In addition to civil liability for damages, a statutory body may also face criminal liability in connection with subsidies. The crime of subsidy fraud under Section 212 of the Criminal Code constitutes a serious offense punishable by imprisonment.

A criminal offense is committed by anyone who provides false or grossly distorted information in a subsidy application or conceals essential information. This is a so-called prematurely completed criminal offense – the mere submission of a false application is sufficient for it to be committed; it is not necessary for the subsidy to actually be granted.

This means that the perpetrator can be prosecuted as soon as they submit an application containing false information, even if the provider ultimately does not approve the subsidy. False information is understood to mean information that does not correspond to reality and that is essential for the decision to grant a subsidy.

Typical examples include false statements about the number of employees, the company's turnover, ownership structure, the purpose of the funds, or the technical parameters of planned investments. Grossly exaggerated information is information that is based on facts but is presented in such a way that it creates a fundamentally different picture than reality.

Concealment of essential information refers to a situation where the applicant conceals information that is relevant to the assessment of the application. This may include, for example, concealing the fact that the company is in financial difficulties, that it has outstanding liabilities to the state, that the project has already been partially financed from another source, or that the applicant is connected to the supplier who is to work on the project.

The second part of the offense covers the use of a subsidy for a purpose other than that for which it was intended, in an amount that is not insignificant, which the law defines as CZK 50,000 or more. This means that if the recipient of the subsidy uses the funds obtained, for example, to purchase technology to cover completely different expenses that were not part of the approved project, and this amount exceeds CZK 50,000, they are guilty of a criminal offense.

The Criminal Code provides for graduated penalties according to the seriousness of the offense. The basic offense is punishable by imprisonment for up to two years or a ban on activities. If the perpetrator commits the offense repeatedly within the last three years, they face imprisonment for six months to three years. If the offense causes damage exceeding CZK 100,000, the penalty is increased to one to five years' imprisonment.

The penalties are even more severe if the perpetrator acts as a member of an organized group, causes significant damage exceeding CZK 1 million, or is a person with a special obligation to defend the interests of the injured party – in such cases, the penalty is imprisonment for two to eight years. The maximum penalty of five to ten years' imprisonment applies to cases where the perpetrator causes large-scale damage exceeding CZK 10 million.

It is important to note that the criminal liability of a statutory body is independent of civil liability for damage. This means that even if a statutory body compensates the company for all damage caused by a subsidy error, this does not automatically exempt it from criminal prosecution.

Criminal liability does not only apply to natural persons – statutory bodies, but since 2012 also to legal entities under the Act on Criminal Liability of Legal Entities. A company may be sentenced to a fine or a ban on activities, which may mean, for example, a ban on receiving subsidies for up to ten years.

If you are confronted with suspicion of subsidy fraud or criminal proceedings are underway, it is essential to contact a specialized lawyer immediately. The ARROWS criminal law team has experience in defending such cases and will help you protect your rights. Contact us at office@arws.cz.

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How to effectively protect yourself from the risks of drawing subsidies?

Prevention is always more effective and cheaper than solving problems later. There are a number of steps that a statutory body can take to minimize the risks associated with drawing subsidies.

The first and most important step is to thoroughly assess the project before submitting the application. The statutory body should carefully assess whether the company has sufficient capacity—financial, human, and administrative—to successfully implement the subsidy project.

This includes a realistic assessment of its own resources for co-financing, the availability of qualified employees or suppliers, the ability to meet deadlines, and, in particular, the ability to maintain the results of the project for the required period. If there are any doubts, it is better to refrain from applying than to risk problems later on.

The second key measure is to ensure high-quality grant consulting. Grant administration is a highly specialized field with a multitude of rules that are also subject to frequent change.

Working with a reputable grant consultant significantly reduces the risk of errors. The advisor will help prepare a high-quality application, set up internal processes for subsidy administration, and provide ongoing reminders of the obligations that must be fulfilled. It is important to choose an advisor with proven experience and adequate liability insurance.

