The appointed audit of the activities of LB Bulgaricum EAD found numerous violations. As a result of the inspection, a number of concerning circumstances were identified and all findings are being submitted to the Prosecutor’s Office for follow-up. In parallel with the audit by the Ministry of Economy and Industry, the State Agency for National Security has also started an inspection of the company.
The audit established that immediately after taking office, the previous Executive Director Nikolay Marinov concluded two new contracts for the supply of raw milk with the companies I.S.A.K.-BG Ltd. and White Gold Trade Ltd. They started to receive over 70% of all orders of the state-owned company.
The prices set in their contracts are respectively ‘not lower’ than BGN 1.50 excluding VAT and BGN 1.53 excluding VAT per litre. According to the Ministry of Agriculture, in the period October 2022—February 2023, the average purchase price per litre of raw milk in the region of Vratsa and Montana was between BGN 1.02 excluding VAT and BGN 1.10 excluding VAT. This raises doubts that the market price is highly inflated and that there are a number of unfair clauses in the clauses of the two contracts that do not protect the interest of the state-owned company. For example — payments are fully upfront, there are no penalties for late or poor performance, etc. The audit also shows that the company White Gold Trade Ltd. was founded one week before the contract with the state dairy company was signed.
From the available documents it is clear that on 24 January 2023 I.S.A.K.-BG Ltd. carries out delivery of 4,000 l of raw sheep milk at a unit price of BGN 2.60 without VAT for a value of BGN 10,400. However, according to the proforma invoice dated 05 January 2023, payment of BGN 39 thousand excluding VAT has been made for 15,000 litres of sheep milk. In addition to the significant discrepancy between the amounts and the documents, it was also found that the contract did not provide for the supply of sheep milk at all and, in that sense, payments were made without contractual conditions to that effect.
In both contracts there is no condition that the seller declares that he is entered in the public register of first purchasers of raw cow, sheep, goat and buffalo milk. Such a term is written into other contracts of the company and is normal practice. There is also no requirement to present a contract for the delivery of raw milk between a first purchaser and a producer, including from other EU Member States, as required by law.
A check revealed that both companies were not registered in the Register on the date of signing their contracts with LB Bulgaricum. White Gold Trade Ltd. shall apply for entry in the Register on 13 December 2022 or the day on which it signs a supply agreement with LB Bulgaricum. I.S.A.K.-B.G. Ltd. has applied for entry in the Register on 15 December 2022 or 3 days after the conclusion of the contract with the state dairy company. At the moment, there is still no official information whether the entry in the Register for both companies has been completed.
The contracts with the two companies were signed only by the company’s CEO Nikolay Marinov and thus violated the Rules for Financial Management and Control of the company.
After announcing the convening of a meeting of the Board of Directors of the State Consolidation Company to discuss a change in the management of LB Bulgaricum, Nikolay Marinov urgently (on 17 February 2023) ordered 75 tonnes of milk from I.S.A.K.-BG Ltd. for a total amount of BGN 132,000. The entire amount was paid in advance on the same day. To date, not a single litre of those ordered has been delivered to the company.
Some of the findings are related to the procedure for the purchase of new vehicles for the company at a cost of BGN 850,000. A check of the documents provided shows that the date of the report on the purchase of the vehicles coincides with the day of the Board meeting at which it was approved.
There is no documentation of any market research and how the state-owned company came to select the companies from which it requested bids. It is noteworthy that the attached tender from one of the companies was submitted one day after the decision to select the contractor, which means that the documents examined were not complete and were completed at a later stage.
The company MiPi Auto Ltd. was selected for the delivery of the vehicles. The value of the contract is BGN 1,017,969.56 including VAT, which was paid 100% in advance. A check of the company in the Commercial Register shows that the value of the assets and the net sales revenue are several times less / respectively BGN 348,000 and BGN 220,000, compared to the amount paid in advance under the contract. On the other hand, the contract does not contain a guarantee clause for the advanced amount. These circumstances strongly indicate that no measures have been taken to protect the company’s interest. An additional suspicious circumstance is that three days after the conclusion of the contract, the manager of the company was replaced by a person who is also the manager of another company — a participant in the selection procedure. This raises doubts as to whether there is any affiliation between the companies that submitted bids to the state-owned company.
It has already been made public that there are serious suspicions of overpricing of motor vehicles compared to those offered by the official representatives of the automotive suppliers.
The results of the audit also showed that the previous CEO had changed his contract, providing for the payment of three times the compensation compared to the contracts of previous CEOs — or more than BGN 70,000. These conditions in the employment contract of the Executive Director Nikolay Marinov were written by the Chairman of the Board of Directors Nevena Petrova alone and were not notified to either the Board of Directors of LB Bulgaricum or the State Consolidation Company. Moreover, the State Consolidation Company has sent written instructions that such practices in its subsidiaries be stopped.
There are also facts related to the distribution of unjustified large sums to specific employees of the company in the form of bonuses and remuneration. At the end of last year, the Board of Directors of the company decided to pay Christmas bonuses in the amount of two minimum wages for the country in accordance with the Collective Labour Agreement in force in the company. By order of the CEO, three employees receive a bonus of BGN 10,000 each. All three do not have 6 months of service with the company, which is a mandatory condition for receiving additional material incentive.
One of these officers organised and conducted the procedure for the purchase of the motor vehicles. Whether there is a link between the additional material incentive and the way in which the contract for over BGN 1 million was organised and conducted remains to be seen.
It should be noted that from the very beginning of the audit, the auditors have identified a lack of much of the information in the company. Later it became clear that the moment the former CEO Nikolay Marinov found out that he had been dismissed from his position, an employee of the company deleted the available information from his computer and deleted the archive of all his electronic correspondence. The same employee is one of the three who, in December, received ten times higher bonuses than other employees in the company.
There are other costs that raise doubts about their appropriateness. For example, BGN 9,000 were paid for a photo shoot of the CEO Nikolay Marinov and the Chairman of the Board of Directors Nevena Petrova.
There are suspicions that the previous executive director Nikolay Marinov has committed antidating of an internal document to mislead the public that his dismissal from the post is related to reduced prices of dairy products in the retail network. At the moment, the new CEO has maintained the prices of the products in the retail network with the announced reduction and steps have been taken to restore the contracts with Bulgarian producers, which will allow LB Bulgaricum not to operate at a loss and even make an additional discount in the price for the end customer.