THOUGH widely touted by the European Union as a means of reintegrating the long-term unemployed, the term “social companies” has negative connotations after a series of scandals related to such projects during Prime Minister Robert Fico’s first government (2006-10). That is not stopping the Labour Ministry from pushing social entrepreneurship as “a key tool to fight unemployment”.

“I do not believe that without this tool we will be able to integrate the long-term unemployed into society and help them enter the open labour market,” State Secretary Branislav Ondruš told the December 13 conference organised by the Employment Institute (IZ), at which it introduced its proposal to fight long-term joblessness.

According to Ondruš, there are dozens of social companies now operating in Slovakia. As this project is successful in other European countries and has the support of the EU, the Labour Ministry will also focus on social companies during the upcoming EU programming period, he told The Slovak Spectator.

The ministry is also working on the so-called socially responsible public procurements, in which the bid process procurer will take into consideration not only the final price, but also the number of people from disadvantaged groups, especially the long-term unemployed, who will find a job, Ondruš said.

Moreover, the ministry is discussing the establishment of so-called inclusive companies with the IZ, which would help the long-term unemployed to work as part of the public procurements. Though the project of inclusive companies is inspired by social enterprises, there are some differences, Michal Páleník, director of the IZ, said.

The IZ proposal for inclusive companies would have those firms hire 75 percent of employees from the long-term unemployed. The rest will be permanent employees who will train their colleagues. The companies will be small, employing only dozens of people. Each such firm will have to obtain the certificate from the labour office that it fulfils conditions for being the inclusive company.

Under the plan, workers would have a standard working agreement for one or two years, with standard rights and duties, at the minimum wage, €352 per month, or higher. The enterprises will have to redistribute the profit only within the firm or invest it into the work with the community, according to the IZ proposal.

In contrast, social enterprises are defined as non-profit organisations which receive 95 percent of their funding from the state and provide job opportunities for socially-disadvantaged citizens. Any profit they generate must be channelled back to the state budget.

The financing scheme of inclusive firms is the biggest difference compared with the social enterprises as they get the finances through inclusive public procurements, Páleník told The Slovak Spectator.

Under the IZ proposal, the state would arrange about 100,000-150,000 small procurements a year, boosting the chance that different firms will win at least some of the time and contribute to higher transparency. Additionally, all procurements will be made electronically, which should guarantee that companies will receive information about the competition and that the firm with cheapest bid will win, Páleník said.

Another difference is that while inclusive companies focus only on employing the long-term jobless, social enterprises also help with training and regaining social and work habits, Ondruš said.

The state secretary pointed to some problems over the potential integration of inclusive companies into the present system. One, he said, is that since the labour market “does not develop optimally, the potential transitions to the open market might not be easy”, he said.

“Moreover, we have to be sure that the inclusive companies will not substitute current suppliers of services for the public sector, which would lose the orders and [their] employees [would lose] work,” Ondruš said.

Past scandals bring pause

Back in 2010, reports about some of the eight pilot social companies financed through European funds and intended to provide opportunities for the socially disadvantaged prompted allegations of cronyism.

Financial irregularities within the social company projects initiated by Viera Tomanová, Smer’s labour minister in 2006-10, fell under the magnifying glass of European Commission auditors in late 2009.

A draft EC audit report on Slovakia’s employment and social inclusion programmes concluded that at one of the social companies, Arvik Social Enterprise, “the presence of indicators of serious fraud was identified by the audit team during the on-the-spot verification of this operation”. According to the March 2010 audit, possible collusion between this social company and other enterprises in terms of supplies, production facilities, production processes, sales and employees was detected.

By January 2010, the Labour Ministry had advanced social companies a total of €11.3 million. Tomanová dismissed the March 2010 report as “a non-public draft” and accused the opposition and media of conducting a witch hunt.

In September 2011, the Labour Ministry reported that, along with police, they were investigating three additional cases within the Social Implementation Agency (SIA), a budgetary organisation of the Labour Ministry that draws EU funds for social companies. Officials later said that criminal prosecutions had been initiated for improper use of EU funds.