The third preventive measure is to establish clear internal guidelines and processes. The company should have rules for the administration of grant projects that clearly define the responsibilities of individual employees, procedures for approving expenses, keeping records, selecting suppliers, and communicating with the grant provider. These guidelines should be approved by the statutory body and regularly monitored for compliance.

The fourth important step is to continuously monitor the implementation of the project. The statutory body should not rely solely on information from employees or external advisors, but should actively verify that the project is proceeding according to plan and that all grant conditions are being met.

It is recommended that the status of the project be reviewed at least quarterly, with a written record of the findings and measures taken. In the event of a dispute, this documentation can serve as evidence that the statutory representative acted with due diligence.

The fifth measure is to ensure proper documentation. All documents related to the grant project should be stored systematically in one place, ideally in electronic form with backups.

These include accounting documents, contracts, tender procedures, photographic documentation, confirmation of implementation, and correspondence with the provider and suppliers. Missing documentation is a common reason for expenses not being recognized during an audit, yet ensuring it is not difficult and can save millions of crowns.

The sixth preventive step is to take out liability insurance for members of statutory bodies, known as D&O insurance (Directors and Officers liability insurance). This insurance covers financial damage caused by a member of a statutory body in connection with the performance of their duties and also includes the costs of legal defense.

Insurance coverage limits typically range from several million to hundreds of millions of crowns. The insurance is not arranged and paid for by the statutory body personally, but by the company—yet it applies to the personal liability of the members of the bodies. When choosing insurance, it is important to carefully study the insurance terms and conditions, especially the exclusions from insurance coverage.

The seventh recommendation is ongoing legal advice. A law firm specializing in subsidy law can provide ongoing consultations during the implementation of the project, help with the interpretation of unclear conditions, assess the risks of planned steps, and prepare the company for a possible audit. The cost of legal advice is a fraction of the potential penalties and personal liability that may arise in the event of misconduct.

The eighth measure is preparation for an audit. The company should be prepared at any time for an audit by the grant provider, audit authority, or other supervisory authorities.

This includes the accessibility of all documentation, the availability of responsible persons to provide information, and the existence of a clear presentation of the project and its benefits. If the inspection authority finds that the company is well prepared and has everything in order, the risk of detailed inspections and possible sanctions is reduced.

ARROWS has extensive experience in providing long-term services to clients in the field of subsidies. Our portfolio includes more than 150 joint-stock companies, 250 limited liability companies, and 50 municipalities and regions. We pride ourselves on speed and high quality. We will help you prepare contracts, guidelines, and an overall strategy for the safe use of subsidies. Contact us at office@arws.cz.

What to do if the audit finds irregularities?

Despite our best efforts, there may be situations where the audit finds errors. At such times, it is crucial to remain calm and proceed systematically with professional assistance.

The first step is to thoroughly review the audit report or audit findings. The statutory representative, together with a lawyer, should carefully analyze what specific shortcomings were found, how the audit authority qualifies them, and what sanctions it proposes. It is important to distinguish between formal shortcomings that did not affect the purpose of the project and substantive errors that actually violated the conditions of the subsidy.

The second step is to exercise the right to comment on the audit findings. Both the Administrative Procedure Code and the Audit Rules give the audited person the right to familiarize themselves with the audit results and comment on them before the final decision is issued.

This right should be used to the fullest extent possible – prepare a detailed statement with arguments as to why the deficiencies found are not grounds for sanctions or why the sanctions should be lower. At this stage, the assistance of a lawyer specializing in subsidy law is invaluable.

The third step is to assess the possibility of corrective measures. In some cases, it is possible to remedy the identified shortcomings before the decision on sanctions is issued. For example, if missing records of expenses or incomplete documentation have been identified, it may be possible to supplement these documents.

If the violation concerned the publicity of the project, the shortcomings can be remedied by additional publication of information. An active approach and willingness to remedy the identified shortcomings may lead to a reduction or waiver of the sanction.

The fourth step is to use legal remedies in the event of an unfavorable decision. It is possible to appeal against a decision to withdraw a subsidy or impose a penalty for a breach of budgetary discipline. The appeal should be justified in detail with references to legislation and case law. It is important to use the argument that the penalty is disproportionate to the seriousness of the misconduct, which is a topic that courts also refer to.

The fifth step, after exhausting administrative remedies, is to file a lawsuit with the administrative court. Judicial review of administrative decisions in subsidy matters is common and, in many cases, successful. Courts often find that subsidy providers have been too formalistic or that the sanctions were disproportionate. Administrative justice thus provides an important safeguard against unfair decisions.

The sixth step is to assess the possibility of applying for a waiver of the levy or penalty. In some cases, it is possible to apply for a partial or complete waiver of the penalty. The decision to grant a waiver is at the discretion of the competent authority, but if there are relevant reasons—such as the social significance of the project, objective obstacles preventing compliance with the conditions, or efforts to remedy the situation—the application may be successful.

The seventh aspect is to assess the impact on the personal liability of the statutory body. If a mistake has been made and the company incurs damage in the form of penalties, the statutory body should assess as soon as possible whether it has acted with due care and whether it is at risk of personal liability.

If there is a risk that the company or its creditors will claim damages from the statutory body, it is advisable to proactively address the situation – for example, by agreeing with the company on the method of payment or by temporarily providing the company with funds to pay the penalty.

At ARROWS Law Firm, we regularly help clients resolve situations after deficiencies are found during subsidy audits. Our experience in providing long-term services to clients allows us to quickly assess the situation and propose the optimal course of action. For clients, our experience is a guarantee that their case is in safe hands. Write to us at office@arws.cz.

FAQ – Legal tips for resolving discrepancies after an audit

1. If I voluntarily return the subsidy after a mistake is found, will I avoid having to pay a penalty?

Not automatically. Voluntarily returning the subsidy is a positive step, but according to case law, it is not a reason for automatically not imposing a penalty. The tax office has the option to reduce or waive the penalty upon request, but this is at its discretion. In any case, it pays to act quickly—the longer the delay, the higher the penalty.

2. Can I defend myself against a decision to reduce the subsidy by pointing out that other recipients are not addressing the same misconduct?

The argument of unequal treatment may be relevant, but it is usually not sufficient on its own. You must prove that the grant provider systematically tolerates the same misconduct by other recipients and that your misconduct is not more serious. It is more important to argue that the penalty is disproportionate and that the misconduct is of a formal nature.

3. What if I discover the misconduct myself before the audit?

In such a case, a proactive approach is best. Contact the grant provider and inform them of the error you have discovered, including a proposed solution. In many cases, it is possible to resolve the matter by agreement without formal proceedings to withdraw the grant or impose a penalty for breach of budgetary discipline. A proactive approach and willingness to resolve the situation are viewed positively by the provider and may lead to a more lenient assessment of the matter.

Why entrust the resolution of subsidy issues to the ARROWS law firm?

The area of subsidies is one of the most complex areas of law, where elements of administrative, financial, criminal, and civil law intersect. ARROWS specializes in comprehensive legal services in the area of subsidies and offers its clients services that protect them from risks and help them solve problems.

Our firm provides legal consultations already at the stage of preparing the subsidy application, when we help assess the risks of the project and set up internal processes for safe drawing. We will prepare guidelines and contracts for you that will protect you from fines and sanctions, and we will ensure that your documentation complies with all requirements.

During the implementation of the project, we provide ongoing legal advice to protect you from fines and audits. We will help you resolve complex situations, such as changes to the project, problems with suppliers, or questions from the grant provider. Our strength lies in our speed and responsiveness—we respond to inquiries within 24 hours and treat important matters with the highest priority.

If an inspection occurs, we will prepare you for the inspection, provide legal representation during the inspection, and prepare a statement on the findings. We have extensive experience in representing clients in proceedings concerning the withdrawal of subsidies and breaches of budgetary discipline before administrative authorities and courts. We know how to effectively argue for a reduction in penalties, apply the principles of proportionality, and challenge unclear subsidy conditions.

If necessary, we also provide professional training in the area of subsidies, including certification, to help your employees better understand the rules and minimize the risk of errors.

Our international reach is another advantage – thanks to the ARROWS International network, which we have been building for ten years, we deal with cases with an international element on an almost daily basis. If your company draws subsidies from European programs or implements a project abroad, we will provide you with legal support there as well.

Our portfolio includes more than 150 joint-stock companies, 250 limited liability companies, and 50 municipalities and regions. This broad client base allows us to connect clients with each other in the event of interesting investment or business opportunities. If you are looking for financing for your project or a partner for cooperation, we will be happy to listen to your business idea and try to help you find a solution.

We are insured for damages up to CZK 500,000,000, which provides our clients with important security. We are also regular partners of corporate lawyers in resolving special matters in the area of subsidies and state aid.We handle all matters related to subsidies on a daily basis, which allows us to significantly reduce the time spent by our clients and minimize the risk of errors.

It is therefore safer for clients to have the matter handled professionally. If you do not want to risk errors, damages, or fines, you can safely leave the whole matter to ARROWS – just contact our office at office@arws.cz.

FAQ – Frequently asked legal questions about the Ministry of Finance and subsidy audits

1. How long can I be audited after the end of a subsidy project?

In general, project documentation must be kept for ten years after the last part of the subsidy has been paid out. Audits may be carried out at any time during this period. For projects financed from European funds, the deadline may be linked to the end of the entire programming period. In practice, this means that the subsidy recipient must expect the possibility of an audit even several years after the formal end of the project.

2. Can I leave the administration of the grant to an external consultant and thus relinquish responsibility?

No. The statutory body of the company remains responsible for the proper use of the grant even if it entrusts the administration to an external consultant. You are obliged to supervise the work of the consultant, check that they are performing their tasks properly, and keep yourself informed about the status of the project. Insufficient supervision of an external consultant is a separate breach of due diligence. If you need help selecting a consultant or setting up control mechanisms, please contact us at office@arws.cz.

3. What should I do if the grant provider demands repayment of funds without a proper decision?

The grant provider is required to follow administrative procedures. If they intend to withdraw the grant or demand its return, they must issue a proper administrative decision with justification. A simple request for repayment by email or letter is not legally binding. You should request an administrative decision and only then comment on the matter.

4. Can the Ministry of Finance directly demand the return of a subsidy if the provider was a different entity?

The Ministry of Finance, as the audit authority, carries out project audits, but the actual proceedings for the withdrawal of subsidies are conducted by the subsidy provider (e.g., the Ministry of Industry and Trade, the regional council, or the State Environmental Fund). The Ministry of Finance may recommend that the provider initiate proceedings to withdraw the subsidy, but it is not authorized to directly demand repayment. However, in the case of a levy for breach of budgetary discipline, the proceedings are conducted by the tax office, which is an organizational unit of the Ministry of Finance.

5. I am aware of a mistake in the use of the subsidy, but the company is in financial trouble. What should I do?

The situation is complicated and requires a quick legal solution. If the company is facing insolvency, the statutory representative is obliged to file for insolvency within 30 days of the bankruptcy. At the same time, they should contact the subsidy provider and try to agree on installments or another solution. It is important to act proactively and seek legal assistance immediately. Contact us at office@arws.cz for an urgent consultation.

6. Can I insure myself against the risk of having to return the subsidy?

The return of a subsidy due to a breach of conditions is not normally insurable. However, it is possible to take out directors and officers liability insurance (D&O insurance), which covers the personal liability of statutory bodies for damage caused to the company. It is also possible to insure the liability of external advisors for errors in the administration of the subsidy. When choosing insurance, it is important to carefully review the insurance terms and conditions and ensure that the coverage meets your needs.